Major PBMs Could Be Zeroing In On Specific Payer Markets For Dominance, Study Suggests

A new study is raising red flags about the composition of market power among pharmacy benefit managers, powerful middlemen in the drug supply chain that are facing heavy scrutiny for their alleged role in increasing U.S. drug costs.

Just three PBMs — Caremark, owned by CVS Health; Express Scripts, owned by Cigna; and Optum Rx, owned by UnitedHealth — monopolize pharmacy services, together controlling about 80% of all prescriptions in the country. Yet each appear to be targeting different payer markets, according to the new research, a finding that could prove useful for lawmakers and regulators looking to better understand concentration in the PBM industry.

Caremark holds the largest market share in commercial insurance, Medicare’s Part D prescription drug program and Medicaid managed care, according to the study conducted by the USC Schaeffer Center, a health policy research group based in Los Angeles.

Still, Caremark’s largest market is Medicaid managed care, in which it controls 39.2% of all PBM services, USC Schaeffer found.

Meanwhile, Express Scripts controls 28% of the commercial market — almost double its shares of the Part D and Medicaid markets. Optum Rx’s largest share is in Part D, at 27.7%.

The findings are significant given the scale of the insurance markets. Hundreds of millions of Americans receive drug benefits through commercial plans, Medicare and state contracts with Medicaid managed care companies.

Meanwhile, all three markets exceed the Department of Justice’s threshold for being highly concentrated, according to the study. Powerful physician lobby the American Medical Association also published an analysis of PBM market share this week that found high levels of concentration.

Caremark, Express Scripts and Optum Rx are also all part of large corporations that also operate major health insurers active in those markets, along with internal pharmacy networks. That vertical consolidation is a key concern for lawmakers and antitrust regulators, given it incentivizes and gives the conglomerates the ability to give their own businesses preferential treatment. That could include directing people covered by their insurance plans to internal mail-order pharmacies to fill prescriptions.

USC Schaeffer said the study could help lawmakers and regulators as they try to crack down on anticompetitive business practices in the industry.

“The dominance of a few large PBMs across all payers … has important antitrust implications,” the researchers wrote in the study.

USC Schaeffer based its analysis, which was published in JAMA on Tuesday, on data from 90% of prescriptions filed in U.S. retail pharmacies last year.

Lawmakers on the Hill, state attorneys general and federal antitrust regulators at the Federal Trade Commission and the Department of Justice, have increasingly eyed PBMs as a target of reform to drive down sky-high U.S. drug costs. Nearly one-third of Americans had to ration or skip doses of their medication due to cost last year, according to one survey.

In Washington, the House and Senate have held a number of hearings on PBMs and considered legislation to change their business practices over the past two years, but have yet to take meaningful action. Making matters more difficult is the complexity of the pharmacy supply chain, which is bloated by middlemen and muddied by closed-door negotiations and opaque contracts, complicating efforts to untangle the potential impacts of proposed reform.

However, lawmakers on both sides of the aisle — along with regulators in the Federal Trade Commission — have argued that consolidation in the PBM market, along with business practices like rebate negotiations, are likely contributing to higher pharmaceutical prices.

This summer, the FTC released a scathing report outlining how PBM consolidation is harming consumers amid speculation that the agency is close to suing Caremark, Express Scripts and Optum Rx for anticompetitive behavior.

PBMs deny that they contribute to higher drug prices, maintaining they’re the only player in the drug supply chain with a mission of lowering costs. Top PBM executives have said they’re open to increased transparency around their business practices, but say more aggressive reform will help pharmaceutical companies — which set initial list prices for drugs, before they’re eventually discounted through negotiations with PBMs — at the expense of the consumer.