FTC Acts Against Pharmacy Benefit Managers

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In a significant development for the U.S. healthcare industry, the Federal Trade Commission has taken decisive action against the three largest Pharmacy Benefit Managers (PBMs), Caremark Rx, Express Scripts and OptumRx, for alleged anticompetitive practices that have artificially inflated insulin prices. This move comes on the heels of a comprehensive July 2024 Interim Staff Report that highlighted the outsized role of PBMs in the pharmaceutical supply chain.

The Rise of PBMs

PBMs, originally established as intermediaries to process prescription claims and negotiate with drug manufacturers and pharmacies on behalf of insurers, have evolved into dominant players in the healthcare industry. Through decades of mergers and acquisitions, the top three PBMs now control nearly 80% of U.S. prescription drug distribution, while the top six manage over 90% of prescriptions.

The FTC’s interim report revealed that many of these PBMs have become vertically integrated with large health insurers, pharmacies and other healthcare entities, giving them extraordinary influence over drug pricing and access. This concentration of power has raised concerns about potential conflicts of interest and the impact on drug costs for consumers.

The FTC’s Administrative Complaint

On September 20, 2024, the FTC filed an administrative complaint against Caremark, Express Scripts, and OptumRx, along with their affiliated group purchasing organizations. The complaint alleges that these PBMs have engaged in anticompetitive and unfair rebating practices that have:

  1. Artificially inflated the list price of insulin drugs
  2. Impaired patients’ access to lower list price products
  3. Shifted the cost burden of high insulin list prices to vulnerable patients

Key Allegations

Rigged Rebate System

The FTC alleges that the PBMs created a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices. Even when lower list price insulins became available, the PBMs allegedly excluded them in favor of high list price, highly rebated insulin products.

Skyrocketing Insulin Prices

The complaint points to a staggering increase in insulin prices. For example, the list price of Humalog, a brand-name insulin medication manufactured by Eli Lilly, rose from $21 in 1999 to more than $274 in 2017, an increase of over 1,200%.

Impact on Vulnerable Patients

The FTC argues that certain vulnerable patients, such as those with deductibles and coinsurance, often must pay the unrebated higher list price and do not benefit from rebates at the point of sale. In some cases, these patients may pay more out-of-pocket for their insulin drugs than the entire net cost of the drug to the commercial payer.

Steering Practices

The FTC’s report raised concerns about PBMs’ steering practices, where they direct patients to pharmacies within their own network or those they are affiliated with. This steering allows PBMs to increase profits for their vertically integrated businesses but can limit patient choice and restrict access to unaffiliated pharmacies. In some cases, patients may have no option but to fill prescriptions at PBM-affiliated pharmacies, even if an independent pharmacy is more convenient or provides better service.

Impact on Independent Pharmacies

The FTC’s investigation has revealed that PBM practices have had a significant negative impact on independent pharmacies:

  1. Financial Strain: PBMs often reimburse affiliated pharmacies at higher rates while offering lower reimbursements to unaffiliated, independent pharmacies. This practice has led to financial difficulties for many independent pharmacies, particularly those in rural or underserved communities.
  2. Unfair Contractual Practices: Independent pharmacies face challenges due to confusing reimbursement structures, unclear payment terms, and unilateral changes to contract conditions imposed by PBMs. These practices make it difficult for independent pharmacies to plan and manage their businesses effectively.
  3. Closures: Between 2013 and 2022, approximately 10% of independent retail pharmacies in rural America closed their doors. These closures have a ripple effect on local communities, particularly in areas where independent pharmacies may be the only healthcare provider offering essential services.
  4. Competitive Disadvantage: PBM-affiliated pharmacies enjoy higher reimbursement rates, especially for expensive specialty drugs, which allows them to maintain a significant advantage over their independent competitors.

PBMs’ Failure to Comply with FTC Orders

The FTC’s investigation has been hampered by some major PBMs’ slow compliance with requests for data and documents. Despite the FTC issuing orders under Section 6(b) of the Federal Trade Commission Act to the six largest PBMs, some have failed to provide the required materials in a timely manner. This lack of compliance has hindered the FTC’s ability to fully assess the impact of PBMs on drug prices and competition in the pharmaceutical industry.

The FTC has warned that if these companies continue to delay, it may take legal action to compel compliance. This resistance to transparency further underscores the need for thorough investigation and potential regulatory action in the PBM industry.

Broader Implications

The FTC’s action against PBMs is part of a larger effort to address issues in the pharmaceutical supply chain. The Bureau of Competition has made it clear that drug manufacturers like Eli Lilly, Novo Nordisk, and Sanofi are also under scrutiny for their role in driving up list prices of life-saving medications like insulin.

Looking Ahead

This administrative complaint marks the beginning of a formal proceeding where the allegations will be tried before an administrative law judge. The outcome of this case could have far-reaching implications for the pharmaceutical industry, potentially leading to significant changes in how drug prices are negotiated, how PBMs operate, and how independent pharmacies compete in the market.

For patients, healthcare providers, and industry stakeholders, this case represents a critical step towards addressing the complex and often opaque practices that have contributed to rising drug costs and reduced competition in pharmacy services. As the proceedings unfold, it will be essential to monitor how this action might reshape the landscape of prescription drug pricing and distribution in the United States.