One thing the federal government seems to have a particular knack for is identifying a problem but misidentifying its cause. Recently both Senator Markey as well as the Department of Health and Human Services (HHS) and Federal Tade Commission (FTC) put out requests for comments regarding private equity, for-profit hospitals, and consolidation in healthcare facilities. However, their attention has largely overlooked one of the biggest problems in the healthcare sector: Pharmacy Benefit Managers (PBM). As of 2022 three PBMs accounted for 80 percent of the industry.

Micromanaging hospitals’ organizational structure ignores the benefits private investment has brought to healthcare. For example, private equity owned hospitals often provide improved technology and satellite healthcare locations. For-profit hospitals are more likely to serve low-income, high unemployment, and rural communities than nonprofit hospitals. With for-profit and nonprofit hospitals having similar revenue per patient, inpatient charges, charge-to-cost ratios, and share of patients on Medicare or Medicaid there is little evidence of any abuse of market power.

PBMs act as middlemen between drug manufacturers and hospitals, pharmacies, and other healthcare organizations. Unlike hospital ownership structures, the PBM market lacks transparency, making it ripe for abuses of power. If legislators and regulators want to improve costs and outcomes for patients in the healthcare system PBMs are where they should be directing their attention. PBMs sit in a unique place, holding information on drug prices, rebates, and discounts that insurers, hospitals, and patients do not have access to. This has led to PBMs absorbing drug savings as profit instead of passing it on to patients or insurers, in a process known as “spread pricing.”

Accusations against the PBM market also include siphoning money from safety net hospitals in the 340B program, restricting access to over 1,000 lower cost generic medicines, and adding and increasing unnecessary fees on other parts of the healthcare system. Recently UnitedHealthcare’s PBM was called out by Senator Brown for putting pharmacies in Ohio out of business.

Instead of focusing on investment coming into the healthcare system, regulators at the FTC should redirect their attention more to the business practices and abuse of market power among PBMs. Thankfully the FTC has put some effort into investigating PBMs with initial results expected this summer, but with limited resources more could be devoted to the tasks that best serve patients, instead of prioritizing investigations into private investments that provide a net improvement to healthcare.

Legislators have also introduced bills targeted at PBM transparency. But little attention has been paid to them. Instead of efforts investigating hospital ownership structure, Congress could focus its attention on bills to create and enforce publicly available reporting requirements so insurers, hospitals, and patients can make informed decisions about the PBMs they do business with.

One of the basic assumptions required for a market to function is that relevant information be available to the actors in that market. While a market can still function with imperfect information, it cannot function when one side of the transaction has all the knowledge and the other has none. The drastic imbalance of knowledge gives an inordinate amount of power to PBMs in negotiations with drug manufacturers, healthcare providers, and insurers.

Insurers and hospitals do not have information about the prices PBMs are supposed to negotiate, the limits of what drugs will be available, or if PBMs are getting more money for name brand or generic drugs. Because of this they cannot effectively choose between providers, eliminating any real competition. Legislative and regulatory action should be focused on giving hospitals and insurers knowledge of PBM activities so they can choose a better deal. Regulatory and legislative concern for healthcare costs and outcomes makes sense, however the focus is currently misdirected. Instead of focusing on removing private investment in healthcare, the FTC, HHS, and Congress would do better to prioritize shedding light on the PBM industry, which unlike private equity, is showing strong indications of abuse.