The Federal Trade Commission (FTC) recently sued the three largest pharmacy benefit managers (PBMs) – Caremark Rx, Express Scripts (ESI) and OptumRx – alleging that the PBMs and their related group purchasing organizations (GPOs) engaged in practices of retaining lucrative rebates on highly priced insulin medications and influenced vulnerable patients to engage in treatment involving expensive drug products. The complaint argues that the three PBMs and their respective GPOs (Zinc Health Services, Ascent Health Services and Emisar Pharma Services) rigged the “pharmaceutical supply chain competition in their favor, forcing patients to pay more for life-saving medication.”
The FTC’s press release on the lawsuit indicates that “the three PBMs created a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices” and that “even when lower list price insulins 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.” The FTC’s suit, which was anticipated as early as July 2024, comes during a calendar year of much publicized FTC activity in the health care industry that has been covered by our blog.
The press release further describes a series of strategies PBMs used to allegedly maximize rebates from drug manufacturers and similarly use large rebates to attract payor clients to engage the PBM to prepare and administer drug formularies. However, the FTC asserts that, around 2012, PBMs began creating “exclusionary drug formularies,” using their size and negotiating power to “exclude certain drugs from the formulary to extract higher rebates from drug manufacturers in exchange for favorable formulary placement.”
In a related statement, the FTC also suggested that it intends to scrutinize the practices of three insulin manufacturers – Eli Lilly, Sanofi and Novo Nordisk – for their role in surging prices. The FTC specifically cited the increase of Eli Lilly’s Humalog, which “soared from $21 in 1999 to $274 in 2017—a staggering increase of more than 1200%.” The FTC, rather unequivocally, stated that “all drug manufacturers should be on notice that their participation in the type of conduct challenged here can raise serious concerns, with a potential for significant consumer harm, and that the Bureau of Competition reserves the right to recommend naming drug manufacturers as defendants in any future enforcement actions over similar conduct.”
The FTC concluded that as insulin prices rose, the PBMs kept rebates that should have inured to benefit patients when purchasing the drug at the pharmacy. “Certain vulnerable patients, such as patients with deductibles and coinsurance, often must pay the unrebated higher list price and do not benefit from rebates at the point of sale. Indeed, they may pay more out-of-pocket for their insulin drugs than the entire net cost of the drug to the commercial payer. Caremark, ESI and Optum knew that escalating insulin list prices and exclusion of low list price insulins from formularies hurt vulnerable patients — yet continued to pursue and incentivize strategies that shifted the burden of high list prices to patients.” PBMs and GPOs conduct, as described above, formed the basis for the FTC to allege a violation of Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices affecting commerce.”
