Federal watchdog finds PBMs dominate Medicare Part D, raising out-of-pocket drug costs

The U.S. Department of Health and Human Services Office of the Inspector General reported that vertically integrated pharmacy benefit managers dominate Medicare Part D and that enrollees in their plans pay substantially higher out-of-pocket drug costs, while the PBMs recoup money from pharmacies through rebates and fees.

A May report by the Department of Health and Human Services Office of Inspector General examined vertically integrated companies that combine Medicare Part D sponsors with pharmacy benefit managers and pharmacies. The watchdog found that enrollees in plans run by these vertically integrated firms generally paid lower premiums but substantially higher out-of-pocket costs for their drugs, and that the firms tended to pay pharmacies more up front before clawing back money later through rebates and fees. The Office of Inspector General is the independent watchdog for the Department of Health and Human Services. It noted that a small group of vertically integrated organizations accounted for about 82 percent of the roughly 276 billion dollars in Medicare Part D spending in 2023, and cautioned that data limits left the full impact on pharmacies unclear, even as it flagged higher out-of-pocket drug costs for the enrollees in those plans across the country.

The findings deepen federal concern about consolidation in the drug supply chain. According to the Federal Trade Commission, the three largest pharmacy benefit managers control roughly 80 percent of U.S. prescriptions and are vertically integrated with major insurers and pharmacies, giving a handful of companies sweeping control over which drugs patients can get and what pharmacies are paid. That market power, the agency has warned, lets the middlemen profit at patients' expense.

Congress has reached similar conclusions. A bipartisan investigation by the House Committee on Oversight found that CVS Caremark, Express Scripts, and OptumRx have used their dominance to inflate drug costs, steer patients to their own pharmacies, and disadvantage independent and community drugstores. The committee reported that this conduct raises costs for patients and squeezes the pharmacies that serve them.