Competition low, vertical integration high in PBM industry, AMA analysis finds

Count the American Medical Association among the organizations calling for greater scrutiny and regulation of pharmacy benefit managers.

“The call for increased regulatory oversight of PBM business practices is overwhelmingly welcomed by physicians as a check against possible anticompetitive harm resulting from low competition and high vertical integration in the PBM industry,” said AMA President Bruce A. Scott, M.D. “The findings from the new AMA analysis warrant attention as Congress and the administration continue their work to protect patients and ensure prescription drugs remain affordable and accessible. The AMA urges careful monitoring and intervention, when needed, of both horizontal and vertical integration to ensure competition in PBM and health insurance markets.”

The AMA’s latest annual analysis assessed competition in PBM markets based on three functions for which insurers typically hire an external PBM — rebate negotiation, retail network management and claims adjudication. Among its findings:

• The four largest PBMs collectively have a 70% share of the national market.
• CVS Health is the largest PBM with a 21.3% market share, followed by OptumRx (20.8%), Express Scripts (17.1%) and Prime Therapeutics (10.3%).
• At the local level, the average PBM market is highly concentrated, according to federal antitrust guidelines.
• Eight-two percent of prescription drug benefit region-level PBM markets are highly concentrated. This indicates that only a few PBMs supplied insurers with services and suggests low competition.

The analysis also found significant vertical integration between insurers and PBMs:

• Nationally, insurers that are vertically integrated with a PBM covered 72% of people with a commercial or Medicare Part D prescription drug benefit.
• The share of people covered by an insurer that is vertically integrated with a PBM is higher in the Medicare Part D market (77%) than the commercial market (69%).
• At the prescription drug benefit region level, an average of 70% of people are covered by an insurer that is vertically integrated with a PBM.
• There is wide variation across prescription drug benefit regions, with some having little vertical integration between insurers and PBMs, while others are almost entirely vertically integrated.

Read more: Pharmacy benefit managers, version 2.0 (post J&J lawsuit)

The results of the study bolster the association’s commitment to increase competition in the industry.

“The analysis of competition and vertical integration in PBM markets adds to the AMA’s work to shine a light on lack of market competition in the health insurance industry,” the study said. “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.”