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

The Federal Trade Commission’s lawsuit against pharmacy fund managers CVS, Cigna and UnitedHealth and their affiliates alleged that discounting practices led to higher prices for insulin drugs – an unusual move given the nature of the claims and a separate statement regarding the FTC’s decision not to sue drug manufacturers allegedly involved in the alleged misconduct.

Pharmacy benefit managers (PBMs) facilitate the provision of prescription drugs on behalf of payers such as health insurers, employers, or labor unions. Most patients are covered by a third-party plan through the government or through an 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 prescription benefits through health plan premiums, deductibles, and pharmacy co-pays when they collect their prescription. The remaining portion of the cost of filling the prescription is covered by the PBM at the pharmacy.

The administrative complaint filed by the FTC alleges that PBMs have chosen to exclude insulins with lower list prices in favor of insulins with higher discounts and higher list prices. This, in turn, allegedly led to some patients having to pay higher out-of-pocket costs for their insulin treatment.

The FTC’s administrative complaint raises more questions than answers. It initially claims that PBMs engage in both “unfair methods of competition” and “unfair acts and practices” under Section 5 of the FTC Act. Typically, these claims are brought separately, using different standards, procedures and personnel.

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

However, in the PBM complaint, the FTC alleges that the same conduct is “unfair” under both parts of Section 5. Given the lack of precedent justifying such actions, it is unclear whether the FTC will succeed in proving both, especially if an administrative case reaches the federal appeals court. An FTC staff press release accompanying the complaint explains the intent for this complaint to “flow beyond the insulin market.” Understanding the nuances of this claim will therefore be crucial for customers.

The FTC’s focus on list prices certainly raises questions about the actual harms and impact of the practices on consumers. Given the way the pharmaceutical supply chain works, most consumers do not pay list prices for prescription drugs. While the FTC is focused on patients covered by high-deductible health plans and those without insurance, it is unclear whether or how the FTC will show what harm, if any, actually suffered to consumers who did not pay the list price.

The question of what percentage of savings obtained from rebates goes to payers, and therefore to patients, is also hotly debated. While the FTC complaint points to Texas Department of Insurance data showing that only 0.0002% of rebates are passed on directly to patients, it is unclear how much of the rebates that go back to payers are used to lower overall plan costs.

Then, in a separate statement, the FTC explained that it had “exercised its discretion” by not including the drugmakers in its lawsuit, even though it was “concerned” by their conduct. This is a surprising action. Typically, if other players in the supply chain are engaged in allegedly illegal conduct, the FTC either sues those players, enters into consent decrees with them, or retains them as third parties.

It’s unclear whether the FTC will address any of the “serious concerns” identified. If not, it will be interesting to see the impact of this rhetoric. Successful working relationships with third parties are critical to any FTC action, and the FTC’s decision to go public with its concerns and drop its lawsuit against manufacturers creates a challenge for its staff to foster collaborative relationships with integral third parties.

Finally, the FTC may also face additional challenges in its administrative case. Unlike its sister division at the Justice Department, with which it shares antitrust enforcement responsibility, the FTC established its own internal administrative court. However, this raises a real risk of constitutional challenges – regarding the entire structure of the administrative justice system, the alleged bias of any of the commissioners who will judge the case at the initial appeal stage, or the structure of the FTC itself.

These concerns are not hypothetical: One of the PBMs targeted in the FTC lawsuit has already gone on the offensive, recently filing a defamation lawsuit against the FTC in response to its recent drug pricing report.

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

Information about the author

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

Rebecca Nelson is a 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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