AMA examines competition in the PBM market and integration with insurers

CHICAGO — New analysis (PDF) from the American Medical Association (AMA) reveals a widespread lack of competition in local markets across the United States where prescription drug middlemen known as pharmacy benefit managers ( PBM) provide services to commercial health insurers. The AMA’s analysis is the first to shed light on variations in market share and competition between PBMs at the state and metropolitan levels.

Based on 2020 data for people with commercial drug insurance linked to a medical benefit and the PBMs used by insurers, the AMA’s competitive analysis presents a national and local market overview on five different PBM services performed for insurers: discount negotiation, retail network management, claims adjudication, form management and benefit design. It presents the two largest PBM market shares and concentration levels for all states and metropolitan areas.

“The American Medical Association already has serious concerns (PDF) about PBM business practices that may negatively impact patient access to prescription drugs and their cost,” said the AMA President, Jack Resneck Jr, MD. “PBM markets require careful scrutiny because less competition and more vertical integration can embolden anti-competitive business practices to the detriment of patients. The new data presented by the AMA’s analysis is intended to help regulators, legislators, researchers and policy makers to better evaluate merger proposals in the future that could harm patients by raising prices, reducing quality, reducing choice and stifling innovation.

The analysis revealed that significant portions (37%) of national markets for two services, formularies management and benefit design, were managed in-house by health insurers rather than purchasing these services from the PBM marketplace. In contrast, commercial insurers largely use a PBM for three services: discount negotiation, retail network management, and claims settlement, rather than conducting them in-house. The analysis therefore assessed the market competition for these three PBM services.

At the national level, the analysis revealed that a handful of PBMs held a significant collective market share for the three PBM services most used by insurers:

  • The 10 largest PBMs had a collective share of 97%.
  • The four largest PBMs had a collective share of around 66%.
  • Six PBMs are used exclusively by a Blue Cross Blue Shield insurer or set of affiliates.

At the state and metro levels, the analysis revealed a high degree of market concentration for each of the three PBM services assessed by the study:

  • More than three out of four states (about 78%) had highly concentrated PBM markets.
  • More than four out of five metropolitan areas (85%) had highly concentrated PBM markets.

The analysis also quantified the extent of vertical integration between health insurers and PBMs. An insurer is vertically integrated with a PBM when a PBM service is performed in-house or provided by a PBM that shares ownership with the insurer.

  • Vertically integrated health insurers with a PBM covered 69% of all people covered by commercial drug insurance.
  • Although the average shares of vertical integration between states and metropolitan areas were slightly lower (63% and 65%), there were large variations between states and metropolitan areas.
  • Some states have virtually no vertical integration between insurers and PBMs, while others are almost entirely vertically integrated. South Dakota has the smallest share of vertical integration (6%) and North Carolina has the highest share of vertical integration (97%).

According to the analysis, “even though the largest health insurers and PBMs are vertically integrated, there is still a significant portion of the market that remains unintegrated vertically, particularly at the local level.” Vertically integrated insurers may not allow non-vertically integrated insurers competing with insurers to access their PBMs, otherwise they could increase the cost of such PBM services, which could adversely affect non-vertically integrated insurers and, ultimately on patients due to higher premiums.

Competitive analysis in commercial PBM services markets complements the AMA’s work to shed light on market consolidation in the health insurance industry. Protecting patients and physicians from anti-competitive harm will continue to be a vital public policy issue for the AMA, the federation of medicine, and physicians nationwide. The AMA’s website provides additional information on AMA’s efforts against anti-competitive mergers.

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