Pharmacy Benefit Manager Market Concentration for Prescriptions Filled at US Retail Pharmacies

Abstract

This study analyzes pharmacy benefit manager market concentration for commercial insurance, Medicare Part D, and Medicaid managed care in the US.

Pharmacy benefit managers (PBMs) play an important role in financing and delivering prescription drugs for health insurers, including designing formularies and pharmacy networks, negotiating drug prices, and reimbursing pharmacies.¹ Despite evidence that 3 PBMs (CVS Caremark, Express Scripts, and Optum Rx) accounted for 79% of prescriptions in the US in 2023² and growing concerns about the role of the highly concentrated PBM market on rising out-of-pocket costs and pharmacy closures,^3,4 information on whether and how PBM concentration varies across payers is limited. This study analyzed PBM market concentration separately for commercial insurance, Medicare Part D, and Medicaid managed care in the US.

Methods

We used IQVIA’s National Prescription Audit PayerTrak, which includes 91% of prescription fills at US retail pharmacies, including information on the processing PBM and payer type (commercial insurance, Medicare Part D, and Medicaid managed care). We excluded mail-order prescriptions and retail prescriptions paid for through cash, Medicaid fee-for-service, and Medicaid CHIP (because PBMs perform only administrative functions). Therefore, these analyses capture 90% of total retail prescriptions because approximately 10% are filled through other payment methods for which PBMs are minimally involved.

We analyzed PBM market share and market concentration by payer type (primary outcomes) for all prescriptions filled in 2023. We also calculated market share for the top 5 PBMs (CVS Caremark, Express Scripts, Optum Rx, MedImpact, and SS&C Health) by payer type (secondary outcomes). We defined PBM market concentration using the Herfindahl-Hirschman Index (HHI), calculating the HHI as the sum of each PBM’s share of all retail prescriptions processed squared, overall and by payer type (eAppendix in Supplement 1). We excluded Ohio and Kentucky from Medicaid managed care HHI calculations because in 2019 and 2021, respectively, state Medicaid authorities fired existing PBMs after audits revealed significant overcharging and then contracted with a single PBM.

We defined highly concentrated markets as those with an HHI higher than 1800 based on the US Department of Justice’s 2023 merger guidelines.⁵ Analyses were conducted using Stata version 17.0 (StataCorp).

Results

This study included 14 billion prescriptions filled at US retail pharmacies and adjudicated by 91 PBMs in 2023 (Figure). Across all payer types, the PBM market was highly concentrated, with an HHI of 1972. The degree of concentration varied by payer type; the HHI was lowest in commercial insurance (1940), with 90 PBM participants, and highest in Medicare Part D (2399), with 21 PBM participants. CVS Caremark, Optum Rx, and Express Scripts accounted for 73.6% of retail prescriptions overall, yet their shares varied by payer type (Table). For example, CVS Caremark alone accounted for 39.2% of PBM services in the Medicaid managed care market, 28.5% in commercial markets, and 33.4% in Medicare Part D, while Express Scripts accounted for 28.0% of the commercial market, approximately twice its share in Medicaid (12.3%) and Medicare Part D (15.4%). Optum Rx and SS&C Health accounted for a greater share of the Medicare Part D market (27.7% and 16.2%, respectively) compared with commercial (16.4% and 2.9%) or Medicaid (15.8% and 1.2%) markets.

Figure. PBM Market Concentration for Prescriptions Dispensed at Retail Pharmacies Overall and by Payer Type in the US, 2023.

Data are from IQVIA’s National Prescription Audit PayerTrak for prescriptions dispensed at retail pharmacies in the US. We excluded retail prescriptions paid for through cash, Medicaid fee-for-service, and Medicaid CHIP because pharmacy benefit manager (PBM) functions, if any, are limited to administrative functions like claims adjudication. Therefore, these analyses capture 14 billion prescriptions or 90% of total retail prescriptions; about 10% of prescriptions are filled through other payment methods for which PBMs are minimally involved. Fifty percent of retail prescriptions were paid through commercial insurance, 31% through Medicare Part D, and 10% through Medicaid managed care. Concentration is measured by Hirfendahl-Hirschman Index (HHI; sum of each PBM’s share of retail prescriptions, squared). We excluded Ohio and Kentucky from Medicaid managed care HHI calculations because in 2019 (Ohio) and 2021 (Kentucky), those states’ Medicaid authorities fired existing PBMs and contracted with a single pass-through PBM for all managed care business after audits revealed significant overcharging by previous PBMs. When those states are included, the Medicaid managed care national HHI is 1788.

Table. Market Share for the Top 5 Pharmacy Benefit Managers (PBMs) for Prescriptions Dispensed at Retail Pharmacies Overall and by Payer Type in the US, 2023^a.

Payer type	Market share of retail prescriptions by PBM, %
	CVS Caremark	Express Scripts	Optum Rx	MedImpact	SS&C Health	Top 5 overall
Commercial	28.5	28.0	16.4	3.8	2.9	79.6
Medicaid managed care	39.2	12.3	15.8	3.0	1.2	71.5
Medicare Part D	33.4	15.4	27.7	1.1	16.2	93.6
Total	31.3	22.1	20.2	2.8	7.3	83.5

^a Data are from IQVIA’s National Prescription Audit PayerTrak for prescriptions dispensed at retail pharmacies in the US. We excluded retail prescriptions paid for through cash, Medicaid fee-for-service, and Medicaid CHIP because PBM functions, if any, are limited to administrative functions like claims adjudication. Therefore, these analyses capture 90% of total retail prescriptions; about 10% of prescriptions are filled through other methods of payments for which PBMs are minimally involved. We combined certain PBMs (eg, Aetna with CVS Caremark) based on outsourcing and ownership relationships (see eAppendix in Supplement 1).

Discussion

In 2023, all 3 payer markets for PBM services were highly concentrated, but concentration varied and was highest in Medicare Part D. While CVS Caremark held the dominant share in all 3 payer markets, each of the PBMs appeared focused on a different payer: Express Script’s largest share was in the commercial market, while Optum Rx’s and CVS Caremark’s were in Medicare Part D and Medicaid managed care, respectively. These findings underscore the importance of considering payer-specific concentration when evaluating PBMs’ anticompetitive practices, as the 3 top PBMs may be pursuing different market strategies. The dominance of a few large PBMs across all payers and a smaller PBM (SS&C Health) in Medicare Part D alone has important antitrust implications. These findings could inform federal policies, including proposed legislation that would prohibit unfair and deceptive PBM business activities⁴ and the Federal Trade Commission’s ongoing investigation of PBM anticompetitive practices.^3,6

Limitations of this study include lack of information on specific services provided by PBMs and exclusion of prescription fills for mail-order pharmacies.

Future research should explore the effect of PBM market concentration on pharmacy networks, pharmacy closures, and out-of-pocket costs.

Section Editors: Kristin Walter, MD, and Jody W. Zylke, MD, Deputy Editors; Karen Lasser, MD, MPH, Senior Editor.

Supplement 1.

eAppendix. Supplemental Methods

Supplement 2.

Data Sharing Statement