What’s the news: An updated AMA analysis indicates that little competition exists among pharmacy benefit managers (PBMs). Local PBM markets are on average highly concentrated—as defined by the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC)—which suggests low competition among these pharmaceutical supply-chain middlemen.
The AMA Policy Research Perspectives report, “Competition in PBM Markets and Vertical Integration of Insurers with PBMs: 2024 Update” (PDF), is based on 2022 data on commercial and Medicare Part D prescription-drug plan (PDP) enrollees, and offers the most current snapshot of PBM market concentration at both the national and PDP region levels. For example, 82% of PDP-region-level PBM markets are considered “highly concentrated” according to federal antitrust guidelines.
The previous versions of this study used data for 2020 and 2021 and focused on commercial prescription drug-plan covered lives. This edition adds data on Medicare Part D.
“The findings from the new AMA analysis warrant attention as Congress and the administration continue their work to protect patients and ensure prescription drugs remain affordable and accessible,” said AMA President Bruce A. Scott, MD. “The AMA urges careful monitoring, and intervention when needed, of both horizontal and vertical integration to ensure competition in PBM and health insurance markets.”
The analysis also measures the extent of vertical integration between insurers and PBMs and presents market insight on five PBM services performed for insurers:
- Rebate negotiation.
- Retail network management.
- Claim adjudication.
- Formulary management.
- Benefit design.
Insurers face a make-or-buy decision—they can perform these functions in-house or buy them from a PBM. The AMA report found that insurers largely use a PBM for three of them—rebate negotiation, retail network management and claims adjudication—and assessed market competition based on those three product markets.
The report notes that, in general, there is consistency in whether the insurer is vertically integrated across these functions. For example, the PBM reported across all five functions for Cigna is always its own PBM—Express Scripts.
The analysis also found that:
- The four largest PBMs collectively have a 70% share of the national PBM market.
- CVS Health is the largest PBM (21.3% market share), followed by OptumRx (20.8%), Express Scripts (17.1%), and Prime Therapeutics (10.3%).
- This indicates that only a few PBMs supplied insurers with PBM services and suggests low competition among PBMs.
The analysis found significant vertical integration between insurers and PBMs.
- Nationally, insurers that are vertically integrated with a PBM covered 72% of people with a commercial or Medicare Part D PDP.
- The share of people covered by an insurer that is vertically integrated with a PBM is higher in the Medicare Part D market (77%) than the commercial prescription drug-plan market (69%).
- At the PDP region level, an average of 70% of people are covered by an insurer that is vertically integrated with a PBM.
- There is wide variation across PDP regions, with some having little vertical integration between insurers and PBMs, while others are almost entirely vertically integrated.
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Why it’s important: The Biden administration has been scrutinizing the practices of these and other pharmaceutical drug “middlemen” groups—such as group purchasing organizations and drug wholesalers—to determine whether their actions are contributing to generic drug shortages, FTC Chair Lina M. Khan said earlier this year at the AMA National Advocacy Conference in Washington.
“The call for increased regulatory oversight of PBM business practices is overwhelmingly welcomed by physicians as a check against possible anticompetitive harm resulting from low competition and high vertical integration in the PBM industry,” said Dr. Scott, a private practice otolaryngologist in Louisville, Kentucky.
The AMA has policy calling for greater scrutiny of PBMs’ outsized role in prescription drug decision-making.
“PBMs have attracted much attention and scrutiny from regulators and policymakers,” the AMA Policy Research Perspectives report notes. “The findings in this paper may be helpful in shedding light on some of those inquiries.”
Legislators are also looking at PBMs, and the House Education and Labor Committee requested that the Government Accountability Office examine the role of PBMs in the pharmaceutical supply chain.
“Trends in the industry have also raised concerns about the market power of pharmacy benefit managers,” says a GAO report published in March. Also, an FTC interim staff report released in July shows that PBMs make “critical decisions about access to and affordability of life-saving medications without transparency or accountability to the public.”
Learn more: The analysis of competition and vertical integration in PBM markets adds to the AMA’s work to highlight the lack of market competition in the health insurance industry.
Protecting patients and physicians from anticompetitive harm will continue to be a vital public policy issue for the AMA, the federation of medicine, and the nation’s physicians. Find out about the AMA’s other efforts to fight anti-competitive mergers.
