As Congress, the U.S. Federal Trade Commission (FTC), and industry are taking a closer look at pharmacy benefit managers (PBMs), a new report highlights the fact that a growing share of PBMs’ profits come from fees and specialty pharmacy ownership.
PBMs choose which drugs go on the formulary of drugs covered by an insurer, receiving rebates and fees in exchange from the drug manufacturers.
“While the value of rebates paid to PBMs continues to grow, fees and specialty pharmacy now drive a greater share of PBM profits, with estimated PBM profits derived from fees increasing fourfold and specialty pharmacy more than doubling since 2012,” says a report published last week by Nephron, a healthcare equity researcher.
“We extrapolate that total PBM compensation tied to fees doubled from $3.8 billion in 2018 to $7.6 billion in 2022. This growth was fueled by increases in traditional administrative fees as well as the emergence of new data and PBM contracting entity fees (referred to as ‘vendor fees’ in this analysis). These new fees have grown from near zero in 2018 to greater than $1.7 billion in 2022,” says the report.
Specialty pharmacy chains
PBMs are often integrated with pharmacy chains and insurers, with three PBMs controlling 80% of the market.
Nephron’s report also found that the expansion of specialty pharmacy is a main driver of PBMs’ profit growth.
Specialty pharmacies provide medications for rare or complex conditions.
“[T]he primary sources of PBM profitability have continued to shift over the last decade, transitioning away from retention of manufacturer rebates and spread toward profits derived from fees and captive PBM specialty pharmacies,” says Nephron. “Looking beyond historic PBM rebate, spread, and price protection profit drivers and more recent PBM contracting entity profit drivers, we find that specialty pharmacy, inclusive of compensation from payors and manufacturers, is now the single most important growth component, accounting for 39% of PBM profits.”
Additional studies highlight additional PBM problems
Meanwhile, dissatisfaction with PBMs among benefits managers is growing, says a report from Pharmaceutical Strategies Group (PSG) .
The survey of employers, health plans, health systems, and unions found dissatisfaction with PBMs is at a nine-year low, with respondents saying they’re more reluctant to recommend their PBM to colleagues.
“This is an industry in which 3 PBMs command nearly 80% of the market share. Diminishing satisfaction with these goliaths may create avenues of potential growth for competitors, who have higher customer satisfaction across multiple metrics,” said PSG President Mike Lonergan. “These insights are important as plan sponsors weigh their options in selecting their PBM partners.”
A report from Brookings, published in September, highlights other challenges with PBMs, including the fact that these fees are less transparent than rebates as well as the impact of market concentration and spread pricing.
PBMs in the spotlight
As we reported earlier this year, PBMs are in the spotlight as federal regulators and politicians work to shed light on PBMs’ practices that can ultimately lead to higher costs for patients. Congress is considering legislation that would bring greater transparency to PBMs’ practices and address practices like spread pricing, while the FTC is investing PBMs.