Impact of PBM Ownership on Medicare Drug Costs

A recent analysis by the Office of the Inspector General at the U.S. Department of Health and Human Services (HHS OIG) indicates that ownership of pharmacy benefit managers (PBMs) by insurers does not significantly raise drug costs within Medicare's prescription drug plans. However, due to data constraints, these conclusions remain cautious.

The investigative report evaluated prices of 60 frequently used, high-cost medications. It found minimal price differences between plans vertically integrated with PBMs and those that are not. These findings are significant amid concerns about potential anti-competitive practices and elevated drug prices resulting from such vertical integration.

Currently, three major PBMs—Express Scripts, Caremark, and Optum Rx—are integrated with large corporations managing insurance and pharmaceutical services, dominating approximately 80% of the U.S. prescription market. Studies, including those by the Federal Trade Commission and the House Oversight Committee, suggest these organizations might leverage their market strength to capture more healthcare spending, potentially disadvantaging competitors and raising expenditures.

The HHS OIG sought to understand the impact of vertical integration on costs in Medicare Part D, highly concentrated among insurers with integrated PBMs. Although drug costs appeared similar across varied health plans, financial flows varied: vertically integrated firms often provided higher initial payments to pharmacies but recouped these costs through rebates and fees.

However, limitations in data availability hinder a complete understanding of the full implications on costs and access. Integrated companies reportedly paid their affiliated pharmacies about 4% less than others at the point of sale, but possible post-dispensation adjustments, such as price deductions or additional fees, remain unclear.

For independent pharmacies, PBM integration is concerning, with claims of restricted reimbursements and contracts favoring in-house services. Both the Federal Trade Commission and Centers for Medicare & Medicaid Services (CMS) express apprehension that such practices might squeeze smaller pharmacies and affect patient access.

While the report is inconclusive, industry stakeholders interpret the findings diversely. The Pharmaceutical Care Management Association sees it as evidence that vertical integration doesn't inherently inflate costs—a view echoed by corporations like UnitedHealth, CVS, and Cigna. Conversely, the National Community Pharmacists Association points to data gaps in the analysis, anticipating further investigations by HHS OIG. Discussions about legislative actions to address PBM business practices are underway, with Senator Chuck Grassley indicating possible reforms to increase transparency and fairness. Meanwhile, the agency plans to enhance oversight with increased audits and workforce expansion.