FTC says PBMs have ‘outsized influence’ on drug prices, but offers no solution
09 Jul 2024
The US Federal Trade Commission (FTC) released a scathing interim report on Tuesday calling out the “significant power” that pharmacy benefit managers (PBMs) have over the access and affordability of prescription drugs in the US. While the agency detailed how the six top companies handle nearly all of the country’s prescriptions — and thus have an “outsized influence” on the healthcare industry — the report did not dig into how PBMs’ alleged anticompetitive practices could be counteracted.
The report stems from an investigation launched in 2022 into the impact PBMs have on drug prices and accessibility. The FTC initially requested business practice records from CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics and MedImpact Healthcare Systems, and then widened the scope of its probe last year to include group purchasing organisations (GPOs) Zinc Health Services and Ascent Health Services, also known as rebate aggregators.
In its investigation update on Tuesday, the FTC noted that several PBMs have yet to provide the requested information. If they continue to delay or fail to fully comply, the agency said it can take the companies to district court to compel compliance.
The interim report, which focused moreso on PBMs’ relationship with pharmacies rather than with drugmakers, laid out “how dominant pharmacy benefit managers can hike the cost of drugs… [and] squeeze independent pharmacies that many Americans — especially those in rural communities — depend on for essential care,” FTC Chair Lina Khan said in a statement. She also affirmed the agency’s commitment to use all of its “tools and authorities to scrutinise dominant players across healthcare markets and ensure that Americans can access affordable healthcare.”
Vertical integration
Decades of consolidation and ‘vertical integration’ — the process by which PBMs, insurers, pharmacies, and providers have been rolled into massive healthcare conglomerates — have granted the largest PBMs “significant control over which drugs are available, at what price, and which pharmacies patients can use to access their prescribed medications.”
The FTC cited hundreds of comments from independent pharmacists, patients, clinicians, and state pharmacist associations that suggested creating conglomerates can introduce financial conflicts of interest and enable business practices that disadvantage rivals and pump up drug costs.
Specifically, combining a PBM, insurer and pharmacy into a singular entity incentivizes each group to promote their sister units over potential competitors, “potentially resulting in a lessening of competition at various levels of the pharmaceutical supply chain.”
Small pharmacies disadvantaged
Horizontal consolidation has also allowed just a few players to dominate the prescription drug space. According to the FTC, the top six PBMs processed more than 90% of the approximately 6.6 billion prescriptions dispensed last year.
Thus, smaller pharmacies often have little choice but to contract with PBMs to reach patients, giving the latter “substantial influence over independent pharmacies by imposing unfair, arbitrary, and harmful contractual terms that can impact independent pharmacies’ ability to stay in business.”
The report alleges that such actions to dampen competition can push smaller pharmacies out of the market, ultimately leading to lower quality healthcare services at a higher cost.
“In an opaque industry with non-disclosure and confidentiality agreements that are actively asserted on pharmacies, the combination of consolidation and vertical integration may be enabling PBM-conglomerates to squeeze unaffiliated competitors,” the FTC wrote.
Generics frozen out
The report also briefly touched on “several troubling rebating practices” that PBMs and brand-name drug manufacturers may engage in to “cut off access to generic and biosimilar competitors.”
The FTC said it has gathered evidence suggesting that contracts between drugmakers and PBMs may be designed to exclude lower-cost generics drugs from formularies in exchange for increased drug rebates.
In addition to eliminating a patient’s ability to access lower-cost medicines, so-called “exclusionary rebates” could “deter and chill less expensive generic competitor drugs from entering the market at all.”
Such rebating practices “urgently warrant further scrutiny and potential regulation,” the agency concluded.
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