AMA Report Details PBM Market Concentration; PCMA Fires Back

UnitedHealth Group’s Optum Rx, The Cigna Group’s Express Scripts, CVS Health Corp.’s Caremark and Prime Therapeutics together control about 70% of the national PBM market in 2022, according to an American Medical Association (AMA) report released on Sept. 9. Although the PBM industry’s trade group immediately criticized the report, pointing out that the nation’s largest physician trade group could be biased against PBMs, data from AIS Health’s parent company, MMIT, tells a similar story. And one leading health policy expert tells AIS Health that what the researchers found is “very reasonable” and consistent with other reports on the concentration and vertical integration in the PBM market. The Pharmaceutical Care Management Association (PCMA), the PBM industry’s leading trade group, asserts that there are more than 70 full-service PBMs in the U.S. “It’s unfair to assume the AMA presents an accurate depiction of the entire health care system,” Greg Payne, PCMA’s vice president of public affairs and communications, tells AIS Health, a division of MMIT. “The bottom line is that the PBM marketplace is dynamic, diverse, and continues to grow. PBMs vary in size, geographic footprint, and service offerings, which creates a marketplace with a variety of options for health insurers, employers, labor unions, government programs, and other health plan sponsors.” MMIT has enrollment data for 67 PBMs with payer relationships across the U.S.; approximately 70% of covered lives are in plans with formularies managed by CVS Caremark, Express Scripts, Optum Rx or Prime Therapeutics. Matthew Fiedler, Ph.D., a fellow with the Brookings Center on Health Policy who was not involved with the report, notes the study had a few limitations, which the authors acknowledged. For instance, Fiedler says there was a “real gap” in that the data the AMA researchers used “exclude drug benefits that are based on direct relationships between self-insured employers and PBMs.” He adds that “there’s a reasonable argument to be made” that the report should have measured market share based on the number of prescription claims managed rather than on the number of covered lives. However, Fiedler tells AIS Health, “I don’t think either of those shortcomings are leading them to draw meaningfully erroneous conclusions. Their point is this is a highly concentrated market, and if anything, they’re finding that the market is somewhat less concentrated than some of the other people who have looked at this market.” Caremark Has Largest Rebate Market Share For the AMA’s report, the authors analyzed data from the Decision Resources Group (DRG) on Medicare Advantage Prescription Drug Plans and stand-alone PDPs, as well as commercial plans that offer both a medical and pharmacy benefit. DRG’s data excluded carved-out lives, missed about 39% of commercial lives, and used an “alternative geographic market” standard that closely resembles Prescription Drug Plan markets in its research. It did report the breakdown of various functions for which the insurers used the PBMs. Based on rebate negotiations, Caremark led the way with a 21.3% market share, ahead of Optum Rx (20.8%), Express Scripts (17.1%) and Prime Therapeutics (10.3%). Caremark also was first in retail network management (21.4% market share), followed closely by Optum Rx (21.3%), Express Scripts (17.1%) and Prime Therapeutics (10.3%). Optum Rx had the market share (21.1%) in claims adjudications, followed by Caremark (19.9%), Express Scripts (17.1%) and Prime Therapeutics (9.5%). Optum Rx was first based on formulary management (17.2% market share) and benefit design (17.0%), while Caremark was second in both categories (11.7% and 11.4%, respectively) and Express Scripts was third (10.2% and 9.8%, respectively). The report defined the benefit design category as “a means to incentivize the use of certain drugs over others, such as through tiering, copays and coinsurance.” Caremark, Express Scripts, Optum Rx and Prime Therapeutics — along with Humana Pharmacy Solutions and MedImpact — were the subject of an interim report that the Federal Trade Commission (FTC) released in July after a two-year investigation into their business practices. The FTC noted that those six PBMs manage 94% of prescription drug claims in the U.S., with the “Big Three” of Caremark, Express Scripts and Optum Rx accounting for a 79% market share. The Wall Street Journal reported at the time that the FTC would sue the Big Three PBMs over their contracting practices, but the agency has not confirmed a lawsuit. “The calls 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,” AMA President Bruce A. Scott, M.D., said in a press release. “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. The AMA urges careful monitoring, and intervention when needed, of both horizontal and vertical integration to ensure competition in PBM and health insurance markets.” What Can Be Done to Limit Consolidation? While the FTC report drew widespread attention, Fiedler notes, “we didn’t get a great picture, frankly, on how the FTC’s going to move forward” in terms of what the agency’s next steps would be and when it would release a final version. As to what could be done to address concerns about PBM consolidation, Fiedler says, “there frankly aren’t a whole lot of great options.” Many of the proposals in Congress have called for more transparency in the PBM market with the hope that it would allow customers to shop around and get better deals on fees or other contract terms, according to Fiedler. “I think there may be a little bit of room through those types of changes, but my suspicion in practice is that a lot of this is not that an employer who’s looking to contract with a PBM doesn’t know what to look for,” he says. “The problem is really that they don’t have a lot of options. The PBM on the other side of the table, as a result, can demand fairly high prices and fairly high fees for administering the plan.” Fiedler says regulators could also attempt to block any mergers and acquisitions among PBMs, but he notes the market already has limited competition, so such a move wouldn’t change much. He adds that there could be regulations put in place to limit the compensation PBMs receive, similar to how health insurers have to meet minimum medical loss ratios, although Fiedler says he is “frankly skeptical that those types of requirements are particularly effective at squeezing margins in practice.” In addition, he envisions insurers that don’t already own PBMs will start setting up PBM capabilities in-house and not relying on the big players such as Caremark, Optum Rx or Express Scripts. “I think we’re likely, over time, to end up in a world where at least all the big insurers have their own PBMs,” he says. “That may have the effect of making the PBM market somewhat less concentrated. The insurance market’s pretty concentrated, so that’s still going to result in a fairly concentrated market.” When PBMs are grilled about market concentration and a small number of competitors handling most claims, they counter that they are offering a service to their customers and only account for a small percentage of overall drug spending, according to Fiedler, who adds that pharmaceutical manufacturers make up the bulk of drug spending in the U.S. “That’s not to say PBMs aren’t earning more profits than they should be,” he says. “That’s a little bit of them playing the game of distraction, but frankly I think some of the policy debates have gotten so focused on PBMs that they have sometimes forgotten that PBMs are ultimately a fairly small slice of the overall pie. Do [PBMs] have a compelling argument that this isn’t a concentrated market or that’s not allowing them a decent amount of market power? I haven’t seen one, and it’s not where they try to have this fight, typically.” For more information, contact info@mmitnetwork.com.