On January 14, 2025, the Federal Trade Commission (FTC) unanimously agreed to publish its second interim staff report on pharmacy benefit managers (PBMs) and their role in the US healthcare landscape (the Second Interim Report or the Report). This Report comes approximately six months after the 71-page first interim staff report (the First Report), and two years after the FTC initiated its initial study into the six largest PBMs in the US and their impact on the accessibility and affordability of prescription drugs.
As explained in the First Report titled Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies, PBMs are intermediaries that manage prescription drug transactions for plan sponsors (e.g., insurers and employers) and negotiate discounts with drug manufacturers on behalf of those customers. The FTC observes that PBMs have gained control over multiple levels of the prescription drug supply chain to the detriment of independent pharmacies and ultimately patients.
The Second Interim Report, titled Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers, focuses on PBMs’ influence over the pricing of “specialty generic drugs” indicated for cancer, HIV, multiple sclerosis and other “serious conditions” at affiliated pharmacies. In the 57-page report, the FTC contends that specialty generic drugs have become an outsized and “growing profit center” for the largest PBMs and their affiliated pharmacies due to their pricing practices and vertical integration. Specifically, the Report alleges the largest three PBMs have:
- Imposed significant reimbursement markups for affiliated pharmacies. The largest PBMs allegedly have marked up reimbursement rates for specialty generic drugs by more than 1000% when those products are dispensed through PBM-affiliated pharmacies. The Report cites one example of a specialty generic drug purchased by pharmacies for an average of $27 in 2022, which the largest PBMs priced for reimbursement at $2,709 and paid affiliate pharmacies $2,106. The FTC explains that “higher markups can result in larger internal transfer payments from health plans to affiliated pharmacies, which may allow vertically integrated PBM-pharmacy-insurer entities to retain revenue and profit . . .” and “can influence how such patients are required to pay.”
- Generated excessive revenue on specialty drugs relative to the national benchmark. The FTC also observes that the PBM-affiliated pharmacies generate revenue from dispensing specialty generic drugs in excess of the national average drug acquisition cost (“NADAC,” the measure of what pharmacies earn in excess of acquisition costs).
- Generated significant income through vertical integration. The FTC notes that a significant volume of PBM revenue comes from “spread pricing”—that is, retaining the difference between what the plan sponsor customer pays and the amount by which PBMs reimburse pharmacies (both affiliated and unaffiliated) for prescriptions. The FTC explains that “[t]hese income streams are distinct when pharmacies and PBMs are independent from each other,” but “[v]ertically integrated PBM-pharmacy-insurer entities . . . can shift revenue and profits between their ‘upstream’ PBMs and ‘downstream’ pharmacies.”
Although the FTC is reserving judgment on whether any of the practices documented in the Report violate any law, the release of this Report seems to signal:
- Continued interest in the practices of PBMs: The FTC is likely to maintain a focus on practices that current FTC Chair Khan says “may inflate drug costs, squeeze independent pharmacies, and deprive Americans of affordable, accessible healthcare.” We expect this scrutiny to continue under the Republican-led FTC, given the current Republican Commissioners’ support of the Report. The FTC meanwhile has a pending administrative action against PBMs Caremark Rx, Express Scripts and OptumRX and their affiliated group purchasing organizations alleging that the PBMs engaged in “anticompetitive and unfair rebating practices” resulting in increased insulin prices. The PBMs unsuccessfully moved to disqualify the three Democratic FTC Commissioners, claiming they are impermissibly biased.
- Potential for increased scrutiny over unfair pricing: The FTC’s focus on excessive pricing and revenue relative to what it deems to be an appropriate benchmark in the Second Interim Report is consistent with the FTC’s recent enforcement action under the Robinson Patman Act (RPA). Though both sitting Republican Commissioners dissented in the FTC’s decision to bring that case, both Commissioner Andrew Ferguson (who will become Chair under the Trump Administration) and Mark Meador – President-elect Donald Trump’s selection to be the third Republican Commissioner at the FTC – have signaled a willingness to enforce the RPA in appropriate cases.
