Travis Manint - Advocate and Consultant Travis Manint - Advocate and Consultant

FTC Sues Major PBMs for Unfair Practices Affecting Drug Costs

Pharmacy Benefit Managers (PBMs) have long been influential yet often obscure intermediaries in pharmaceutical pricing and distribution. They negotiate drug prices with manufacturers, develop formularies for health plans, and manage pharmacy networks. Today, the three largest—CVS Caremark, Express Scripts, and OptumRx—control about 80% of the market.

On September 20, 2024, the Federal Trade Commission (FTC) filed an administrative complaint against these major PBMs and their affiliated group purchasing organizations (GPOs). The complaint alleges that they engaged in anticompetitive and unfair rebating practices, artificially inflating insulin prices and impairing access to lower-cost alternatives.

The FTC's action marks a critical juncture in the struggle for fair drug pricing and access, emphasizing the need for robust enforcement and comprehensive PBM reform. The outcome could reshape the healthcare industry and significantly impact care across the United States.

The FTC's Case Against PBMs

The FTC alleges that PBMs have engaged in anticompetitive and unfair rebating practices that have artificially inflated the list prices of insulin and other essential medications. Grounded in Section 5 of the Federal Trade Commission Act, which prohibits unfair competition and deceptive practices, the FTC asserts that PBMs' rebate strategies and patient steering harm consumers and competition.

For example, the list price of Humalog, a widely used insulin product, increased from $21 in 1999 to over $274 in 2017—a rise of more than 1,200%. The FTC argues that this dramatic inflation is linked to PBMs' "chase-the-rebate" strategy, where they demand larger rebates from manufacturers in exchange for favorable formulary placement.

Another key aspect of the complaint focuses on patient steering practices. The FTC alleges that PBMs have systematically excluded lower-cost insulin alternatives from their formularies in favor of higher-priced options that generate larger rebates. This practice limits choice and forces many to pay more out-of-pocket for their medications.

Rahul Rao, Deputy Director of the FTC's Bureau of Competition, emphasized: "Millions of Americans with diabetes need insulin to survive, yet for many of these vulnerable patients, their insulin drug costs have skyrocketed over the past decade thanks in part to powerful PBMs and their greed."

The FTC seeks to fundamentally change how PBMs operate. The complaint aims to prohibit PBMs from excluding or disadvantaging lower-cost versions of drugs, prevent them from accepting compensation based on a drug's list price, and stop them from designing benefit plans that base out-of-pocket costs on inflated list prices rather than net costs.

FTC Chair Lina Khan stated, "The FTC's administrative action seeks to put an end to the Big Three PBMs' exploitative conduct and marks an important step in fixing a broken system—a fix that could ripple beyond the insulin market and restore healthy competition to drive down drug prices for consumers."

Impact on People Living with HIV

While the FTC's case primarily focuses on insulin pricing, PBM practices significantly affect people living with HIV (PLWH) and other chronic conditions. Recent cases highlight the challenges faced in accessing affordable medications due to PBM and insurer practices.

In April 2024, CVS Health failed in its latest attempt to dismiss a class action lawsuit alleging discrimination against PLWH by requiring them to receive medications via mail order, limiting access to essential pharmacy services and counseling. U.S. District Judge Edward Chen noted that CVS was on notice that this program could likely discriminate against PLWH, as plaintiffs had repeatedly requested to opt out.

In another case, the U.S. Department of Health and Human Services Office for Civil Rights (OCR) closed a complaint without penalties against Blue Cross Blue Shield of North Carolina (BCBS NC) after the insurer lowered the pricing tier for HIV medications. The original complaint alleged that BCBS NC had placed almost all HIV antiretroviral medications, including generics, on the highest-cost prescription tiers.

While BCBS NC changed its formulary, the lack of penalties raises concerns about enforcement and accountability. Carl Schmid, executive director of the HIV+Hepatitis Policy Institute, expressed disappointment: "It was incredibly disheartening and deeply concerning to see them let the state's largest insurer get away with such blatant discrimination."

These cases illustrate how PBM practices and insurer policies create significant barriers to care for people living with HIV. High out-of-pocket costs, restricted pharmacy access, and discriminatory formulary designs can lead to medication non-adherence, resulting in adverse health outcomes and increased healthcare costs in the long term.

In North Carolina, about 37,000 people are living with HIV, with Black people representing 58% of new HIV diagnoses despite being only 22% of the state's population. Nationally, according to the Centers for Disease Control and Prevention (CDC), approximately 1.2 million people in the United States are living with HIV. PBM practices that inflate drug costs or limit access exacerbate these disparities and hinder efforts to end the HIV epidemic.

PBM Practices Under Scrutiny

The FTC's complaint has brought controversial PBM practices into sharp focus, highlighting concerns long raised by patients, healthcare providers, and policymakers.

The FTC's interim staff report reveals that PBMs often prioritize higher rebates over lower net prices, leading to exclusion of lower-cost alternatives and driving up drug prices—a practice known as "rebate walls." Patient steering directs consumers to PBM-owned pharmacies, limiting choice and disadvantaging independent pharmacies.

A Congressional hearing in July 2024 further exposed these issues. PBM executives faced tough questioning about their role in rising prescription drug costs. Lawmakers pressed the executives on how PBMs have monopolized the pharmaceutical marketplace and pushed anticompetitive policies that undermine local pharmacies and harm patients.

Representative Virginia Foxx (R-N.C.) highlighted the lack of transparency, questioning PBM executives about the pass-through of rebates and fees to plan sponsors. The executives' responses did little to clarify the complex and opaque financial flows within the PBM industry.

PBMs defend their practices as necessary for managing drug costs. Phil Blando, Executive Director for Corporate Communications at CVS Caremark, stated, "We work to negotiate the lowest net cost for drugs... driving better health outcomes and lower out-of-pocket costs for consumers." However, critics argue that these claimed benefits are not reflected in patient experiences or overall drug pricing trends.

Real-World Impact on Patients and Pharmacies

Jeremy G. Counts, PharmD, a spokesperson for Pharmacists United for Truth and Transparency (PUTT), explains that the vertical integration of the Big Three PBMs allows them to limit access through restrictive networks, under-reimbursement, and aggressive patient steering. These practices harm independent pharmacies and jeopardize health by disrupting continuity of care.

  • Restrictive Networks and Steering: PBMs often require patients to use their own pharmacies, frequently through mail order, misleading them into believing they have no other options. Even when plans allow the use of independent pharmacies, PBMs make it tedious to opt out, effectively limiting choice.

  • Under-Reimbursement and Clawbacks: Independent pharmacies that serve patients despite low reimbursements face financial strain. PBMs may pay below cost or use fees and recoupment methods to claw back margins, forcing some pharmacies to turn away patients.

  • Barriers to Medication Access: PBMs impose onerous prior authorization processes for medications that do not provide them with high rebates, delaying care and increasing costs. Counts notes that this has become a deadly issue in oncology care.

  • Aggressive Patient Pursuit: For profitable medications, PBMs aggressively pursue patients and their prescriptions, sometimes transferring prescriptions without permission or shipping medications without their knowledge.

These practices not only harm independent pharmacies but also jeopardize health by disrupting access to necessary medications.

Healthcare consultant Rita Numerof calls the FTC's investigation a "pivotal moment" in reforming the industry to serve patients' best interests.

The Need for Enforcement

The lack of punitive action in cases like the BCBS NC complaint raises concerns about the effectiveness of current enforcement mechanisms. Carl Schmid of the HIV+Hepatitis Policy Institute pointed out, "Without action to improve federal and state regulation, oversight, and enforcement, such discriminatory practices will continue." The BCBS NC case demonstrates that while policy changes can be achieved through advocacy and complaints, there is often little consequence for discriminatory practices.

Counts emphasizes that "PBMs are masters at derailing legislative attempts to rein them in." He argues that FTC enforcement is critical, as PBMs often ignore laws unless compelled to comply. Counts asserts that attacking the problem from multiple fronts is essential, and FTC action provides immediate and targeted intervention.

PBM Response and Industry Perspective

In response to mounting scrutiny, PBM executives have defended their practices. During the July 2024 Congressional hearing, leaders from CVS Caremark, Express Scripts, and OptumRx maintained that they do not engage in patient steering or discriminatory practices. They argued that PBMs play a crucial role in negotiating lower drug prices and improving healthcare affordability.

David Joyner, president of CVS Caremark, stated, "We're making health care more affordable and accessible for the millions of people we serve every day."

However, these assertions have been met with skepticism. The House Committee on Oversight and Accountability, led by Chairman James Comer (R-Ky.), has accused PBM executives of making statements that contradict findings about self-benefitting practices.

Legislative Efforts: The Pharmacists Fight Back Act

In addition to regulatory actions by the FTC, legislative initiatives are crucial for comprehensive reform. The Pharmacists Fight Back Act (H.R. 9096), introduced by Representatives Jake Auchincloss (D-MA) and Diana Harshbarger (R-TN), aims to:

  1. Establish Standard Pharmacy Reimbursement:

    • Proposes a reimbursement model based on the National Average Drug Acquisition Cost (NADAC) plus a state dispensing fee and an additional 2%. This model prevents underpayment to independent pharmacies and curbs price gouging by PBM-owned pharmacies.

  2. Prohibit Predatory PBM Tactics:

    • Seeks to ban practices such as steering patients to PBM-owned pharmacies, exclusionary network designs, retroactive fees, spread pricing, and reimbursement clawbacks.

  3. Mandate Rebate Transparency and Application:

    • Requires that 80% of all PBM-negotiated rebates and fees reduce patients' out-of-pocket costs, with the remaining 20% lowering insurance premiums.

Counts stresses the urgency of passing this legislation to save pharmacies and reduce drug pricing: "Its immediate passage is critical to stopping the pharmacy closure and drug pricing crisis in this country."

Potential Outcomes and Industry Impact

If successful, the FTC's action could reshape the pharmaceutical industry by forcing PBMs to prioritize lower net drug prices, benefiting patients with more affordable medications and increased pharmacy choice. A ruling against PBMs could set a legal precedent, opening the door for further regulatory action or private lawsuits against PBMs and other healthcare intermediaries.

Independent pharmacies stand to benefit considerably from potential reforms. If the FTC's action results in more transparent pricing practices and limitations on patient steering, these businesses may be better able to compete with PBM-owned pharmacies.

However, given PBMs' significant resources and influence, changes may be hard-fought and take time to implement. There is the possibility that PBMs may find new ways to maintain their market position and profitability.

Impact on Independent Pharmacies

Independent pharmacies are closing at an alarming rate—nine per day, with 2,275 closures so far in 2024. This trend reduces access to personalized care and diminishes competition, further consolidating PBMs' market power.

Counts conducted a study in Virginia, matching pharmacy closures against openings using data from the Virginia Board of Pharmacy. He found that "community pharmacies are closing at twice the rate they are opening, and this rate is accelerating." Without significant reform, including FTC enforcement and the passage of H.R. 9096, the pharmacy infrastructure in the United States will continue to erode.

Conclusion and Call to Action

The FTC's actions, along with legislative efforts like the Pharmacists Fight Back Act, are critical steps toward creating a fairer pharmaceutical industry that prioritizes access and affordability.

We urge readers to:

  1. Stay Informed: Follow developments in PBM regulation and reform efforts.

  2. Research Legislation: Contact your representatives to inquire about pending legislation.

  3. Engage with Advocacy Groups: Support organizations like PUTT (www.truthrx.org) and the HIV+Hepatitis Policy Institute (www.hivhep.org).

  4. Share Experiences: Raise awareness by sharing your experiences with PBM practices. PUTT is collecting stories to highlight the real-world impact of PBM practices. Visit their PBM Horror Stories page to share your story anonymously.

Collective action is essential to ensure meaningful and lasting change in drug pricing and access. The FTC's action is a significant step, but it's up to all of us to ensure this momentum leads to a more transparent, equitable, and patient-centered healthcare system in the United States.

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