The FTC Blows Up Express Scripts’ PBM Model—and Launches the Net Pricing Drug Channel (rerun)

This week, I’m rerunning some popular posts while we prepare for tomorrow’s live video webinar: PBM Industry Update 2026: Trends, Challenges, and What’s Ahead.

In February, I posted a few follow-up comments reflecting on Mark Cuban's reaction to the settlement.

Click here to see the original post from February 2026.

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Earlier today, the Federal Trade Commission (FTC) announced an extraordinary settlement with Express Scripts that fundamentally reshapes its pharmacy benefit management (PBM) business—and by extension, the entire drug channel.

The settlement addresses virtually every warped incentive that we have been covering on Drug Channels for the past 20 years. I summarize them below, but it’s worth reading the full document (links below) to appreciate just how completely the FTC has dismantled the existing PBM business model.

One small caveat: Plan sponsors could provide a loophole for business-as-usual. (See Section XI.)

But as I predicted in the Drug Channels Outlook 2026 webinar, we are entering the Net Pricing Drug Channel (NPDC) era.

William Gibson once said: “The future is already here–it's just not evenly distributed.” That future just arrived for one of the biggest PBMs. Get ready.

The FTC Blows Up Express Scripts’ PBM Model—and Launches the Net Pricing Drug Channel

By Adam J. Fein, Ph.D.

Earlier today, the Federal Trade Commission (FTC) announced an extraordinary settlement with Express Scripts that fundamentally reshapes its pharmacy benefit management (PBM) business—and by extension, the entire drug channel.

The settlement addresses virtually every warped incentive that we have been covering on Drug Channels for the past 20 years. I summarize them below, but it’s worth reading the full document (links below) to appreciate just how completely the FTC has dismantled the existing PBM business model.

One small caveat: Plan sponsors could provide a loophole for business-as-usual. (See Section XI.)

But as I predicted in the Drug Channels Outlook 2026 webinar, we are entering the Net Pricing Drug Channel (NPDC) era.

William Gibson once said: “The future is already here–it's just not evenly distributed.” That future just arrived for one of the biggest PBMs. Get ready.

Mapping the Vertical Integration of Insurers, PBMs, Specialty Pharmacies, and Providers: A May 2024 Update

It's time for Drug Channels’ annual update of vertical integration among insurers, PBMs, specialty pharmacies, and providers within U.S. drug channels.

Below you’ll find our latest illustration of the major vertical business relationships among the largest companies along with some of the notable activity since our previous update. These organizations continue to exert greater control over patient access, sites of care/dispensing, and pricing, although some have started to unwind their vertical efforts.

The companies face renewed scrutiny from the Federal Trade Commission, the Office of Inspector General, and members of Congress. But until anyone takes action, we will continue to live with the golden rule of the drug channel: Whoever has the gold gets to make the rules.

Drug Channels News Roundup, October 2016: Gross-to-Net Bubble, Part D Rebates, EpiPen, and McKesson

Boo! Time for my Halloween-themed roundup of Drug Channels news stories. In this issue:

• Scary! The gross-to-net bubble for insulin

• Shocking! Reality check on Medicare Part D rebates

• Spooky! Five things to Know About the EpiPen Settlement

Plus: Got a spare $22.5 million? Great! Then you can snag McKesson CEO John Hammergren’s secure eight-acre, 23,000-square-foot compound. Savor the video below and get ready to bid on November 15.

P.S. Watch out, Kim Kardashian! @DrugChannels now has nearly 3,100 followers on Twitter. You can follow along for daily tweets on cool studies and news that you might have missed.

Valeant, Philidor RX, and the Uninformed Attack on Specialty Pharmacy

Yesterday, Valeant Pharmaceuticals finally explained its complex interactions with Philidor RX Services, a so-called “specialty pharmacy” that has a previously-undisclosed financial relationship with Valeant. Click here to see the full 89-slide webcast deck. Valeant has been labeled the “Enron of the pharmaceutical industry,” although I don’t know if any of the alleged shenanigans are true.

Unfortunately, the controversy has tarred the entire specialty pharmacy industry along with manufacturers’ legitimate specialty pharmacy relationships. Below, I explain why Philidor RX is not a specialty pharmacy. I also suggest what the Valeant-Philidor relationship could mean for payer surveillance of manufacturers’ copay offset programs.

I believe (hope?) that over time, everyone will recognize the differences between a true specialty pharmacy and a company such as Philidor. Meanwhile, expect greater scrutiny of manufacturers’ specialty channel strategies. Smaller independent specialty pharmacies should also expect greater oversight, as manufacturers and payers work to validate the business operations of their trading partners.

Congress Grills Generic Drug Makers Over Price Inflation

Why do generic drug prices continue to rise? In theory, sky-high inflation for a particular product should encourage new suppliers, thereby lowering prices.

Looks like Congress is also curious about the mystery of persistent generic drug inflation. U.S. Sen. Bernie Sanders (I-VT) and U.S. Rep. Elijah E. Cummings (D-MD) sent information requests to 14 generic pharmaceutical manufacturers. Below, I list the companies and provide direct links to the letters.

As you can see from the questions (also listed below), the congressmen are requesting details about pricing, contracts, purchasers, costs, and other internal details.

Political grandstanding, or a potential turning point for generic inflation? Even the most interesting man in the world doesn't know.

Senator Grassley Grills Walgreens About Its 340B Profits

Yesterday, Senator Charles Grassley (R-IA) sent a letter to Walgreen’s president and CEO, Greg Wasson. In the letter, Senator Grassley asks uncomfortable questions about the drugstore chain’s profits from the 340B drug discount program. Click here to read the full letter. Highlights below.

As I note in The Coming Battle Over 340B Contract Pharmacies, the 340B contract pharmacy market has exploded far beyond what was considered or intended in the drug discount program’s original legislation. It is rumored that a 340B super-regulation will be coming sometime next year. Let’s hope for substantial reform to the out-of-control contract pharmacy marketplace.

BTW, the letter will also make you double-check your LinkedIn profile. See the cautionary tale below.

Drug Channels News Roundup: July 2013

Ah, summer! Stay cool with these stories from the wonderful world of Drug Channels. In this issue:

• Top Dollar—Why Humira will be bigger than Lipitor
• Top Jobs—Pharmacists win again
• Top Sleazeball—No jail time for Avastin counterfeit wholesaler?!?

Plus, a cute, yet highly misleading, cartoon explaining healthcare reform. Top spin?

Hospitals' Extraordinary 340B Pharmacy Profits from Insured Patients

Senator Charles Grassley (R-IA) has uncovered some very uncomfortable truths about the out-of-control 340B drug discount program. The Charlotte Observer has a summary: NC hospitals reap profits from discount drugs.  (Original source documents linked below.)

The latest disclosures from three North Carolina hospitals should make everyone rethink the 340B program’s purpose, functioning, and oversight. For instance, about 90% of 340B patients have insurance from Medicare, Medicaid, or a commercial payer. What’s more, hospitals earn large profits from the already-insured prescriptions of these patients. Duke University Health System’s gross profits from the 340B program were almost $300 million over the past 5 years. Duke’s 340B pharmacy gross margin was 53%.

Defenders of the 340B program claim that these outcomes are perfectly fine. Yet, we don't even know whether hospitals are providing adequate data so that pharmaceutical manufacturers can avoid double-paying rebates on commercial and Medicare prescriptions.

Did Congress really intend for pharmaceutical manufacturers to subsidize part of the general charity care provided by highly profitable, multi-billion dollar health systems? Read the evidence below and post a comment with your reactions.

The Coming Battle Over 340B Contract Pharmacies

Check out an important new must-read white paper for anyone in the drug channel: The 340B Drug Discount Program: A Review and Analysis Of The 340b Program. The report was funded by an unusual coalition of industry associations representing manufacturers, pharmacy benefit managers (PBMs), independent pharmacies, and oncology practices. (See the list below.) It provides a useful 340B background and explains how hospitals are profiting in ways that seem to go far beyond the program’s original intent.

Contract pharmacies are one crucial, but little understood, part of the program. Using contract pharmacies, a hospital can (legally) profit from a commercially-insured prescription filled by a community retail pharmacy and paid by a private third-party payer. Pembroke Consulting’s research shows that Walgreens is the biggest 340B player. What’s more, manufacturers could potentially pay both 340B and PBM rebates for the same commercial prescription.

To 340B or not to 340B? Given the money involved, it’s not a tough question for hospitals anymore. But something is rotten in the state of Denmark. Read on and let me know if you agree.

The FDA Updates Its View of Drug Shortages

If you’re following the drug shortage situation, then check out this must-read article from the latest Clinical Pharmacology & Therapeutics: Economic and Technological Drivers of Generic Sterile Injectable Drug Shortages. The article, written by FDA staffers Janet Woodcock and Marta Wosinska, argues that that drug shortages trace back to the perverse market dynamics facing manufacturers of generic injectable drugs.

I’m heartened to see the FDA publicly acknowledge investment incentives and market failures, although there is a distinct “blame the healthcare buyer” view embedded in the FDA’s perspective. The FDA's new view also contains a not-so-subtle rebuke of Congressional critics who have blamed drug shortages on overzealous FDA inspections. Oddly, the FDA omits any discussion of gray markets, which distort incentives during drug shortages. Read on for my overview.

BTW, I’ll be delivering the keynote at next week’s HSCA/HISCI 2013 Pharmacy Forum, where I’ll be talking in part about drug shortages. Say hi if you attend!

The Seedy, Greedy Underbelly of U.S. Drug Channels

Happy new year! Let’s kick off 2013 with a look at newly-uncovered unethical behavior by physicians and pharmacists.

In late December, the FDA sent warning letters to 350 (yes, 3-5-0) physician practices that knowingly purchased gray market Botox, which turned out to be counterfeit. The next day, the LA Times profiled two independent pharmacy owners that profited on the prescription opioid abuse.

Taken together, these stories illustrate why manufacturers need to keep a close eye on channels to the patient. Greed is not always good. Too bad that these providers didn't know which shoulder to follow.

Drug Channels News Roundup: November 2012

Here's a pre-Thanksgiving news roundup, to stretch your mind before stretching your stomach later this week. In this issue:

• Debunking ACOs: A must-read article
• Attacking ASP: Blaming shortages on reimbursement economics
• Fearing the DEA: Now attacking shipping companies. Seriously!?!
• Reviewing Track & Trace: A holiday wish for a national system

Plus, the bizarre-but-true story of how former Kinray owner Stewart Rahr just got banned from upscale sushi chain Nobu. Absolutely hilarious!

Drug Channels News Roundup: October 2012

It’s time for my Halloween roundup of spooky Drug Channels news. Here are today’s terrifying stories:

• Dawn of the DEA: The never-ending battle against wholesalers
• No Fangs: Pharmacy lawsuit against preferred Part D networks is dismissed
• Stake through the Heart: People trust the Internet more than pharmacists
• Frankenbill: New potential legislation on distribution security

Plus, a funny video trick-or-treating lesson … for pharmaceutical sales reps!

The DEA Nabs CVS and Walgreen

The Drug Enforcement Administration (DEA) continues its aggressive attack on the pharmacy supply chain with new penalties for CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG).

Full details below. Here are the headlines:

• Two Sanford, FL, CVS pharmacies will no longer be able to dispense controlled substances. Unless I’m mistaken, “revoke” means “never again.”
• A Walgreens distribution center was hit with a suspension order for shipments to six of its own pharmacies.

We only have access to the government’s facts, so no outsider can know what truly happened. However, I do believe that targeting pharmacies is a step in the right direction, because it moves closer to the patient and prescriber.

Does misery love company? Ask Cardinal Health and AmerisourceBergen.

Drug Channels News Roundup: August 2012

Ah, the end of summer approaches. Almost time to pack up the barbeque and send the kids back to school. In the meantime, please enjoy this selection of news stories from the Drug Channels universe.

In this month’s edition:

• The Heat is On: AmerisourceBergen discloses new subpoenas over gray market activity
• The Heat is Off: Big defeat for a bona fide fee AMP whistleblower lawsuit
• Just Hot Air? A semi-reasonable review of the presidential election’s competing Mediscare claims

Plus, The Onion visits a Walgreens pharmacy and is shocked (shocked, I tell you!) by the employees' attitudes.

New Senate Report IDs Gray Market Players, Including Some Surprising Names

On Wednesday, the Senate Committee on Commerce, Science and Transportation held an eye-opening hearing titled Short-Supply Prescription Drugs: Shining a Light on the Gray Market. 

The Committee simultaneously released a report documenting gray market activity by some well-known companies. Briefly:

• Most drugs enter the gray market through pharmacies.
• These pharmacies usually buy drugs from legitimate Authorized Distributors of Record (ADR), including AmerisourceBergen, Cardinal Health, McKesson, and H.D. Smith.
• While some buyers are “fake pharmacies,” others appear to be legitimate purchasers, such as Walgreens Infusion Services and a Medicine Shoppe franchisee.
• Multiple secondary wholesalers handle gray market products, adding huge mark-ups along the supply chain.

Check out the diversion maps below for a peek at how these companies participate—perhaps inadvertently—in the gray market. There was conflicting witness testimony about who should be blamed. (Links below.) I’ll let you make up your own mind on those competing arguments.

Gray Market Drug Recycling for Fraud and Profit

Remember the hubbub about the gray market and drug shortages? Well, the gray market is even worse than we thought.

Last week, the Manhattan U.S. Attorney unveiled a massive $500 million (alleged) fraud involving Medicaid patients who sold their prescription drugs to aggregators and resellers, who subsequently resold the drugs to pharmacies via “Corrupt Distribution Companies.” (Read the press release)

Kudos to the Department of Justice for catching the crooks, but … Yikes! Anyone interested in pharmaceutical supply chain security should check out the DOJ’s diversion map (reproduced below).

Alas, we once again observe diverted products finding their way back into the legitimate supply chain, when a pharmacy purchases from a shady vendor. Perhaps you won’t be surprised to find out that New York is one of many states without pedigree requirements.

Drug Channels News Roundup: July 2012

Happy 236th birthday, America! After a week in which many of us became amateur constitutional scholars, stay cool and enjoy these noteworthy news stories from the Drug Channels universe.

• Meet Mr. Wasson—A humanizing profile of Walgreen’s CEO
• Meet Mr. Barrett—A humanizing profile of Cardinal Health’s CEO
• Meet Some Criminals—A behind-the-scenes of a Florida pill mill

Plus, Dr. Stephen T. Colbert, DFA, provides FDA-mandated laughs on side effects labeling.

Cardinal Settles with the DEA, while Senators ask for an Inquiry

Cardinal Health (NYSE: CAH) made news again today by announcing a settlement with the Drug Enforcement Administation (DEA) regarding its Lakeland, FL, distribution center. See Cardinal Health Brings Resolution to Litigation with DEA Settlement.

Regular readers know that I've been very critical of the DEA's aggressive and misguided pursuit of pharmaceutical manufatcurers and wholesalers. For perspective on this current dispute and Cardinal's historical troubles, see February's Cardinal Fights a Misdirected DEA.

Read on for some more thoughts on this issue and details of how Senator Chuck Grassley and Senator Sheldon Whitehouse are trying to shine a light on the DEA's impact on drug shortages.