Click here to read the report conclusions.
In July 2024, Professor Dennis Carlton, one of the leading industrial organization economists in the country and former chief economist at the DOJ Antitrust Division, unveiled conclusions based on his research into Pharmacy Benefit Managers (PBMs). His study shows that PBMs foster competition among rival drug manufacturers and rival pharmacies, reducing drug costs for plan sponsors and members relative to what they otherwise would be.
For several months, Professor Carlton directed research that analyzed data from the three largest PBMs – including data provided to the FTC, which released an interim staff report on PBMs. Professor Carlton’s in-depth analysis contradicts many of the inferences drawn by the interim FTC staff report, producing results consistent with those of other academic and government studies that support the conclusion that PBMs help reduce prescription drug costs. Moreover, Professor Carlton’s research shows that PBMs are not driving independent pharmacies out of business.
Click here to read the report conclusions.
Key highlights from Professor Carlton’s conclusions
PBMs Lower Drug Costs for Plan Sponsors and Members
- Negotiating Savings for Plan Sponsors and Members: Contrary to claims by critics, PBMs pass-through to plan sponsors almost all rebates and fees negotiated with drug manufacturers. The average pass-through rate has increased over time and was close to 100% by 2020 and 2021.
- Retail Pharmacy Spread: The average retail pharmacy spread, which is the difference between the amount that plan sponsors pay to PBMs for a prescription and the amount that PBMs pay to pharmacies, retained by PBMs is below 2%. Survey evidence indicates that most plans have a zero retail spread.
- Operating Margins: PBM operating margins were below 5% in recent years and were lower in 2022 than they were in 2017. These margin data contradict claims that PBMs are responsible for the high drug costs by earning excess profits that have been increasing over time.
Rebates and PBM-Affiliated Pharmacies Are Not Increasing Costs
- Rebates and Prices: The data on rebates and list prices show that list prices of rebated branded drugs are not systematically increasing at a higher rate than list prices of non-rebated branded drugs. The data also show that the real net price paid by plan sponsors and members for rebated branded drugs declined 13% between 2017-2021 while the real net price paid for non-rebated branded drugs increased 6%.
- PBM-Affiliated Pharmacies: The data contradict the claims that PBMs are using their affiliated pharmacies to raise costs for plan sponsors and members. When comparing the total payments by plan sponsors and members, payments for all drugs dispensed at affiliated pharmacies are roughly 4% lower than payments for the same drugs at non-affiliated pharmacies.
Independent Pharmacies’ Existence Is Not Threatened by PBMs
- Independent Pharmacy Locations Have Increased: According to industry data, the number of independent pharmacy locations increased by 9% between 2011 and 2021. The number of chain pharmacy locations has fallen over that same period.
- Gross Margins: The gross margins of independent pharmacies have not fallen over time, holding at roughly 23% from 2011 through 2021.
- Reimbursement Rates: Data shows that reimbursement rates paid to independent pharmacies are generally higher than the reimbursement rates paid to non-affiliated chain pharmacies, for both non-specialty branded drugs (4% higher for independents) and non-specialty generic drugs (24% higher for independents).
Click here to read the report conclusions.
About Professor Dennis Carlton
Dr. Carlton is one of the top economists in the country. He is the David McDaniel Keller Professor of Economics Emeritus at the University of Chicago, Booth School of Business and a Research Associate of the National Bureau of Economic Research. He is the co-editor of the Journal of Law and Economics.
Dr. Carlton focuses his research on microeconomics, industrial organization, and antitrust. He has published more than 150 articles and two books. From 2006 to 2008, he served as the Deputy Assistant Attorney General for Economic Analysis at Antitrust Division of the U.S. Department of Justice.
He is the recipient of a number of awards. In 2014 he was designated the Distinguished Fellow of the Industrial Organization Society. He has served as an advisor on antitrust matters to the Department of Justice, the Federal Trade Commission, and to private clients. He has served as a commissioner on the Antitrust Modernization Commission, a congressional committee investigating the antitrust laws.