CAGW Comments to FTC on Pharmacy Benefit Managers | Citizens Against Government Waste

CAGW Comments to FTC on Pharmacy Benefit Managers

Agency Comments

May 25, 2022

Federal Trade Commission

600 Pennsylvania Avenue, N.W.

Washington, D.C. 20580

Re:  FTC-2022-0015 Solicitation for Public Comments on the Impact of the Business Practices of Pharmacy Benefit Managers

Dear Commissioners,

            On behalf of the more than one million members and supporters of Citizens Against Government Waste (CAGW), I am submitting these comments to the Federal Trade Commission (FTC) in response to its Solicitation for Public Comments on the Impact of the Business Practices of Pharmacy Benefit Managers.

            CAGW has for many years been involved in the debate over the regulation of pharmacy benefit managers (PBMs) as part of the effort to lower drug costs.  The organization has consistently argued that government meddling in this area does the exact opposite and raises costs.

            PBMs administer drug plans for about 270 million Americans who obtain their health insurance from employers, unions, state governments, insurers, and other entities.[1]  PBMs use a variety of tools like rebates, pharmacy networks, drug utilization review, formularies, specialty pharmacies, mail-order, and audits to drive down drug costs, improve quality, increase patient medication adherence, and prevent fraud.

            Since PBMs provide benefits for multitudes of employers and millions of patients, they are able to bring to bear increased negotiating power and get substantial price discounts from pharmaceutical companies based on volume.  The savings are passed on to health plan sponsors, like employers, and consumers. 

            Processing huge volumes of prescription drug programs is complicated and overwhelming, so in the 1960s, health insurers hired PBMs to fill that role.  In the 1980s, when  insurance and pharmaceutical markets grew exponentially due to medical advances, PBMs expanded their roles to negotiating lower drug prices with pharmaceutical manufacturers and pharmacies.  In 2005, before Medicare Part D was implemented, the Congressional Budget Office estimated it would cost taxpayers $174 billion[2] by 2015, but it cost only $75 billion[3] thanks to private-sector negotiations that included PBMs.

            Some claim the PBM industry is anticompetitive because CVS Caremark, Express Scripts, and OptumRx together have a large share of the market.[4]  However, the National Association of Insurance Commissioners says there are 66 PBM companies nationwide, and new companies continue to enter the market.  Competition clearly persists, including among the three largest.[5] 

            The perceived need for a new review of PBMs is puzzling since the FTC has previously and repeatedly determined that PBMs benefit consumer welfare and that restrictions on PBMs would be anticompetitive and raise prices.  Other government and private sector studies have drawn similar conclusions. 

            The FTC’s 2005 report, “Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies: Study Shows PBM Ownership Does Not Result in Higher Costs for Consumers,” determined that “prescription drug plan sponsors generally paid lower prices for drugs purchased through PBM-owned mail-order pharmacies than for drugs purchased through mail-order or retail pharmacies not owned by PBMs.”[6]  The four commissioners voted unanimously in favor of the report’s findings, which noted that “retail prices were higher than mail prices” because “plan sponsors often secured more favorable pharmaceutical pricing for mail dispensing than for retail dispensing.”[7]  In April 2012, the FTC issued its statement on the merger of Medco and Express Scripts.  The agency’s eight-month investigation led to the conclusion that PBM competition is “intense” and “has driven down prices.”[8]

            On August 19, 2014, the directors of the FTC Office of Policy Planning, Bureau of Economics, and Bureau of Competition wrote a letter to the Department of Labor Advisory Council on Employee Welfare and Pension Benefit Plans regarding PBM compensation and fee disclosure.  The directors noted that “FTC staff has examined competition among PBMs and the  types of compensation and disclosure arrangements negotiated by PBMs and plan sponsors.  In addition, the staff has analyzed proposed state regulations imposing PBM disclosure requirements and raised concerns that such mandates may prevent plan sponsors from negotiating the level of disclosure that they deem useful and raise plan sponsors’ costs of providing pharmacy benefits.”[9]

            In a June 29, 2015, letter to Minnesota Representatives Joe Hoppe and Melissa Hortman, the directors of the same three FTC offices that wrote to the Advisory Council commented on the impact of amendments to the Minnesota Government Data Practices Act that would make provisions of health plan provider contracts public, leading to the disclosure of pricing information.  The directors suggested that such disclosure could result in collusion and reduce the effectiveness of health plans that have reduced costs and increase value for the delivery of healthcare services across the state.  They also referred to letters FTC staff had written to the New Jersey and New York state legislatures in 2007 and 2009, respectively, expressing concerns that legislation intended to increase regulation of PBMs, including disclosure of compensation and fees paid for PBM services, would increase prices, and reduce competition.[10]

            Other government and third-party studies that have confirmed the value of PBM tools for consumers include a May 30, 2019, University of Pennsylvania Wharton School issue brief on preferred pharmacy networks by Ashley Swanson, PhD, which found that preferred pharmacy contracting lowers Medicare Part D costs by about 1 percent.  She concluded that if these cost-saving practices used by PBMs were applied across the entire healthcare system, the savings would be even greater.[11]

            An August 14, 2019 Government Accountability Office (GAO) report reviewed the use of PBMs in Medicare Part D.  Drug plan sponsors in 2016 used PBMs to provide 74 percent of drug management services and sponsored the remaining 26 percent themselves.  The GAO found that net Part D spending was $116 billion, as PBM-negotiated rebates and other price concessions reduced gross expenditures of $145 billion by 20 percent.[12]

            The report also found that rebates and other price concessions grew faster than Part D net expenditures from 2014 to 2016, at 66 percent and 13 percent respectively, but PBMs retained less than 1 percent of the rebates and passed the rest to their plan sponsors.  The plans use these savings to help offset the growth in drug costs and keep drug benefit premiums low for Medicare beneficiaries.  The GAO also found PBMs are primarily compensated by fees obtained from plan sponsors, not the rebates.[13]

            Instead of accepting well-researched and settled findings about the consumer benefits of PBMs and avoiding the expenditure of the taxpayer’s money on its public comment process, the FTC is requesting comments on the impact of PBM business practices on patients, physicians, employers, and independent and chain pharmacies.  This is simply pitting one part of the healthcare industry against another, which far too often results in government regulation or intervention that benefits businesses that are unable to achieve success through competition.  Using the power of the FTC to produce such an outcome will be detrimental to consumers, and will reduce benefits, plan choices, and savings for plan sponsors and other parts of the healthcare business.  The lack of consideration of consumer welfare also seems to indicate that the majority at the FTC believes that being a large or vertically integrated business is ipso facto sufficient for direct regulatory action. 

            Policies that result in less government interference, not more, are needed to bring more competition to pharmacy benefit plans and lower drug prices.  The use of price controls in Medicaid, Medicare Part B, the coverage gap in Medicare Part D, the 340B program, and the Department of Veterans Affairs have distorted the marketplace and driven up costs in the private market.  The FTC should not engage in more government control of the healthcare industry by turning a request for information into heavy-handed regulation of PBMs to the detriment of employers and patients.

            Taxpayers, consumers, and patients should beware of claims from government officials that they know what is best for them.  Lowering drug costs should be achieved through marketplace reforms, not heavy-handed laws, and burdensome regulations.


Tom Schatz

[1] National Association of Insurance Commissioners (NAIC), “Pharmacy Benefit Managers,” Updated April 11, 2022,

[2] Congressional Budget Office (CBO), “The Budget and Economic Outlook: Fiscal Years 2006-2015,” January 2005, p. 55,

[3] CBO, “March 2016 Medicare Baseline,” March 24, 2016,

[4] Drug Channels Institute, “The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation,”

[5] NAIC, “Pharmacy Benefit Managers.”

[6] Federal Trade Commission (FTC), “FTC Issues Report on PBM Ownership of Mail-Order Pharmacies: Study Shows PBM Ownership Does Not Result in Higher Costs for Consumers,” September 6, 2005,

[7] Ibid.

[8] FTC, “Statement of the Federal Trade Commission Concerning the Proposed Acquisition of Medco Health Solutions by Express Scripts, Inc.,” April 12, 2012,

[9] FTC, “Staff Comment Before the ERISA Advisory Council of the U.S. Department of Labor Regarding Pharmacy Benefit Manager Compensation and Fee Disclosure,” August 19, 2014,

[10] FTC, “Staff Comment Regarding Amendments to the Minnesota Government Data Practices Act Regarding Health Care Contract Data,” June 29, 2015,

[11] Ashley Swanson, PhD, “Preferred Pharmacy Networks: Health Care Savings on the Margins,” University of Pennsylvania, Scholarly Commons, Penn Wharton Public Policy Initiative Issue Briefs,

[12] Government Accountability Office, “Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization,” July 2019,

[13] Ibid.

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