A newly released interim report from the Federal Trade Commission (FTC) has shed light on troubling practices within the pharmacy benefit manager (PBM) industry, with particular implications for Rhode Island-based CVS Health and its PBM arm, CVS Caremark. The report reveals how PBMs, including CVS Caremark, may be drastically inflating drug costs, limiting patient choice, and squeezing independent pharmacies through opaque pricing practices and steering patients to their own affiliated pharmacies.

The FTC’s investigation, which began in 2022, focused on the six largest PBMs in the United States, including CVS Caremark. These PBMs collectively manage over 90% of all prescription claims in the country, with CVS Caremark alone processing nearly 30% of all prescriptions filled in the U.S. This concentration of market power has raised concerns about the impact on drug prices, patient access, and the viability of independent pharmacies.

One of the most alarming findings in the report concerns the pricing of specialty drugs, particularly generic versions of cancer medications. The FTC’s analysis found that PBM-affiliated pharmacies, including those owned by CVS, were often reimbursed at rates 20 to 40 times higher than the National Average Drug Acquisition Cost (NADAC) for these medications. For example, commercial health plans reimbursed affiliated pharmacies for generic Zytiga, used to treat prostate cancer, at more than $5,800 per month in 2022 – approximately 25 times the $229 acquisition cost reflected by NADAC.

This practice of inflated reimbursements for PBM-affiliated pharmacies has significant financial implications. The FTC estimates that pharmacies affiliated with the three largest PBMs, including CVS Caremark, retained nearly $1.6 billion in dispensing revenue in excess of NADAC for just two cancer drugs over a period of less than three years. This excess revenue raises questions about whether PBMs are truly acting in the best interests of patients and health plans, or if they are exploiting their market position to increase profits.

The report also highlights concerns about PBMs steering patients towards their own affiliated pharmacies. CVS Caremark, with its vast network of CVS retail pharmacies, mail-order services, and specialty pharmacies, is particularly well-positioned to engage in such practices. The FTC’s analysis suggests that PBMs may be using various tactics to direct patients away from independent pharmacies and towards their own affiliated pharmacies, including through network design, formulary placement, and utilization management techniques.

For Rhode Island, where CVS is headquartered and is a major employer, these findings present a complex challenge. While the company provides significant economic benefits to the state, its PBM practices appear to be contributing to higher healthcare costs and potentially limiting patient choice. This dichotomy underscores the need for careful scrutiny and balanced regulation of PBM practices.

The impact on independent pharmacies is another area of concern highlighted in the report. PBMs, including CVS Caremark, wield significant power in negotiating contracts with pharmacies. The FTC found evidence of lopsided and unilateral contracting practices that disadvantage smaller, independent pharmacies. These practices include take-it-or-leave-it contracts, opaque reimbursement calculations, and post-sale adjustments that can leave pharmacies uncertain about their actual reimbursement rates.

In Rhode Island, where local, independent pharmacies play a crucial role in many communities, these practices could have far-reaching consequences. The potential closure of independent pharmacies due to unsustainable business conditions could leave some areas, particularly rural or underserved communities, with limited access to pharmacy services.

The FTC report also raises concerns about the impact of PBM practices on patient out-of-pocket costs. By steering patients towards higher-priced branded drugs through rebate arrangements with pharmaceutical manufacturers, PBMs may be contributing to higher copays and coinsurance for patients. This is particularly troubling given the high cost of many specialty medications and the potential for patients to ration or skip doses due to financial constraints.

Furthermore, the vertical integration of CVS Health – which includes CVS Caremark (PBM), Aetna (health insurer), and CVS Pharmacy (retail and specialty pharmacies) – raises questions about potential conflicts of interest and the company’s ability to leverage its market power across different segments of the healthcare industry. This integration allows CVS to potentially steer patients and prescriptions through its own ecosystem, from insurance coverage to drug dispensing, potentially at the expense of competition and patient choice.

The FTC’s findings have prompted calls for greater oversight and potential regulation of PBM practices. In Rhode Island, policymakers may need to consider how to balance the economic benefits provided by CVS with the need to ensure fair competition, affordable drug prices, and patient access to pharmacy services.

Several potential solutions have been proposed to address these issues. These include increased transparency in PBM pricing and rebate practices, limitations on spread pricing (where PBMs charge health plans more than they reimburse pharmacies), and regulations to ensure fair contracting practices with independent pharmacies. Some states have already begun to implement such measures, and Rhode Island may need to consider similar actions.

As the FTC continues its investigation, it’s clear that the practices of PBMs like CVS Caremark are coming under increased scrutiny. For Rhode Island residents, the findings of this report highlight the complex relationship between one of the state’s largest employers and the broader healthcare landscape. Moving forward, it will be crucial for policymakers, healthcare providers, and patients to engage in a thoughtful dialogue about how to ensure a fair, competitive, and patient-centered pharmacy benefit system.

The FTC’s interim report serves as a wake-up call, not just for the PBM industry, but for all stakeholders in the healthcare system. As we grapple with rising healthcare costs and concerns about access to affordable medications, the role of PBMs like CVS Caremark will undoubtedly be a central part of the conversation. For Rhode Island, finding a balance between supporting a major local employer and ensuring fair practices in the pharmaceutical supply chain will be a critical challenge.