A recent Federal Trade Commission (FTC) report has reignited controversy over the role of major pharmacy benefit managers (PBMs) in U.S. drug pricing, uncovering a staggering $5.9 billion discrepancy in specialty drug costs. Between 2017 and 2021, the PBM-owned pharmacies of Cigna, CVS Health, and UnitedHealth charged commercial health plans and Medicare $10 billion for 51 specialty drugs despite acquiring them for just $2.7 billion. These findings raise urgent questions about PBMs’ influence on prescription drug affordability and highlight the need for businesses to protect their healthcare costs through strategic employee benefits consulting.
Comprehending the FTC’s Latest PBM Investigation
The FTC’s latest report sheds new light on how the nation’s three largest PBMs have inflated drug prices at their affiliated pharmacies. Between 2017 and 2022, these PBMs imposed massive markups on lifesaving medications, sometimes by hundreds or thousands of percent, generating $7.3 billion in excess revenue. This investigation raises serious concerns about PBM pricing tactics and their impact on healthcare costs.
Investigation Overview
An FTC investigation into PBM practices uncovered a $5.9 billion pricing discrepancy, exposing how the three leading PBMs profited from steep drug markups. While these PBMs netted billions, healthcare plan sponsors, employers, and patients faced steadily rising prescription costs year after year.
Primary Market Players
Two of the most influential PBMs in the industry, Express Scripts (owned by Cigna) and CVS Health Caremark, play a dominant role in shaping prescription drug pricing. These PBMs negotiate drug costs and operate their affiliated pharmacies, where they significantly mark up prices. The FTC’s investigation highlights how their pricing packages have contributed to billions in excess revenue, raising concerns about transparency and fairness in drug pricing, especially for those in need of costly lifesaving drugs.
Financial Impact Analysis
Across the country, both employers and employees are feeling the squeeze of rising healthcare costs. PBMs have generated billions in excess revenue by inflating prices and limiting competition while increasing financial burdens on businesses and consumers. The FTC must continue to leverage its authority to investigate these practices to help Americans retain access to fair, transparent drug pricing and stop any unlawful conduct that threatens affordable healthcare access in the U.S.
Revenue Trends
PBM-owned pharmacy revenue surged from $2.1 billion in 2017 to $2.6 billion in 2021, reflecting the growing dominance of these entities in drug pricing. A major driver of this trend is the specialty drug market, which lacks a standard definition but is primarily distinguished by high costs. In 2023, specialty drugs accounted for approximately $237 billion (39.5%) of the U.S.’s $600 billion prescription drug spending, emphasizing their significant financial impact.
Drug Cost Breakdown
PBMs control drug pricing by negotiating costs with manufacturers, setting reimbursement rates for pharmacies, and determining patient out-of-pocket expenses. However, their pricing practices often lead to excessive markups, inflating healthcare costs. Important findings from the FTC report include:
- $10 billion charged to health plans for specialty drugs (2017-2021)
- Only $2.7 billion paid by PBMs to acquire these drugs.
- Unjust markups drive up costs for plan sponsors, employers, and patients.
Response and Regulatory Outlook
The FTC’s findings have sparked renewed scrutiny of PBM practices, prompting calls for increased transparency and regulation. Industry stakeholders, including healthcare providers and employer groups, are pushing for reforms to curb excessive markups and protect consumers from inflated drug prices. Meanwhile, government agencies and lawmakers are considering stricter oversight measures to hold PBMs accountable and help establish fair pricing in the prescription drug market.
Industry Reaction
PBMs have resisted the FTC’s findings, defending their pricing practices as essential for negotiating lower drug prices. However, Express Scripts took an aggressive stance, filing a defamation lawsuit against the FTC. The lawsuit claims that the report is “unfair, biased, erroneous, and defamatory” and seeks to have it withdrawn. Express Scripts also demands that FTC Chair Lina Khan recuse herself from further actions against the company in the future.
Government Oversight
Amid rising concerns over PBM practices, bipartisan support for increased transparency is gaining momentum. Sen. Chuck Grassley (R-Iowa) and Sen. Maria Cantwell (D-Wash.) are reintroducing two bills to combat high drug costs and enhance PBM transparency. These legislative efforts, alongside the ongoing FTC investigation, are intended to hold PBMs accountable and drive fairer pricing for consumers, employers, and healthcare providers nationwide.
Protect Your Healthcare Costs With New City Insurance Employee Benefits Consulting
The FTC’s investigation into PBM practices reveals troubling discrepancies in drug pricing that impact businesses and employees all over the U.S. With increasing calls for transparency and regulation, it’s clear that today’s businesses need to take proactive steps to protect their healthcare budget. Contact New City Insurance today to learn how our employee benefits consulting services can help you overcome these challenges and safeguard your company’s healthcare expenses.