By Ahmed Aboulenein and Jody Godoy

WASHINGTON (Reuters) – Consolidation of pharmacies and health insurance companies through years of trading has led to a handful of pharmacy benefit managers wielding a lot of influence over prescription drug prices, the U.S. Federal Trade Commission said on Tuesday.

Pharmacy benefit managers, or PBMs, act as intermediaries between drug companies and consumers. They negotiate volume discounts and fees with drug manufacturers, create lists of drugs covered by insurance, and reimburse pharmacies for prescriptions.

The FTC contends that the three largest PBMs — which handle 79 percent of U.S. prescription drug claims — have greatly enriched themselves at the expense of smaller pharmacies and consumers, according to an interim staff report calling for possible greater regulation.

“These powerful middlemen may profit by inflating drug costs and squeezing Main Street pharmacies,” the FTC said in its findings, two years into an investigation into top PBMs and their impact on prescription drug prices in the United States.

The three largest PBMs are UnitedHealth Group Inc’s (NYSE: ) Optum unit, CVS Health Corp’s (NYSE: ) CVS Caremark and Cigna Corp (NYSE:)’s Express Scripts.

CVS and Express Scripts denounced the findings. Express Crypts said the report contained “gross” inaccuracies and its conclusions were biased. Increased regulation of PBMs will reward pharmacists and hurt consumers, CVS said.

PBM shares fell after the report was released, with CVS down 1%, Humana down 1.2% and UnitedHealth marginally lower.

The report included some closely guarded information about how companies contract to place drug formulations.

Prescription drugs is the term used for the list of drugs covered by various insurance plans.

The report also describes how the three largest PBMs recently established separate affiliated entities called group purchasing organizations, or PBM GPOs, that negotiate contracts and discounts with drug companies, something PBMs have traditionally been directly involved in. A CVS spokesman said the company uses its GPO, zinc, to lower prices for Caremark customers. Cigna did not address the issue in its response to questions from Reuters.

The report comes amid a renewed effort by US President Joe Biden to combat rising health care costs and drug prices following the passage of the landmark inflation-reduction law.

The PBM market has become highly concentrated with the largest companies being vertically integrated with the largest insurance companies and pharmacy chains. That has given PBMs significant power over prescription drug prices and Americans’ ability to access them, the FTC said.

PBMs determine which drugs are covered by insurance and at what price, as well as which pharmacies patients can use to fill their prescriptions. They do this without transparency or public accountability, the report said.

Of the three largest PBMs, CVS owns the nation’s largest retail pharmacy chain as well as insurer Aetna. UnitedHealth and Cigna also have insurance units and their own specialty pharmacies.

The FTC also investigated Humana Pharmacy Solutions, Prime Therapeutics and MedImpact Healthcare Systems. These six companies together control over 90% of the market.

UnitedHealth Group Inc, CVS Health Corp, Cigna Group and Humana Inc (NYSE: ) and their affiliates — which include the largest PBMs — engaged in more than 190 transactions from 2016 to 2023, the report said, citing data from PitchBook. Humana declined to comment.

Market consolidation has led PBMs to favor their own affiliates, which creates conflicts of interest that prevent smaller independent pharmacies from remaining competitive by driving patients away from them, the FTC said.

PBMs are also able to lock independent pharmacies into unfair contracts that do not accurately reflect the final payment amounts those pharmacies will receive, the FTC said.

CVS said independent pharmacies account for 30 percent of Caremark’s pharmacy network spending and are reimbursed on average at a higher rate than CVS pharmacies.

The FTC said it found evidence that PBMs and brand-name drug makers negotiate rebates — volume-based discounts for plans and pharmacies — that depend on limiting access to cheaper generic competitors.

Many PBMs were ordered to turn over data but were not forthcoming and timely in their responses, the report said, which hampered the investigation. CVS said it complied with all data requests. Cigna said it provided the service with millions of rows of data and documents.