FTC takes legal action against pharmacy benefit managers, citing a distorted drug-pricing structure

A growing dispute between pharmacy benefit managers (PBMs) and government regulators intensified Sept. 20 when the Federal Trade Commission (FTC) filed suit against the three leading PBMs and their affiliated group purchasing organizations (GPOs).

The complaint against CVS Caremark, Express Scripts, Inc. (ESI, owned by Cigna) and OptumRx (UnitedHealth Group) seeks to address a system in which PBMs use their negotiating clout with drug manufacturers in a way that skews prices. Insulin costs are the specific concern in the lawsuit, with one leading brand increasing in list price from $21 to $274 between 1999 and 2017, the FTC said in a statement.

“Caremark, ESI and Optum and their respective GPOs engaged in unfair methods of competition and unfair acts or practices under Section 5 of the FTC Act by incentivizing manufacturers to inflate insulin list prices, restricting patients’ access to more affordable insulins on drug formularies and shifting the cost of high-list-price insulins to vulnerable patient populations,” the FTC wrote.

Rebates collected from drug manufacturers and passed on to health plans are a mechanism that raises drug prices on PBM formularies because manufacturers boost prices to make up for the required rebates, per the FTC’s complaint.

The issue particularly affects affordability for uninsured patients and patients with drug plans that have high deductibles or coinsurance requirements linked to list prices. The latter group “may pay more out-of-pocket for their insulin drugs than the entire net cost of the drug to the commercial payer,” the FTC wrote.

On the five-member commission, the three Democratic members voted to pursue the complaint, which will be heard by an administrative law judge. The two Republican commissioners recused themselves.

Rising acrimony

The lawsuit comes two months after the FTC issued a wide-ranging, largely disparaging report on the PBM model. Concerns about the rebate system were prominently highlighted, as were the increasing instances of PBM vertical integration with health insurers and providers.

At least one published study has found that higher rebate amounts correlate with higher costs for Medicare and commercial-insurance beneficiaries, along with self-pay patients.

“These findings suggest that while drug manufacturers may increase list prices in order to offer larger rebates to insurers, such increases were associated with increased out-of-pocket costs, especially among individuals without insurance,” researchers wrote in the 2021 JAMA Network Open study.

Three days before the FTC brought its lawsuit, Express Scripts filed its own lawsuit against the commission in federal court, seeking a retraction of the July report.

Among the points raised in that lawsuit is that the FTC’s report overlooked “PBMs’ contributions to reducing drug costs, making generics and biosimilars more affordable and leading the way in capping insulin prices at $25 per month for millions of people.” (For Medicare beneficiaries, insulin has been capped at $35 per month since 2023 via the Inflation Reduction Act.)

In its response to the FTC’s suit, Optum Rx wrote, “This baseless action demonstrates a profound misunderstanding of how drug pricing works. For many years, Optum Rx has aggressively and successfully negotiated with drug manufacturers and taken additional actions to lower prescription insulin costs for our health plan customers and their members, who now pay an average of less than $18 per month for insulin.”

Criticism abounds

The FTC is not the only entity looking to take on PBMs. Congress included transparency requirements for PBMs in the Lower Costs, More Transparency Act, which the House passed in late 2023 and which continues to await consideration in the Senate. Another provision in that bill would require pass-through pricing (i.e., mandating that the drug price paid by the health plan to the PBM is equivalent to what the PBM pays the pharmacy) for PBMs that process Medicaid drug benefits.

Among proposed Senate legislation on PBMs are bills that would prohibit the practice of spread pricing (i.e., the drug price paid by the health plan amounts to a profit for the PBM) and, similar to the House bill, would implement transparency requirements.

Bipartisan concern about PBMs was on display during a July hearing of the House Oversight and Accountability Committee, with executives from the three leading PBMs testifying.

“While PBMs often do negotiate discounts [with] manufacturers, patients are not the ones who benefit from them,” Rep. Mariannette Miller-Meeks (R-Iowa) said during the hearing.

Of the 100 most rebated drugs in Medicare Part D, she said, there are 79 for which beneficiaries pay more than their insurers.

While policymakers consider their options, startups are looking to disrupt the PBM model. The most prominent example may be Cost Plus Drugs, formed by the billionaire entrepreneur Mark Cuban to improve transparency, affordability and accessibility in the pharmaceutical supply chain. In a blog post, Cuban said the cost of PBM rebates tends to be borne not by drug manufacturers but by older and sicker beneficiaries.

“These rebates could [instead] be used to reduce the employee deductibles or to actually pay for the cost of medicines,” Cuban wrote on the Drug Channels blog.

Impact on other stakeholders

In its statement on the lawsuit it filed, the FTC emphasized that insulin manufacturers should not escape scrutiny and could be subject to future legal action themselves based on their actions to affect pricing.

The PBM issue is relevant to hospitals and health systems in part because of trends in drug pricing. Drug costs are having an increasingly substantial impact on hospital expenditures and most recently increased by 17.3% year-over-year in July, according to data from Strata Decision Technology.

In 2022 comments sent in response to an FTC industry inquiry about the business practices of PBMs, the American Hospital Association (AHA) referred to a study showing that for every $1 in rebates, list prices for drugs increase by $1.17.  

“While lowering overall cost is important, failure to directly impact high list prices leads to increased healthcare spending, additional financial burden on patients and providers and significant financial impact on the uninsured and underinsured,” the AHA wrote.

The AHA also expressed concern about the integration of PBMs with health plans such as Cigna and UnitedHealthcare.

“This level of health plan and PBM consolidation allows plans to maximize their negotiating leverage; consolidate the use of pharmacies among a small, plan-owned or affiliated network; and increase plan profits through their role as an intermediary in the pharmacy supply chain,” the AHA wrote.

“In addition, these maneuvers, achieved by manipulating insurance rules and benefit design particularly with respect to specialty drug coverage, establish a clear motivation for steering patients in ways that may financially benefit the plan and PBM but are often not in the patients’ best interest — clinically or financially.”