The FTC intends to investigate and create public records for what the FTC deems “enormous influence on which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay at the pharmacy counter.” 

The Federal Trade Commission (FTC) announced June 7, 2022, that it would begin a comprehensive probe into pharmacy benefit manager (PBM) companies—specifically targeting the largest companies in the industry. The FTC stated it plans to “examine pharmacy benefit managers’ role at the center of the U.S. pharmaceutical system.”

PBMs are considered the “middlemen” of the pharmaceutical industry—hired by health insurers and employers who provide health insurance coverage to negotiate rebates and fees with drug manufacturers, create drug formularies and surrounding policies and reimburse pharmacies for patients’ prescriptions. The six PBMs currently targeted by the FTC were created through vertical integration with large health insurance companies and wholly owned mail order and specialty pharmacies (and in one case, retail pharmacies), emerging from a series of mergers and acquisitions in the last two decades.

The FTC is empowered, via the FTC Act, 15 U.S.C. § 46(b) (Section 6(b)), with broad subpoena power to request information from people, partnerships and corporations (except for banks and savings and loan institutions). The FTC has used this power to study the practices of specific industries using information requests to selected companies in that industry. The commission’s 6(b) authority also enables it to conduct wide-ranging studies that do not have a specific law enforcement purpose, while section 6(f) of the FTC Act allows the FTC to “make public from time to time” information that would serve the public interest. 15 U.S.C. Sec. 46(f). The FTC sent the PBMs Section 6(b) orders requesting broad but comprehensive information.

The FTC intends to investigate and create public records for what the FTC deems “enormous influence on which drugs are prescribed to patients, which pharmacies patients can use, and how much patients ultimately pay at the pharmacy counter.” The FTC wants to bring clarity to patients and businesses across the prescription drug system, stating that the influence on the pharmaceutical industry “depend[s] on highly complicated, opaque contractual relationships that are difficult or impossible to understand[.]” Further, the rebates drug manufacturers pay PBMs in exchange for having their products put on the list of drugs insurance will cover is largely undisclosed and unregulated. The FTC probe will be looking into these rebates in an attempt to measure their impact on the cost of prescription drugs for payers and patients.

Specifically, the FTC’s requests target the following practices:

• Fees and clawbacks charged to unaffiliated pharmacies;
• Methods to steer patients towards PBM-owned pharmacies;
• Potentially unfair audits of independent pharmacies;
• Complicated and opaque methods to determine pharmacy reimbursement;
• The prevalence of prior authorizations and other administrative restrictions;
• The use of specialty drug lists and surrounding specialty drug policies; and
• The impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients.

This probe signals a more aggressive approach from the FTC in targeting the prescription drug market. A similar probe had previously been blocked by the commission earlier this year. However, the addition of a new Democratic commissioner to the five-person commission panel last month allowed for a 5-0 vote to approve and move forward with the probe. The stated goal is to study how PBM industry practices have affected rising over-the-counter drug prices.

The FTC is certainly not the first governmental agency—or first generally—to raise concern over the consolidations of these PBMs. Regulators, lawmakers, physicians, independent pharmacies and consumers have, for years, raised concerns that creating these conglomerates would lead to decreased competition for pharmacy services, resulting in higher costs for healthcare services and prescription medications, as well as patients potentially being denied treatments they need.

About Duane Morris

Duane Morris attorneys will continue to monitor developments in this area and other related issues, and report on the key details for our clients and others in the industry in subsequent Alerts.

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If you have any questions about this Alert, please contact Jonathan L. Swichar, Jessica Linse, 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.