Pharmacy Benefit Managers and the Federal Trade Commission A Relationship Gone Sour

On June 7, 2022, the Federal Trade Commission (FTC) announced its decision to launch an inquiry into the business practices of pharmacy benefit managers (PBMs).1 Although it is premature to presume that the investigation will lead to changes in the PBM market, the initiative was nonetheless cheered by the many policy experts that fault PBMs for increasing prescription drug prices.

This is not, however, the first time that the FTC crossed paths with the PBMs. Earlier encounters offer a useful window into the evolving PBM market and the associated policy challenges. This Viewpoint offers a reminder of why PBMs emerged in the first place, why they have amassed such alarming influence, and how they positioned themselves as powerful actors within the prescription drug distribution system.

A Brief History of PBMs and Their FTC Scrutiny
The rise of the PBMs coincided with the introduction of employer-sponsored prescription drug benefit plans and the requisite need in their administration. In principle, PBMs perform the dual roles of constructing sufficient formularies of prescription drugs for patients while prioritizing generic or less costly drug offerings to serve the interests of insureds, employers, insurers, and other payors. As the PBMs grew, fueled in part by the institution of the Medicare Part D prescription drug benefit program, they leveraged their purchasing clout to extract pricing concessions from pharmaceutical manufacturers. Seeking to counter this new purchasing power, the pharmaceutical giant Merck set out to purchase the PBM Medco Health Solutions in 1998. The FTC filed suit to unwind this transaction, marking its first foray into the PBM sector, and argued that Merck would leverage Medco’s market position to advance its own pharmaceutical products.2 The FTC, in turn, was hoping that Medco—and other PBMs—would instead use their purchasing power with manufacturers to reduce the cost of prescription drugs for patients.

As the PBM sector attained further prominence, it entered a series of consolidations that again attracted the attention of the FTC, but the agency was largely unconcerned by the merger wave. From 2000-2015, the FTC approved numerous mergers between PBMs, including the 2004 combination of 2 of the largest PBMs (Caremark and AdvancePCS Inc), the acquisition by CVS of Caremark in 2007 and Omnicare in 2015, and most notably, the $29 billion merger in 2012 of Medco and Express Scripts, 2 of the largest PBMs at that time. The FTC approvals of the mergers were premised on the belief that stand-alone PBMs compete vigorously with other purchasers of prescription drugs as well as with insurers who managed prescription drug benefits. The FTC further maintained that small PBMs offered valuable services that allowed them to compete with large PBMs.3 Fueled by the uninterrupted spate of mergers, the PBM market came to be dominated by the “big 3,” ie, CVS Health, Express Scripts, and OptumRx, which together controlled 80% of all the prescription drug claims in 2021. The big 3 also operate mail-order pharmacies, and CVS, for its part, owns and operates the nation’s largest drugstore chain.

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