Overview
On September 20, 2024, the Federal Trade Commission (“FTC”) filed an administrative complaint (“Complaint”) against the three largest Pharmacy Benefit Managers (“PBMs”) and their affiliated Group Purchasing Organizations (“GPOs”) based on allegations of engaging in anticompetitive and unfair rebating practices. [1] In the 45 page Redacted Public Complaint, the FTC alleges that CVS Health’s Caremark, Cigna’s ESI, United Health Group’s Optum, Zinc Health Services, Evernorth Health Inc., Medco Health Services Inc., Ascent Health Services, and Emisar Pharma Services have engaged in anticompetitive and unfair rebating practices that have artificially inflated the list price of insulin drugs, impaired patients’ access to lower list price products, and shifted the cost of insulin to vulnerable patients. This complaint comes after a two-year examination by the FTC against these parties. The FTC released its findings and conclusions in a Report this past summer, which Frier Levitt discussed in a previous article.
The FTC’s Jurisdiction Over the PBMs and GPOs
The Commission voted to file a complaint against these parties with a vote of 3-0-2. Commissioners Melissa Holyoak and Andrew N. Ferguson were recused from the matter. The FTC has jurisdiction over Respondents pursuant to Section 4 and Section 5 of the FTC Act, 15 U.S.C. §§ 44, 45. This is because the Respondents general business practices and the unfair methods of competition and unfair acts are considered “in or affecting” commerce. [2] The FTC is empowered to file an administrative complaint when it has “reason to believe” that a law has been violated or is being violated, and an administrative proceeding would be in the public interest.
Overview of FTC Complaint
1. Allegations
The FTC Complaint alleges that Caremark, Express Scripts, and Optum Rx, have created a perverse drug rebate system, which started in 2012 that prioritizes high rebates from drug manufacturers over lowering the cost of healthcare for Americans. [3] This in turn has led to artificially inflated insulin prices. According to the FTC’s complaint, when lower list price insulins become available, PBMs excluded them in favor of the high list price insulins so that they receive higher rebates. The Complaint alleges the PBMs are aware that these practices hurt patients and force them to pay more out of pocket, yet the PBMs continue to use these tactics and business practices for profit.
The Complaint contains three causes of action alleging violation of the FTC Act. Count I alleges that Respondents are unfairly competing by rebate preferencing. The Complaint alleges Respondents systematically prefer high list price insulin products over similar low list price insulin products on formularies to inflate the value of their drug formularies and offer higher rebate guarantees. The Complaint alleges this system is not a natural condition of the PBM or drug industry and is instead a method of competition created by the PBMs. [4]
Count II alleges unfair practice of formulary exclusion of low WAC insulin products. The Complaint alleges the Respondents exclude low WAC insulin products from their most utilized formularies which constitutes an unfair act or practice. These practices substantially injure insulin consumers whose out-of-pocket costs are based on the list price of insulin. These strategies also force consumers to purchase the high WAC versions of insulin although low WAC versions exist. [5]
Count III alleges unfair practice of exploitative cost-shifting. The Complaint alleges the combined effect of the PBMs’ strategies shift the cost of high insulin products onto patients. The Complaint further alleges that PBMs are aware that their strategies harm insulin patients whose costs are based on the unrebated list price. This results in some consumers paying more for insulin than the entire net cost of the drug. [6]
2. Relief Requested
The FTC seeks to prohibit Respondents from excluding or disadvantaging low WAC versions of high WAC drugs made by the same manufacturers whenever the Respondents cover the high WAC drug on a formulary. The FTC is also seeking to prohibit the Respondents from accepting compensation based on a drug’s list price or related benchmark and to prohibit Respondents from designing or assisting with designing a benefit plan that bases patients’ deductibles or coinsurance on the list price. The final request is for any other relief the Commission finds appropriate. [7]
3. Next Steps
Respondents have 14 days to file an answer to the Complaint. The FTC and Respondents’ legal counsel have filed their notices of appearance. The Chief Administrative Law judge presiding over the case will be Judge D. Michael Chappell. An evidentiary hearing is scheduled to be held before Judge Chappell in August 2025. At that time, it is expected that Respondents will be given the opportunity to contest the charges and argue against an order requiring Respondents to cease and desist from the business practices described in the complaint.
In a statement issued by the FTC’s Bureau of Competition Deputy Director Rahul Rao, Rao states that the PBMs are not the only potential stakeholders that have controlled the markets to create higher insulin prices. Although not named in the Complaint, Deputy Rao stated all drug manufacturers should be on notice that their participation in the conduct alleged has raised serious concerns and the Bureau of Competition reserves the right to recommend naming drug manufacturers as defendants in a future case.
Other Legal Significance
The FTC’s Complaint is not the first attempt of the federal government to lower insulin prices for consumers. The Inflation Reduction Act (“IRA”) of 2022 was signed into law on August 16, 2022 and ensured that people with Medicare would not pay more than $35 for a month’s supply for each covered insulin product under Medicare prescription drug coverage, Traditional Medicare, or Medicare Advantage. This law applied to the millions of seniors and other Medicare beneficiaries with diabetes. The insulin price problem does not stop with those who benefited from the IRA. The Complaint targets more than just those covered by Medicare that have benefited from the IRA and focuses on commercial insurance. The Complaint discusses the vulnerable patients who have suffered by the cost-shifting practices created by the PBMs who may pay more out-of-pocket than the entire net cost of the insulin drug.
How Frier Levitt Can Help
Frier Levitt represents pharmacies, other healthcare providers and other industry stakeholders across the United States in challenging PBM audits, network access issues, unlawful reimbursement practices, and related conduct. Frier Levitt also represents these same stakeholders in litigation in federal state court as well as in private arbitration and further in administrative proceedings at both the federal and state level. Our attorneys have experience in analyzing contract terms, reimbursement rates and network agreements as well as experience in challenging PBM violations of state law. Contact us today to speak with an attorney on how your pharmacy can navigate challenges against PBMs.
[1] the FTC’s Complaint can be found at https://www.ftc.gov/legal-library/browse/cases-proceedings/221-0114-caremark-rx-zinc-health-services-et-al-matter-insulin
[2] Id. at 1.
[3] Id. at 2-3.
[4] Id. at 41-42.
[5] Id. at 42-43.
[6] Id. at 43.
[7] Id. at 44-45.
