The Federal Trade Commission (FTC) has published a second interim staff report that sheds light on troubling practices within the prescription drug middleman industry, specifically focusing on Pharmacy Benefit Managers (PBMs). These PBMs play a critical role in negotiating drug prices and managing prescription drug benefits, but their actions are raising concerns, particularly with respect to specialty generic drugs.

The latest report from the FTC reveals that the Big 3 PBMs—Caremark Rx (CVS), Express Scripts (ESI), and OptumRx—have been inflating prices of specialty generic drugs by hundreds and even thousands of percent. The drugs impacted by these exorbitant price hikes include treatments for cancer, HIV, and heart disease. Over the period from 2017 to 2022, these price increases allowed the Big 3 PBMs and their affiliated pharmacies to generate a staggering $7.3 billion in excess revenue, all while patient, employer, and healthcare plan sponsor payments for drugs continued to rise annually.

Key Findings from the FTC Report

The FTC’s report draws from a variety of data sources, including special orders issued by the FTC in 2022 under Section 6(b) of the FTC Act. Some of the key findings from the latest report include:

1. Significant Price Markups: PBMs imposed dramatic markups on numerous specialty generic drugs. For example, drugs for cancer and HIV treatment saw prices marked up by thousands of percent. These price hikes were not only excessive, but disproportionately affected drugs dispensed through PBM-affiliated pharmacies compared to unaffiliated pharmacies.
2. Steering Profitable Prescriptions: The data suggests that PBMs may be directing highly profitable prescriptions—those marked up by over $1,000 per prescription—towards their own affiliated pharmacies, rather than unaffiliated ones.
3. Revenue Surplus: Over the study period, PBM-affiliated pharmacies generated over $7.3 billion in revenue beyond the estimated acquisition cost of the drugs, as measured by the National Average Drug Acquisition Cost (NADAC). This surplus revenue grew at an alarming rate of 42 percent annually between 2017 and 2021.
4. Spread Pricing: In addition to the markups, the Big 3 PBMs earned an estimated $1.4 billion through spread pricing, i.e., billing their plan sponsor clients more than they reimburse pharmacies for drugs—on the analyzed specialty generic drugs over the study period.
5. Impact on Operating Income: The analyzed specialty generic drugs were a key driver of the operating income for the parent healthcare conglomerates behind the Big 3 PBMs. In 2021, this revenue represented 12 percent of the total operating income reported by the PBMs’ parent healthcare conglomerates’ business segments that include their PBM and pharmacy business in 2021.
6. Increasing Drug Spending: Between 2017 and 2021, the cost of specialty generic drugs continued to rise at significant rates. Plan sponsors paid a total of $4.8 billion for these drugs in 2021 alone, while patients contributed $297 million in cost-sharing. Between 2017 and 2021 plan sponsors and patient payments both increased at compound annual growth rates of 21% for commercial claims, and 14%-15% for Medicare Part D claims.

The Call for Action

FTC Chair Lina M. Khan emphasized the need for swift action to address the growing issue. “The FTC should keep using its tools to investigate practices that may inflate drug costs, squeeze independent pharmacies, and deprive Americans of affordable, accessible healthcare—and should act swiftly to stop any illegal conduct, ”Khan stated.

Hannah Garden-Monheit, Director of the FTC’s Office of Policy Planning, added, “FTC staff have found that the Big 3 PBMs are charging enormous markups on dozens of lifesaving drugs.” “We also found that this problem is growing at an alarming rate, which means there is an urgent need for policymakers to address it.”

For more details on the FTC’s findings, read the full report here.