Shares of major health-care companies dropped by as much as 5% on Wednesday due to concerns from investors about potential pressure from lawmakers and patients that could lead to changes in their business operations.
The companies experiencing a decline in stock prices include UnitedHealth Group, Cigna, and CVS Health. These companies are among the largest private health insurers and pharmacy benefit managers (PBMs) in the country, as well as owners of pharmacy businesses. The shares of all three companies closed at least 5% lower.
The stock market reaction on Wednesday was likely triggered by news of bipartisan legislation aimed at breaking up PBMs, as reported by The Wall Street Journal. PBMs have been under scrutiny by Congress and the Federal Trade Commission for allegedly inflating drug costs to increase their profits.
The drop in share prices also coincides with increased public criticism of insurance companies and their practices following the recent tragic death of Brian Thompson, the CEO of UnitedHealth Group’s insurance division. Health stocks had already been declining in the days following Thompson’s death.
A Senate bill, co-sponsored by Senators Elizabeth Warren (D-Mass.) and Josh Hawley (R-Mo.), proposes that companies owning health insurers or PBMs must divest their pharmacy businesses within three years. The lawmakers plan to introduce a companion bill in the House.
Warren stated that PBMs have manipulated the market to benefit themselves by raising drug costs, deceiving employers, and harming small pharmacies. She emphasized that the new bipartisan bill aims to address these conflicts of interest and hold middlemen accountable.
The bill highlights the conflict of interest posed by health-care companies owning both PBMs and pharmacies, enabling them to profit at the expense of patients and independent pharmacies.
The largest PBMs, including UnitedHealth Group’s Optum Rx, CVS Health’s Caremark, and Cigna’s Express Scripts, are either owned by or affiliated with health insurers. Together, they manage approximately 80% of the nation’s prescriptions, according to the FTC.
PBMs play a crucial role in the U.S. drug supply chain by negotiating rebates with drug manufacturers on behalf of insurers, employers, and federal health plans. They also establish formularies of covered medications and reimburse pharmacies for prescriptions.
The FTC has been conducting investigations into PBMs since 2022.
