PBMs ‘deserve regulatory scrutiny’ as they increase market share in 2021, AMA says

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Pharmacy benefit managers (PBMs) generally maintained or increased their market shares as the nation emerged from the COVID-19 pandemic in 2021.

Meanwhile, a new analysis posits that medicine prices would go up and utilization would decrease if lawmakers restrict PBMs’ financial incentives based on negotiating drug price rebates and discounts.

Market competition

The American Medical Association (AMA) used 2021 data to update last year’s policy research paper on market competition among PBMs. AMA argued the 2020 state and local PBM markets were highly concentrated, and the situation largely was unchanged a year later, according to the update announced Sept. 12.

“The effects of less competition and more vertical integration in the PBM industry deserve regulatory scrutiny as a check against anticompetitive business practices that harm patients by raising drug prices, lowering quality, reducing choice and stifling innovation,” AMA President Jesse M. Ehrenfeld, MD, MPH, said in a news release. “As momentum grows for PBM reform in Congress, the AMA continues to lend its support to bipartisan bills that help promote greater transparency and oversight of PBM policies and practices to ensure prescription drugs are affordable and accessible.”

Big and getting bigger

One of the most noticeable changes for 2021 happened due to CVS Health, owner of the CVS Caremark PBM, acquiring Aetna, which had its own Aetna Pharmacy Management PBM. The collective share of the national PBM market grew from 64% to 68% for the four largest PBMs: Express Scripts, OptumRx, CVS Health, and Prime Therapeutics.

AMA analyzed five PBM services for insurers: rebate negotiation, retail network management, claim adjudication, formulary management, and benefit design. Health insurers generally manage formulary management and benefit design in-house, and rely on PBMs for rebate negotiation, retail network management, and claim adjudication, the AMA study said.

Findings were similar to the market conditions of 2020, said the study by Jose R. Guardado, PhD.

AMA said local PBM markets were highly concentrated in 2020 and that increased in 2021, also due to the merger of CVS Health and Aetna. At least 80% of state and metropolitan statistical area PBM markets were highly concentrated.

For people with commercial drug insurance in 2021, 70% were covered by a health insurer vertically integrated with a PBM, according to AMA. At the state and metropolitan area level, the rates were 63% and 65%, respectively.

But states and metro areas had wide variation. For example, South Dakota had the smallest vertical integration share at 6%, while Utah had the greatest rate at 97%, according to AMA.

“Since a significant portion of the market was not vertically integrated, the risk of consumer harm from vertical mergers remains,” the AMA news release said.

PBMs respond

The AMA study specifically shows robust competition among PBMs negotiating for rebates from drug companies, said Greg Lopes, assistant vice president for strategic communication for the trade group Pharmaceutical Care Management Association (PCMA)

“It’s important the AMA recognizes there is competition in the PBM marketplace,” Lopes said in a statement to Medical Economics.

“Pharmacy benefit companies offers employers choice and flexibility to design their pharmacy benefits to meet the needs of their patient populations,” Lopes said. “In fact, a more complete perspective of the market, including Medicare, shows the market for pharmacy benefit companies is dynamic, diverse, and has only become more competitive, with 73 full-service pharmacy benefit companies operating in the U.S. The number of competitors in the pharmacy benefit market has grown by 10 percent in the last two years alone.”

Financial incentives

This week, the National Bureau of Economic Research published a working paper, “Ending Pay for PBM Performance: Consequences for Prescription Drug Prices, Utilization, and Government Spending.”

PBMs are hired to obtain rebates and discounts on drug prices, and are compensated based on results, said author Casey B. Mulligan, PhD, an economist at the University of Chicago. AMA, Mulligan, and PCMA all noted federal lawmakers and regulators this year have turned their attention to PBMs’ business practices.

New legislation to “delink” pay and performance would “significantly change drug pricing and utilization and shift billions of dollars annually from patients and taxpayers to drug manufacturers and retail pharmacy companies,” the paper said. Medicare Part D premiums would grow – possibly as much as $10 billion – and health insurance companies would have to charge more, thus discouraging patients from maintaining health insurance coverage.

PCMA President and CEO JC Scott issued a statement on Mulligan’s findings and the current national trends of legislators.

“Unfortunately, Congress is not examining the entire prescription drug supply chain in order to identify policy approaches that actually reduce drug costs,” Scott said. “It’s our hope that economic research will allow lawmakers to refocus on policies that promote more competition in the prescription drug marketplace, including policies that eliminate some drug company practices that extend patent protections to keep drug prices high.”