FTC Finds PBMs Drive Up Drug Costs, Squeeze Out Competitors


A long-awaited report from the Federal Trade Commission (FTC) finds that vertical integration and consolidation have worked against consumers and independent pharmacies.

Pharmacy benefit managers (PBMs), the so-called drug “middlemen” that were created with the mission of reining in costs, appear to have had the opposite effect for the American consumer—driving up drug costs, pushing the independent pharmacist into oblivion, and creating incentives that crush low-cost options such as generics and biosimilars, according to a scathing report issued by the Federal Trade Commission (FTC).

A long-awaited 71-page interim report, based on a probe launched in 2022, outlines how the rise of vertical integration and concentration allowed the 6 largest PBMs to gain control of nearly 95% all prescriptions filled in the United States. The result has been devastating for patients and fragile pieces of the health care delivery system, the report found.

Lina M. Khan, JD | Image credit: FTC

Lina M. Khan, JD | Image credit: FTC

“The FTC’s interim report lays out how dominant pharmacy benefit managers can hike the cost of drugs—including overcharging patients for cancer drugs,” said Chair Lina M. Khan, JD. The commission released the report following a 4-1 vote. This action reverses the agency’s longstanding policy to stay out of the mammoth business that generated 6.6 billion prescriptions in 2023.

Khan issued a statement with the report: “Given the stakes, there is enormous urgency in understanding PBMs’ practices,” Khan said. She said the interim staff report, Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies, “discusses how increased concentration and vertical integration have given PBMs significant power over prescription drug access and prices and explains that these trends may be enabling PBMs to disadvantage rivals and inflate drug costs.”

The report, Khan said, shows how PBM practices cause harm when pricing strategies are combined with policies that steer patients to preferred pharmacies. The FTC found that PBMs can set prices above competitors but feel no consequence by forcing patients to use the pharmacy that offers the PBM—not the patient—the best deal. In the case of Medicare patients, the result is higher out-of-pocket costs because cost-sharing is based on a percentage of the drug’s price.

“This overcharging represents billions of dollars in drug spending and reveals the incentives PBMs can have to preference their own affiliated pharmacies regardless of what is best for patients,” Khan said in the statement. It highlighted 2 specific cases involving common cancer drugs, imatinib and abiraterone acetate.

As outlined in the report, PBMs have become integrated with health plans and other entities into conglomerates that specialize in self-dealing, using a patient’s membership in a health plan to steer that person to preferred specialty pharmacy or requiring them to bypass a lower-cost drug for one that will net a higher rebate from a manufacturer. This has come at the expense of the independent pharmacy, a crucial part of the nation’s health delivery infrastructure, leaving thousands of patients with no human face to serve their community.

"The FTC’s interim report lays out how dominant pharmacy benefit managers can hike the cost of drugs—including overcharging patients for cancer drugs," said Chair Lina M. Khan, JD.

“The report also details how PBMs can squeeze independent pharmacies that many Americans—especially those in rural communities—depend on for essential care," Khan said. "The FTC will continue to use all our tools and authorities to scrutinize dominant players across healthcare markets and ensure that Americans can access affordable healthcare.”

The FTC began its work with special orders to Caremark Rx, Express Scripts, Optum Rx, Humana Pharmacy Solutions, Prime Therapeutics, and MedImpact; In 2023, it issued additional orders to Zinc Health Services, Ascent Health Services and Emisar Pharma Services, which are rebating entities, or “group purchasing organizations” that the FTC determined negotiates drug rebates on behalf of PBMs.

Among the reports findings:

  • PBM services have become so concentrated that the top 3, which are Caremark, Express Scripts, and Optum Rx, account for about 80% of the market for 270 million people, with the top 6 PBMs accounting for 95%.
  • The largest PBMs are also integrated with the largest insurers and retail pharmacies to the point that it is difficult in most markets to avoid dealing with these entities.
  • Pharmacies affiliated with the 3 largest PBMs now account for nearly 70% of all specialty drug revenue.
  • Nearly 30% of Americans surveyed skip doses or ration drugs due to high out-of-pocket costs.
  • PBMs frequently impose harmful contract terms on independent pharmacies that impede their ability to stay in business; often, these pharmacies are the only source in a community for health items such as flu shots or Epi-pens. At the same time, PBMs may steer patients in affiliated health plans away from independent pharmacies, putting them at a competitive disadvantage.
  • Between 2013 and 2022, about 10% of independent retail pharmacies in rural America closed.

PBMs employ contracting practices to keep lower-cost competitors from dispensing certain drugs. Pharmacies tied to the “big 3” PBMs have retained nearly $1.6 billion in excess revenue on just 2 cancer drugs in under 3 years.

In addition, the FTC found that consolidation and vertical integration has allowed these large entities to operate “without transparency or accountability to the public.”

Some required submissions have still have gone unfulfilled, the report notes, and the FTC states those who fail to comply will be taken to court.

Groups such as the Community Oncology Alliance (COA) have complained about PBM practices for years, saying that community oncology practices are being squeezed out from dispensing prescriptions because integrated specialty pharmacies seek to retain these profits for themselves. And increasingly, pharmaceutical manufacturers are speaking out, as they have grown weary of being blamed for high drug costs.

FTC cites COA several times in its report. It also redacts several citations that an FTC spokeswoman said involved documents that are not public.

Congress has held multiple hearings about PBM practices and at times has seemed close to taking action, but the most recent efforts this spring stalled. The chief reforms sought by reform advocates are to require that PBM profits not be tied to drug prices and to require that any rebates be passed directly to consumers.

Ted Okon, MBA | Image credit: COA

Ted Okon, MBA | Image credit: COA

Ted Okon, MBA, executive director of COA, noted in an interview with The American Journal of Managed Care that both the interim report and Khan’s statement highlighted the effects of PBM abuses on cancer patients, reflecting the hours the group spent educating the agency. He said the report comes as the House Oversight Committee prepares for a July 23 hearing where the CEOs of the 3 largest PBMs are scheduled to appear.

COA maintains an online diary of “PBM Horror Stories” from its members, and COA leaders have shared with members of Congress not only their frustration at PBM actions but also with CMS’ refusal to intervene.

The FTC report, Okon said, “adds to the crescendo of information that we are seeing to rein in the PBMs at the federal level. We are certainly seeing it at the state level.”

Okon expects actions to curtail PBM abuses will be included in multi-part health care package during the lame duck session after the November election. “Congress must act,” he said. “There will be tremendous pressure in the House and especially in the Senate to include legislation in that package that goes after the PBMs.”

"Middlemen are right at the heart of Americans' frustration with the health care system: high prices and red tape preventing them from getting the care they need," said Senate Finance Committee Chairman Ron Wyden, D-Oregon. "The FTC's comprehensive findings show how PBMs use their market power to drive up costs for families and restrict access for preferred pharmacies at the expense of independent pharmacies."

Wyden continued, "The Finance Committee overwhelmingly passed legislation to hold PBMs accountable, and I am going to the mat to deliver that bill to the president's desk this year."

“The FTC remains committed to providing timely updates as the Commission receives and reviews additional information,” the FTC said in a statement. Besides Khan, Commissioners Rebecca Kelly Slaughter, Alvaro Bedoya, and Andrew N. Ferguson supported the report’s release; Commissioner Melissa Holyoak voted against.

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