PhRMA Warns Federal Agencies: Consolidation and vertical integration among insurers, PBMs, and hospitals threaten patients, health care industry

To fix the broken system, Congress and federal agencies alike must enact reforms that realign incentives in the market, strengthen competition, take on middlemen, and improve patients’ access to care.

Molly Jenkins Headshot
Molly JenkinsJune 5, 2024

PhRMA Warns Federal Agencies: Consolidation and vertical integration among insurers, PBMs, and hospitals threaten patients, health care industry.

In comments submitted to the Department of Health and Human Services (HHS), Department of Justice (DOJ), and the Federal Trade Commission (FTC), PhRMA detailed the growing threat posed by consolidation and vertical integration across the health care markets. Our letter urges HHS, DOJ, and FTC to continue addressing the growing threat to patient interests caused by the questionable practices of large PBM and insurer conglomerates.

Why This Matters:

More than half of every dollar spent on medicines goes to middlemen, like Pharmacy Benefit Managers (PBMs), insurers and others, who play no role in developing medicines. Often, these PBMs and insurers are part of vertically integrated organizations, which allow them to profit at multiple points along the supply chain and gives them unprecedented control over what prescriptions are covered, what people pay out of pocket and what pharmacy they can use.

The bottom line: Consolidation and vertical integration among insurers, PBMs, and hospitals often increases the costs and decreases the quality of care for patients.

The request for information comes amid a series of federal and state probes into abusive practices by PBMs and insurers.

Key Concerns Outlined in our Comments:

1. Access and affordability: Extensive consolidation and vertical integration is forcing people to pay more than they should and making it harder for them to get the medicines they need.

“[T]hree large health care conglomerates exert unprecedented control over what medicines patients have access to, what they pay out of pocket, what pharmacies they visit, and the utilization management barriers they face. Patients are often steered towards medicines and pharmacies that make these corporate giants more money, regardless of what’s best for patients and the health care system as a whole. Vertically integrated PBMs often exclude generics, biosimilars, and lower list priced versions of products from their formularies.” 

2. Quality of care: Physician practice and hospital consolidation is skyrocketing. This creates perverse incentives that can negatively impact quality of care and introduce conflicts of interest.

“Unbeknownst to most patients and employers, for-profit insurers and vertically integrated PBMs have acquired thousands of formerly independent health care providers, introducing inherent conflicts of interest. […] UnitedHealth Group is now the single largest employer of physicians in the U.S., representing 10 percent of U.S. physicians. Behind the scenes, payers that own provider practices may influence prescribing and other care decisions, exerting control over providers’ financial outcomes.”

3. Competition: The questionable practices of vertically integrated companies allow them to effectively do business with themselves. This is driving out competition and increasing costs across the health care system.

“Large PBMs — who create pharmacy networks for their clients — can disadvantage independent pharmacies, creating an unsustainable market for these businesses and compelling them to accept unfavorable and unsustainable contracts in order to remain in-network. These large companies deploy multiple practices, such as unfavorable reimbursement terms where pharmacies are reimbursed below their acquisition cost and high fees, to capture more market share from independent pharmacies.”

These comments build on our previous comments to the FTC on the impact of PBMs’ business practices. In our earlier comments, we urged the FTC to further examine how PBMs leverage their extraordinary negotiating power to maximize profits, often in ways that can harm patients.

Where We Go from Here:

PhRMA supports DOJ, FTC, and HHS’s combined efforts to understand and investigate the implications of consolidation and vertical integration. We also encourage the FTC to complete the inquiry into the PBM industry they launched in June 2022.

To fix the broken system, Congress and federal agencies alike must enact reforms that realign incentives in the market, strengthen competition, take on middlemen, and improve patients’ access to care.

Read the full comments to the federal agencies here.  

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