AMA report examines PBM and insurer market consolidation

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There's a widespread lack of competition in local markets across the United States where pharmacy benefit managers provide services to commercial health insurers, according to a new analysis by the American Medical Association. 

The analysis of competition in commercial PBM service markets adds to the AMA's work to shine a light on market consolidation in the health insurance industry, said the association of physicians and medical students. The AMA already voiced its concerns about PBM business practices in an April letter to the Federal Trade Commission.

Market consolidation can have a detrimental impact on patients' access to, and the cost of prescription drugs, said AMA President Dr. Jack Resneck Jr. 

"PBM markets require careful scrutiny as less competition and more vertical integration can embolden anti-competitive business practices to the detriment of patients," Resneck said by statement. "The novel data presented by the AMA analysis is intended to help regulators, lawmakers, researchers, and policymakers better evaluate merger proposals in the future that may harm patients by raising prices, lowering quality, reducing choice and stifling innovation."
 
WHY THIS MATTERS

PBMs were created in the 1960s to help health insurers contain drug spending, according to the AMA. PBMs can stimulate price competition among drug manufacturers by shifting demand among competing substitute drugs. 

In turn, manufacturers offer rebates to PBMs for their drugs to be placed favorably in a drug formulary, which PBMs are then supposed to pass on to insurers or employers. 

"However, the PBM market needs to be competitive for rebates to be fully passed on to final consumers," the AMA analysis said. "It is not clear whether PBMs are (fully) passing on those rebates. Indeed, some economists argue that consolidation in the PBM market, combined with opaque pricing, is one cause of higher pharmaceutical prices."

THE FINDINGS

The AMA said its analysis is the first to shed light on variations in market shares and competition among PBMs at the state and metropolitan levels.

The analysis presents national and local market insight on five different PBM services performed for insurers: rebate negotiation, retail network management, claim adjudication, formulary management and benefit design. 

Even though the largest health insurers and PBMs are vertically integrated, there is still a significant portion of the market that remains not vertically integrated, particularly at the local level, according to the report.  

The analysis found significant portions (37%) of the national markets for two services, formulary management and benefit design, were managed in-house by health insurers rather than buying those services from the PBM market.

Commercial insurers largely use a PBM for three services: rebate negotiation, retail network management and claims adjudication, rather than conducting them in-house. 

At the national level, the analysis found that a handful of PBMs have a large collective market share for the three PBM services most used by insurers. The 10 largest PBMs had a collective share of 97%; the four largest PBMs had a collective share of roughly 66%; and six PBMs are used exclusively by one insurer or a set of Blue Cross Blue Shield affiliates.
 
More than three of four (about 78%) states had highly concentrated PBM markets.  More than four of five (85%) of metropolitan areas had highly concentrated PBM markets.
 
The analysis also quantified the extent of vertical integration between  insurers and PBMs. Health insurers that were vertically integrated with a PBM covered 69% of all people with commercial drug insurance.

Although the average vertical integration shares across states and metropolitan areas were slightly lower (63% and 65%), there was wide variation across states and metropolitan areas.

Some states have almost no vertical integration between insurers and PBMs, while others are almost entirely vertically integrated. South Dakota has the smallest vertical integration share (6%) and North Carolina has the highest vertical integration share (97%).

"Vertically integrated insurers may not allow non-vertically integrated insurer competitors to access their PBMs, or they could raise the cost of those PBM services," the report said. "This could adversely affect non-vertically integrated insurers and ultimately patients through higher premiums."

THE LARGER TREND

PBMs have long been scrutinized for their impact on the affordability of prescription drugs. 

In June, a number of pharmaceutical groups came out in favor of the Federal Trade Commission's decision to launch an inquiry into the business practices of the nation's six largest pharmacy benefit managers. 

Attempts to control drug costs have led to finger-pointing between health insurers and pharmaceutical companies and controversy over drug rebates. 

President Biden promised relief by giving Medicare the ability to negotiate the price of some drugs. The provision is included in the Inflation Reduction Act, which Biden signed into law in August.

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org