The Federal Trade Commission (“FTC”) released its second interim report on Jan. 14, 2025, accusing pharmacy benefit managers (PBMs) of marking up the prices of specialty generic drugs. FTC’s report focused on three largest PBMs: CVS Health Corporation’s CVS Caremark, The Cigna Group’s CI Express Scripts, and UnitedHealth Group Incorporated’s UNH Optum Rx. This report comes at a time when insurers are grappling with rising medical costs.

The FTC study examines the practices of PBMs to ensure fair competition and transparency. The FTC found that from 2017 to 2022, the three big PBMs imposed substantial price markups on 51 specialty generic drugs, resulting in $7.3 billion in excess revenue.The report highlighted that the national average acquisition costs for medications used to treat critical conditions like cancer, HIV, and heart disease were often exceeded by markups of over $1,000.

While the companies concerned are still reviewing the report, CVS and CI mentioned that FTC is focusing on specialty generic products, which account for 1-2% of total client drug spend, resulting in misleading outcomes. UNH’s Optum asserted that its role is to negotiate and reduce the prices of drugs for plan sponsors and customers and that it saved $1.3 billion in 2024 alone. UNH carries a Zacks Rank #3 (Hold), reflecting a neutral outlook, while CI and CVS carry a Zacks Rank #4 (Sell) and Zacks Rank #5 (Strong Sell), respectively, indicating more bearish sentiment.

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Plan sponsors bore the burden of these inflated costs, paying $4.8 billion in 2021 alone, while patients contributed $297 million. The report also sheds light on how PBMs give special treatment to the affiliated pharmacies by reimbursing them at higher rates compared to the unaffiliated ones, further adding an obstacle to achieving affordable medical care for all.

Broader Industry Implications

Caremark, Express Scripts, and OptumRx jointly control nearly 80% of all U.S. prescriptions, having a significant influence over drug pricing and availability. Moreover, unmonitored consolidation has further made the situation worse, allowing market dominance of a few selected players.

Hence, it is high time this industry is overhauled, to increase transparency, requiring PBMs to disclose rebate retention rates and pass savings to health plan sponsors. Although previous efforts to reform the industry had been halted, the momentum for change continues to build, given the rising medical costs.

Conclusion

A transformation in the PBM space will likely lead to fairer pricing and improved access to essential medications for customers, ultimately resulting in equitable care, per reports. Moreover, smaller, unaffiliated pharmacies will also benefit from fair competition.

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