Last week, a significant bipartisan bill was introduced aiming to prevent companies with pharmacy benefit managers and health insurers from also owning pharmacy businesses. The sponsors, Senators Warren (D-MA) and Hawley (R-MO), are seeking to force vertically integrated conglomerates to divest their pharmacy operations within three years. However, past experiences suggest that this won't be an easy undertaking.

Antitrust Challenges and Past Examples

Since the Sherman Anti-Trust Act was enacted over 130 years ago, the federal government has only sporadically taken action against perceived monopolies. In recent times, the court process for such actions has been extremely time-consuming. Even if the government succeeds in its antitrust efforts, as seen with the evolution of Medco and Express Scripts, firms will likely seek alternative ways to control the prescription drug supply chain.According to the New York Times, Senator Warren and her like-minded critics complain that healthcare conglomerates like CVS Health use their size and leverage to direct patients to their own pharmacies, driving up prescription drug costs for various stakeholders and pushing independent pharmacies out of business. The legislation they are co-sponsoring would compel these conglomerates to give up their pharmacy businesses.Large PBMs that now own and control specialty pharmacies have drawn the ire of many legislators. In addition to the Warren/Hawley bill, other lawmakers have introduced high-profile bills targeting PBM business practices related to lack of transparency, insufficient rebate savings pass-through to patients, and spread pricing that disadvantages independent pharmacies.PBMs act as intermediaries, negotiating prescription drug prices and reimbursing pharmacies. The three biggest PBMs - CVS Health's Caremark, Cigna's Express Scripts, and UnitedHealth's Optum Rx - control 80% of prescriptions in the US.The opaque rebating process is a major concern. Drug makers offer PBMs rebates to reduce net prices in exchange for preferred placement on formulary, which can shift market share. While PBMs pass on a portion of these payments, patients generally don't see them at the point of sale. Spread pricing occurs when PBMs charge plan sponsors more than the acquisition cost and what they reimburse independent pharmacies, keeping the difference as profit.Senator Warren has a history of opposing consolidation. She has been on a crusade against mergers across multiple industries, including Big Tech. She has an ally in the current Chair of the Federal Trade Commission, Lina Khan, who has pursued lawsuits and investigations against big tech giants. Khan has also been critical of PBMs for keeping prescription drug prices high, including insulin products.President-Elect Trump selected Andrew Ferguson to be the next Chair of the Federal Trade Commission, replacing Khan. The replacement could potentially lead to a more favorable environment for business mergers and acquisitions like the ongoing healthcare consolidation.The US government has the authority to control businesses through the commerce clause. The FTC or Securities and Exchange Commission can file suits against companies engaged in alleged misconduct. After inquiries by these agencies proved companies' anticompetitive practices, courts have imposed penalties, including dissolution. For example, shortly after the passage of the Sherman Anti-Trust Act in 1890, two major US monopolies, Standard Oil and American Tobacco, were forced to break up.But there have been relatively few instances of the government forcing companies to split up since then. The most publicized recent example is the telecommunications company AT&T, which was deemed a monopoly in 1982 and forced to spin off its assets. This case took years to resolve.In a healthcare-related case in 1998, the FTC reached an agreement with Merck and its subsidiary Merck-Medco to resolve antitrust concerns arising from Merck's acquisition of Medco in 1993. The settlement required Medco to take steps to reduce the effects of any "unwarranted preference" for Merck's drugs. After several years of litigation, the corporations finally split in 2003, creating an independent PBM. In 2012, Medco acquired Accredo and became a wholly owned subsidiary. Soon after, Express Scripts acquired Medco, and in 2018, Cigna completed its merger with Express Scripts. In 2020, Cigna rebranded its health services portfolio under the name Evernorth, which included Express Scripts, Accredo, and eviCore. Other big health insurers have also pursued large-scale vertical integration in recent years.The evolution of Medco and Express Scripts shows how a way of controlling the drug supply chain by being closely tied to a pharmaceutical manufacturer can transform into a different form of problematic consolidation. Senators Warren and Hawley specifically want to sever these ties to pharmacies. History shows the difficulty of achieving this goal.