ProMarket: How the FTC Protected the Market Power of Pharmacy Benefit Managers

February 19, 2021 Media

When New York State Assemblyman Richard Gottfried set out to regulate a group of powerful corporate players in his state’s health care system, he was prepared to battle yet another muscular industry lobby. As chair of the Assembly’s Health Committee and a long-time advocate of health care reform, Gottfried has had plenty of fights with big insurers and providers over the years. This time, his enemies were Pharmacy Benefit Managers, or PBMs. PBMs manage prescription drug benefits for health insurers and state Medicaid programs, and Gottfried was seeing them engage in a pattern of price gouging and self-dealing.

What caught Gottfried off guard was the opposition he faced from another quarter: the Federal Trade Commission, created to safeguard Americans from concentrated corporate power, had taken a stance against state legislation like his that sought to rein in the PBMs.

PBMs were established in the 1960s to control drug costs, but they have since morphed into one of the most highly concentrated and least accountable profit centers in the health care industry. Just three PBMs—CVS Health, Express Scripts, and OptumRx— control more than 76 percent of the market. All three operate their own mail order pharmacies and one, CVS, owns the nation’s largest drugstore chain.

PBMs have a documented history of steering patients to their own pharmacies by cutting reimbursements to independent pharmacies, essentially driving them out of business. At the same time, PBMs have been bilking public health plans, especially state Medicaid programs. In Ohio alone, two PBMs were found to have charged the state $224 million more than they reimbursed pharmacies in 2017. PBMs are not required by federal law to disclose rebates they receive from drug makers or the spread between what they’re paid by insurers to fill a prescription and how much they pay out to the pharmacy that does so.

PBMs “operate largely in secret and don’t seem to be under almost any legal obligations,” says Gottfried. Several years ago, he began pushing for legislation to block PBMs’ anticompetitive practices and mandate that they disclose to state regulators and health insurers details of their financial arrangements with drug makers.