FTC Exposes How Pharma Middlemen Inflate Prices by a Whopping 7,736%!

On Tuesday, the U.S. Federal Trade Commission released the second portion of its study revealing that intermediaries in the pharmaceutical industry are significantly inflating the prices of specialty generic drugs at pharmacies they own. These markups, which in some instances reach several thousand percent, highlight the urgent need for policy intervention, according to advocates.

The FTC’s latest provisional report on consolidated pharmacy benefit managers (PBMs) shows that the top three PBMs—Caremark Rx from CVS Health, Express Scripts from Cigna Group, and OptumRx from UnitedHealth Group—increased the prices of two generic cancer drugs by several thousand percent. Subsequently, they compensated their associated pharmacies with dispensing revenues massively exceeding the drugs’ yearly acquisition costs by hundreds of millions of dollars.

According to the report, “Within the period from 2020 to 2022, 63% of the specialty generic drugs studied and dispensed by the ‘Big Three’ PBMs’ affiliated pharmacies for members of commercial health plans were reimbursed at rates over 100% above their estimated acquisition costs, and 22% had markups exceeding 1,000%.”

Taking the pulmonary hypertension medication tadalafil (generic Adcirca) as an example, the report notes that pharmacies acquired the drug for an average price of $27 in 2022. However, the Big Three PBMs increased its price by $2,079, paying their affiliated pharmacies an average of $2,106 for a 30-day supply on commercial claims. This represents an astonishing average markup of 7,736%.

“The FTC’s second interim report exposes the glaring profiteering by major PBM corporations.”

This significant price inflation enabled the Big Three PBMs and their specialty pharmacies to amass over $7.3 billion in revenue from drug dispensing that exceeded the estimated drug acquisition costs from 2017 to 2022. During this period, payments from patients, employers, and other health plan sponsors for medications consistently rose each year.

This analysis follows a July 2024 report which found that in 2023, pharmacies affiliated with the Big Three PBMs received 68% of the revenue from dispensing specialty drugs, a 14% rise from 2016.

FTC Chair Lina Khan commented on Tuesday, stating, “This second interim report by the FTC staff reveals that the three major pharmacy benefit managers have escalated costs for a broad array of critical medications, including those for treating heart disease and cancer.” She emphasized the importance of the FTC continuing its investigative and regulatory efforts to curb practices that may lead to increased drug costs, disadvantage independent pharmacies, and hinder access to affordable healthcare.

With the impending inauguration of Republican U.S. President-elect Donald Trump next week, who has appointed Andrew Ferguson as the next FTC chair, Khan’s tenure is nearing its end. Ferguson’s appointment to chair does not require Senate confirmation as he is already a member of the commission.

Greg Lopes, a spokesperson for the Pharmaceutical Care Management Association, a PBM lobby group, criticized the report on Tuesday for its incomplete assessment of the prescription drug supply chain and for making broad claims about the role of PBMs without fully understanding their cost-saving impacts.

In September of the previous year, the FTC initiated a lawsuit against the Big Three and their affiliated group purchasing organizations, accusing them of participating in anticompetitive and unfair rebate practices. These practices purportedly inflated insulin prices artificially, restricted access to lower-priced insulin products, and shifted the burden of high insulin prices onto vulnerable patients.

Hannah Garden-Monheit, Director of the FTC Office of Policy Planning, expressed on Tuesday that the issue of PBM price hikes is accelerating, stressing the urgency for policymakers to intervene.

In response, U.S. Senators Maria Cantwell (D-Wash.) and Chuck Grassley (R-Iowa) introduced the Pharmacy Benefit Manager Transparency Act of 2023. Supported by AARP, this legislation aims to enhance transparency and hold PBMs accountable for deceptive practices that escalate prescription drug prices and drive independent pharmacies out of business.

“This report is a rallying cry for policymakers to dismantle these exploitative mechanisms.”

Emma Freer, a senior policy analyst for healthcare at the American Economic Liberties Project, responded to the FTC report, saying, “The FTC’s second interim report uncovers the stark profiteering by PBM giants, marking up essential drugs for conditions like cancer, HIV, and multiple sclerosis by thousands of percent, consequently burdening patients financially.”

“By directing prescriptions for the most costly specialty generic drugs to their own pharmacies, PBMs have amassed billions in surplus revenue—$7.3 billion over merely five years—while squeezing independent pharmacies and burdening patients and health plan sponsors with soaring costs,” added Freer. “This report is a rallying cry for policymakers to dismantle these exploitative mechanisms, abolish the rebate system that inflates prices, and restore fairness and affordability to the U.S. healthcare system.”