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.
When Algorithms Deny Care: The Insurance Industry's AI War Against Patients
The assassination of UnitedHealthcare CEO Brian Thompson in December 2024 laid bare a healthcare crisis where insurance companies use artificial intelligence to systematically deny care while posting record profits. Federal data shows UnitedHealthcare, which covers 49 million Americans, denied nearly one-third of all in-network claims in 2022 - the highest rate among major insurers.
This reflects an industry-wide strategy that insurance scholar Jay Feinman calls "delay, deny, defend" - now supercharged by AI. These systems automatically deny claims, delay payment, and force sick people to defend their right to care through complex appeals. A Commonwealth Fund survey found 45% of working-age adults with insurance faced denied coverage for services they believed should be covered.
The consequences are devastating. As documented cases show, these automated denial systems routinely override physician recommendations for essential care, creating a system where algorithms, not doctors, decide who receives treatment. For those who do appeal, insurers approve at least some form of care about half the time. This creates a perverse incentive structure where insurers can deny claims broadly, knowing most people will not fight back. For the people trapped in this system, the stakes could not be higher - this is quite literally a matter of life and death.
The Rise of AI in Claims Processing
Health insurers have increasingly turned to AI systems to automate claims processing and denials, fundamentally changing how coverage decisions are made. A ProPublica investigation revealed that Cigna's PXDX system allows its doctors to deny claims without reviewing patient files, processing roughly 300,000 denials in just two months. "We literally click and submit. It takes all of 1.2 seconds to do 50 at a time," a former Cigna doctor reported.
The scope of automated denials extends beyond Cigna. UnitedHealth Group's NaviHealth uses an AI tool called "nH Predict" to determine length-of-stay recommendations for people in rehabilitation facilities. According to STAT News, this system generates precise predictions about recovery timelines and discharge dates without accounting for people's individual circumstances or their doctors' medical judgment. While NaviHealth claims its algorithm is merely a "guide" for discharge planning, its marketing materials boast about "significantly reducing costs specific to unnecessary care."
Only about 1% of denied claims are appealed, despite high rates of denials being overturned when challenged. This creates a system where insurers can use AI to broadly deny claims, knowing most people will not contest the decisions. The practice raises serious ethical concerns about algorithmic decision-making in healthcare, especially when such systems prioritize cost savings over medical necessity and doctor recommendations.
Impact on Patient Care
The human cost of AI-driven claim denials reveals a systemic strategy of "delay, deny, defend" that puts profits over patients. STAT News reports the case of Frances Walter, an 85-year-old with a shattered shoulder and pain medication allergies, whose story exemplifies the cruel efficiency of algorithmic denial systems. NaviHealth's algorithm predicted she would recover in 16.6 days, prompting her insurer to cut off payment despite medical notes showing she could not dress herself, use the bathroom independently, or operate a walker. She was forced to spend her life savings and enroll in Medicaid to continue necessary rehabilitation.
Walter's case is not unique. Despite her medical team's objections, UnitedHealthcare terminated her coverage based solely on an algorithm's prediction. Her appeal was denied twice, and when she finally received an administrative hearing, UnitedHealthcare didn't even send a representative - yet the judge still sided with the company. Walter's case reveals how the system is stacked against patients: insurers can deny care with a keystroke, forcing people to navigate a complex appeals process while their health deteriorates.
The fundamental doctor-patient relationship is being undermined as healthcare facilities face increasing pressure to align their treatment recommendations with algorithmic predictions. The Commonwealth Fund found that 60% of people who face denials experience delayed care, with half reporting their health problems worsened while waiting for insurance approval. Behind each statistic are countless stories like Walter's - people suffering while fighting faceless algorithms for their right to medical care.
The AI Arms Race in Healthcare Claims
Healthcare providers are fighting back against automated denials by deploying their own AI tools. New startups like Claimable and FightHealthInsurance.com help patients and providers challenge insurer denials, with Claimable achieving an 85% success rate in overturning denials. Care New England reduced authorization-related denials by 55% using AI assistance.
While these counter-measures show promise, they highlight a perverse reality: healthcare providers must now divert critical resources away from patient care to wage algorithmic warfare against insurance companies. The Mayo Clinic has cut 30 full-time positions and spent $700,000 on AI tools simply to fight denials. As Dr. Robert Wachter of UCSF notes, "You have automatic conflict. Their AI will deny our AI, and we'll go back and forth."
This technological arms race exemplifies how far the American healthcare system has strayed from its purpose. Instead of focusing on patient care, providers must invest millions in AI tools to combat insurers' automated denial systems - resources that could be spent on direct patient care, medical research, or improving healthcare delivery. The emergence of these counter-measures, while potentially helpful for providers and patients seeking care, highlights fundamental flaws in our healthcare system that require policy solutions, not just technological fixes.
AI Bias: Amplifying Healthcare Inequities
The potential for AI systems to perpetuate and intensify existing healthcare disparities is deeply concerning. A comprehensive JAMA Network Open study examining insurance claim denials revealed that at-risk populations experience significantly higher denial rates.
The research found:
Low-income patients had 43% higher odds of claim denials compared to high-income patients
Patients with high school education or less experienced denial rates of 1.79%, versus 1.14% for college-educated patients
Racial and ethnic minorities faced disproportionate denial rates:
Asian patients: 2.72% denial rate
Hispanic patients: 2.44% denial rate
Non-Hispanic Black patients: 2.04% denial rate
Non-Hispanic White patients: 1.13% denial rate
The National Association of Insurance Commissioners (NAIC) Consumer Representatives report warns that AI tools, often trained on historically biased datasets, can "exacerbate existing bias and discrimination, particularly for marginalized and disenfranchised communities."
These systemic biases stem from persistent underrepresentation in clinical research datasets, which means AI algorithms learn and perpetuate historical inequities. The result is a feedback loop where technological "efficiency" becomes a mechanism for deepening healthcare disparities.
Legislative Response and Regulatory Oversight
While California's Physicians Make Decisions Act and new Centers for Medicare & Medicaid Services (CMS) rules represent progress in regulating AI in healthcare claims, the NAIC warns that current oversight remains inadequate. California's law prohibits insurers from using AI algorithms as the sole basis for denying medically necessary claims and establishes strict processing deadlines: five business days for standard cases, 72 hours for urgent cases, and 30 days for retrospective reviews.
At the federal level, CMS now requires Medicare Advantage plans to base coverage decisions on individual circumstances rather than algorithmic predictions. As of January 2024, coverage denials must be reviewed by physicians with relevant expertise, and plans must follow original Medicare coverage criteria. CMS Deputy Administrator Meena Seshamani promises audits and enforcement actions, including civil penalties and enrollment suspensions for non-compliance.
The insurance industry opposes these safeguards. UnitedHealthcare's Medicare CEO Tim Noel argues that restricting "utilization management tools would markedly deviate from Congress' intent." But as the NAIC emphasizes, meaningful transparency requires more than superficial disclosures - insurers must document and justify their AI systems' decision-making criteria, training data, and potential biases. Most critically, human clinicians with relevant expertise must maintain true decision-making authority, not just rubber-stamp algorithmic recommendations.
Recommendations for Action
The NAIC framework provides a roadmap for protecting patients while ensuring appropriate oversight of AI in healthcare claims. Key priorities for federal and state regulators:
Require comprehensive disclosure of AI systems' training data, decision criteria, and known limitations
Mandate documentation of physician recommendation overrides with clinical justification
Implement regular independent audits focused on denial patterns affecting marginalized communities
Establish clear accountability and substantial penalties when AI denials cause patient harm
Create expedited appeal processes for urgent care needs
Healthcare providers should:
Document all cases where AI denials conflict with clinical judgment
Track patient impacts from inappropriate denials, including worsened health outcomes
Report systematic discrimination in algorithmic denials
Support patient appeals with detailed clinical documentation
Share denial pattern data with regulators and policymakers
The solutions cannot rely solely on technological counter-measures. As the NAIC emphasizes, "The time to act is now."
Conclusion
The AI-driven denial of care represents more than a technological problem - it's a fundamental breach of the healthcare system's ethical foundations. By prioritizing algorithmic efficiency over human medical judgment, insurers have transformed life-saving care into a battlefield where profit algorithms determine patient survival.
Meaningful change requires a multi-pronged approach: robust regulatory oversight, technological accountability, and a recommitment to patient-centered care. We cannot allow artificial intelligence to become an instrument of systemic denial, transforming healthcare from a human right into an algorithmic privilege.
Patients, providers, and policymakers must unite to demand transparency, challenge discriminatory systems, and restore the primacy of human medical expertise. The stakes are too high to accept a future where lines of code determine who receives care and who is left behind. Our healthcare system must be rebuilt around a simple, non-negotiable principle: medical decisions should serve patients, not corporate balance sheets.