The Federal Trade Commission (“FTC”) recently released an interim report (the “FTC Report”) as part of its ongoing investigation into Pharmacy Benefit Managers (“PBMs”) and their impact on prescription drug costs and availability.[1] Although Frier Levitt previously discussed the FTC’s findings on rebate aggregators, the FTC Report also sheds light on other concerning business practices, particularly patient steering and vertical integration that disadvantage independent pharmacy providers and inflate drug costs for patients.
Patient Steering to PBM-Affiliated Pharmacies
The FTC Report identifies “specialty prescription steering” as a key mechanism through which PBMs direct patients to their affiliated pharmacies.[2] According to the FTC’s analysis, PBMs may be steering a high proportion of specialty prescriptions filled by commercial health plan members to their own pharmacies. The House Committee on Oversight and Accountability’s recent investigation supports this finding, revealing that PBMs share patient information across their integrated companies to steer patients to PBM-owned pharmacies and reduce reimbursement rates for competing pharmacies. This trend is evident in the significant expansion of PBM-affiliated pharmacies’ share of the specialty drug segment, which has increased from 54% in 2016 to 68% in 2023.[3] This practice significantly disadvantages independent pharmacies and PBMs employ several tactics to accomplish this steering.
One primary steering method is PBMs’ design of drug formularies that favor medications dispensed by PBM-affiliated pharmacies. This increases the likelihood that patients will be directed to these pharmacies for high-cost specialty medications. The steering is further reinforced by higher reimbursement rates for PBM-affiliated pharmacies, which often receive significantly more than independent pharmacies for the same specialty generics.[4] The FTC Report also provides compelling evidence of this financial disparity, citing cases where PBM-affiliated pharmacies were paid 20 to 40 times the National Average Drug Acquisition Cost (“NADAC”) for specific specialty generics.[5] This practice not only inflates drug costs but also puts independent pharmacies at a severe competitive disadvantage.
Beyond formulary design and reimbursement disparities, the FTC notes that PBMs employ various “optimization levers” to steer patients to affiliated specialty pharmacies. These include:
- Requiring providers to obtain drugs from PBM-affiliated pharmacies for clinical administration (“white bagging”).
- Requiring patients to obtain drugs from PBM-affiliated pharmacies and bring them to providers for administration (“brown bagging”).
- Bundling exclusive services and assets to promote use of affiliated pharmacies.
- Expediting resolution of drug utilization management requirements for prescriptions sent to affiliated pharmacies, but not for independent providers.
- Conducting targeted marketing campaigns to patients and specialty providers.
Collectively, these practices ensure that PBM-affiliated pharmacies capture a significant share of specialty drug dispensing, further entrenching their market power and disadvantaging independent pharmacy providers. Notably, Frier Levitt’s whitepaper exposing PBM profit tactics, including complex rebate schemes and ‘DIR’ fees on cancer drugs, was cited in the FTC Report, confirming that PBMs exploit pricing opacity to enrich themselves at the expense of cancer patients and providers.
Vertical Integration and Its Impact
The FTC Report highlights how increased concentration and vertical integration in the PBM industry have led to a market dominated by a few large players. This consolidation extends beyond traditional PBM roles to include health insurers, specialty pharmacies, and even drug manufacturers. As a result, the top three PBMs—CVS Caremark, Express Scripts, and OptumRx—now manage nearly 80% of all U.S. prescription claims.[6]
This high degree of consolidation has given leading PBMs significant power over Americans’ access to drugs and the prices they pay. The FTC Report states, “As a result of this high degree of consolidation and vertical integration, the leading PBMs can now exercise significant power over Americans’ access to drugs and the prices they pay.”[7] This dominance allows PBMs to set terms that favor their own business interests over those of independent pharmacies and patients.
The FTC Report also emphasizes how PBMs often impose complex and unilateral contract terms on independent pharmacies. These terms are typically opaque, making it difficult for pharmacies to predict reimbursement rates and manage their operations effectively. Recently, the House Committee on Oversight and Accountability questioned the leaders of the top three PBMs about these practices, reflecting growing federal concern over PBM transparency and the need for increased regulatory oversight to protect patients, independent pharmacies, and fair competition. Indeed, “This committee is in agreement that PBMs need to be reformed,” said Chairman James Comer in his closing remarks, noting bipartisan agreement on the issue. “PBMs were created to help drive down costs of prescription drugs. I don’t think that’s working.”
How Frier Levitt Can Help
Frier Levitt represents independent pharmacies in their dealings with PBMs. Our attorneys have decades of experience assessing contract terms, reimbursement rates, and network agreements, and providing litigation support to address unfair practices and ensure independent pharmacies’ interests are protected. If your pharmacy has experienced patient steering or other unfair practices by PBM-affiliated pharmacies, contact Frier Levitt today. We have the expertise to help you navigate these challenges and protect your business interests.
[1] The FTC’s report can be found at https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf.
[2] Id. at 30.
[3] Id. at 19.
[4] Id. at 3.
[5] Id. at 40.
[6] Id. at 6.
[7] Id. at 3.
