The Federal Trade Commission criticized the business practices of pharmacy benefit managers this week, but drugmakers are also at fault for the high costs of medicines.
Pharmacy benefit managers, the powerful prescription drug middlemen who negotiate between pharmaceutical companies and health insurers, took it on the chin this week when the Federal Trade Commission released a scathing report about their business practices. The report, based on a two-year FTC investigation, laid out how PBMs charge payers higher prices than what they pay to pharmacies—so called spread pricing—thereby “profit[ting] at the expense of patients by inflating drug costs and squeezing Main Street pharmacies.”
Specifically, the FTC discovered that the three largest PBMs—Cigna’s Express Scripts, CVS’ Caremark and UnitedHealth’s Optum Rx—processed nearly 80% of the approximately 6.6 billion prescriptions dispensed by U.S. pharmacies last year. Given their increasing vertical integration and concentration, The Wall Street Journal on Wednesday reported that the FTC plans to file lawsuits against the “Big Three” over their tactics for negotiating prices for drugs including insulin and steering patients away from less-expensive medicines.
Not surprisingly, the Pharmaceutical Research and Manufacturers of America (PhRMA)—the drugmakers’ lobby—praised the FTC report for “detailing ways these corporate middlemen are profiting at the expense of patients and community pharmacies.” However, there’s plenty of blame to go around when it comes to the lack of affordability of prescription drugs.
At a Senate health committee hearing in February, the CEOs of Bristol Myers Squibb, Johnson & Johnson and Merck were pressed about why their medicines cost so much more in the U.S. compared to other countries. These captains of industry told lawmakers that PBMs are a primary cause of high prices, while declining to commit to price cuts despite charging Americans the highest prices in the world for prescription drugs.
A Senate health committee majority staff report found that BMS, J&J and Merck “begin by setting exorbitant prices for new drugs in the U.S.” and then “as patients come to rely on these medicines, these companies increase prices, forcing patients to pay more or abandon their ongoing treatment.”
For its part, Big Pharma contends that they pay significant rebates and fees to PBMs but patients are not benefiting from the discounts being negotiated. Merck CEO Robert Davis testified before the Senate health committee that “simply reducing our list prices is not a solution because patients often experience reduced access to their drugs when they are either not included on or are dropped from PBM and plan formularies.”
However, the Pharmaceutical Care Management Association (PCMA)—a PBM lobbying group—contends that drugmakers continue to hike medication prices regardless of rebates. A report last year by pharmacy consultancy Visante, on behalf of PCMA, found that PBMs account for just 6% of the net cost of a prescription while manufacturers account for 65%. And round and round we go.
It’s fair to say that both Big Pharma and PBMs are at fault, and the sanctimonious finger-pointing and blame game hasn’t gotten us any closer to solving the problem of high prescription drug prices. This is where the U.S. government can help to fix a broken system.
In addition to the FTC’s lawsuits targeting the three biggest PBMs, the agency is also investigating drugmakers but it is unclear if they will be included in the legal action, a source speaking on the condition of anonymity told Axios.
For its part, Congress is looking to reform certain PBM practices and to hold these middlemen accountable. The Delinking Revenue from Unfair Gouging (DRUG) Act seeks to create requirements for PBMs that contract with a carrier offering health benefits plans offered under the Federal Employees Health Benefits program, including delinking policies on spread pricing and patient steering.
On the drugmaker side, the Inflation Reduction Act’s Medicare Drug Price Negotiation Program for the first time allows the federal government to negotiate the prices of medicines with the highest annual Medicare Part D spending. A recent analysis forecasts that prices for 30-day supplies of the first 10 Medicare Part D drugs subject to negotiations will provide monthly reductions as high as $6,500 when they go into effect in 2026.
That’s only the beginning. The Centers for Medicare and Medicaid Services will negotiate up to 10 Part D drugs in 2026 and 2027, up to 15 drugs from Part B and Part D in 2028 and up to 20 drugs from Part B and Part D for each subsequent year.
However, the bigger solution is the urgent need for patent reform. Big Pharma has built patent thickets extending their monopolies and delaying low-cost generic competition. To address the problem, the Senate on Thursday unanimously passed a bipartisan bill that would limit the number of patents drugmakers can introduce and make it easier for generic competitors to enter the market.
The time for half measures and talk is over when it comes to reducing the prices of prescription drugs. With FTC estimates of nearly 30% of Americans rationing or skipping doses of their medicines due to rising costs, our citizens have paid too high a price for far too long.
