The Federal Trade Commission (FTC) has released a second critical report on pharmacy benefit managers (PBMs), highlighting their role in inflating drug prices and steering reimbursements toward affiliated pharmacies. This comes as Lina Khan, the outgoing FTC chair, concludes her tenure. The report reveals that PBMs have marked up specialty generic medicines far beyond acquisition costs, contributing to higher pharmaceutical expenses and increased out-of-pocket costs for patients. Despite bipartisan support for reform, the exclusion of PBM-related reforms from the year-end continuing resolution signals political challenges. Additionally, the complex structure of PBMs within healthcare conglomerates raises concerns about transparency and control over drug availability and pricing.

Unveiling the Role of PBMs in Pharmaceutical Distribution

PBMs play a pivotal role in the U.S. pharmaceutical distribution system, managing prescription drug benefits for approximately 275 million Americans. These intermediaries negotiate terms for drug access and reimbursement, often operating within large healthcare corporations that also include insurers and pharmacies. The three largest PBMs—OptumRx, Express Scripts, and CVS Caremark—control 80% of the market, giving them significant influence over drug availability, pricing, and patient access.

PBMs' involvement extends beyond negotiation; they manage formularies, determine preferred drugs, and steer patients toward specific medications. Their vertical integration into healthcare conglomerates has raised concerns about conflicts of interest and transparency. The FTC's analysis of 51 specialty generic drugs dispensed through commercial health plans and Medicare Part D reveals that PBMs inflated prices, generating over $7.3 billion in revenue from 2017 to 2022. Furthermore, spread pricing practices added another $1.4 billion in revenue. Drugs with substantial markups included imatinib for leukemia and lamivudine for HIV, among others.

Policy Implications and Reform Challenges

The FTC's findings underscore the need for policy changes to address rising drug costs and improve transparency. However, the failure to include PBM reforms in the year-end continuing resolution highlights the complexity of achieving consensus among lawmakers. Rebates, which function as payments from manufacturers to PBMs, are central to discussions on cost-sharing and patient expenses. While rebates can lower net costs for health plans and employers, they do not directly benefit patients at the pharmacy counter.

Despite criticisms from PBM leaders who argue their role is essential for lowering net prescription drug costs, the debate remains contentious. The Pharmaceutical Care Management Association (PCMA) defends the use of specialty pharmacies, claiming they are less expensive. Yet, the ongoing scrutiny from various entities, including the executive branch and Congress, indicates growing pressure for reform. Bipartisan legislation introduced in December aims to separate PBMs from health insurers and pharmacy businesses, but its passage remains uncertain. The exclusion of key reforms from the continuing resolution suggests an ongoing reluctance among some lawmakers to prioritize these changes, leaving the future of PBM regulation uncertain.