In a report issued this week, the Federal Trade Commission revealed that middlemen in the prescription drug industry have been fueling billions of dollars in markups on life-saving drugs.
These middlemen are known as “pharmacy benefit managers” or PBMs. Last month, Audacy also reported on a study that singled out PBMs as a factor in the closure of nearly one in three U.S. retail pharmacies over the past decade.
According to the FTC’s recent report, which builds on an earlier report from this July, three PBMs generated more than $7.3 billion in revenue from 2017 through 2021 by marking up “numerous specialty generic drugs,” – some by thousands or hundreds of percent. Caremark Rx, LLC (CVS), Express Scripts, Inc. (ESI), and OptumRx, Inc. (OptumRx) are the “Big 3 PBMs” covered by the report.
While the PBMs had significant revenues, patient, employer, and health care plan sponsor payments for drugs steadily increased. The FTC included all specialty generic drugs dispensed from 2017 to 2022 for members of commercial health plans and Medicare Part D prescription drug plans managed by the PBMs for which it had relevant data.
It found that “the three major pharmacy benefit managers hiked costs for a wide range of lifesaving drugs, including medications to treat heart disease and cancer,” said FTC Chair Lina M. Khan.
Hannah Garden-Monheit, Director of the FTC’s Office of Policy Planning, said that the FTC “also found that this problem is growing at an alarming rate, which means there is an urgent need for policymakers to address it.”
The Big 3 PBMs’ affiliated pharmacies generated over $7.3 billion of dispensing revenue in excess of their estimated acquisition cost, as measured by the National Average Drug Acquisition Cost (NADAC), on specialty generic drugs over the study period.
From 2017 to 2021, PBM-affiliated pharmacy dispensing revenue increased at a compound annual growth rate of 42% in excess of the National Average Drug Acquisition Cost, per the study. Additionally, the FTC found that the three big PBMs generated $1.4 billion in income from something called spread pricing. This refers to PBMs billing plan sponsor clients more than they reimburse pharmacies for drugs.
Khan said that the FTC should keep investigating these practices. In particular, she said the commission should research how PBMs contribute to inflated drug costs, how they squeeze independent pharmacies and how they “deprive Americans of affordable, accessible healthcare.”