FTC Exposes PBM Price Gouging of Specialty Generic Drugs
The Federal Trade Commission's (FTC) second interim staff report confirms what patient advocates have long suspected: the three largest pharmacy benefit managers (PBM)—CVS Caremark, Express Scripts, and OptumRx—are systematically price-gouging specialty generic drugs, putting profits over patient access to life-saving medications. The report documents how these PBMs abuse their market power to generate billions in excess revenue at the expense of people who rely on these medications to survive.
This comprehensive analysis examines 51 specialty generic drugs—a significant expansion from the two drugs analyzed in the FTC's July 2024 report. The findings are damning: PBM-affiliated pharmacies extracted over $7.3 billion in revenue above estimated acquisition costs for these medications between 2017-2022, with this excess revenue growing at a staggering 42% annual rate. This is not market efficiency—it's profiteering.
The report's unanimous approval by FTC commissioners, including incoming Chair Andrew Ferguson, reflects the undeniable nature of these abusive practices. The evidence shows PBMs are deliberately inflating costs for medications that treat HIV, cancer, multiple sclerosis, and other serious conditions, creating unnecessary barriers to care while padding their own profits. For those of us fighting to protect access to care, this report provides irrefutable evidence that PBM reform cannot wait. The breadth and depth of documented abuses demand immediate action to stop practices that threaten both patient health outcomes and public health goals.
Key Findings: Systematic Price Gouging and Patient Steering
The FTC's analysis exposes a deliberate pattern of excessive markups on specialty generic medications that would be illegal in most other industries. A staggering 63% of specialty generic drugs dispensed by PBM-affiliated pharmacies for commercial health plan members were marked up more than 100% over acquisition costs between 2020 and 2022. Even more egregious, PBMs marked up 22% of these medications by more than 1,000%—an indefensible practice when dealing with life-saving medications.
These markups weren't random—they targeted critical medications across multiple therapeutic categories where patients have few alternatives:
Cancer treatments: $3.3 billion in excess revenue (44% of total)
Multiple sclerosis medications: $1.8 billion (25%)
Transplant medications: $824 million (11%)
HIV medications: $521 million (8%)
Pulmonary hypertension treatments: $432 million (7%)
The investigation also uncovered clear evidence of patient steering. While PBM-affiliated pharmacies filled 44% of commercial specialty generic prescriptions overall during 2020-2022, they commandeered 72% of prescriptions for drugs marked up more than $1,000 per prescription. This disparity reveals how PBMs systematically funnel high-profit prescriptions to their own pharmacies.
Beyond these markup practices, PBMs extracted an additional $1.4 billion through spread pricing—billing plan sponsors more than they reimburse pharmacies for medications. Most of this spread pricing revenue (97%) came from commercial prescriptions filled at unaffiliated pharmacies—a clear demonstration of how PBMs exploit their market position to profit from competing pharmacies while simultaneously steering patients to their own dispensing operations. This dual strategy of profiting from independent pharmacies while actively working to put them out of business reveals the anti-competitive impact of vertical integration in the pharmacy sector.
These practices have become central to PBM business models. Operating income from PBM-affiliated pharmacy dispensing of these specialty generic drugs accounted for 12% of their parent healthcare conglomerates' relevant business segment operating income in 2021, up from less than 8% just two years earlier. The top 10 specialty generic drugs alone represented nearly 11% of this operating income.
This isn't a case of a few isolated pricing anomalies. The FTC's analysis reveals a systematic campaign to extract maximum profit from medications people need to survive. These practices have become a major profit center for vertically integrated PBMs, deliberately trading patient access for corporate profits.
The Human Cost: Exploiting HIV Care Access
The FTC's findings expose how PBMs are actively undermining decades of progress in HIV care and prevention. PBMs extracted $521 million in excess revenue from HIV medications alone—representing 8% of total excess revenue despite these drugs comprising a smaller portion of prescriptions. This targeted exploitation of HIV medications reveals a calculated strategy to profit from a vulnerable population.
The FTC report documents troubling markup patterns affecting every level of HIV treatment. Take lamivudine (generic Epivir) as an example - PBM-affiliated pharmacies marked up this essential medication by 168-197% compared to acquisition costs. This level of markup isn't unique to lamivudine but represents a systematic practice affecting the full spectrum of HIV medications, from single-drug therapies to combination treatments. For people living with HIV who often require multiple medications as part of their treatment regimen, these markups create compounding barriers to care access.
Beyond the pricing abuse, PBM steering practices actively disrupt HIV care by forcing people living with HIV away from specialized pharmacies that understand their needs. These community pharmacies provide essential services that PBM-owned pharmacies often fail to match:
Experienced HIV medication counseling
Critical adherence support
Care coordination with HIV specialists
Navigation of assistance programs
Culturally competent care
For Medicare Part D beneficiaries living with HIV, the situation is particularly egregious. Despite "any willing pharmacy" protections meant to preserve patient choice, PBMs use discriminatory reimbursement practices to force independent pharmacies to either accept unsustainable payment rates or abandon their patients. This deliberately undermines pharmacies serving communities most impacted by HIV.
PrEP Profiteering
The FTC report reveals perhaps the most cynical PBM practice yet: marking up generic PrEP by over 1,000% above acquisition costs. This price gouging of HIV prevention medication directly sabotages public health efforts to end the HIV epidemic. In an era when expanding PrEP access is critical to preventing HIV transmission, PBMs are creating artificial barriers to a medication that should be becoming more affordable through generic availability.
While the Affordable Care Act requires most private insurance plans to cover PrEP without cost-sharing (for now), PBM markup practices drive up overall healthcare costs through inflated plan sponsor payments. This leads to higher premiums that can make insurance itself unaffordable for many people who need PrEP coverage.
The forced migration to PBM-owned pharmacies compounds the damage by separating people from community pharmacies that have developed comprehensive PrEP care programs. These specialized pharmacies don't just dispense medication - they provide an integrated set of essential services including regular HIV testing, STI screening coordination, adherence support and counseling, benefits navigation, and ongoing coordination with healthcare providers. PBM-owned pharmacies typically lack these specialized services, creating gaps in PrEP care that can affect both initiation and adherence. By disrupting these established care relationships, PBM steering practices threaten the comprehensive support system that helps keep people engaged in PrEP care. The FTC's findings prove that PBM practices are actively working against HIV prevention goals by creating unnecessary barriers to PrEP access and fragmenting PrEP care delivery.
Political Landscape: Reform Momentum Meets Industry Resistance
The unanimous FTC commissioner support for the second interim report, including incoming FTC Chair Andrew Ferguson's concurring statement, reflects the undeniable nature of PBM abuses. President Trump's rhetoric about "knocking out the middleman" suggests potential executive branch support for reform, but previous promises of action on drug pricing require skeptical assessment.
The December 2024 failure of comprehensive PBM reform legislation reveals the industry's continued influence over the legislative process. Despite bipartisan support, PBMs and their allies successfully stripped crucial reforms from the federal funding bill that would have:
Required pass-through of all rebates to Medicare sponsors and group health plans
Prohibited excessive billing of Medicaid programs
Mandated transparency in drug spending practices
Protected patient choice in pharmacy selection
Current legislative proposals like the PBM Act, introduced by Senators Warren and Hawley, target the fundamental problem of vertical integration by prohibiting joint ownership of PBMs and pharmacies. This structural approach directly addresses the conflicts of interest documented in the FTC report.
While narrow Republican majorities in Congress create opportunities for bipartisan action, the PBM industry's demonstrated ability to derail reform efforts demands sustained advocacy pressure. The challenge isn't finding solutions—it's overcoming industry resistance to implementing them.
State-Level Response: Why Price Controls Miss the Mark
The FTC's detailed analysis of PBM practices provides compelling evidence for why Prescription Drug Affordability Boards (PDABs) are fundamentally misaligned with addressing drug affordability issues. The report documents that PBM-affiliated pharmacies generated over $7.3 billion in revenue above estimated acquisition costs on specialty generic drugs—a problem that stems from markup practices and vertical integration rather than base drug prices.
Take, for example, the pulmonary hypertension drug tadalafil (generic Adcirca). The FTC found that in 2022, while pharmacies purchased the drug at an average cost of $27, PBMs marked it up by $2,079, resulting in a reimbursement rate of $2,106 for a 30-day supply—a markup exceeding 7,700%. A PDAB focusing on upper payment limits would fail to address these markup practices or the steering mechanisms that drive prescriptions to PBM-affiliated pharmacies where such markups occur.
Similarly, the report's findings on multiple sclerosis medications illustrate the inadequacy of the PDAB approach. For dimethyl fumarate (generic Tecfidera), PBMs marked up the drug by $3,753 over its $177 acquisition cost—a 2,100% increase. This markup occurred through PBM practices that PDABs have no authority to regulate or control.
The FTC's analysis of spread pricing further undermines the PDAB model. PBMs generated approximately $1.4 billion through spread pricing on these specialty generic drugs, with 97% coming from commercial claims. PDABs, focused on manufacturer prices rather than PBM practices, would do nothing to address this significant source of cost inflation.
Moreover, PDABs could exacerbate existing market distortions. The report documents that PBM-affiliated pharmacies already handle 72% of prescriptions for drugs marked up more than $1,000 per prescription, despite filling only 44% of commercial specialty generic prescriptions overall. Adding PDAB-imposed price controls could result in pharmacy under-reimbursement. This would be financially detrimental, disproportionately so for independent pharmacies, resulting in pharmacy closures. Pharmacy closures would only increase the market concentration of PBM-affiliated pharmacies. Additionally, a PDAB-imposed Upper Payment Limit (UPL) could lead a PBM to enforce utilization management policies which would increase practitioners' administrative burden.
The evidence demands solutions that directly address PBM pricing practices, vertical integration, and market consolidation—not ineffective state-level price control boards that may actually strengthen PBMs' market position while failing to protect patient interests.
The Path Forward: Ending PBM Abuse
The FTC's comprehensive report demands immediate legislative action to dismantle PBM practices that systematically undermine patient care and inflate healthcare costs. Based on the documented evidence, reform must target three critical areas:
Dismantling Anti-Patient Practices
Prohibit PBMs from forcing patients into proprietary pharmacy networks
Ban exclusionary network designs that restrict patient choice
Eliminate spread pricing mechanisms
Terminate retroactive pharmacy reimbursement clawbacks
Prevent prescription steering practices that disrupt established care relationships
Establishing Real Accountability
Create federal oversight with clear investigative and enforcement powers
Mandate comprehensive transparency in PBM revenue streams
Implement rigorous contract review processes for health plans
Develop meaningful penalties for violations that harm patient care
Protecting Specialized Care
Guarantee patient pharmacy selection autonomy
Preserve continuity of care for chronic condition management
Safeguard community pharmacies providing specialized services
Ensure access to providers with deep therapeutic expertise
Protect pharmacies serving vulnerable and marginalized communities
The FTC's findings provide irrefutable evidence of systematic abuse. Ineffective approaches like Prescription Drug Affordability Boards (PDABs) and industry self-regulation have failed. Federal legislation with clear enforcement mechanisms is the only path to stopping these harmful practices and protecting patient access to care.
Healthcare advocates must sustain pressure on Congress and the new administration to implement comprehensive reforms. The time for incremental compromises has passed. We need decisive action to end PBM practices that prioritize corporate profits over patient health.
Proposed Cigna-Humana Merger Raises Stakes for Healthcare Access Amid Election Uncertainty
Cigna Group and Humana are once again discussing a merger that could create a $140 billion insurance giant, further consolidating the U.S. healthcare system. The talks are in preliminary stages after collapsing last December over disagreements about financial terms. FierceHealthcare notes that while discussions have resumed, no formal agreements have been made yet.
The stakes of this merger extend far beyond corporate boardrooms; it directly impacts millions of people's access to essential healthcare services and affordable medications. With Cigna’s Express Scripts commanding 24% of the PBM market and Humana operating the fourth-largest PBM with 8%, the merger raises serious questions about market concentration and its impact on healthcare affordability and accessibility.
Election Outcome Could Determine Merger’s Fate
The timing of the renewed merger talks between Cigna and Humana is no coincidence, occurring just weeks before a presidential election that could heavily influence the merger’s prospects. Bloomberg reports, Wall Street analysts believe that the deal's future hinges on the election outcome, with talks likely "only tangibly moving forward if Trump wins."
Under a Trump Administration, a more favorable regulatory environment might be expected given the GOP's general preference for deregulation. However, skepticism about large corporate mergers from Trump's base and running mate JD Vance complicates this picture. Vance has even praised current FTC Chair Lina Khan, saying she is "one of the few people in the Biden Administration who I think is doing a pretty good job," indicating a potentially less favorable view of healthcare consolidation than the GOP has historically maintained. On the other hand, a Harris Administration would likely continue the Biden Administration's stricter stance on healthcare consolidation, focusing particularly on protecting underserved and rural communities.
TD Cowen analyst Ryan Langston suggests that any formal merger announcement before the election is unlikely, further underscoring the centrality of the election to the deal’s future. Meanwhile, federal scrutiny of pharmacy benefit managers (PBMs) remains high, with the Federal Trade Commission (FTC) accusing the largest PBMs of using negotiation tactics that inflate drug costs, adding another layer of complexity to the regulatory landscape.
Understanding the Scale and Implications of the Proposed Merger
The proposed Cigna-Humana merger would unite two companies with largely complementary business models. Modern Healthcare reports that Cigna dominates in commercial coverage with 16.1 million members, while maintaining a smaller Medicare presence. In contrast, Humana has fewer than 600,000 commercial customers and is withdrawing from employer-sponsored insurance, while standing as the second-largest Medicare insurer with 8.8 million members.
This complementary structure could ease some antitrust concerns, but the combined PBM operations present a more complex challenge. The American Medical Association's (AMA) position on the CVS-Aetna merger highlighted similar concerns, noting that such consolidation can limit competition and reduce patient access to specialty drugs, which may parallel the challenges presented by this merger. Healthcare Huddle's analysis suggests that a merger would create a PBM entity large enough to rival market leader CVS Caremark, potentially controlling 32% of the market. Such concentration in the PBM space has already drawn scrutiny from regulators and policymakers.
To address regulatory hurdles, Cigna is planning to finalize the sale of its Medicare Advantage business to Health Care Service Corporation for $3.3 billion, a move that Modern Healthcare suggests could ease antitrust concerns by eliminating overlapping services. Meanwhile, Humana has faced challenges, with its value dropping nearly 40% this year due to declining Medicare plan enrollments and performance shortfalls resulting in the Centers for Medicare and Medicaid Services (CMS) downgrading their Medicare Advantage (MA) plans’ star ratings.
The combined entity would have a market capitalization of around $121 billion based on October 2024 valuations. While still smaller than UnitedHealth Group's $528 billion market cap, the merger would establish a stronger competitor across both the insurance and PBM markets, potentially reshaping competitive dynamics in the healthcare sector.
PBM Consolidation: Increased Scrutiny as FTC Takes a Stand
The potential merger's impact on pharmacy benefit management deserves particular attention, especially given recent FTC actions against PBMs. Currently, three PBMs control approximately 80% of the market, with Cigna's Express Scripts commanding about 24% and Humana's pharmacy division holding 8% market share, according to Bloomberg Law analysis.
The timing is particularly sensitive given the FTC's September 2024 administrative complaint against major PBMs. As previously reported by CANN, the FTC alleges these companies engaged in anticompetitive rebating practices that artificially inflated drug prices. The FTC investigation has revealed troubling practices, with PBMs frequently prioritizing higher rebates over lower net prices, leading to the exclusion of lower-cost alternatives and driving up drug prices. A combined Cigna-Humana PBM would control 32% of the market, potentially creating an entity large enough to rival market leader CVS Caremark.
This level of concentration raises serious concerns about negotiating power and drug pricing. Bloomberg Law notes that employer groups are particularly wary of the merger, fearing it could make an already complicated market even more opaque for health plans and potentially lead to higher costs for company health plans.
Impact on Healthcare Access and Specialty Care
Healthcare consolidation has long presented significant barriers for patients who rely on specialized care, including those living with chronic conditions like HIV. For example, patients often face more restrictive formularies, meaning fewer options for necessary medications, and increased prior authorization requirements, which can delay access to critical treatments. This is especially problematic for patients with chronic conditions like HIV, where timely and consistent access to specific medications is critical for maintaining health. Research published by Tufts Center for the Evaluation of Value and Risk in Health shows that consolidation often leads to restricted specialty care access, which can be particularly detrimental to people requiring ongoing care management. For instance, patients with cancer may find it harder to access specialized oncologists or newer, targeted therapies due to narrower provider networks and limited formularies. These barriers do more than inconvenience patients—they delay treatments, ultimately impacting patient outcomes.
The National Academy for State Health Policy (NASHP) reports that consolidated health systems frequently use their market power to implement restrictive contracts that can limit patient choice. These contracts often include clauses that prevent insurers from steering patients to higher-value care providers or limit the ability to negotiate better prices, ultimately restricting patient options and driving up healthcare costs. This can particularly impact people relying on specialty medications and services, like those living with HIV who need consistent access to specialists and specific drug regimens.
Consolidated systems often impose more stringent prior authorization requirements and narrower specialty pharmacy networks, as noted in the BMC Health Services Research study. The AMA highlights that merged entities often use their power to make access to specialty drugs more restrictive, which further limits patient options and exacerbates challenges for those needing specialized care. For people living with HIV, disruptions or delays in accessing antiretroviral medications could have serious health implications.
The combined entity's negotiating power could lead to more restricted provider networks. NASHP's research shows that consolidated entities often leverage market power to demand higher reimbursement rates, resulting in narrower networks that limit access to specialists, including HIV care providers.
Navigating Complex Regulatory Hurdles
The proposed Cigna-Humana merger faces significant regulatory scrutiny at both federal and state levels. The merger is likely to undergo a 12- to 24-month regulatory review, particularly given the current antitrust enforcement environment. Regulatory challenges are expected to include a detailed examination of the potential impact on competition, particularly in the PBM market, and whether the merger could lead to increased healthcare costs for consumers. The recent FTC crackdowns on healthcare companies, which could provide additional insights into the type of scrutiny expected during the review, particularly regarding anti-competitive practices and market concentration. Both the FTC and the U.S. Department of Justice are likely to scrutinize any potential overlap in services and demand divestitures to ensure that competition remains intact. Additionally, state-level reviews could require concessions to protect local markets from becoming overly concentrated.
Kaiser Family Foundation's analysis highlights how the FTC and Department of Justice have increased their focus on both horizontal and vertical integration effects. They now examine broader implications for healthcare costs and access, beyond direct market overlap.
State-level review adds another layer of complexity. KFF notes that 34 states and DC require notification of health insurance mergers, with 13 states requiring explicit approval. This multi-state review process could extend the timeline and require concessions to address state-level concerns.
Looking Ahead: Implications for Healthcare Access and Affordability
The proposed Cigna-Humana merger represents more than a business combination—it embodies the tension between market consolidation and healthcare accessibility. While the companies argue that their complementary business models could improve efficiency, the merger's impact on PBM market concentration and healthcare access demands careful scrutiny.
The immediate path forward hinges significantly on the November 5th election outcome, with analysts suggesting meaningful progress is unlikely before then. Beyond the election, the regulatory review process could extend into 2026, as federal and state regulators examine the merger’s implications for competition, drug pricing, and healthcare access.
For healthcare stakeholders, especially those relying on specialty care and medications, the merger’s outcome could significantly impact their care access and costs. The combined entity's expanded market power in both insurance and PBM sectors could reshape provider networks, prior authorization processes, and drug formulary designs.
Advocacy organizations and policymakers must carefully monitor and engage in the regulatory review process to ensure that any approved merger includes meaningful protections for healthcare access and affordability. The FTC’s current focus on PBM practices provides an important opportunity to address long-standing concerns about drug pricing and access in any merger approval conditions.