FTC Blasts Pharmacy Benefit Manager Business Practices

Interim report critical of PBM middlemen’s influence over medication access, affordability

Rachel Nania,

AARP

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Published July 11, 2024

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The Federal Trade Commission is accusing middlemen in the prescription drug supply chain of “inflating drug costs and squeezing Main Street pharmacies.”

An interim report released July 9 by the FTC highlights the “enormous power” third party players, known as pharmacy benefit managers (PBMs), have over prescription drug access and affordability in the U.S.

PBMs operate behind the scenes to negotiate drug prices with manufacturers and pharmacies on behalf of health insurers. They also are owned by the same companies that own the nation’s largest health insurers and specialty and retail pharmacies. “As a result, they wield enormous power and influence over patients’ access to drugs and the prices they pay,” says the report, which is part of an inquiry the agency launched in 2022.

The three largest PBMs processed nearly 80 percent of the estimated 6.6 billion prescriptions dispensed by U.S. pharmacies in 2023, up from 52 percent of prescription drug claims in 2004, the 71-page report showed. The top six PBMs processed more than 90 percent of prescription medications last year.

A chief concern with these large PBMs is their significant influence over what drugs are available to Americans and at what price. The report details that they negotiate rebates from brand-name prescription drug companies to help manage costs and that, in some instances, these agreements can require PBMs to limit patient access to less expensive drug options.

The FTC report says PBMs can sometimes steer patients away from smaller, independent pharmacies that can be community staples in rural areas and, as reports show, have faced hardships in recent years. A 2024 analysis published by the Associated Press found that several rural states have some of the lowest number of pharmacies per zip code.

“Most strikingly,” the report “describes evidence indicating that PBMs are overcharging for two case study cancer drugs (generic Gleevec and Zytiga) and reimbursing their affiliated pharmacies at significantly higher rates than unaffiliated pharmacies for these same drugs,” FTC Chair Lina M. Khan said in a statement. “This overcharging represents billions of dollars in drug spending and reveals the incentives PBMs can have to preference their own affiliated pharmacies regardless of what is best for patients.”

A 2023 KFF poll found that roughly a quarter of older Americans have difficulty affording their prescription medications; about one-third of U.S. adults don’t take their medication as prescribed because of the cost.

One of the five FTC members voted against publication of the interim report before the conclusion of the full study, calling its release premature. The Pharmaceutical Care Management Association, a trade organization that represents PBMs, also issued a statement disagreeing with the report’s findings, saying it “falls far short of being a definitive, fact-based assessment of PBMs or the prescription drug market.”

One day after the interim report was published, The Wall Street Journal and other news outlets reported that the FTC plans to sue the three largest PBMs over their prescription drug negotiating practices, including for insulin.

AARP supports reforms to lower drug costs

Lowering prescription drug costs for Americans remains a top priority for AARP, and in its efforts to achieve that, AARP has supported federal legislation to reform current PBM practices that may play a role in rising drug prices. One such example is the bipartisan Protecting Patients Against PBM Abuses Act, which would uncouple PBM compensation from drug prices and, instead, require Medicare Part D plans to pay PBMs flat fees.

“AARP believes that this would help reduce potentially misaligned incentives that could contribute to higher costs for Medicare Part D enrollees,” AARP Senior Vice President of Government Affairs Bill Sweeney wrote to lawmakers on Feb. 21.

AARP also supports the bipartisan Medicare PBM Accountability Act, which would increase PBM transparency and allow Medicare prescription drug plans to audit their PBMs for compliance.

These endorsements are just two examples of how AARP is fighting to help make medications more affordable for adults age 50-plus. You can read more about our efforts here.