Healthcare giant sues to stop antitrust investigation into pharmaceutical brokers

The following article was originally published in the Ohio Capital Journal and republished on News5Cleveland.com under a content-sharing agreement.

The owner of one of the three largest pharmaceutical brokers in the United States filed a lawsuit Sept. 16 to thwart an attempt by the Federal Trade Commission to investigate industry practices. But the lawsuit relies on research the healthcare conglomerate helped pay for and conducted by an economist who has enriched himself arguing for massive mergers.

The FTC in July issued a damning interim report that found that Cigna/Express Scripts, CVS Health and UnitedHealth Group apparently used their pharmacy benefit managers, or PBMs, to inflate drug prices and ultimately make patients worse off. In response, Cigna/Express Scripts sued, saying the FTC’s findings were “false and defamatory.”

The company is asking the United States District Court for Eastern Missouri to find that the FTC’s interim report is “not in the public interest,” vacate the report, and request that “FTC Chairwoman Linna M. Khan be disqualified from all Commission actions involving Express Scripts.”

The healthcare conglomerate — the 16th-largest company by revenue in the United States — argued that it and other large PBMs were actually lowering drug costs, pointing to research by an economist who has earned more than an estimated $100 million in his career arguing for megamergers.

PBMs owned by health care giants—CVS Caremark, Express Scripts and OptumRx—control about 80% of their market. They represent insurers in pharmacy deals, determining which drugs are covered. They create networks of pharmacies. And they use a secretive system to determine how much to reimburse pharmacies for the drugs they dispense.

For years their critics have accused them of conflict of interest.

Each PBM owns a mail-order pharmacy, and parent company CVS Caremark owns the largest brick-and-mortar retailer. So they use secret price lists to decide how much to reimburse their own pharmacies — and their competitors — for drugs.

As an example of the apparent arbitrariness of PBM pricing, a recent analysis of Medicare data found that CVS-owned plans paid 501 different prices for the same drug.

Also controversial are the practices of large PBMs regarding brand-name drugs, which are typically covered by patents and much more expensive than generics. Because the middlemen control access to so many patients, the manufacturers of such drugs have strong incentives to pay large rebates to PBMs in exchange for getting their products on covered drug lists or formularies, and for their drugs to have the lowest copays.

Research has shown that increases in often secret discounts correlate with even larger increases in the list prices of drugs. There are also concerns that as conglomerates increasingly own middlemen, pharmacies, health insurers and suppliers such as doctor’s offices, they are using such “vertical integration” to unfairly favor their various business units over their competitors.

An FTC interim report at the center of the Express Scripts lawsuit finds that healthcare companies are using their size and reach to harm consumers.

In its lawsuit, Express Scripts argued that it and other large PBMs actually helped consumers by using their power to squeeze discounts from drugmakers. “They have saved plan sponsors and their members tens of billions of dollars in drug costs over the past decade,” the lawsuit alleges.

As evidence, he cites a 17-page report titled “An Economic Analysis of Criticisms Against Pharmaceutical Benefits Managers.”

The report disputes that rebates and other PBM practices raise drug costs, as critics claim. Tellingly, it says the studies are funded by the same people the FTC is investigating — Cigna/Express Scripts, United Group/OptumRx and CVS/Caremark.

And it was done by Compass Lexecon, an organization that pays huge sums to scientists who repeatedly write papers supporting big mergers, a 2016 ProPublica investigation found.

By claiming that such mergers create “efficiencies” that benefit consumers, the authors have a conflict of interest, the investigation shows. The researchers “have transformed their field with scholarly work showing that mergers create efficiencies of scale that benefit consumers,” the investigation found. “But they reap their most lucrative paydays by lending their academic authority to mergers proposed by their corporate clients.”

In the case of the study cited in the FTC lawsuit, the author was University of Chicago economist Dennis W. Carlton. A ProPublica investigation uncovered evidence that he charged at least $1,350 an hour for such work and estimated that he had earned more than $100 million during his merger-supporting career. And that was eight years ago.

Meanwhile, it is becoming increasingly difficult for poor and disabled people to find a pharmacy.

“In the face of increasing vertical integration and concentration, these powerful middlemen can profit by inflating drug prices and squeezing money out of main street pharmacies,” reads the executive summary of the FTC report, which Express Scripts seeks to overturn.

Independent and small pharmacies have been closing for years, with many citing the practices of large PBMs as the reason. That has raised concerns that pharmacy deserts could proliferate, making it difficult or impossible for people without transportation to see a doctor and discuss medications and chronic conditions like diabetes or high blood pressure.

Those concerns intensified with the announcement this year that Rite Aid and Walgreens planned to close thousands of pharmacies — including hundreds in Ohio and Michigan. Dave Burke, executive director of the Ohio Pharmacists Association, said the announcement of Walgreens’ closure particularly concerned him that PBM practices were making the pharmacy business unsustainable.