The FTC’s role in regulating prescription drugs: 2000–2022

From 2002 to 2022, the Federal Trade Commission (FTC) conducted an average of 1 enforcement action and 3 merger actions per year, demonstrating what researchers say is a weak hand in regulating competition and consolidation in the prescription drug market.¹

The FTC is an independent government agency that oversees the nation’s consumer rights and promotes competition in relevant markets. However, when it comes to the pharmaceutical industry, the FTC is known for being lax in its regulation.

“Historically, the FTC has not played an aggressive role in overseeing the pharmaceutical market, although the question of when oversight is warranted is a matter of debate. However, there are signs that the FTC’s approach may be changing; In recent years, the FTC has initiated an investigation into PBMs, held a workshop with the U.S. Department of Justice on regulatory oversight of the pharmaceutical industry, and challenged more than 100 manufacturer patents as improperly listed on the (FDA),” the authors wrote.¹

Key takeaways

• The researchers analyzed mergers and FTC enforcement activities from 2002 to 2022.
• They found a total of 22 enforcement actions, 62 merger actions, and 1 regulatory change over a 22-year period.
• Researchers agreed that the FTC needs more power to regulate the pharmaceutical industry.

Even though the FTC’s regulatory powers were considered “powerful,”¹ it has done little to make a difference in the prescription drug market. While recent actions have shown an increase in the group’s regulatory power over prescription drug players, market consolidation and a lack of competition continue to reign supreme in the battle between government regulators and Big Pharma.

On June 7, 2022, the FTC announced that it was opening an investigation into six of the largest pharmacy benefit managers (PBMs). After searching records about the business practices of companies such as CVS Caremark and Express Scripts, the FTC’s investigation aimed to examine and quantify the impact of PBMs on prescription drug affordability.²

However, this year the investigation stalled. “Despite the urgency and focus of the FTC’s work, the results of the agency’s investigation were delayed because PBMs did not fully comply with FTC orders to turn over documents and data.”³

In Daval et al.’s study, researchers referenced FTC data from the organization’s online Law Library and the FTC’s 2023 Report on Pharmaceutical Actions. To quantify the FTC’s actions, researchers divided them into 3 categories: enforcement actions against manufacturers, merger actions involving consolidation of pharmaceutical entities, and regulatory changes targeting pharmaceutical companies.

“A total of 92 legal proceedings initiated or terminated by the FTC between January 2000 and December 2022 were identified related to the pharmaceutical market. In 85 (92%) cases, the defendant was a pharmaceutical manufacturer and in the remaining 7 (8%) cases – pharmacies. Of the 85 in which manufacturers participated, 22 (26%) were enforcement actions, 62 (73%) were merger actions, and 1 (1%) were rule actions,” they wrote.¹

Observing 22 enforcement actions taken by the FTC, cases of alleged abuse were divided into 4 mutually non-exclusive categories: patent settlements (n=11), unilateral delays (n=6), non-competition agreements (n=4), and monopolization ( n=3).¹

In the case of patent dispute resolution, the FTC found that manufacturers of branded products provided value to generic manufacturers in exchange for resolving or avoiding disputes, as well as delaying generic competition. Manufacturers of branded products made unilateral efforts to further delay generic competition, and the text of the 4 non-compete agreements provided for “cessation of competition, shifting of all sales to one party and sharing of revenues,” the authors wrote.¹

Further emphasizing the FTC’s weak hand in controlling market consolidation, 61 of 62 drug company mergers were completed, and only 1 merger was abandoned. However, the FTC was able to enforce enforcement of 58 of the 61 settlements requiring drug divestitures.

“Divestiture requirements often included provisions designed to ensure the competitiveness of the divested drug, including providing the drug until a competitor could produce it, assisting the competitor in obtaining FDA approval, and assisting in completing clinical trials,” they continued.¹ “In total, the FTC requested divestment of 332 drugs, including 38 (11%) approved brand-name drugs, 184 (55%) approved generic drugs, 15 (5%) investigational new drugs, and 95 (29%) generic drugs in development. “

The only rule change the FTC made in 2013 “amended existing pre-merger notification rules by designating certain patent rights as reportable assets for antitrust review.”

Since the FTC only took action on 61 mergers between 2000 and 2022, this confirms the group’s inability to actually stop the expanded consolidation of the pharmaceutical market. In the first quarter of 2024 alone, there were 430 mergers and acquisitions worth $68.8 billion.⁴

While the FTC cannot regulate everything that happens in the corporate atmosphere of the pharmaceutical industry, researchers suggest that Congress should step in to restore even greater regulatory powers to the FTC.

“While the FTC faces significant legal and practical constraints, tools such as rulemaking to define unfair business practices remain unproven and may allow the FTC to better prevent recurring patterns of anticompetitive behavior. “In light of the barriers facing the FTC, including its limited enforcement capabilities, Congress may need to strengthen the FTC’s hand to reduce the burden of pharmaceutical industry consolidation and unfair practices burdening the health care system and patients,” the authors conclude.¹

READ MORE: Government and industry leaders address growing problem of PBM practices

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Bibliography

1. Daval CJR, Egilman AC, Sarpatwari A, Kesselheim AS. Federal Trade Commission Prescription Drug Actions, 2000-2022. CAVITY. Published online May 20, 2024 doi:10.1001/jama.2024.5737

2. The FTC launches an investigation into the prescription drug brokerage industry. FTC. June 7, 2022. Accessed: May 23, 2024. https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-launches-inquiry-prescription-drug-middlemen-industry

3. The FTC continues to investigate PBM practices. Epstein Becker’s Green Law. March 21, 2024. Accessed May 23, 2024. https://www.ebglaw.com/insights/publications/ftc-continues-investigation-into-pbm-practices

4. M&A activity in the pharmaceutical industry declined in 2023. Pharmaceutical technology. June 1, 2023. Accessed May 23, 2024. https://www.pharmaceutical-technology.com/data-insights/global-ma-activity-pharmaceutical-industry/?cf-view