“Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers,” Federal Commerce Fee
A short put up or commentary on Pharmacy Profit Managers (PBMs). For the Huge 3 PBMs and their affiliated pharmacies throughout our research interval from 2017 by way of a part of 2022 specialty generic medication represented a rising revenue middle. FTC analyses discovered the Huge 3 PBMs marked up quite a few specialty generic medication by a whole bunch and hundreds of %, with the vast majority of probably the most extremely marked-up medication allotted
by the PBMs’ personal affiliated pharmacies.108 These medication are taken by sufferers with critical circumstances, together with most cancers, a number of sclerosis, HIV, and pulmonary hypertension, amongst others.
Some Element on the Findings
Prescribed drugs signify a big and rising quantity of healthcare spending, rising from $393 billion in 2016 to $600 billion in 2023. Conventional medication allotted by way of retail and mail order pharmacies account for a lot of this spending. A disproportionate share of the expansion has come from spending on a category of medication often called specialty medication. This class of medication has greater than doubled from $113 billion in 2016 to $237 billion in 2023. Traditionally, specialty medication have been categorized by their want for particular dealing with and administration. That is not essentially the case. There isn’t a commonplace definition for a specialty drug. Immediately specialty medication could also be characterised by number of components, together with their excessive price.
This report expands on FTC employees’s preliminary findings concerning specialty medication revealed in a July 2024 employees report entitled “Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies.” The First Interim Workers Report offered an outline of the vertically built-in and extremely concentrated markets by which pharmacy profit managers (“PBMs”) function. It highlighted the rising significance of specialty medication to the three largest PBMs, Caremark Rx, LLC (“CVS”), Specific Scripts, Inc. (“ESI”), and OptumRx, Inc. (“OptumRx”) [collectively the “Big 3 PBMs”] and their affiliated pharmacies. Amongst many different findings, the First Interim Workers Report confirmed:
- Pharmacies affiliated with the Huge 3 PBMs acquired 68% of the meting out income generated by specialty medication in 2023, up from 54% in 2016.
- The Huge 3 PBMs marked up two specialty generic most cancers medication by hundreds of % after which paid their affiliated pharmacies a whole bunch of hundreds of thousands of {dollars} of meting out income in extra of estimated acquisition prices for every drug yearly.
This employees report depends on further knowledge and paperwork to investigate a broader subset of specialty generic medication. We consider all specialty generic medication allotted throughout our 2017-2022 research period8 for members of economic well being plans and Medicare Half D prescription drug plans managed by the Huge 3 PBMs for which we have now related knowledge—which incorporates 51 medication comprising 882 Nationwide Drug Codes.
Pharmacies affiliated with the Huge 3 PBMs acquired 68% of the meting out income generated by specialty medication in 2023. That is up from 54% in 2016.
Key Findings
The FTC’s newest interim employees report is a part of the Fee’s ongoing research of the PBM trade. This report highlights a number of key insights gained from knowledge and paperwork obtained from particular orders the FTC issued in 2022 below Part 6(b) of the FTC Act, in addition to from publicly out there data:
Vital worth markups: The Huge 3 PBMs imposed markups of a whole bunch and hundreds of % on quite a few specialty generic medication allotted at their affiliated pharmacies. This contains medication used to deal with most cancers, HIV, and different critical ailments and circumstances. The Huge 3 PBMs additionally reimbursed their affiliated pharmacies at a better price than they paid unaffiliated pharmacies on practically each specialty generic drug examined.
Dishing out probably the most worthwhile medication: A bigger, disproportionate share of economic prescriptions for specialty generic medication marked up greater than $1,000 per prescription have been allotted by the Huge 3 PBMs’ affiliated pharmacies in contrast with unaffiliated pharmacies. Dishing out patterns recommend that the Huge 3 PBMs could also be steering extremely worthwhile prescriptions to their very own affiliated pharmacies (and away from unaffiliated pharmacies).
Over $7.3 billion of meting out income in extra of NADAC: The Huge 3 PBMs’ affiliated pharmacies generated over $7.3 billion of meting out income in extra of their estimated acquisition price. (Measured by the Nationwide Common Drug Acquisition Price (NADAC), on specialty generic medication over the research interval). PBM-affiliated pharmacy meting out income in extra of NADAC elevated dramatically at a compound annual progress price of 42 % from 2017-2021. Within the combination, the high 10 specialty generic medication generated $6.2 billion of meting out income in extra of NADAC (85 % of complete).
Producing further earnings by way of unfold pricing: Within the combination, the Huge 3 PBMs additionally individually generated an estimated $1.4 billion of earnings from unfold pricing (i.e., billing their plan sponsor purchasers greater than they reimburse pharmacies for medication) on the analyzed specialty generic medication over the research interval.
Specialty generic medication assist drive mum or dad healthcare conglomerates’ working earnings: The highest specialty generic medication accounted for a big share of the related enterprise segments reported by the Huge 3 PBMs’ mum or dad healthcare conglomerates. Working earnings from the Huge 3 PBMs’ affiliated pharmacies meting out of the analyzed specialty generic medication accounted for 12 % of the aggregated working earnings reported by the mum or dad healthcare conglomerates’ enterprise segments that embody their PBM and pharmacy companies in 2021.
Plan sponsor and affected person drug spending elevated considerably: In 2021, the final 12 months for which the FTC acquired full-year knowledge for this research, plan sponsors paid $4.8 billion for specialty generic medication. Affected person price sharing totaled $297 million. Between 2017 and 2021 plan sponsors and affected person funds each elevated at compound annual progress charges of 21% for industrial claims, and 14%-15% for Medicare Half D claims.
The outcomes illustrate the rising monetary significance of specialty generic medication to the Huge 3 PBMs, in addition to to plan sponsors and sufferers. The outcomes additionally reveal the 2 case research medication analyzed in our First Interim Workers Report weren’t remoted examples. This report confirms that the Huge 3 PBMs impose important markups on a wide selection of specialty generic medication.
And the income generated?
Determine 5 is a waterfall chart exhibiting meting out income for PBM-affiliated pharmacies (blue bars), NADAC estimated acquisition prices (inexperienced bars), and income in extra of NADAC (crimson bars) over the 2017-2021 interval. Within the combination, NADAC decreased barely over the interval (compound annual price of decline = 4 %), whereas pharmacy meting out income skilled important progress (compound annual progress price = 24 %), ensuing within the PBM-affiliated pharmacies’ good points in meting out income in extra of NADAC.
Income in extra of NADAC generated from industrial claims totaled $5.9 billion through the research interval (81 % of complete). For Medicare Half D claims, income in extra of NADAC— which has implications for rising authorities and beneficiary spending85—totaled $1.4 billion (19 % of complete). Income in extra of NADAC grew very considerably between 2017 and 2021 for each industrial (compound annual progress price = 43 %) and Medicare Half D (compound annual progress price = 39 %) claims.
NADAC is the Nationwide Common Drug Acquisition Price. It’s an index of drug acquisition prices primarily based on surveys of invoices voluntarily offered to the Facilities for Medicare & Medicaid Providers (“CMS”) primarily by small, impartial pharmacies. Its calculated price relies on the retail worth survey and focuses on the retail group pharmacy acquisition prices. CMS has mandated that Medicaid pharmacy packages reimburse the precise acquisition price (AAC) of medication plus knowledgeable meting out charge.
