FTC Releases New Report – PBMs Markup Generics by 1000% – Employment Law Weekly

FTC Releases New Report – PBMs Markup Generics by 1000%

The FTC commissioners voted unanimously this month to publish a second report which makes similar critical allegations against the controversial drug middlemen known as Pharmacy Benefit Managers or PBMs, as did the agency’s first report released last summer. This second report, titled “Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers,” was released to the public on January 14, 2025.

According to the FTC prescription drugs represent a large and growing amount of healthcare spending – increasing from $393 billion in 2016 to $600 billion in 2023. While traditional drugs dispensed through retail and mail order pharmacies account for much of this spending, a disproportionate share of the growth has come from spending on a class of drugs known as specialty drugs, which more than doubled from $113 billion in 2016 to $237 billion in 2023.2

Historically, specialty drugs were characterized by their need for special handling and administration. This is no longer necessarily the case. There is no standard definition for a specialty drug, and today specialty drugs may be characterized by variety of factors, including their high cost.

The First Interim Staff Report provided an overview of the vertically integrated and highly concentrated markets in which pharmacy benefit managers (“PBMs”) operate and highlighted the increasing importance of specialty drugs to the three largest PBMs, Caremark Rx, LLC (“CVS”), Express Scripts, Inc. (“ESI”), and OptumRx, Inc. (“OptumRx”) (collectively the “Big 3 PBMs”) and their affiliated pharmacies. Among many other findings, the First Interim Staff Report showed:

– – Pharmacies affiliated with the Big 3 PBMs received 68% of the dispensing revenue generated by specialty drugs in 2023, up from 54% in 2016.6
– – The Big 3 PBMs marked up two specialty generic cancer drugs by thousands of percent and then paid their affiliated pharmacies hundreds of millions of dollars of dispensing revenue in excess of estimated acquisition costs for each drug annually.

Two months after this first report, the FTC sued Caremark, Express Scripts and Optum Rx. The lawsuit, filed in September 2024 is ongoing and alleges that these pharmacy benefit managers engaged in anticompetitive and unfair rebating practices that artificially inflated the list price of insulin drugs. The case is currently being overseen by Chief Administrative Law Judge D. Michael Chappell.

Cigna’s Express Scripts filed a countersuit against the FTC calling the report “unfair, biased, erroneous, and defamatory.” We don’t take this step lightly, but … we cannot let the FTC’s unlawful actions and false information stand,” Andrea Nelson, Cigna’s chief legal officer, said in a statement.

Yet “the FTC stands by our study,” said Douglas Farrar, a spokesperson for the agency, in a statement. “This is a complicated and opaque market, and the FTC is committed to using its clear authority to help the public and policymakers understand it.”

Express Scripts, which Cigna acquired for $67 billion six years ago, brought in $26.6 billion in revenue in the second quarter – 44% of Cigna’s entire topline.

This new January 2025 staff report relies on additional data and documents to analyze a broader subset of specialty generic drugs and expands on FTC staff’s initial findings regarding specialty drugs published in the  July 2024 staff report. Key findings in this January 2025 staff report include:

– – The Big 3 PBMs marked up numerous specialty generic drugs dispensed at their affiliated pharmacies by thousands of percent, and many others by hundreds of percent.
– – A larger share of commercial prescriptions for the most profitable specialty generic drugs were dispensed by the Big 3 PBMs’ affiliated pharmacies compared with unaffiliated pharmacies.
– – The Big 3 PBMs’ affiliated pharmacies generated over $7.3 billion of dispensing revenue in excess of NADAC on specialty generic drugs over the study period.
– – In the aggregate, the Big 3 PBMs also generated significant income on the specialty generic drugs assessed in this report from spread pricing – i.e., billing their plan sponsor clients more than they reimburse pharmacies for drugs.
– – The top specialty generic drugs accounted for a significant share of the relevant business segments reported by the Big 3 PBMs’ parent healthcare conglomerates.
– – Plan sponsor expenditures and patient cost sharing on specialty generic drugs increased at double-digit compound annual growth rates during the study period.

These results illustrate the increasing financial importance of specialty generic drugs to the Big 3 PBMs, as well as to plan sponsors and patients. The results also reveal that the two case study drugs analyzed in its First Interim Staff Report were not isolated examples. This report confirms that the Big 3 PBMs impose significant markups on a wide array of specialty generic drugs.

The California Attorney General has filed litigation against drug manufacturers Eli Lilly, Novo Nordisk, and Sanofi, along with major PBMs CVS Caremark, Cigna’s Express Scripts and UnitedHealth Group’s OptumRx for allegedly leveraging their market power to overcharge patients for insulin.

FTC Releases New Report – PBMs Markup Generics by 1000%

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