The Federal Trade Commission (FTC) unveiled a bombshell lawsuit last week against the Big 3 pharmacy benefits managers (PBMs) – CVS’ Caremark, Cigna’s Express Scripts, and United’s OptumRx. The FTC charges that the PBMs have used formulary placement and rebates to rig the system for themselves and disadvantage the American public.
The FTC says that the PBMs use formularies and rebates to line their pockets and to attract business. This leaves those with expensive disease states, such as diabetics dependent on insulin, with high prices and often an inability to pay. While the FTC believes the behavior by the PBMs impact many drugs and disease states, the lawsuit focuses on insulin drugs and prices right now.
In the past, I have defended PBMs for some of the good they do. They do promote the use of generics and keep down overall costs with prior authorization (PA) and other utilization management (UM). I also believe the brand drug makers are the real culprits in the drug pricing problem in America. Here is my logic: if not for exceedingly high prices set unilaterally by brand drug makers, the rebate schemes with PBMs would not be needed and we would have greater insight into what drug prices really are. While formularies would still be needed to manage cost via PA and UM, we would not have as much favoritism for certain drugs over others at a given PBM.
My PBM friends will be angry with me, but in the end I do welcome the lawsuit because we need to change the drug price paradigm. Yes, prices are the main culprit and brand drug makers shoulder that blame. But the perverse rebate system has gone too far. Rebates contribute to high prices, perverse incentives, a lack of transparency, and often mean consumers get little or no benefit of discounts at the point of sale. It also materially impacts the adoption of generics and biosimilars in the market.
The real problem is that rebates largely are kept by the PBM, health plans, or employer group clients. Only in limited circumstances do rebates make it in full or part to consumers at the point of sale. Consumers often are paying very high cost-sharing at the point of sale based on the gross and not net (after rebate) cost. This contributes to a lack of affordability, adherence issues and more. While some companies have done so, why aren’t more companies demanding in their PBM agreements that rebates get passed through at the point of sale to help consumers?
One solution that has been talked about is to remove the safe harbor in federal law that allows rebates to occur in the first place. On their face, they do seem to be kickbacks. In his years at the White House, Donald Trump had proposed eliminating rebates by changing the anti-kickback statute for Medicare. There are pros and cons to doing so. Rebates do supplement PBM and health plan profits and can accrue as savings to employer groups. But they also can be used elsewhere in the healthcare system to reduce premiums and cost-sharing as well as provide more room for other benefits. We know this is big in Medicare Advantage (MA). But whatever the impacts, I wonder if the time has arrived to go down the road that Trump did. The current construct can no longer be countenanced. The Biden administration did backtrack on the issue.
I am a little disturbed by the sole focus on PBMs as the culprits here. Certainly, brand drug makers bear as much blame here. I do not think the so-called manipulation of the market and anti-competitive behavior is limited to the PBMs, although much of it appears to have begun with exclusionary formularies more than a decade ago. The FTC did put brand drug makers on notice they could be next, but should the FTC have waited if it were not ready to file against the brand drug makers? How could the so-called manipulation occur without the brand drug makers being willing accomplices or even co-conspirators?
I would say that the FTC faces an uphill fight to win given the posture of courts of late. The case likely will take a few years to be fully decided. But change needs to happen. The suit alone will shine a new light on the PBM transparency movement and usher forward reforms from Capitol Hill. Here is where I think things go from here:
- The FTC will expand its suit to other drugs.
- The FTC will entertain a broader lawsuit challenging PBMs on an antitrust basis holistically. The FTC will challenge the market dominance of the Big 3 as well as the vertical integration. PBMs are known to exclusively contract with or pay affiliated companies better than others. This includes pharmacies and specialty pharmacies. As well, affiliated health plans may enter into favorable deals with their own PBMs. All of these family company transfers may also escape the minimum medical loss ratio requirements that exist for many products.
- The FTC will expand its lawsuits beyond the Big 3 PBMs.
- The FTC will challenge brand drug makers in lawsuits as well.
- The lawsuit will spur Congress to pass its own PBM reforms, which will include major transparency reporting. They stalled last year in Congress.
- The Centers for Medicare and Medicaid Services (CMS) will strengthen oversight and also use rules to restrict certain behaviors.
- Other Capitol Hill investigations will commence on a bipartisan basis.
- The rise of PBM transparency will take hold and the legacy PBMs likely will continue to lose business to transparency startup PBMs.
- The lawsuit could also begin to build quiet support for expanding Medicare drug price negotiations.
Thus, PBMs and brand drug makers should get ready for the brave new world of antitrust lawsuits and activity. I think a Harris administration will be very active on this front and a Trump administration may be more active than in the past as well. The FTC lawsuit is the first major step to comprehensive reform of PBMs and drug pricing more broadly.
Sources and reading:
https://www.managedhealthcareexecutive.com/view/ftc-sues-pbms-for-artificially-hiking-insulin-prices
https://www.modernhealthcare.com/legal/express-scripts-optum-cvs-caremark-ftc-complaint-insulin
#pbms #drugpricing #branddrugmakers #ftc #antitrust
— Marc S. Ryan
