Introduction to PBM Market Concentration
Just three pharmacy benefit managers (PBM) dominate retail prescriptions in Medicare Part D and Medicaid managed care across much of the country, with markets in nearly every state considered highly concentrated for at least one program, according to a groundbreaking new study from the USC Schaeffer Center for Health Policy & Economics.
The comprehensive research, published February 6 in JAMA Health Forum, provides one of the most detailed examinations to date of PBM competition within states. This concentration of market power raises significant concerns about drug pricing, pharmacy sustainability, and patient access to essential medications across the United States.
Key Findings from the USC Schaeffer Study
Based on a federal antitrust index known as the Herfindahl-Hirschman Index (HHI), the research reveals alarming levels of market consolidation. The authors find that 40 states have highly concentrated PBM markets within Part D, while 37 states face similar concentration in Medicaid managed care markets.
Perhaps most concerning is that both Part D and Medicaid managed care PBM markets are highly concentrated in 31 states. This includes 10 states that also experience highly concentrated commercial insurance markets, creating a near-monopolistic environment for prescription drug management.
The study’s data demonstrates that 93% of Medicaid managed care prescriptions and 75% of all Part D prescriptions are filled in states where those PBM markets are highly concentrated. This extraordinary level of market control by just three companies has far-reaching implications for healthcare costs and access.
Impact on Drug Costs and Pharmacy Access
The study arrives at a critical time as policymakers and regulators continue to scrutinize industry practices over concerns about how these middlemen contribute to higher drug costs, pharmacy closures, and restricted patient access to medicines. PBMs negotiate rebates with drug manufacturers, determine which medications are covered by insurance plans, and set reimbursement rates for pharmacies.
Critics argue that despite their role as intermediaries designed to reduce costs, PBMs may actually be driving prices higher through complex pricing structures, spread pricing arrangements, and lack of transparency. Independent pharmacies particularly struggle under PBM reimbursement models, with many closing in rural and underserved areas, limiting patient access to essential medications and pharmaceutical care.
Legislative and Regulatory Response
The spending package passed by Congress in early February includes new restrictions on industry practices, marking a significant shift in federal oversight of PBM operations. States have also been increasingly active in regulating PBMs in recent years, implementing measures to improve transparency, restrict certain business practices, and protect local pharmacies.
According to the study authors, “These findings can guide federal and state policies to improve PBM accountability and transparency, particularly in Medicare Part D and Medicaid. They can also inform ongoing efforts to address PBM market concentration, including recently enacted legislation, new regulatory proposals, and federal enforcement actions focused on PBM conduct.”
Future Implications for Healthcare Policy
The research provides crucial evidence for policymakers evaluating potential reforms to the PBM industry. As market concentration continues to limit competition, the need for comprehensive regulatory frameworks becomes increasingly urgent. Federal agencies, including the Federal Trade Commission, are examining PBM practices more closely than ever before.
Moving forward, the healthcare industry faces important questions about how to balance the efficiency benefits PBMs claim to provide with the need for competitive markets, transparent pricing, and equitable access to medications. This study’s findings will likely serve as a foundation for ongoing policy debates and regulatory actions aimed at protecting patients and ensuring sustainable prescription drug markets.
