FTC slams pharmacy benefit managers CVS, Cigna, UnitedHealth for high drug prices

Years of dealmaking have created much larger enterprises the FTC says exert “significant control" over drugs, prices, and which pharmacies” patients can go to.

By Leah Nylen and John Tozzi | Bloomberg

Drug middlemen paid their own mail-order pharmacies as much as 200 times more than rival pharmacies for common cancer medicines, generating at least $1 billion in excess revenue and potentially raising patient costs, the Federal Trade Commission found in an interim study.

Pharmacy benefit managers — the middlemen that negotiate with drugmakers and manage prescription plans for employers and health insurers — influence what drugs are available and at what cost. Years of dealmaking have wrapped them into much larger health-care enterprises that the FTC says exert “significant control over which drugs are available, at what price, and which pharmacies” patients can go to.

Consolidating with health insurers, pharmacies and other medical businesses lets them favor affiliated businesses under their own corporate parents, the agency said.

Today the six largest PBMs – which include units of CVS Health Corp., Cigna Group and UnitedHealth Group Inc. – account for 95% of US prescriptions, the agency found.

Investors were warily awaiting the FTC report, but Wall Street shrugged at the initial findings. Shares of Cigna rose 1.2% and UnitedHealth was up less than 1% at 12:35 p.m., while CVS was little changed.

“We do not believe this report has the teeth to meaningfully change the PBM landscape” without charges or clearer proof of wrongdoing, JPMorgan analysts led by Lisa Gill wrote in a research note.

Pressure on industry

Pharmacy benefit managers have attracted growing attention in Washington, and the FTC’s study adds to pressure on the industry. Drugmakers have long accused PBMs of pushing up medication costs. Both employer groups that fund prescription benefits and independent pharmacies that get paid by PBMs have criticized them. Lawmakers are weighing new restrictions, and some states have enacted reforms.

The FTC described how PBMs “steer” patients to their own dispensaries including mail-order and specialty businesses, to “advantage their own pharmacies while excluding rivals.” It cited internal emails where executives at top pharmacy benefit managers said client “concerns” about the pricing discrepancy on common drugs and strategized about how to manage the “optics.”

In one internal communication cited by the FTC, an unidentified executive noted that patients could get a commonly prescribed treatment for leukemia, a generic version of Novartis AG’s Gleevec, for $97 at Costco Wholesale Corp., while the company’s own mail-order pharmacy charged $19,200. The agency didn’t identify which company that message was from.

Optics ‘not good’

“We’ve created plan designs to aggressively steer customers to home delivery where the drug cost is ~200 higher,” the executive wrote. “The optics are not good and must be addressed.”

The FTC estimated that those increased reimbursement rates for two drugs led to $1.6 billion in excess revenue for pharmacies affiliated with the three largest PBMs between 2020 and 2022.

The agency also flagged concerns over how PBMs have restructured their entities that negotiate rebates with drugmakers, creating new corporate units for that job and moving some of them overseas. These entities, known as group purchasing organizations, can generate new fees and rebates from drugmakers that aren’t passed on to the PBM’s ultimate client.

The FTC opened the study into the market in 2022, seeking a wide swath of information on what is widely considered one of health care’s most opaque sectors. As part of the study, the FTC sought information from the six largest companies: CVS, Cigna’s Express Scripts, UnitedHealth’s Optum, Humana Inc., Prime Therapeutics LLC and MedImpact Healthcare Systems Inc.

‘Root cause’

Critics say the PBMs operate in obscure ways, making money from health plan clients, rebates and fees collected from drugmakers. The industry says it lowers prices and has blamed drugmakers as the “root cause” of prescription drug costs.

The FTC said in its interim report that it would continue to investigate as several of the companies it subpoenaed had yet to fully turn over documents.

The agency’s commissioners voted 4-1 to issue the interim report, with Republican Commissioner Melissa Holyoak dissenting. In a separate statement, Holyoak faulted the FTC for a lack of empirical analysis on how PBM behavior has affected the prices that patients pay for drugs.

“Relying upon two examples, without any evidence (empirical or otherwise) that demonstrates they are representative, is not a substitute for rigorous analysis,” she wrote.

CVS said its members pay on average less than $8 for a 30-day prescription. Limits on PBMs would benefit drugmakers, the company said in a statement after the FTC issued its report. A representative for Cigna’s Express Scripts said the agency’s “biased conclusions” won’t address rising drug prices. Humana declined to comment.

The other companies the FTC is probing didn’t immediately respond to requests for comment.