The Culprit Impeding Drug Competition Is Not Who The Feds Expected

Forbes

10-07-2025

"There's little point in pouring hundreds of millions of dollars into creating a biosimilar if PBMs ... More will refuse to cover it," writes Pipes."
The Federal Trade Commission and U.S. Department of Justice recently kicked off a series of listening sessions to examine barriers to competition in the drug industry.
The title of the first session—"Anticompetitive Conduct by Pharmaceutical Companies"—made it seem that regulators would chiefly investigate biotech firms. Yet by the end, panelists had refocused the spotlight onto pharmacy benefit managers—and provided striking evidence that PBMs, not biotech companies, deserve most of the blame for the anticompetitive practices that lead to high drug prices.
If the FTC and DOJ heed the panelists' warnings and crack down on this misbehavior, it could tangibly reduce drug costs for patients.
PBMs decide which medicines are included on insurers' formularies, or lists of covered drugs. That gatekeeping authority gives PBMs the power to negotiate prices with manufacturers and secure rebates.
PBMs claim to use those rebates to reduce costs for patients. But the rebate structure actually gives them a strong incentive to prefer higher-priced drugs—even when cheaper and equally effective alternatives are available. That's because their earnings are generally determined as a percentage of a drug's list price.
A 2024 House Oversight Committee report identified more than 1,000 instances in which PBMs favored higher-cost medicines over less expensive equivalents. In 300 of those examples, PBMs' preferred medicines cost patients at least $500 more than an alternative they excluded from their formularies.
Formulary decisions like these lead to larger rebates and fees for PBMs—while the costs pile up for patients. According to a 2023 analysis, PBMs collect more than 40 cents of every dollar spent on brand-name medicines by commercial health plans.
PBMs' perverse incentives go beyond the financial. As the FTC's and DOJ's panelists explained, PBMs' behavior stifles competition and innovation in the drug industry by crushing the development of generic and biosimilar drugs.
Biosimilars, which are clinically similar versions of existing "biologic" drugs grown from living cell cultures, typically debut at prices that are more than 40% lower than the brand-name version's launch price. In some cases, biosimilars launch at prices that are 81% lower.
But even after a year on the market, the average biosimilar commands just under 20% market share for its therapeutic line. PBMs frequently exclude these lower-cost—and thus lower-rebate—biosimilars from formularies or lock them behind prior authorization and "fail-first" requirements.
In cases when PBMs do include biosimilars in their formularies, they're often artificially pricey "private-label" drugs affiliated with the PBMs themselves.
Juliana Reed, the executive director of the nonprofit Biosimilars Forum, highlighted a particularly egregious example involving the blockbuster autoimmune drug Humira, which has 10 biosimilar competitors—that collectively account for less than 10% of U.S. market share.
As James Gelfand—president and CEO of the ERISA Industry Committee, an organization representing large employer health plans—stated, "[t]his manipulation undercuts biosimilar sustainability." It dramatically limits biosimilar manufacturers' ability to establish themselves in the market and earn a return on their products.
In fact, it's creating what the FTC and DOJ panelists termed a "biosimilar void"—a dramatic collapse in new biosimilar development.
According to a recent IQVIA study, 118 biologic drugs will lose patent protection in the next decade. But biotech companies are currently developing biosimilar competitors for just 12 of them. There's little point in pouring hundreds of millions of dollars into creating a biosimilar if PBMs will refuse to cover it.
Manufacturers of traditional chemically synthesized generic drugs face many of the same hurdles. The House Oversight Committee report found that "[n]ew generic drugs are experiencing historically slow adoption by patients directly resulting from PBM coverage decisions."
The FTC and DOJ may not have recognized just how severely PBMs have undermined competition across the drug market. But it's not too late to solve the problem.
The three largest PBMs—Caremark, Express Scripts, and OptumRx—are each integrated with a major pharmacy and together control nearly 80% of U.S. prescriptions. The nation's six largest PBMs account for almost 95% of all prescriptions dispensed.
If any industry deserves to face antitrust scrutiny, it's this one. Putting a stop to PBMs' anticompetitive practices would be far more fruitful than imposing new price controls or other regulations on manufacturers. Policymakers should also consider requiring PBMs to pass negotiated rebates directly to patients, so beneficiaries see real savings at the pharmacy counter.
The recent listening session has given our leaders an actionable path to reform of the market for prescription drugs. Fix PBMs, and concerns about drug prices will resolve themselves.