
The Culprit Impeding Drug Competition Is Not Who The Feds Expected
The Federal Trade Commission and U.S. Department of Justice recently kicked off a series of listening sessions to examine barriers to competition in the drug industry.
The title of the first session—"Anticompetitive Conduct by Pharmaceutical Companies"—made it seem that regulators would chiefly investigate biotech firms. Yet by the end, panelists had refocused the spotlight onto pharmacy benefit managers—and provided striking evidence that PBMs, not biotech companies, deserve most of the blame for the anticompetitive practices that lead to high drug prices.
If the FTC and DOJ heed the panelists' warnings and crack down on this misbehavior, it could tangibly reduce drug costs for patients.
PBMs decide which medicines are included on insurers' formularies, or lists of covered drugs. That gatekeeping authority gives PBMs the power to negotiate prices with manufacturers and secure rebates.
PBMs claim to use those rebates to reduce costs for patients. But the rebate structure actually gives them a strong incentive to prefer higher-priced drugs—even when cheaper and equally effective alternatives are available. That's because their earnings are generally determined as a percentage of a drug's list price.
A 2024 House Oversight Committee report identified more than 1,000 instances in which PBMs favored higher-cost medicines over less expensive equivalents. In 300 of those examples, PBMs' preferred medicines cost patients at least $500 more than an alternative they excluded from their formularies.
Formulary decisions like these lead to larger rebates and fees for PBMs—while the costs pile up for patients. According to a 2023 analysis, PBMs collect more than 40 cents of every dollar spent on brand-name medicines by commercial health plans.
PBMs' perverse incentives go beyond the financial. As the FTC's and DOJ's panelists explained, PBMs' behavior stifles competition and innovation in the drug industry by crushing the development of generic and biosimilar drugs.
Biosimilars, which are clinically similar versions of existing "biologic" drugs grown from living cell cultures, typically debut at prices that are more than 40% lower than the brand-name version's launch price. In some cases, biosimilars launch at prices that are 81% lower.
But even after a year on the market, the average biosimilar commands just under 20% market share for its therapeutic line. PBMs frequently exclude these lower-cost—and thus lower-rebate—biosimilars from formularies or lock them behind prior authorization and "fail-first" requirements.
In cases when PBMs do include biosimilars in their formularies, they're often artificially pricey "private-label" drugs affiliated with the PBMs themselves.
Juliana Reed, the executive director of the nonprofit Biosimilars Forum, highlighted a particularly egregious example involving the blockbuster autoimmune drug Humira, which has 10 biosimilar competitors—that collectively account for less than 10% of U.S. market share.
As James Gelfand—president and CEO of the ERISA Industry Committee, an organization representing large employer health plans—stated, "[t]his manipulation undercuts biosimilar sustainability." It dramatically limits biosimilar manufacturers' ability to establish themselves in the market and earn a return on their products.
In fact, it's creating what the FTC and DOJ panelists termed a "biosimilar void"—a dramatic collapse in new biosimilar development.
According to a recent IQVIA study, 118 biologic drugs will lose patent protection in the next decade. But biotech companies are currently developing biosimilar competitors for just 12 of them. There's little point in pouring hundreds of millions of dollars into creating a biosimilar if PBMs will refuse to cover it.
Manufacturers of traditional chemically synthesized generic drugs face many of the same hurdles. The House Oversight Committee report found that "[n]ew generic drugs are experiencing historically slow adoption by patients directly resulting from PBM coverage decisions."
The FTC and DOJ may not have recognized just how severely PBMs have undermined competition across the drug market. But it's not too late to solve the problem.
The three largest PBMs—Caremark, Express Scripts, and OptumRx—are each integrated with a major pharmacy and together control nearly 80% of U.S. prescriptions. The nation's six largest PBMs account for almost 95% of all prescriptions dispensed.
If any industry deserves to face antitrust scrutiny, it's this one. Putting a stop to PBMs' anticompetitive practices would be far more fruitful than imposing new price controls or other regulations on manufacturers. Policymakers should also consider requiring PBMs to pass negotiated rebates directly to patients, so beneficiaries see real savings at the pharmacy counter.
The recent listening session has given our leaders an actionable path to reform of the market for prescription drugs. Fix PBMs, and concerns about drug prices will resolve themselves.
Hashtags

Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
16 minutes ago
- Yahoo
Jussie Smollett to speak in Netflix documentary about hate crime hoax
Jussie Smollett's alleged hate crime hoax is the subject of an upcoming Netflix documentary. The streamer announced Tuesday that 'The Truth About Jussie Smollett?' will be released on the platform Aug. 22, according to Deadline. Producers of the true-crime hits 'Tinder Swindler,' 'Trainwreck' and 'Don't F**k with Cats' are behind the 90-minute project, comprised of interviews with police officials, lawyers, journalists and Smollett himself. The film centers on the yearslong legal saga launched by Chicago investigators, who determined the 'Empire' actor staged a 2019 hate crime attack as a 'publicity stunt' to advance his career. The documentary has been described as the 'shocking true story of an allegedly fake story that some now say might just be a true story.' In a statement to The Hollywood Reporter, director Gagan Rehill said the film 'is a thrilling ride, and we were lucky enough to have access to the key players.' Smollett claimed in January 2019 that unknown assailants attacked him on a Chicago street, punching him in the face, pouring a chemical substance on him and putting a noose around his neck while yelling racial and homophobic slurs. Two brothers associated with Smollett, Abimbola and Olabinjo Osundairo, later confessed to having been involved in a scheme orchestrated by the openly gay actor to make it look as though he'd been accosted by Trump-supporting extremists. The 43-year-old NAACP Image Award winner was arrested and later found guilty on a handful of charges related to the incident. He was sentenced to 150 days in jail in 2022, but was released after six days pending an appeal. His conviction was overturned last November as part of a plea deal with prosecutors in exchange for community service and the forfeiture of his $10,000 bond. Smollett, who has always denied any wrongdoing, also agreed to donate at least $50,000 to Chicago's Building Better Futures Center for the Arts organization to resolve the city's lawsuit against him. _____
Yahoo
16 minutes ago
- Yahoo
Elk Grove illegal fireworks enforcement results in fines of $330k
Elk Grove officials have intensified their Fourth of July illegal fireworks enforcement, resulting in increased citations and fines.
Yahoo
16 minutes ago
- Yahoo
Morgan Stanley's client-screening faces deeper FINRA probe, WSJ reports
(Reuters) -The U.S. Financial Industry Regulatory Authority (FINRA) is investigating Morgan Stanley over how the firm screened clients for money-laundering risks, the Wall Street Journal reported on Tuesday, citing people familiar with the matter. The probe examines client vetting, risk rankings and related practices across the Wall Street bank's wealth-management and trading operations from October 2021 through September 2024, the report said. FINRA, a non-governmental self-regulatory organisation that oversees U.S. broker-dealers under federal law, is seeking information on U.S. and international clients across Morgan Stanley's wealth unit, including E*Trade, and its institutional securities division, according to the Journal. The regulator has also requested organisational charts, reporting lines and details on the firm's client risk-scoring tool, the report added. Some employees raised concerns that the initial data sent to FINRA was incomplete or inaccurate, prompting the bank to provide additional information after the regulator flagged gaps, the Journal said. A Morgan Stanley spokesperson told the Wall Street Journal the bank has made significant investments in its anti-money-laundering and client-vetting programmes, adding that such regulatory reviews are not unique to the bank and do not indicate problems with its business or controls. Reuters could not independently verify the report. FINRA declined to comment, while Morgan Stanley did not immediately respond to a request for comment. FINRA fined Morgan Stanley $10 million in December 2018 for anti-money laundering compliance failures over a five-year period. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data