What’s the news: An updated AMA analysis finds that local pharmacy benefit manager (PBM) markets are highly concentrated on average and experienced further consolidation between 2020 and 2021. The findings indicate a widespread decline in competition in local PBM markets across the U.S.
Based on 2020 data and newly acquired 2021 data for people with a commercial drug benefit tied to a medical benefit and the PBMs used by insurers, the updated analysis presents market insight on five PBM services performed for insurers:
- Rebate negotiation.
- Retail network management.
- Claim adjudication.
- Formulary management.
- Benefit design.
Insurers face a make-or-buy decision—they can perform these functions in-house or buy them from a PBM. The AMA Policy Research Perspectives report, “Competition in Commercial PBM Markets and Vertical Integration of Health Insurers with PBMs: 2023 Update” (PDF), found that insurers largely use a PBM for three of them—rebate negotiation, retail network management and claims adjudication—and therefore assessed market competition for those three product markets.
According to the newly published analysis:
- At the national level in 2021, the four largest PBMs had a collective 68% share of the market for rebate negotiation. The shares and rankings for retail network management and claims adjudication were nearly identical.
- The collective share of the four largest PBMs in the national commercial market jumped four percentage points from 64% in 2020 to 68% in 2021, largely due to the CVS Health acquisition of Aetna, which had owned its own PBM.
- On average, local PBM markets were highly concentrated in 2020 and became even more concentrated in 2021, also due to the CVS Health-Aetna merger.
- At least 80% of state- and metropolitan-area level PBM markets were highly concentrated.
- Health insurers that were vertically integrated with a PBM covered 70% of all people with commercial drug insurance.
Some states had almost no vertical integration, while others were almost entirely vertically integrated—for example, South Dakota had a vertical integration share of just 6%, the report says. Since a significant portion of the market is not vertically integrated, the risk of consumer harm from vertical mergers remains.
Why it’s important: “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,” said AMA President Jesse M. Ehrenfeld, MD, MPH.
The AMA has policy calling for greater scrutiny of PBMs’ outsized role in prescription drug decision-making.
“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,” Dr. Ehrenfeld added.
Last year, AMA Executive Vice President and CEO James L. Madara, MD, responded to the Federal Trade Commission’s request for public comment on PBM business practices. Dr. Madara and the AMA recommended improved transparency, writing that PBMs should disclose information (PDF) on:
- Utilization, rebates and discounts, and financial incentives.
- Pharmacy and therapeutics (P&T) committees’ work and why a medication is chosen for—or removed—from the P&T committee’s formulary, whether P&T committee members have a financial or other conflict of interest, and decisions related to tiering, prior authorization and step therapy.
- Formularies, specifically whether certain drugs are preferred over others and patient cost-sharing responsibilities that is made available to patients and prescribers at the point-of-care in EHRs.
- Methodology and sources used to determine drug classification and multiple-source generic pricing.
- The percentage of sole-source contracts awarded annually.
- Utilization-management programs, including disclosure of approval, denial and appeal rates, and average processing time for prior-authorization and step-therapy override requests.
Learn more: The analysis of competition and vertical integration in commercial PBM markets adds to the AMA’s work to shine a light on lack of market competition in the health insurance industry.
Protecting patients and physicians from anticompetitive harm will continue to be a vital issue of public policy for the AMA, the federation of medicine, and the nation’s physicians. Find out about the AMA’s other efforts to fight anti-competitive mergers.