PBMs’ negotiation methods with drug manufacturers have been subject to government scrutiny for a number of years.
On July 10, 2024, multiple media sources reported that the Federal Trade Commission (FTC) intends to file suit against the nation’s three largest pharmacy benefit managers (PBMs)—OptumRx, Express Scripts and Caremark—over allegations of improper pricing in connection with their negotiations with drug manufacturers that dramatically increased prices for consumers and lined the PBMs’ pockets with lucrative “rebates.”
The announcement of imminent litigation by the FTC against these PBMs occurred the day after the FTC issued an extensive interim report in connection with its pending 6(b) study into PBM misconduct toward independent pharmacies and consumers. While the interim report will be followed by a final FTC report, the announcement that the FTC is moving forward with enforcement actions against PBMs, based on evidence gathered in the 6(b) study, substantiates that the interim findings set forth in the report are likely not going to be subject to any material changes before the issuance of a final report. As these three PBMs manage 79 percent of the nation’s prescription drug claims, covering about 270 million patients, the outcome of what appears to be imminent litigation against the major PBMs will have major ramifications for patients, pharmacies and drug prices alike.
PBMs’ negotiation methods with drug manufacturers have been subject to government scrutiny for a number of years. For example, as outlined in a previous Alert, the FTC announced on June 7, 2022, that it was commencing a 6(b) study to assess PBMs’ “enormous influence on which drugs are prescribed to patients, which pharmacies patients can use [to fill such medications], and how much patients ultimately pay at the pharmacy counter.” As outlined in another Alert, on July 9, 2024, the FTC released the first public results of this study—a 70-page interim report—concluding that “amidst increasing vertical integration and concentration, these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies.”
Over the past few years, government scrutiny has been particularly intense regarding the manner in which PBMs negotiate costs for insulin medications with their manufacturers. Insulin prices rose in the United States from under $100 in 2009 to nearly $300 in 2019 for several major brands. To curb such costs, the federal government passed legislation in 2022 to cap out-of-pocket payments for the drug at $35 per month for Medicare patients.
Both public and private entities, however, have continued to accuse PBMs of negotiating insulin prices for their benefit and at the expense of consumers and independent pharmacies. Last year, for example, Senator Bernie Sanders accused PBMs of structuring their negotiations to obtain large rebates for themselves rather than to secure the lowest costs for patients. The FTC interim report identifies evidence for Senator Sanders’ allegations, noting that common rebate contracts for insulin provide PBMs with higher rebates from brand-name manufacturers in exchange for giving their products preference on PBM formularies over competing products, unwilling to provide rebates in exchange for placement on PBM formularies. Such contracts also provide additional rebates for excluding competing medications and for requiring that patients try and fail a preferred medication before trying a competing brand. Eli Lilly, one of the nation’s largest insulin manufacturers, alleges that although it has introduced a cheaper version of its most popular insulin product, PBMs still prefer the larger rebates associated with the more expensive version and therefore still negotiate agreements that promote that version instead.
As of the publication of this Alert, the FTC has yet to issue any specifics regarding claims against PBMs as reported by numerous media outlets of an impending lawsuit. However, the FTC’s interim report makes clear that the FTC has authority to file suit against PBMs for unfair, deceptive or anticompetitive practices. Therefore, as PBMs have been accused by the FTC of structuring agreements with drug manufacturers that are based on profits to the PBMs, rather than what is in the best interests of consumers, complaints by the FTC against such PBMs are all but a certainty.
In response to the reports of imminent complaints being instituted by the FTC against PBMs, representatives from several of the major PBMs issued public statements denying misconduct and claiming that contracts with drug manufacturers have resulted in lower drug costs for consumers. Additionally, in a blog post issued July 11, 2024, the Pharmaceutical Care Management Association, the most prominent trade association for PBMs, alleged that opposition to the “pre-determined, non-substantive FTC report is gaining steam,” citing responses from various economic institutes purporting to identify flaws in the interim report.
For independent pharmacies, the FTC’s 6(b) study has presented optimism that the federal government will soon take action against PBMs for unfair trade practices threatening their ability to remain in business and the quality of healthcare received by consumers. The FTC interim report, coupled with credible reports of imminent FTC enforcement actions against PBMs, gives independent pharmacies hope that such reform is finally on its way.
For More Information
If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, Taylor Hertzler, any of the attorneys in our Pharmacy Litigation Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.