Why the FTC’s lawsuit against pharmacy benefit managers is an unusual step

The Federal Trade Commission’s lawsuit against pharmacy benefit managers CVS, Cigna and UnitedHealth and their subsidiaries alleges that discounting practices led to increased prices for insulin drugs – an atypical move due to the nature of the claims and a separate statement on the FTC’s decision not to do so. sue drug manufacturers allegedly involved in the alleged misconduct.

Pharmacy benefit managers, or PBMs, facilitate prescription drug benefits on behalf of payers such as health insurers, employers or unions. Most patients are enrolled in a third-party plan through the government or their individual insurance plan. Payers rely on PBMs to manage the process and payments to pharmacies on behalf of the payer’s insured patients.

Patients pay for their prescription benefits through premiums to their health plans, deductibles and a co-pay to their pharmacy at the time a prescription is picked up. The PBM pays the remainder of the cost of a prescription at the pharmacy.

The FTC’s administrative complaint alleges that PBMs chose to exclude insulins with lower list prices in favor of insulins with higher discounts and higher list prices. In turn, this would have led to some patients having to pay higher out-of-pocket costs for their insulin medications.

The FTC’s administrative complaint raises more questions than it answers. First, it asserts that the PBMs engaged in both “unfair methods of competition” and “unfair acts and practices” under Section 5 of the FTC Act. Normally, these claims are filed separately, with different standards, procedures and staff.

For example, different FTC offices filed federal court cases against Amazon last year, one for violating antitrust laws (including unfair methods of competition) and one for violating consumer protection laws ( including unfair acts or practices).

However, in PBM’s complaint, the FTC alleges that the same conduct is “unfair” within the meaning of both parts of Section 5. Given the lack of precedent supporting such actions, it is not clear whether the FTC will succeed in proving both, especially if the administrative case reaches a federal appeals court. An FTC staff press release accompanying the complaint clarifies its intent for this complaint to “spread beyond the insulin market.” Understanding the nuances of this statement will therefore be essential for customers.

The FTC’s focus on list prices will certainly also raise questions about the actual harm and impact of these practices on consumers. Given the way the pharmaceutical supply chain works, most consumers do not pay list price for their prescription drugs. While the FTC focuses on patients with high-deductible health plans and those without insurance, it is unclear whether and how the FTC will demonstrate what harm, if any, was actually caused to consumers who do not did not pay the list price.

The question of what percentage of savings from rebates is passed on to payers and, in turn, patients, is also likely to be hotly contested. While the FTC’s complaint references Texas Department of Insurance data showing that only 0.0002% of rebates are passed directly to patients, it is ambiguous to what extent rebates that accrue to payers are used to reduce overall plan costs.

Next, the FTC’s separate statement explains that it “exercised its discretion” in not including the drugmakers in its action, although it was “troubled” by their behavior. This is a surprising action. Normally, if other actors in a supply chain are involved in allegedly illegal behavior, the FTC sues those actors, enters into consent decrees with them, or leaves them as a third party.

It is unclear whether the FTC is acting on any of its identified “serious concerns.” If not, it will be interesting to see the impact of this rhetoric. A successful working relationship with third parties is crucial to any FTC action, and the FTC’s decision to make its concerns public while forgoing lawsuits against manufacturers creates a challenge for its staff to foster a cooperative relationship with third parties in their own right.

Finally, the FTC could also face collateral challenges to its administrative record. Unlike its sister division of the Justice Department, with which it shares responsibility for antitrust enforcement, the FTC has appealed to its internal administrative tribunal. Yet this raises a real risk of constitutional challenges – regarding the entire structure of the administrative justice system, the alleged bias of one of the commissioners who will sit as judges in the case at the initial appeal stage, or the structure of the FTC. himself.

These concerns are not hypothetical: One of the PBMs targeted by the FTC’s suit has already begun its offensive by recently filing a defamation suit against the FTC in response to its recent report on drug prices.

This article does not necessarily reflect the views of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author information

David B. Schwartz is a partner at Bryan Cave Leighton Paisner. He worked on this topic while at the FTC, but this article is based only on publicly available information.

Rebecca Nelson is a partner at Bryan Cave Leighton Paisner and works with clients to understand the state of their business and industry.

Stephen Scannell is a partner at Bryan Cave Leighton Paisner.

Emilee Hargis contributed to this article.

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