The FTC’s Second Interim Report on PBMs Signals Reform Will Remain in Focus Throughout 2025 and Highlights Ongoing Scrutiny of PBM business Practices
February 13, 2025
The U.S. drug delivery market is no stranger to complex and opaque business practices. Among the most influential, and least understood, players in this market are pharmacy benefit managers (PBMs). For this reason, the Federal Trade Commission (FTC) launched an extensive investigation in 2022 into the business practices of the six largest PBMs. On January 14, 2025, the FTC released its Second Interim Report, titled Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers.
While we encourage everyone to review the original report linked here, in this article, we will break down this report’s key findings and discuss several implications for plan sponsors.
It is important to note that this second report received a unanimous, 5-0 vote in favor of publication in contrast to the First Interim Report (2024), which was narrowly approved by a 3-2 vote. We believe this unanimous vote is a signal that the FTC has become more united on the need for reform following their continued research.
Overview of the FTC’s Second Interim Report on PBMs
This second FTC report centers on two critical topics that hold significant importance for plan sponsors, pharmacies, and patients:
- The impact of substantial price markups on select specialty generic drugs
- The financial role PBM-affiliated pharmacies have played in the broader prescription drug market
Through detailed analysis, the FTC highlights several patterns in the data demonstrating the reality of these business practices and leaves readers with six conclusions that we will discuss next.
Analysis Section III.A: Inflated Markups on Specialty Generics
The first analysis section outlines two major conclusions:
1. PBMs have marked up numerous specialty generic drugs by hundreds or even thousands of percent compared to NADAC pricing
2. A disproportionate share of Commercial prescriptions for the most profitable specialty generic drugs were dispensed by PBM-affiliated pharmacies
In this section, the FTC research provides calculated percentage markups for 46 in-scope specialty generic drugs when compared to each drug’s NADAC price. These markups were then attributed to either a PBM-affiliated or unaffiliated pharmacy. The findings were stark:
– Between 59%-63% of these specialty generic drugs were marked up by at least 100% (Commercial vs. Medicare Part D)
– 22% of drugs dispensed in the Commercial segment saw markups exceeding 1,000%
– PBM-affiliated pharmacies consistently received higher reimbursement rates than unaffiliated pharmacies in the Commercial segment
These findings were built upon the FTC’s First Interim Report (2024), which highlighted two cases of extreme markups on Zytiga and Gleevec. However, this new data suggests that these isolated examples were not anomalies but rather represented a broader PBM business practice. In fact, with the exception of 1 drug dispensed in the Medicare Part D segment, every single specialty generic drug in this analysis was reimbursed at a higher rate at PBM-affiliated pharmacies than at unaffiliated pharmacies.
What This Means for Plan Sponsors: This section shows the critical importance for plan sponsors to monitor 100% of their pharmacy claims. Without a robust continuous monitoring system, plan sponsors may be unknowingly paying for these significant markups on specialty generic drugs compared to NADAC, including vastly different rates across pharmacies within your network.
This type of claim-level oversight can be a critical defense for plan sponsors to ensure they are not overpaying PBMs for their pharmacy claims and to fulfill their fiduciary duties under ERISA. See ongoing litigation from Lewandowski v. Johnson and Johnson et al., or Navarro et al. v. Wells Fargo & Company et al.
Analysis Section III.B: Economics of PBM-Affiliated Pharmacies’ Driven by Specialty Generics
In section B, the FTC expands their discussion to 3 additional conclusions:
3. Big 3 PBM-affiliated pharmacies generated over $7.3 billion in excess dispensing revenue compared to NADAC from 2017-2021
4. Spread pricing on 51 specialty generic drugs drove ~$1.4 billion in PBM revenue from 2017-2022
5. The most profitable specialty generic drugs accounted for a significant share of operating income reported by the Big 3 PBM’s vertically integrated parent companies
This section really highlights the outsized influence a small number of drugs can have on total pharmacy spending. Based on just the 51 drugs included in this research, the FTC concluded that Big 3 PBM-affiliated pharmacies generated more than $7.3 billion in excess revenue when compared to NADAC. This figure grew over 42% annually during the review period. When looking at just the top 10 specialty generic drugs, the data showed that they alone accounted for 85% of the total excess dispensing revenue ($6.2 billion).
Next, Section B shifts toward the impact of spread pricing as a revenue driver for Big 3 PBMs. From 2017-2022, the FTC estimates that the in-scope specialty generic drugs generated ~$1.4 billion in additional revenue. Interestingly, the research shows that 90% of this spread pricing revenue was driven by unaffiliated pharmacies, and further, 97% of the retained spread revenue came from Commercial plan sponsors. Once again, the top 10 drugs accounted for 82% of the total retained spread.
Finally, the analysis shows just how impactful this extra dispensing revenue can be for the Big 3 PBM’s vertically integrated parent companies. Specifically, the dispensing revenue in excess of NADAC from these 51 in-scope drugs represented nearly 12% of total segment operating income.
Why This Matters for Plan Sponsors: Section B of this report highlights the magnitude a small portion of drugs can have on total pharmacy spend for plan sponsors. With roughly 85% of all excess revenue coming from only the top 10 drugs, the need for claim-level, plan sponsor vigilance has never been greater. This report demonstrates that seemingly small portions of a plan sponsor’s total benefit can have quite dramatic impacts on total spend and the PBM’s subsequent economics. Continuous monitoring systems like HDS’s Claim Scan can help plan sponsors spot significant drivers of spend when they occur so that they can proactively address these types of issues during the plan year.
Analysis Section III.C: Increasing Plan Sponsor and Patient Spending on Specialty Generics
In the final section, the FTC discusses their last conclusion:
6. During the study period, both plan sponsor and patient cost sharing on specialty generic drugs increased by double digit compound annual growth rates (CAGRs)
The FTC research shifts last to analyze the impact specialty generic drugs, and dispensing volume shifting to PBM-affiliated pharmacies, are having on plan sponsor and patient economics. From 2017-2021, both Commercial and Medicare Part D claims for specialty generic drugs grew at double digit rates. However, the growth in the Commercial segment far outpaced the growth seen in Medicare Part D (21% vs. 14%, respectively). Additionally, patient cost-sharing also rose to an alarming 21% annually in the Commercial segment.
Why This Matters for Plan Sponsors: Section C of the report really focuses on the trickle-down effect these markups on select specialty generic drugs can have on the ultimate plan sponsor and patient. Significant markups can dramatically increase plan sponsor spending and patient cost-sharing (depending on your benefit design). The findings from this report showcase the extreme importance of fully understanding the impact your PBM’s business practices can have on your plan’s financial performance. It has never been more important to have an unbiased, 3rd party pharmacy payment integrity vendor reviewing every processed claim for potential error with the ability to recover lost funds for both the plan and your members.
Conclusion
The FTC’s Second Interim Report lays bare the large potential impacts from a few specific business practices and provides a compelling case for greater oversight and reform in the PBM industry. By leveraging tremendous scale and market power, the Big 3 have positioned themselves well as the gatekeepers of prescription drug access and pricing to tremendous financial success.
While the need for some type of reform is quite clear, policymakers, plan sponsors, and patients must all continue to push for greater transparency and accountability in the pharmacy delivery channel. As the FTC continues its investigation, one thing is certain: pharmacy payment integrity is no longer optional, it is essential.
At HDS, we believe the need for immediate vigilance is clear. For plan sponsors, the only way to navigate this evolving landscape is to have an independent partner you can trust to monitor the performance of your PBM in real-time. With costs continuing to increase year after year, firms like HDS are here to help cut through complex PBM business practices and ensure all your pharmacy dollars are being spent according to your contract.
To learn more about HDS and our continuous PBM monitoring solution, Claim Scan, please contact us at https://hds-rx.com/contact-hds/
General Glossary of Terms
Specialty Generic Drugs: These are drugs listed on a PBM’s specialty drug list that have cheaper generic options available (often considered multi-source drugs).
National Average Drug Acquisition Cost (NADAC): This is an index of drug acquisition costs published for select drugs that is based on a survey of invoices voluntarily provided by reporting pharmacies to CMS.
Spread Pricing: This is when a PBM receives revenue by retaining the difference between the reimbursement they receive from a patient’s plan sponsor versus what they paid the pharmacy for dispensing that same drug to the patient.