Why the FTC Suit Against Drug Benefit Managers Is an Unusual Step

The Federal Trade Commission’s lawsuit against pharmacy benefits managers CVS, Cigna, and UnitedHealth and their affiliates alleges that rebate practices led to increased prices for insulin drugs—an atypical move due to the nature of the claims and a separate statement about the FTC’s decision not to sue drug manufacturers purportedly involved in the alleged misconduct.

Pharmacy benefits managers, or PBMs, facilitate prescription drug benefits on behalf of payers such as health insurers, employers, or labor unions. Most patients are enrolled in a third-party plan through the government or their individual insurance plan. The 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 co-pays to their pharmacy at the time a prescription is picked up. The PBM pays the remainder of the cost for a prescription to the pharmacy.

The FTC’s administrative complaint alleges the PBMs chose to exclude insulins with lower list prices in favor of insulins with higher rebates and higher list prices. In turn, this allegedly led to certain patients having to pay higher out-of-pocket costs for insulin medication.

The FTC’s administrative complaint raises more questions than it answers. Initially, it claims 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 brought separately, with different standards, procedures, and staff.

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

In the PBM complaint, however, the FTC alleges the same conduct is “unfair” under both parts of Section 5. Given the lack of precedent supporting such actions, it is unclear whether the FTC will succeed in proving both, especially if the administrative case reaches a federal court of appeals. An FTC staff press release accompanying the complaint clarifies its intention for this complaint to “ripple beyond the insulin market.” Understanding the nuances of this claim therefore will be critical for clients.

The FTC’s focus on list prices also is certain to raise questions over the actual harm and impact of the practices on consumers. Given how the pharmaceutical supply chain operates, most consumers don’t pay list prices 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 harms, if any, actually occurred to consumers who didn’t pay 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 points to Texas Department of Insurance data showing only 0.0002% of rebates are passed on directly to patients, it’s ambiguous how much of the rebates that go back to payers are used to lower overall plan costs.

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

Whether the FTC follows through on any of its identified “serious concerns” is unknown. If not, it will be interesting to see the impact of this rhetoric. A successful working relationship with third parties is crucial for any FTC action, and the FTC’s decision to make their concerns public while foregoing suit against the manufacturers creates a challenge for its staff to foster a cooperative relationship with integral third parties.

Finally, the FTC may also face collateral challenges to its administrative case. Unlike its sibling division at the Department of Justice, with whom it shares responsibility for antitrust enforcement, the FTC has brought in its in-house administrative court. Yet doing so raises real risk of constitutional challenges—as to the entire structure of the administrative court system, alleged bias of any of the commissioners that will sit as judges over the case at the initial stage of appeal, or to the structure of the FTC itself.

These concerns aren’t hypothetical: One of the PBMs targeted in the FTC’s suit already started its offensive by bringing suit for defamation against the FTC recently in response to its recent drug pricing report.

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

Author Information

David B. Schwartz is partner at Bryan Cave Leighton Paisner. He worked on this matter while he was at the FTC, but this article is solely based on publicly available information.

Rebecca Nelson is partner at Bryan Cave Leighton Paisner and works with clients to understand their business and industry conditions.

Stephen Scannell is an associate at Bryan Cave Leighton Paisner.

Emilee Hargis contributed to this article.

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