Reporters covering the cost of prescription drugs should be aware of two reports from the Federal Trade Commission on pharmacy benefit managers (PBMs): the first on July 9 and the second on Jan. 14.
In the latest report, “Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers,” the FTC staff reported that the three largest PBMs drove up the price of specialty generic drugs for patients with cancer, multiple sclerosis, HIV and pulmonary hypertension by more than 1,000% in some cases and by hundreds of percent in other cases.
Together, the nation’s three largest PBMs manage 79% of all prescription drug claims for some 270 million Americans, the FTC staff noted in the July report, Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies.
Known as the Big Three PBMs, they are Caremark Rx, LLC (a division of CVS), Express Scripts Inc. (a division of Aetna) and OptumRx Inc. (a unit of United Health Group), the latest report showed.
In an article on the report for The Wall Street Journal, Joseph Walker and Liz Essley Whyte explained that the pharmacy benefit managers raised the prices on dozens of drugs dispensed through their affiliated pharmacies. “The markups helped the PBMs reap $7.3 billion from 2017 to 2022, the FTC found,” Walker and Whyte added. The pharmacy benefit managers are supposed to help keep drug costs low for employers and health insurers, they wrote.
The report explained the tactics the PBMs use to boost profits, practices that raised costs for employers and patients, Walker and Whyte reported. In their coverage, they added that the three PBMs disputed the FTC’s findings.
The market for specialty drugs
In the past, specialty drugs required special handling or administration, but today there is no standard definition for a specialty drug, the report explained. Instead, specialty drugs are characterized by their high cost and other factors, the report added. In 2023, specialty drugs accounted for $237 billion, or 39.5% of the total $600 billion that the United States spent on prescription drugs that year, the report noted.
For journalists, one of the most important findings in the report is that Big Three PBMs significantly marked up numerous specialty generic drugs and then dispensed those drugs through their own affiliated pharmacies. “Of the specialty generic drugs analyzed in this report and dispensed by the Big Three PBMs’ affiliated pharmacies for commercial (meaning employers) health plan members between 2020 and 2022, 63% were reimbursed at rates marked up by more than 100% over their estimated acquisition cost while 22% were marked up by more than 1,000%,” the report showed.
In addition to marking up the drugs’ prices, the Big Three PBMs reimbursed their affiliated pharmacies at higher rates than they paid to unaffiliated pharmacies on nearly every specialty generic drug examined, the report added. “These dispensing patterns suggest that the Big Three PBMs may be steering highly profitable prescriptions to their own affiliated pharmacies (and away from unaffiliated pharmacies),” the report explained.
Spread pricing boosts income
Also, the Big Three PBMs used spread pricing to generate significant income from specialty generic drugs, the report explained. With spread pricing, the pharmacy benefit managers would bill their employer or health insurer clients more than they reimburse pharmacies for those same drugs.
The pharmacies affiliated with the three PBMs’ generated more than $7.3 billion in dispensing revenue in excess of the cost of acquiring those specialty generic drugs, the report showed. Of that amount, 81% ($5.9 billion) came from commercial claims, and 19% ($1.4 billion) came from Medicare Part D claims. the FTC report noted.
Of the $7.3 billion, almost half, $3.3 billion (or 44%) was for patients with cancer; $1.8 billion (25%) was for patients with multiple sclerosis; $824 million (11%) went for transplant drugs; $521 million (8%) for HIV drugs; and $432 million (7%) for pulmonary hypertension.
Resources
- FTC Releases Interim Staff Report on Prescription Drug Middlemen, press release, July 9, 2024
- FTC Releases Second Interim Staff Report on Prescription Drug Middlemen, press release, Jan. 14, 2025.
