What providers need to know about the FTC’s pharma inquiry

By Joe Hannan | Fact-checked by MDLinx staff
Published June 10, 2022

Key Takeaways

The Federal Trade Commission (FTC) has announced an investigation of six pharmacy benefit managers (PBMs), requiring them to shed light on how they conduct business—a move that's likely to bring cheers from physicians.[]

Top of mind for the FTC is how this “prescription drug middleman industry” is affecting drug affordability. PBMs have been a subject of scrutiny by patients and physicians, both of which criticize drug formularies and the limits they place on access to pharmaceuticals.

PBMs work on behalf of health insurers, large employers, Medicare Part D drug plans, and health insurers, managing prescription drug benefits.

According to the Commonwealth Fund, a non-profit organization that works to make healthcare more efficient and equitable, the work of PBMs often takes place out of public view, and it can determine the cost of drugs for insurers, patient access to pharmaceuticals, and compensation for pharmacies.[]

So why is the FTC investigating them?

Effects on patients

Increasingly, PBMs have come under fire for their effect on the market. This scrutiny has arisen because they create lists of which medications an insurer will cover. These decisions affect patients, determining which drugs they can use, and how much they’ll pay out of pocket for them.

PBMs also make arrangements with specific pharmacies, determining reimbursements for drugs.

“The largest pharmacy benefits managers are now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies,” the FTC wrote.

This may indirectly steer patients to certain pharmacies and have financial implications for ones not affiliated with PBMs, according to the FTC.

In a series of tweets, FTC commissioner Alvaro Bedoya said, “PBM practices are cloaked in secrecy and opacity.”

He told the story of a West Virginia family who attempted to get their child’s cancer medicine at a local pharmacy. The PBM denied the authorization, saying that the drug can only come from the PBM’s mail-order specialty pharmacy. The drug would take 2 weeks to arrive by mail, time the child didn’t have.

Fortunately, the pharmacist was persistent and got the authorization.

“Not everyone is so lucky—and nearly everyone is affected by PBM business practices,” Bedoya tweeted.

"For most Americans, pharmacy middlemen control what medicine you get, how you get it, when you get it, and how much you pay for it."

Alvaro Bedoya, FTC

Effects for pharmacies

Bedoya also wrote that this practice has implications for independent pharmacies. Left out of these arrangements with PBMs, and cut off from potential profit, some have been forced to close.

“In rural and urban America, independent pharmacies are often the healthcare infrastructure, full stop—the one place you can visit with a medical professional and get your meds and shots,” he wrote.

The FTC will also shed light on “clawbacks,” an alleged process by which PBMs take back fees paid to unaffiliated pharmacies.

Effects for physicians

The AMA has also weighed in on PBMs, calling for greater transparency and saying they should be regulated like insurers.

According to a 2019 AMA report from its Council on Medical Service, PBM formularies may be limiting physicians’ abilities to select and manage patient medications.[] The council also wrote that benefits management tactics may prevent patients’ timely access to medications, and harm patient outcomes as well as the patient-physician relationship.

In a 2019 news release on this report, Russ Kridel, MD, an AMA board of trustees member, said that the opaque nature of PBMs often leaves doctors in the dark as to which payers prefer which treatments, how much patients will pay out of pocket, or whether step therapy requirements apply.[]

"PBMs have assumed the role of insurers but without having to face similar oversight."

Russ Kridel, MD

"The ability of patients and physicians to have the information they need to make key decisions regarding medication, and of policymakers to craft viable solutions to high and escalating pharmaceutical costs, has been hampered by the often byzantine and confidential arrangements that are driving increased medication prices without a clear and justifiable reason,” Kridel wrote.

A closer look at PBMs

Research adds some nuance to the picture, according to the Commonwealth Fund.

A CMS investigation found that PBM negotiations have suppressed drug prices and curtailed drug-spending growth.

However, PBMs may be incentivized to promote more expensive drugs instead of more affordable options, due to the nature of drug rebates. PBM rebates are often calculated as a percentage of a drug’s list price. Therefore, PBMs gets bigger cuts from higher-priced drugs than more cost-effective ones.

This trickles down to the consumer, as well. CDC data indicate that between 2007 and 2017, the number of people enrolled in high deductible health plans (HDPs) increased.[]

The percentage of people on a HDP with a health savings account (HSA) increased from 4.2% to 18.9%, and those without an HSA increased from 10.6% to 24.5%. According to the Commonwealth Fund, PBMs may create a scenario in which consumers with HDPs are paying more out of pocket for drugs than they otherwise would.

The same goes for consumers with copays based on a drug’s list price.

Investigation details

The FTC inquiry, which was announced on June 7, 2022, names CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems—all of which will be required to submit information such as meeting minutes, reimbursement terms, dispensing fees, and restrictions for specific pharmacy categories.[]

Reuters reported that CVS Caremark and Prime Therapeutics will cooperate with the inquiry, but the other companies didn’t respond to requests for comment.

A push for transparency

The PBMs may have seen this move by the FTC coming.

In May 2022, the Pharmaceutical Care Management Association (PCMA), a PBM trade group, issued a press release supporting the Prescription Drug Pricing for the People Act, a bill that, if enacted, would require the FTC to “report about anti-competitive practices” throughout the healthcare supply chain, and create policy to increase supply chain transparency.[]

PCMA president and CEO JC Scott defended PBMs in the press release.

"The fundamental role of PBMs is to lower drug costs."

JC Scott, PCMA

“We are confident that a comprehensive examination by the FTC will validate that role and ultimately conclude that drug manufacturer price-setting is the root cause of high drug costs,” Scott concluded.

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