FTC sues pharmacy benefit managers over insulin pricing

WASHINGTON, D.C., UNITED STATES—The Federal Trade Commission (FTC) launched a lawsuit against major pharmacy benefit managers (PBMs) for allegedly engaging in anticompetitive practices that have inflated insulin prices.
The lawsuit targets Optum Rx, Express Scripts, and Caremark, which are integrated with UnitedHealth Group, Cigna, and CVS Health, respectively.
The FTC claims these companies manipulated the pharmaceutical supply chain to favor their interests, resulting in higher costs for patients reliant on life-saving insulin.
Allegations of rigged competition and high rebates
According to the FTC’s complaint, PBMs established a system where drug manufacturers compete for formulary placement by increasing drug list prices to meet the high rebate demands of PBMs.
Rahul Rao, Deputy Director of the FTC Bureau of Competition, stated that this system generates substantial rebates and fees for PBMs.
“This perverse system results in billions of dollars in rebates and fees for the PBMs and their health plan sponsor clients—but does so at the expense of certain vulnerable diabetic patients who must pay significantly more out-of-pocket for their critical medications,” he added.
The lawsuit also implicates group purchasing organizations linked to these PBMs, including Emisar Pharma Services (UnitedHealth), Ascent Health Services (Cigna), and Zinc Health Services (CVS Health).
Impact on patients and potential manufacturer involvement
The FTC contends that the emphasis on securing high rebates has resulted in the exclusion of lower-cost insulin options from formularies. This strategy boosts profits for PBMs but simultaneously imposes higher financial burdens on patients who need these essential medications.
Although the lawsuit primarily targets insulin pricing, the underlying practices extend to other drugs as well. The FTC aims to significantly reduce drug list prices and reform formulary and rebate practices, hoping that successful legal outcomes will eventually lower consumers’ health insurance premiums.
The agency’s internal investigation has also suggested potential misconduct by insulin manufacturers such as Eli Lilly, Sanofi, and Novo Nordisk, indicating that further legal actions might be warranted.
These companies have reportedly increased their drug list prices in response to the high rebate demands from PBMs. For instance, Rao said that the price of Lilly’s Humalog has surged by 1,200% from 1999 to 2017.
Industry response
White House Press Secretary Karine Jean-Pierre stated that while the Biden administration has not commented on the lawsuit specifically, it maintains that no one should face inflated prices due to “corporate greed.”
Meanwhile, dismissed the lawsuit as “unsubstantiated,” suggesting it might lead to higher drug costs for employers and unions. Optum also criticized the legal action as a “profound misunderstanding.”
Similarly, the Pharmaceutical Care Management Association (PCMA) accused the FTC of harboring an anti-PBM agenda, arguing that rebates are not directly linked to higher list prices. The PCMA also contended that the lawsuit overlooks the positive strides made by PBMs in making insulin more affordable through competitive strategies.
“In contrast to the rhetoric, the current insulin market is actually working, with PBMs effectively leveraging greater competition to drive down insulin prices and doing their part to make insulin affordable for patients through innovative programs,” PCMA stated.
The group says the average out-of-pocket cost for a monthly supply of insulin has decreased from $25.79 in 2019 to $18.64 last year.
GPOs and BPOs in PBM operations
PBMs have increasingly turned to group purchasing organizations (GPOs) to handle drug rebate negotiations with manufacturers. These organizations use their collective buying power to secure favorable deals, primarily through rebates, which are then distributed by PBMs to plan sponsors.
While this allows PBMs to concentrate on other operational areas and benefit from savings, it can also reduce transparency in how rebates are distributed. GPOs might retain some rebates, complicating financial interactions among PBMs, manufacturers, and plan sponsors.
Business process outsourcing (BPO) providers are also becoming vital for enhancing efficiency and innovation within PBM operations. By outsourcing tasks like claims processing and data analytics, PBMs can streamline processes and focus on core functions.
This strategy not only cuts operational costs but also enhances service delivery and regulatory compliance. Outsourcing non-essential functions enables PBMs to allocate resources more effectively, potentially improving patient outcomes and reducing costs.
Implications for insulin pricing
The FTC’s lawsuit against PBMs underscores concerns about how these outsourcing practices might contribute to higher insulin prices. The involvement of GPOs and BPOs in negotiating and managing drug pricing can create layers of complexity that obscure transparency and accountability.
As PBMs outsource critical functions, questions arise about whether these practices prioritize cost savings for patients or profit maximization for companies involved in the supply chain.
Overall, while outsourcing can drive efficiency and innovation within the PBM industry, it also poses challenges related to transparency and equitable pricing strategies. The FTC’s legal action seeks to address these issues by scrutinizing how such practices impact insulin prices and patient access to affordable medications.
Future implications and regulatory actions
The FTC’s action aims to lower drug list prices and reform rebate practices. While the immediate focus is on insulin, successful legal outcomes could lead to broader regulatory changes affecting health premiums and drug pricing structures.
The commission’s decision to file an administrative complaint was unanimous among participating commissioners, signaling a strong stance against perceived monopolistic practices in the pharmaceutical industry.
As the complaint undergoes redaction, stakeholders across the healthcare sector are closely monitoring potential shifts in regulatory landscapes that could reshape how medications like insulin are priced and accessed.