On Thursday, February 17, 2022, the Federal Trade Commission (FTC) deadlocked 2-2 on a proposal to issue Orders to large pharmacy benefits managers to study the competitive impact of contractual provisions, reimbursement adjustments, and other practices affecting drug prices, including those practices that may disadvantage independent or specialty pharmacies. The two commissioners who voted against the measure stated that while the existing plans for a study include how PBM practices “may disadvantage independent or specialty pharmacies,” they did not adequately call for measuring how PBMs may influence out-of-pocket drug costs for consumers. The National Community Pharmacists Association (NCPA) responded, “Two members of the FTC just let the worst actors in the market off the hook. After hearing hours of testimony by community pharmacists and patients, all of whom painted the same shocking picture about PBM abuse, and not a single witness there to defend the PBM industry, it is inexplicable that two members of the commission could vote against the study. Their decisions could not possibly have been based on what was heard today.” It is unknown if or when another vote will be called on this critical issue affecting independent pharmacies nationwide.
What does the FTC do?
Along with the Department of Justice (DOJ), the FTC is the chief government agency charged with enforcing the FTC Act and protecting consumers and the marketplace. The FTC protects consumers and the marketplace by enforcing federal antitrust laws and by investigating companies suspected of engaging in monopolistic or consumer fraud behaviors.
What was the FTC voting on?
The FTC was voting on a “6(b) Study on Pharmacy Benefit Managers’ (PBMs) Relationship with Affiliated and Independent Pharmacies.” “6(b)” refers to Section 6 of the FTC Act, codified at 15 U.S.C. § 46, which contains certain powers Congress has delegated to the FTC. One of those powers is the power to require companies to answer certain questions and turn over certain documents that the FTC believes will be helpful in furthering its mission.
Section 6(b) permits the Commission to require persons, partnerships, and corporations, engaged in or whose business affects commerce to file reports or answers in writing to the Commission. The Commission may require these answers to be under oath and can enforce these orders in court. In essence, the FTC was voting on whether to require PBMs to answer questions and turn over documents related to their business and the competitive impact of that business on independent and/or specialty pharmacies.
Who was the FTC targeting?
The agenda item discussing the vote indicated the FTC was targeting only “large pharmacy benefits managers.” The three largest PBMs are CVS Caremark, Express Scripts, Inc., OptumRx, Inc. Other large, vertically integrated PBMs include Humana and Prime Therapeutics.
What is Vertical Integration?
Vertical Integration occurs when firms or assets operate at different stages of the same supply chain – for example, if a large hospital system were to acquire both an (upstream) insurer as well as a (downstream) physician group, it would become “vertically integrated” across at least three relevant levels of the supply chain. In the case of PBMs, each major PBM is under common ownership with a health plan or plans (Caremark/Aetna, Express Scripts/Cigna, OptumRx/UnitedHealthcare), and is also affiliated with a pharmacy or pharmacies (Caremark/CVS/CVS Specialty; Express Scripts/Accredo; OptumRx/Avella/Briova/Diplomat/Optum Specialty). These PBMs also created a complex web of vertically integrated rebate aggregators (pictured below).
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Why was the FTC considering this action?
Anti-competitive behavior by PBMs is a matter of bipartisan concern. PBMs own pharmacies which then compete with independent pharmacies for business. As a result, PBMs have a conflict of interest when they control which pharmacies patients may use, and the reimbursement those pharmacies will receive, and ultimately have an influence on which pharmacies patients may choose. Moreover, as mentioned above, PBMs and their rebate aggregators create a “rebate wall” that is also correlated with the sharp increase in patients’ out-of-pocket expenses. Needless to say, high out-of-pocket expenses discourage patients from adhering to their medication regimen.
PBM activity in the drug channels space has recently gained significant political attention. On December 6, 2021, Senator Ron Wyden, Chairman of the Committee on Finance, wrote a letter to the FTC expressing concern over growing consolidation among payors and especially vertical integration of PBMs and associated pharmacies. On December 10, 2021, and following a hearing on the matter, the House Oversight Committee Minority staff issued a report on the role of PBMs, noting among other things the anti-competitive effect of vertical consolidation. All of this follows the Biden Administration’s Executive Order on Competition, in which the Administration urged the FTC and other regulatory agencies to take action to enforce Antitrust laws.
What Happens Now?
Clearly, this is disappointing to industry stakeholders and patients seeking to hold PBMs accountable for their anti-competitive behavior. Unfortunately, the FTC has to date passed on numerous opportunities to examine PBM anti-competitive behavior. However, if the criticism levied by the two members who voted against the study can be addressed and consensus reached, perhaps the Commission will bring the matter to a vote at the next possible opportunity.
How can Frier Levitt Help?
Frier Levitt’s attorneys have unparalleled expertise on the subject of PBMs and continue to bring that experience to bear for our clients. We are actively involved in political and legislative matters on both the federal and state levels, and we have experienced attorneys who can handle PBM audits, contract negotiations, and litigation/arbitration. Please contact Frier Levitt today to learn more.
