Business
Column: Pharmacy middlemen claim to keep prescription prices low. In fact, they've cost consumers billions
In 2022, an executive of a big pharmacy middleman firm acknowledged the noxious reality of its business model:
It was designed to massively overcharge customers by steering them to its affiliated or “preferred” pharmacies or its home delivery subsidiary.
Referring to a generic version of Gleevec, a leukemia drug taken by nearly 200,000 patients, the executive noted in an internal memo that “you can get the drug at a non-preferred pharmacy (Costco) for $97, at Walgreens (preferred) for $9000, and at preferred home delivery for $19,200…. We’ve created plan designs to aggressively steer customers to home delivery where the drug cost is ~200 times higher.”
PBMs are not lowering prices for drugs used by patients to treat severe diseases like prostate cancer and leukemia.
— Federal Trade Commission
The executive concluded, “The optics are not good and must be addressed.”
What that memo described, according to a new report from the Federal Trade Commission, is standard operating procedure among the nation’s largest pharmacy benefit managers, or PBMs.
Originally devised in the 1960s as intermediaries helping health insurers process claims, steering doctors and hospitals to the cheapest drug alternatives and giving insurers greater leverage in negotiations with drug manufacturers, they soon became just another special interest in America’s fragmented healthcare system.
Thanks to a wave of consolidation and growth of healthcare conglomerates, the FTC says, the three largest PBMs manage nearly 80% of all prescriptions filled in the U.S. They have accumulated enough power to profit “by inflating drug costs and squeezing Main Street pharmacies,” driving the independents out of business.
Once posed as an answer to high drug costs, they’re today at the hub of a system that drives up drug prices for consumers.
Starting in the 1990s, some of the biggest PBMs were acquired by drug companies, creating conflicts of interest that led to federal orders for divestment.
Then came a wave of mergers and acquisitions within the PBM universe, followed by acquisitions by insurers and pharmacy companies — CVS acquired Caremark, then the biggest PBM, in 2007 and UnitedHealth merged CatamaranRx, then the fourth-largest PBM, into OptumRx in 2015.
Between 2000 and 2021, 39 individual healthcare companies — drugstore chains, health insurers, managed care firms and PBMs — all coalesced into three healthcare behemoths, Cigna, CVS and UnitedHealth.
CVS Health Corp. owns not only the Caremark PBM, which controls 34% of the prescription market, but the insurance company Aetna and about 9,000 retail drugstores.
Cigna Group, which has a prescription market share of 23%, owns the mail-order PBM Express Scripts and the Cigna insurance company. UnitedHealth Group is the largest U.S. health insurer and owns 1,000 walk-in health clinics as well as physician groups; through its OptumRx PBM, its prescription market share is 22%.
Between 2000 and 2021, mergers and acquisitions combined these 39 independent healthcare companies into three huge conglomerates.
(Federal Trade Commission)
Along with Humana, the fourth-ranked PBM with a market share of 7%, those conglomerates produced combined revenue of $456 billion in 2016, 14% of national health spending. Today, they collect more than $1 trillion in revenue, or 22% of U.S. healthcare spending.
Despite the predictably anticompetitive effects of these mergers and acquisitions, not a single one was challenged by antitrust enforcement agencies, says the FTC — one of the antitrust regulators asleep at the switch.
Among the stratagems employed by PBMs to boost profits, the FTC says, is steering health plans and patients to their own affiliated pharmacy chains.
Some patients have discovered that their drugs won’t be covered by their insurers unless they buy them at specified pharmacies, the result of deals the PBMs have made with insurers, including those with which they share a parent. But the customers may have to pay more out of pocket at the affiliated pharmacies than they would at an independent.
The FTC staff found that for “specialty prescriptions” — a designation the PBMs place on certain drugs, often without explanation — 55% were filled at affiliated pharmacies. The same ratio didn’t occur with prescriptions under Medicare’s Part D prescription coverage, because federal law requires that those prescriptions can be filled at almost any licensed pharmacy. Only 22% of Part D prescriptions were filled at PBM-affiliated pharmacies. That suggests that PBMs may be steering patients to their pharmacies where that’s not forbidden by law.
The statistics were drawn from submissions by two of the three top PBMs, which are unidentified. The third didn’t submit the necessary data.
The FTC also touches on a relatively new wrinkle in drug pricing — rebates by drugmakers to PBMs in order to gain preferential positions in drug formularies.
The agency says its review of contracts between manufacturers and PBMs shows that some drug companies promise PBMs higher rebates if the latter exclude competing drugs from their formularies — including generic versions that are chemically identical to the brand-name products — or require prior authorization before covering the rival drugs.
Predictably, the big PBMs and their lobbyists find much to dislike in the FTC report, which the agency describes as an interim staff report, part of an investigation launched in 2022.
A spokesperson for Cigna’s Express Scripts criticized the report for “blatant inaccuracies” (but didn’t offer specifics in an email to me). A spokesman for CVS blamed drugmakers for high prescription prices, stating that an FTC effort to “limit the use of PBM negotiating tools would instead reward the pharmaceutical industry.” Optum didn’t reply to my request for comment.
J.C. Scott, president of the Pharmaceutical Care Management Assn., the PBM lobbying arm, accused the FTC of advancing “pre-determined conclusions … irrespective of the facts or the data.”
Drawing from more than 1,200 comments submitted by stakeholders in healthcare and by other members of the public, the agency outlined a host of methods PBMs are accused of using to benefit their affiliated services, block patient access to inexpensive generics and pocket discounts that should properly go to customers.
The FTC also mined lawsuits, including a 2023 case the state of Ohio filed against Express Scripts, charging that the PBM exploits its knowledge that “Ohioans in need of medication, particularly life-saving medication, will pay the asking price. The choice is binary — pay or suffer.”
Drug manufacturers capitulate to the PBMs’ rebate demands, the lawsuit says, to avoid being dropped from the PBMs’ formularies, the rosters of drugs that they’ll cover. “Patients pay more, manufacturers get less, and the PBMs profit. Handsomely.”
PBMs have been the targets of drug industry participants for years — sometimes fingered by drugmakers or insurers to deflect accusations that they’re responsible for prescription drug inflation.
It may be true that all those entities share the blame for high prices. Over the last couple of decades, however, all have become tentacles of the same octopus. The consolidation of drug chains, physician groups, insurers and PBMs into conglomerates has made it much harder to identify responsibility for drug inflation.
Contracts between PBMs and unaffiliated pharmacies, the FTC says, are “opaque, complex, and conditional, making it challenging to understand what pharmacies will ultimately be paid for any given drug.” The result is that smaller, nonchain pharmacies may get pushed out of the market, “leading to higher costs and lower quality services for people around the country.”
The FTC report offers two case studies involving generic cancer drugs in which the agency says PBMs reimbursed their affiliated pharmacies more for prescriptions than unaffiliated pharmacies, yielding nearly $1.6 billion in gross profits from 2020 through mid-2022 for those affiliated pharmacies over the national average of those drug costs.
The drugs are a generic version of Zytiga, a treatment for prostate cancer, and a generic for Gleevec, a drug for leukemia. The high reimbursement rates for druggists dispensing those drugs may “translate into high out-of-pocket costs for patients,” the FTC says. In other words, “PBMs are not lowering prices for drugs used by patients to treat severe diseases like prostate cancer and leukemia.”
Magnify the gains on those two drugs by the potential profits the PBMs may be extracting from the entire spectrum of prescription pharmaceuticals, and the toll becomes breathtaking.
Prices that PBMs paid affiliated pharmacies for the generic version of prostate cancer drug Zytiga were much higher than they paid independent pharmacies, and much higher than the national average cost. As a result, patients may have been charged much higher co-pays at the affiliates — but may not have had any other option.
(FTC)
“It appears that PBMs are having the commercial health plans and Medicare Part D prescription drug plans they manage pay their affiliated pharmacies rates that are grossly in excess” of national average prices or prices paid to unaffiliated pharmacies.
No one escapes the consequences of this sort of market manipulation. The internal transactions, largely hidden from the public and regulators, may distort the statistics that health plans submit to the government to show they meet the coverage standards required by the Affordable Care Act, allowing the conglomerates to “game” the rules, the FTC says.
They may drive up healthcare costs for self-insured clients such as large companies, which may pare back health coverage for their employees as a result.
They can raise co-pays for patients, lead to cutbacks in the availability of coverage for some drugs, or prompt patients to ration their prescriptions, risking their health to save money. To the extent they affect Part D, they may drive up government spending.
To quote the Ohio lawsuit, PBMs were created as a counterweight to perceived profiteering by Big Pharma. But once they “grew powerful enough to themselves extract exorbitant fees … the solution became the problem.”
The FTC says it issued its interim report because several PBMs haven’t provided the agency with the information they’re required to submit, hindering its ability to complete its investigation.
At the very top of the report, the FTC warns that the firms better come across “promptly,” or they’ll be taken to court. The FTC should start suing now, because the PBMs’ apparent code of silence raises a familiar question: What must they be hiding?
A rule intended to prevent rent gouging in the wake of the Eaton and Palisades fires has lapsed in Los Angeles County, possibly exposing some renters to hikes.
The executive order that blocked rent increases was issued by Gov. Gavin Newsom amid the devastating wildfires last year. Under the order, landlords couldn’t increase rents by more than 10% above their prefire levels.
The rule, which was supposed to be temporary and was repeatedly extended, ended Friday after a vote to extend it again failed to garner enough votes. Supervisor Lindsey Horvath, whose district includes Pacific Palisades, sounded the alarm in a motion to extend price protections that failed to pass at the Board of Supervisors’ May 19 meeting.
“These price gouging protections continue to be necessary as construction and rebuilding continue, and as thousands of people remain displaced,” the motion said. “Families which signed short-term leases could face drastic price increases of 50% or more without further price gouging protection.”
Los Angeles County is home to more than 1 million rental properties, though not all of them needed protection from the new rule. There are already stricter rent increase caps for many residences, depending on the location, type and age of the building. Despite the rent control in the region, the people of Los Angeles pay among the highest rents in the country.
It is uncertain whether renters will face rapidly rising rents now that the protection has lapsed. But some real estate experts and policymakers said there was no need for the temporary rule that was part of the governor’s state of emergency.
Supervisors Kathryn Barger, Janice Hahn and Holly Mitchell abstained from voting on the motion to extend the protection, while Supervisors Hilda Solis and Horvath supported it.
“I abstained because I did not see sufficient evidence to justify extending this emergency ordinance, nor did I see evidence to eliminate it entirely,” Hahn said.
Barger’s office said she supported allowing the protections to sunset while waiting to see whether new information emerged.
“Market data already shows countywide rents are only about 2% above pre-emergency levels and rental inventory has grown,” Barger representative Helen E. Chavez Garcia said. “The Supervisor is also mindful of the burden these ongoing protections place on small property owners throughout the county.”
Mitchell did not immediately respond to a request for comment.
There haven’t been steep rent hikes in neighborhoods within three miles of the Palisades fire, according to a Times analysis of data from Zillow, the property listing company.
In ZIP Codes within three miles of the Palisades fire, rent increased 4.8% from December 2024 to April 2025. In areas around the Eaton fire, which destroyed swaths of Altadena, rent jumped 5.2% in the same period.
In L.A. County, ZIP Codes farther from the fires saw only about a 2% increase.
A landlords representative, Jesus Rojas of the Apartment Owners Assn. of Greater Los Angeles, told the supervisors during public comment at the meeting that the county’s rent-gouging rules have “long outlived the emergency they were intended to address” and are now being “wrongfully used to harm thousands of rental housing providers throughout the county.”
“There is no proof that multifamily rental housing providers are hugely increasing rents for impacted homeowners,” Rojas said.
Indeed, there are strong signs that the property market in the Los Angeles area has at last begun to cool.
L.A. metro-area rent prices recently fell to a four-year low, with the median rent slipping to $2,167 in December.
Meanwhile, condominium sales had their slowest start of the year in decades. Condo sales in Los Angeles have plummeted to a 20-year low, with fewer than 2,000 units sold in January and February — the worst start to the year since 2005.
Newsom defended the price-gouging protections shortly after they went into effect.
“In the days following the Los Angeles firestorms, we worked quickly to protect Los Angeles survivors from any form of exploitation,” he said in February 2025. “The state has the tools in place to not only block price gouging during this emergency, but also to prosecute bad actors.”
The Los Angeles County Department of Consumer and Business Affairs said it received more than 2,000 complaints after the fires, alleging that retailers and landlords were taking advantage of people put in hardship by their losses, and sent out more than 2,000 cease-and-desist letters to businesses and landlords for alleged price gouging, said Morine Merritt, who oversees department investigations into consumer and real estate fraud.
“Close to 90% of the complaints that we received involved allegations of rent increases,” Merritt said in an interview. Now that the fire-related protections have expired, existing laws and “regular market conditions determine price increases for goods and services, including rents,” she said.
Crackdowns on fire-related rent gouging have been rare, said Chelsea Kirk of the activist organization the Rent Brigade, which analyzed L.A. County’s rental market in the year after the fires. It reported 18,360 potential examples of price gouging in listings but said that few lawsuits had been filed by authorities so far.
Last week, Rent Brigade announced what it said was the first private civil lawsuit brought by a family that claimed to be rent-gouged in the aftermath of the wildfires. Plaintiffs Randall and Candy Renick, whose Altadena home was damaged, said they were charged nearly three times the maximum permitted rate for nearly 10 months. They seek restitution of $96,000 plus civil penalties and attorneys’ fees.
The rental market has probably stabilized since the fires, Kirk said, but other families may still be “locked into illegal rents” that they agreed to pay when they were in a rush to find housing after they were displaced.
Dear Mr. Pelley:
I meant what I said in my letter last week to the 60 Minutes team: joining 60 Minutes is the honor of my career and I am grateful to be working alongside the people who have contributed to the most important television journalism brand this country has ever produced. While I’m new to 60 Minutes, I’ve devoted my career to investigative journalism and storytelling. I started this job excited to collaborate and to benefit from the wisdom and experience of the 60 Minutes veterans, with you among them. For that reason, one of the first things I did in my new role was call you to talk and invite you to dinner. It is a profound disappointment that you rejected that overture and chose ambush instead. Yesterday, you hijacked my first meeting with staff to disparage me, my qualifications, and my intentions with remarkable incivility and contempt. I welcome a diversity of viewpoints and respectful debate among the team, but this was nothing of the sort. Yesterday’s performative display of hostility enacted in front of the staff instead of in a civil, private conversation-demonstrated that you have no interest in contributing to the future success of the show, or approaching my new tenure with a mind open to collaboration and progress. I am here to deliver first-in-class news programming, not to make headlines about newsroom drama. I am eager to work alongside those who share this goal.
Despite yesterday’s misconduct, I had hoped that in sitting down with you today we could find a path forward together. You made clear that you are not interested in such a path.
Your antipathy to the future of the show has come through loud and clear. And I have heard you. I therefore write on behalf of CBS News, Inc. (“CBS”) to inform you that your employment with CBS is terminated for cause effective immediately. Enclosed is your formal termination letter.
Sincerely,
Nick Bilton
Executive Producer, 60 Minutes
The co-founder of Aspiration, Joseph Sanberg, was sentenced to 14 years in prison on Monday after defrauding investors and lenders of over $248 million.
The startup, an eco-friendly digital banking company boasting fossil fuel-free investments, carbon offsets for gas purchases, and a debit card with cash-back benefits for shopping at clean companies, was founded by Sanberg and Andrei Cherny. Cherny left the company in 2022 and has not been charged.
Sanberg, an Orange County native, pleaded guilty to wire fraud in October after being arrested in March last year. Aspiration subsequently filed for bankruptcy and liquidated all of its assets by July.
Sanberg and venture capitalist Ibrahim AlHusseini, who also faces charges, together forged a series of bank statements in order to obtain loans. From 2020 to 2021, the pair forged AlHusseini’s bank statements to show millions of dollars in assets in order to obtain millions of dollars from lenders.
Additionally, they forged a letter from their audit committee stating that $250 million in funds were available, when in reality Aspiration had less than $1 million. The amount of loans defrauded exceeded $248 million.
In 2021, Sanberg artificially inflated Aspiration’s 2021 revenue by $44 million by recruiting 27 fake customers to sign letters of intent pledging tens of thousands of dollars per month for tree planting services. Sanberg himself funded the contracts and used the inflated revenue numbers to obtain more loans.
The charges sparked an NBA investigation into salary cap allegations due to Aspiration’s connections with Clippers owner Steve Ballmer.
Ballmer personally invested $60 million in Aspiration, all of which was lost. He is now the target of a civil lawsuit alleging his participation in the scheme. Ballmer denies the allegations.
The team announced a $300-million sponsorship deal with Aspiration, and Clippers player Kawhi Leonard signed a four-year, $28-million marketing contract with the company, which reportedly performed no duties. The issue has raised concerns about how players are circumventing the NBA’s salary cap.
The team lost the $300-million sponsorship deal and an additional $20 million paid for carbon offset purchases.
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