If you’ve filled a prescription in the past decade, you’re probably familiar with at least one pharmacy benefit manager. The “big three” PBMs are Express Scripts, CVS Caremark and Optum Rx. Those three represent almost 80% of American health insurance patients. 

PBMs negotiate prescription prices between drugmakers and health insurers, and manage the initial paperwork and negotiation for prescription drug claims. They’re middlemen companies at the center of a complicated supply chain. PBMs often determine how much insurers pay for patient prescriptions and also operate their own pharmacies.

Prescription drugs have a complicated supply chain. At the center of that are those PBMs. PBMs have existed since the 1960s, though in the past few decades, they’ve stuck their hands into every part of the pharmaceutical supply chain pie. Except one pie — they didn’t make the drugs. 

But now the largest PBM has also decided to do just that. On April 1, CVS Health entered the specialty drug manufacturing business.

Regulators have been taking a hard look at PBMs.

“There clearly is something that is not working in our pharmaceutical marketplace,” said Rahul Rao, deputy director of the Federal Trade Commission’s Bureau of Competition. “We see the smoke. Now let’s find the fire.” 

The FTC thinks the fire might be PBMs. The agency invited the public to submit complaints about PBMs in February 2022.

“I think we received over 24,000 comments from doctors and independent pharmacists and patients just talking about the struggles that they feel on a day-to-day basis,” Rao said. 

One common complaint? Pharmaceutical mergers creating mega-companies.

“The PBM and pharmacy market is not a normal or healthy functioning market,” Rao said. “It is so consolidated, with so few players.” 

For example, you probably know CVS as a brick-and-mortar pharmacy chain with extremely long receipts. But it also owns the third-largest health insurer, Aetna, and the largest PBM, CVS Caremark. 

These mergers are everywhere in pharmaceutical products. The FTC worries they hurt healthy competition. And critics say PBMs already benefit from higher drug prices. 

In 2023, CVS founded Cordavis, a wholly owned subsidiary of CVS Health, to manufacture prescription drugs. Cordavis’ focus is on bringing biosimilar medications to the American market; these are generics for expensive specialty drugs called biologicals.

“By 2030, there is a $100 billion opportunity in biosimilars,” said Sree Chaguturu, chief medical officer of CVS Health. 

Cordavis has started by making Hyrimoz, a biosimilar for Humira, which treats autoimmune disorders. Once Humira’s U.S. patents expired, CVS swooped in with Hyrimoz.

In the three weeks after it hit the market, Chaguturu said that 93% of CVS prescriptions were filled with the new biosimilar. That shows the power of CVS’ market saturation; it pushed Hyrimoz through every arm of its business.

CVS said the list price of Hyrimoz is 81% cheaper than brand-name Humira. And that’s saving their insurers a lot of money, Chaguturu said: “$140 million in gross savings on their drug benefit spend.”

But is there an inherent conflict of interest in having the same company that negotiates with the drug manufacturer be the drug manufacturer? 

Chaguturu doesn’t think so. 

“Our commitment is to our clients and to the patients and members that they serve to lower drug pricing,” he said.

Not everyone agrees.   

“It’s very intuitive that there’s a conflict of interest, because you’re essentially negotiating with yourself,” said Neeraj Sood, a health care economist at the University of Southern California’s Price School of Public Policy. He’s studied what PBM consolidation does to prices. 

“I don’t think it’s a good idea for CVS to have its own biosimilar,” Sood said.

While CVS’ entry into biosimilars might help cut drug prices short term, “I think in the long run, what’s gonna happen is it’s going to erode competition in the biosimilar market,” he said.

And, Sood added, less competition could eventually bring drug costs back up.