A couple of weeks ago, The New York Times discovered that there were these obscure middlemen that were using information advantages and concentrated control of pharmaceutical markets to raise prices. The Times was about seven years late, compared to the Prospect, on warning about the dangers of pharmacy benefit managers, or PBMs. But the series got launched just before the Federal Trade Commission released preliminary results of its ongoing investigation into PBMs, enabling the paper to write a kind of "told you so" recap of the FTC’s interim report.

In fact, the FTC has been studying PBMs for two years, starting with requests for information from the leading companies. They predictably delayed and obstructed in response; the report threatens to take the PBMs to court to compel information. But there’s enough available data for the agency to draw some initial conclusions in their report.

The story told is quite familiar to Prospect readers. The three leading PBMs control about 80 percent of the market for filling prescriptions; all three have aligned with insurance companies (Express Scripts/Cigna, CVS Caremark/Aetna, Optum Rx/UnitedHealth). They also own their own mail order and specialty pharmacies, and CVS is a major pharmacy chain. Through UnitedHealth and CVS, health clinics are connected to PBMs. This vertical integration plays out in familiar ways.

Once pitched as a way to lower drug costs, PBMs now sit in between health plans, drug companies, dispensing pharmacies, and patients, negotiating prices with drug manufacturers and managing where the money goes. Rather than extracting "discounts" from drug companies, they bid up list prices so they can take higher rebates for themselves. They use formularies to dictate what drugs patients can get and for how much, often rejecting lower-cost generics in favor of more expensive brand-name products with bigger rebates for themselves. They can self-preference drug distribution through their own channels. They write take-it-or-leave-it contracts that squeeze independent pharmacies, which never know their reimbursement levels until after dispensing a drug.

The report notes that 10 percent of all independent pharmacies in rural areas closed between 2013 and 2022, degrading a key node of the health system in what have become medical deserts. Patients also often suffer with higher co-payments because lower-cost drugs are unavailable. Health plans outside of the three affiliated with major PBMs also suffer. By steering to their own specialty pharmacies, PBMs took home an additional $1.6 billion from Medicare and commercial payers for just two cancer drugs over the past three years.

The PBMs have responded in the usual fashion, by pointing their fingers at the drug companies. The drug companies usually do the same thing back. If everyone’s responsible, then no one is responsible. But the FTC getting this report out there is a significant step into reforming their role in the market. In a House hearing today, FTC chair Lina Khan vowed to sue PBMs if they find violations of law in the ongoing investigation.

In general, this has been a bipartisan operation. Ohio’s attorney general has sued the PBMs. Rep. Larry Bucshon (R-IN) was pretty steadfast today in the committee hearing about the need to crack down on companies that are raising drug prices. Donald Trump actually removed an anti-kickback exemption for PBMs when he was in office; it maddeningly became a way to "pay for" parts of Biden policies and was rolled back.

The report was accepted by a 4-1 vote. New Republican commissioner Melissa Holyoak rejected it, defending these middlemen in her dissent and attacking the "politicized" report while calling back to a hands-off study made during the George W. Bush administration. In other words, the data from two decades ago should take precedence over the very different market realities today. Holyoak was even criticized by House Republicans today over this.

PBMs are a signature example of the middleman economy, where gatekeepers skim off the top of everyday transactions at the public’s expense. The government is beginning to catch on to the scam.