AMA Analysis: Lack of Competition Among PBMs in Local Markets


The lack of competition and the vertical integration of PBMs and insurers can have a negative impact on patients’ access to and cost of prescription drugs, AMA said.

A handful of PBMs have a large collective market share for three of the PBM services most often used by insurers: rebate negotiation, retail network management and claims adjudication, according to a new analysis by the American Medical Association (AMA). This lack of competition in local markets and the vertical integration of PBMs and insurers could lead to conflicts of interest and anticompetitive effects, officials from the AMA have said.

Jack Resneck Jr., M.D.

Jack Resneck Jr., M.D.

“The American Medical Association already has serious concerns about PBM business practices that can have a detrimental impact on patients’ access to and cost of prescription drugs,” AMA President Jack Resneck Jr., M.D., said in a news release. “PBM markets require careful scrutiny as less competition and more vertical integration can embolden anti-competitive business practices to the detriment of patients.”

This analysis has found that at the national level the 10 largest PBMs have a 97% collective market share for the three PBM services studied, and the four largest PBMs had a collective share of around 66%. In addition, six PBMs are used exclusively by one insurer or a set of Blue Cross Blue Shield affiliates.

The Pharmaceutical Care Management Association (PCMA), the PBM trade organization, did not respond to a request for comment from Formulary Watch.

The AMA analysis is based on 2020 data for individuals with a commercial drug coverage tied to a medical benefit and the PBMs used by insurers. It includes national and local market insight on five different PBM services performed for insurers: rebate negotiation, retail network management, claim adjudication, formulary management, and benefit design. It presents the two largest PBM market shares and concentration levels for all states and metropolitan areas.

The analysis found that 37% of the national markets (Medicare Part D and Medicaid) for two services — formulary management and benefit design — were managed in-house by health insurers rather than buying those services from the PBM market. Commercial insurers largely use a PBM for three services: rebate negotiation, retail network management and claims adjudication, rather than conducting them in-house.

At both the state and metropolitan levels, the analysis of commercial insurance found a high degree of market concentration for each of the three PBM services assessed by the study. A majority (about 78%) of states had highly concentrated PBM markets, and 85% of metropolitan areas had highly concentrated PBM markets.

Health insurers that were vertically integrated with a PBM covered 69% of all people with commercial drug insurance. Although the average vertical integration shares across states and metropolitan areas were slightly lower (63% and 65%), there was wide variation across states and metropolitan areas.

Some states have almost no vertical integration between insurers and PBMs, while others are almost entirely vertically integrated. South Dakota had the smallest vertical integration share (6%), while North Carolina had the highest vertical integration share (97%).

“Even though the largest health insurers and PBMs are vertically integrated, there is still a significant portion of the market that remains not vertically integrated, particularly at the local level,” the analysis said.

“Vertically integrated insurers may not allow non-vertically integrated insurer competitors to access their PBMs, or they could raise the cost of those PBM services. This could adversely affect non-vertically integrated insurers and ultimately patients through higher premiums,” AMA said.

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