In a significant development that could impact the future of prescription drug costs, the U.S. Federal Trade Commission (“FTC”) announced an expansion of its investigation into the country’s leading Pharmacy Benefit Managers (“PBMs”). The investigation now includes two group purchasing organizations, (GPOs) commonly known as Rebate Aggregators. This move comes almost a year after the FTC commenced a 6(b) study and sent binding information demands to CVS Caremark, Express Scripts, Inc., Humana, Inc., MedImpact HealthCare Systems, Inc., OptumRx, Inc., and Prime Therapeutics, LLC. On May 17th, the FTC issued additional compulsory orders to Zinc Health Service, LLC (“Zinc”) and Ascent Health Services, LLC (“Ascent”) as part of its probe into how PBMs affect pricing of prescription drugs. This expansion signals the FTC’s determination to thoroughly investigate the role of PBMs and Rebate Aggregators in the drug supply chain.
Ascent and Zinc, the two Rebate Aggregators under investigation, are wholly owned by Cigna/Express Scripts and CVS Health/Caremark. UnitedHealth/OptumRx also owns rebate aggregators, Coalition for Advanced Pharmacy Services, LLC and Emisar Pharm Services, LLC. It is worth noting that Ascent is based out of Switzerland and Emisar is based out of Ireland.
Rebate Aggregators and their Role:
Rebate Aggregators negotiate rebates with drug manufacturers on behalf of PBMs or plan sponsors and hold the contracts governing these rebates. Rebates are supposed to be passed through to the plan sponsors, but instead contribute to fueling PBM profits. Rebate aggregators demand money (rebates) from drug manufacturers in exchange for the PBM’s promise to place the manufacturer’s product on the PBM’s drug formulary. Rebates are supposed to be used to reduce the expense of prescription drugs for PBM clients (i.e., plan sponsors) and patients. However, Rebate Aggregators retain unknown portions of rebates as profits. Patients and plan sponsors pay the price.
FTC Investigation Focus:
The FTC’s initial investigation, launched in June 2022, aimed to unravel the facts behind the PBMs’ role in setting sky-high prescription drug prices. The secrecy behind rebates is mainly because of the vertical integration of PBMs, the country’s largest health insurance companies, Rebate Aggregators, and wholly-owned mail order and specialty pharmacies. The FTC’s investigation focuses on fees that PBMs charge, efforts to steer patients toward PBM-owned pharmacies, abusive pharmacy audit practices, pharmacy reimbursement methods, and negotiations of rebates and fees with drug manufacturers that skew formulary incentives and prescription drug costs for health plan payors and patients.
Impact of Including Rebate Aggregators:
The inclusion of Rebate Aggregators in the investigation is expected to provide the FTC with greater insight into manufacturer rebate arrangements and their impact on plan formulary design and drug costs. Specifically, because manufacturers often pay the highest rebates for their most expensive products, PBMs are incentivized to include high-cost products on their formulary. Consequently, health plans and patients are burdened with higher prices, even when lower cost generic equivalents are available. The FTC’s investigation was launched in part due to patient and physician complaints that PBMs routinely interfere with patient care by imposing insurance approval requirements (e.g., prior authorizations) before a patient proceeds with specific medications and treatments.
Legislative Reform and Federal Commitment:
The FTC’s examination of PBMs and Rebate Aggregators comes amid significant legislative reform throughout the country aimed at addressing abusive PBM conduct. Indeed, in recent years, all 50 states have enacted legislation aimed at regulating PBMs and their practices. Likewise, there is significant momentum at the federal level, as Congress actively attempts to pass reformative legislative. Frier Levitt co-founding partner, Jonathan Levitt, Esq., recently testified before a United States Senate Finance Committee where he discussed the consequences of PBM and Rebate Aggregator tactics like rebate manipulation and the impact on patients, health plans, and taxpayers.
The combination of Congressional motivation to pass impactful legislation and intensified executive enforcement efforts by the FTC illustrate the federal government’s commitment to take meaningful steps toward reforming the pharmacy benefits industry.
Ensuring Proper Utilization of Rebates:
Given the expanded investigation by the FTC and increased scrutiny from the legislators against PBMs, drug manufacturers and plan sponsors are advised to carefully review their agreements with PBMs to ensure that rebates are effectively utilized to reduce the drug spend and patients’ out-of-pocket costs. As we discussed here, plan sponsors have a duty to monitor their PBMs’ performance and ensure that fees paid to the PBM are reasonable.
How Frier Levitt Can Help
Frier Levitt is at the forefront of federal and state efforts to combat PBM abuses. Our experienced attorneys collaborate with legislators at state and federal levels to shape legislation aimed at addressing PBM abuse for various industry stakeholders. Frier Levitt’s Plan Sponsor Practice Group has a proven track record of obtaining favorable results for health plans and plan sponsors in various areas, including, but not limited to, analyzing PBM contracts and initiating actions against PBMs to access Plan data to ensure PBM compliance or recover savings wrongfully withheld by the PBM. Contact us to learn more.
