The extent to which the PBMs and their sponsors are successful in obtaining physician compliance with formularies can increase the sales and market share within a therapeutic class of a prescription drug, particularly for products on the formulary with the lowest cost designations. Incentive-based and closed formularies increase competition among drug manufacturers with competing drugs to get their drugs on PBMs’ formularies. In response to a changing environment, large pharmaceutical manufacturers have vertically integrated into the market for PBM services. II for additional information on the companies involved in these ventures.) The manufacturers believe that merging or allying with a PBM will provide competitive advantages that will enable them to maintain profits. Competitive advantages can be gained by eliminating opportunities for other manufacturers to compete for inclusion and low-cost designation for their drugs on the PBM partner’s formularies. PBMs in our study contend that they remain independent of their manufacturer partners in serving their customers, particularly in containing their customers’ overall drugs costs. Scope and Methodology

To address the study’s objectives, we first determined the role of PBMs in the health care industry. Third, to understand specific concerns about the mergers and alliances, we contacted nonaligned PBMs, health plan sponsors, and pharmaceutical economists. Fourth, to assess the extent to which PBMs may have given preference to their manufacturer partners’ drugs over competitors’ drugs, we compared formularies for DPS and Medco before and after the mergers.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed mergers between pharmacy benefit managers (PBM) and pharmaceutical manufacturers, focusing on: (1) PBM role in the health care industry; (2) the mergers' objectives and effect on competition; and (3) the extent to which PBM have given preference to their manufacturer partners' drugs.

What GAO Found

GAO found that: (1) drug manufacturers have allied with PBM to help maintain their profits in an increasingly competitive marketplace; (2) PBM help health plan sponsors administer prescription drug benefits and help them contain their overall drug costs; (3) manufacturers rely on their PBM partners to develop new programs for treating specific diseases and increase the market share for their drugs; (4) critics of PBM alliances are concerned that the companies involved could act to restrict competition among manufacturers for inclusion on PBM formularies; (5) variations exist in the extent to which PBM have given preferences to their manufacturer partners' drugs; and (6) the Federal Trade Commission monitors PBM alliances to help ensure that PBM maintain competitive processes that allow other manufacturers to compete for low-cost designation for their drugs on PBM formularies.