Op-Ed: Joel Thayer: The drug middlemen settled, but the conflict of interest remains.
The Federal Trade Commission has now extracted settlements from all three of the nation’s largest pharmacy benefit managers. Express Scripts agreed in February, CVS Caremark followed, and Optum Rx has a proposed consent order pending. The agency projects billions in patient savings on insulin and other drugs. That is real progress, and the Commission deserves credit for taking a stand against these bad actors.
The orders require meaningful changes in conduct from PBMs. They delink PBM fees from list prices, require rebates to reach patients, and offer community pharmacies a cost-plus reimbursement option. But they do not touch the structure that made the misconduct profitable in the first place: the same corporate parent owns the insurer, the PBM, the pharmacy, and increasingly, the doctor.
That structure remains a problem. CVS owns Aetna, Caremark, and roughly 9,000 retail pharmacies. Cigna owns Express Scripts and the specialty pharmacy Accredo. UnitedHealth owns UnitedHealthcare, Optum Rx, a specialty pharmacy, and the largest physician workforce in the country, some 90,000 doctors. These three companies process about 80 percent of the nation’s prescriptions, and each one negotiates the price, decides which pharmacy fills the prescription, and then bills itself.
Antitrust law does not treat vertical integration as illegal per se, nor should it. But antitrust law has never blessed integration that lets a dominant firm foreclose rivals and self-deal against the customers it is supposed to serve. Section 7 of the Clayton Act prohibits acquisitions whose effect “may be” to substantially lessen competition, and it reaches consummated deals; the FTC can unwind them. Section 2 of the Sherman Act reaches a firm that leverages control of one market to disadvantage competitors in another.
The FTC’s interim reports documented exactly that pattern: PBMs steering patients to affiliated pharmacies, reimbursing independents below their own units, and marking up specialty generics by more than $7 billion between 2017 and 2022. This isn’t surprising – we wouldn’t trust a referee who owns the team to call a fair game. We can either substitute constant administrative supervision as a referee, or we can demand structural separation and allow the game to function properly.
This train of thought is already evident in the states. Arkansas passed the first law barring PBMs from owning pharmacies; Tennessee followed this spring. The PBMs sued both, and a district court has enjoined Arkansas on Commerce Clause and TRICARE-preemption grounds while the Eighth Circuit considers the appeal. Whatever one thinks of those constitutional questions, the legislature’s underlying judgment was sound: you can be the benefit manager or the pharmacy, not both.
Congress has a bipartisan vehicle in the Patients Before Monopolies Act, reintroduced in May by Senators Josh Hawley and Elizabeth Warren with Representatives Diana Harshbarger and Jake Auchincloss. It would prohibit common ownership of a PBM or insurer and a pharmacy, require divestiture within a year, and give the FTC and Justice Department enforcement teeth. It is narrow, it is structural, and it ends the referee problem rather than managing it. This is a no brainer.
Meanwhile, the FTC should not wait for Congress. The Commission has authority today to open a Section 7 review of the consummated insurer-PBM-pharmacy combinations, and the Justice Department’s long-running inquiry into UnitedHealth and Optum should culminate in a complaint, not another report. The insulin settlements established that the conduct was harmful. The next step is to admit that the conduct was the predictable output of the corporate form, and to change the form.
Joel Thayer is president of the Digital Progress Institute and an attorney in Washington, D.C.
