Michigan Pharmacy Benefit Manager Antitrust Case May Deliver Big for All Americans
Policy counsel Tara Pincock discusses how Michigan is suing pharmacy benefit managers Express Scripts and Prime Therapeutics for an alleged price-fixing scheme that drove up drug costs, closed pharmacies, and gave ESI near-total market control in the state.
In April, the State of Michigan initiated a lawsuit against two pharmacy benefit managers (PBMs), Express Scripts (ESI) and Prime Therapeutics, for an alleged price-fixing scheme. Michigan charged the PBMs with entering into a collaboration that was essentially an agreement to not compete with one another. According to the lawsuit, this collusion harmed patients and pharmacies across the nation.
PBMs manage prescription drug benefits for health insurance companies. This entails picking the drugs that will be covered by insurance. In theory, PBMs are independent third parties who exploit their buying power to drive down the cost of drugs for patients. But many PBMs today are actually owned by other corporations — such as pharmacy chains and health care groups — and rather than pass on the lower prices to patients they use the savings to boost the corporation’s profits.
According to Michigan, the agreement between ESI and Prime made the problem worse. ESI is one of the “Big Three” PBMs in the country and has long exploited its market power to negotiate low reimbursement rates with pharmacies that wanted — or needed — to be part of its network. Prime, by contrast, with a mere 3% of the national market has historically had to offer pharmacies both higher rates and lower fees to convince them to join its network. The difference in costs was substantial. When competing with the Big Three — which, in addition to ESI includes Caremark Rx and OptumRx — Prime’s reimbursement rates for pharmacists were at least 20% higher.
The lawsuit could prove important in clarifying the line between collaboration and collusion. ESI and Prime presented their deal as a simple contractual arrangement between independent corporations, whereas Michigan argued that it was an end run around merger laws. In antitrust law what matters is not the nature of the agreement but the ultimate effect of the agreement. And in this case, the deal delivered ESI an 89% market share in Michigan. As per Michigan’s complaint, ESI ended up with what was “likely the largest share of the market ever achieved by a single PBM within a single U.S. state,” and hence almost absolute power over pharmacies when negotiating reimbursement rates.
A lot of what we know about this secret collaboration stems from an arbitration between Prime and one of its customers, AIDS Healthcare Foundation (AHF). AHF accused Prime of fixing the drug prices for which Prime was required to reimburse AHF. Earlier this year, the arbitrator found Prime liable for violating the antitrust laws and ordered it to pay AHF treble damages, which equaled more than $10 million.
While ESI was not a party to that action, the arbitration revealed that Prime had recently changed the rates that it paid to pharmacies and providers to align with ESI’s retail network rates. To achieve this, ESI prohibited the smaller PBM from pricing its services below clearly established levels and monitored Prime’s actual pricing arrangements to ensure compliance. In return for being allowed to use ESI’s retail network rates, Prime paid ESI an administrative fee per transaction.
Both corporations immediately benefitted from the arrangement. Prime, for instance, increased its earnings by as much as 20%. According to Michigan, “Prime has stated that it has ‘saved’ at least $2.5 billion as a result of its Agreement with ESI, cost reductions that reflected its nationwide reduction of reimbursements to retail pharmacies.” ESI, on the other hand, earned “significant profits” from the administrative fees.
The agreement allowed ESI to claim Prime’s members as part of its own network, which in turn increased its bargaining power in negotiations. Prior to the agreement, ESI had around 75 million insured members. That number jumped to more than 100 million when Prime’s members were added.
Besides higher prices for patients, the arrangement also eroded service. In 2024 alone, almost 300 retail pharmacies in the state closed their doors. While ESI’s market power wasn’t the only factor, it is a major cause. Such closures tend to hit low-income and disadvantaged communities the hardest. At least 50% of Detroit’s neighborhoods have become pharmacy “deserts,” and the problem is even more acute in the state’s Upper Peninsula.
Because this scheme had a national impact, there is no reason to limit antitrust action to the state boundaries of Michigan. Law enforcers in other states and at the federal level should send a strong message that businesses cannot contract around the antitrust laws. How much ESI was able to increase its market share across the nation is still an unknown. What is known is that the scheme is illegal and the parties must be held accountable.
This article appeared in The Corner Newsletter: June 20, 2025.
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