The government’s antitrust watchdog on Friday sued three massive health conglomerates, accusing their drug middlemen of forcing insulin prices to skyrocket since 2012.
The Federal Trade Commission claims that the middlemen — known as pharmacy benefit managers, or PBMs — used their size to force patients to buy expensive versions of the life-saving drug by not covering cheaper versions.
“The FTC alleges that the three PBMs created a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices,” the agency said in a statement announcing the lawsuit. “The complaint charges that even when lower list price insulins became available that could have been more affordable for vulnerable patients, the PBMs systemically excluded them in favor of high list price, highly rebated insulin products. These strategies have allowed the (health conglomerates) to line their pockets while certain patients are forced to pay higher out-of-pocket costs for insulin medication, the FTC’s complaint alleges.”
Each of the three biggest PBMs — CVS Caremark, OptumRx, and Express Scripts — is owned by a company that also owns a major health insurer — Aetna, UnitedHealth and Cigna, respectively. They also own mail-order and retail pharmacies and health providers such as doctors’ offices.
Each of the conglomerates is among the 16 largest companies in the country, and together their PBMs control access to about 80% of insured patients when they get their medicine.
On behalf of insurers, the PBMs create pharmacy networks, reconcile transactions and determine how much to reimburse their own and competitor pharmacies for the drugs they dispense.
The FTC lawsuit focuses on another PBM function — deciding which drugs will be covered by insurance as they negotiate rebates and other discounts with the companies that make them. The system is often non-transparent and critics — including the FTC — say the conglomerates are pocketing much of the money.
For their part, the PBMs say they use their size to force drugmakers to cough up discounts that they pass along to their customers.
“The FTC’s action ignores significant progress PBMs have made lowering costs in the insulin market and is yet another example that the agency is running a biased investigation with predetermined anti-industry outcomes — driven by the self-serving agendas of special interests and designed to misrepresent the role and value of pharmacy benefit managers,” the Pharmaceutical Care Management Association, an industry group, said in response to the lawsuit.
It added, “This action not only fails to accurately consider the role of the entire prescription drug supply chain, but disregards positive progress, supported by PBMs, in making insulin more affordable for patients. 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.”
The FTC’s lawsuit wasn’t posted on its website as of Monday afternoon. But the statement announcing it said that by demanding ever-greater rebates from insulin makers, pharmacy benefit managers are dramatically increasing list prices and thus the cost of deductibles and coinsurance of many diabetic patients.
Because of rebates and other discounts, PBMs don’t pay list prices, but they’re often used to determine out-of-pocket charges at the pharmacy counter. A 2020 analysis by the University of California’s Schaeffer Center found that every $1 increase in rebates correlates to a $1.17 increase in list prices.
The FTC said that a change in PBM practices in 2012 led to skyrocketing insulin prices. Prior to that, their lists of covered drugs — or formularies — were relatively open to all comers, the statement said.
“According to the complaint, that changed when the PBMs, leveraging their size, began threatening to exclude certain drugs from the formulary to extract higher rebates from drug manufacturers in exchange for favorable formulary placement,” the FTC statement said. “Securing formulary coverage was critical for drug manufacturers to access patients with commercial health insurance, the FTC alleges.”
Insulin prices soared, in one case rising from $122.59 in 2012 to $289.36 in 2018, the statement said.
The FTC didn’t only criticize pharmacy middlemen, saying “PBMs are not the only potentially culpable actors — the Bureau also remains deeply troubled by the role drug manufacturers like Eli Lilly, Novo Nordisk, and Sanofi play in driving up list prices of life-saving medications like insulin. Indeed, all drug manufacturers should be on notice that their participation in the type of conduct challenged here raises serious concerns, and that the Bureau of Competition may recommend suing drug manufacturers in any future enforcement actions.”
The lawsuit comes as the FTC is conducting a major investigation into the practices of the big PBMs and the health conglomerates that own them. In July it issued a scathing interim report saying that the companies appeared to be engaged in anticompetitive practices that raised prices of medicine and hurt patients.
Last week, Express Scripts sued to stop the probe, claiming it was defamatory. To support its contention, that suit relies on industry-funded research that was done by an economist who has earned more than $100 million in a career of supporting mega-mergers.
Under the leadership of Chair Lina Khan, the FTC has been trying to turn the page on 40 years of lax antitrust enforcement.
Alvaro Bedoya, another commissioner, said that the primary goal of antitrust law in the United States is to treat consumers and small players in the marketplace fairly. But starting in the 1970s, some economists argued that the real goal is efficiency, and that larger players are often better able to do that. A long period of mergers followed.
In an interview that aired on CBS’s “60 Minutes” Sunday night, Khan was asked whether she agreed that huge players are more efficient than small ones. There has to be robust competition, she said.
“Even if those efficiencies arise, if the (merged) company is not checked by competition, it won’t have any incentive to pass those benefits on to the consumer because those consumers may not have anywhere else to go,” she said.
Asked if greed by large American corporations is responsible for some of our persistent post-pandemic inflation, Khan said there’s no doubt.
“We’ve seen some executives boast on earnings calls that inflation is great for their bottom line,” she said.
Ohio Capital Journal is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity.