The FTC’s lawsuit, brought against Caremark, Express Scripts and OptumRx, alleges that the three PBMs created a “perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices.

On Friday, September 20, 2024, the Federal Trade Commission (FTC) brought an administrative complaint against the three largest pharmacy benefit managers (PBMs) and their affiliated group purchasing organizations (GPOs) alleging they engaged in unfair methods of competition and unfair acts or practices in violation of Section 5 of the FTC Act by engaging in anticompetitive and unfair rebate schemes that have artificially increased the cost of insulin drugs.

The FTC’s lawsuit, brought against Caremark, Express Scripts and OptumRx, alleges that the three PBMs created a “perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices.” Specifically, the FTC alleges that in or around 2012, the PBMs began threatening to exclude certain drugs from their formularies—the list of medications covered by the PBM—to extract higher rebates from drug manufacturers in exchange for favorable formulary placement. Securing formulary coverage was critical for drug manufacturers to access patients with commercial health insurance, according to the FTC.

The lawsuit is specific to insulin prices, where the FTC asserts that the pricing for insulin skyrocketed by an increase of 1,200% between 1999 and 2017 as a direct result of the PBMs’ “chase-the-rebate strategy.” The FTC charges that even when lower list price insulin became available that could have been more affordable for vulnerable patients, the PBMs systemically excluded them in favor of high list price, highly rebated insulin products, allowing the PBMs “to line their pockets while certain patients are forced to pay higher out-of-pocket costs for insulin medication.”

In a follow-on statement, FTC Bureau of Competition Deputy Director Rahul Rao notes that the FTC staff’s investigation has “shed light on the concerning and active role that the insulin manufacturers…play in the challenged conduct.” While the FTC chose to focus its complaint against PBMs and their affiliated GPOs only, “who sit at the center of the drug reimbursement system,” Deputy Director Rao warns drug manufacturers that they too could be on the hook for “their participation in the type of conduct challenged here” and the FTC “reserves the right to recommend naming drug manufacturers as defendants in any future enforcement actions over similar conduct.”

This lawsuit comes more than two years after the FTC announced it was conducting a 6(b) study to assess the extent to which PBMs are influencing the medications being prescribed to consumers, the often-exorbitant costs of such medications and the extent to which PBMs exclude independent pharmacies from participating in networks to dispense medications to PBM members. And the lawsuit comes just two months after the FTC released an interim report as part of its on-going 6(b) study. That report, according to the FTC, describes how, amidst increasing vertical integration and concentration in this marketplace, PBMs are profiting at the expense of consumers by inflating drugs costs and forcing independent pharmacies out of business.

The FTC’s lawsuit also comes almost two years after it issued a policy statement supporting an intention to expand the scope of what it considers an “unfair method of competition” under Section 5 of the FTC Act and further underscores the scrutiny it continues to levy against the PBMs, specifically. The complaint also seems designed to further assist numerous state attorneys general and legislators, federal agencies and the Department of Justice Antitrust Division’s Task Force on Health Care Monopolies and Collusion, all of which are in the midst of investigating potentially unlawful, anticompetitive conduct by PBMs.

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.

For More Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, any of the attorneys in our Pharmacy Litigation Group, Sean P. McConnell, Christopher H. Casey, any of the attorneys in our Antitrust and Competition 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.