Let the Litigation Against Pharmacy Benefit Managers Begin!

Perhaps you recall that on June 7, 2022, the U.S. Federal Trade Commission (FTC), which is required by law to be staffed with Commissioners appointed from both major political parties, voted unanimously (see https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-launches-inquiry-prescription-drug-middlemen-industry for details) to initiate a comprehensive 6(b) study on the Impact of Vertically Integrated Pharmacy Benefit Managers on the Access and Affordability of Medicine (FTC Matter No. P221200). The study almost never happened, but ultimately with the Senate confirmation of FTC Commissioner Alvaro Bedoya who was sworn in on May 16, 2022, that study formally began. Then we did not hear much more as the FTC began the earnest work of collecting data and studying what was happening.

That was until July 10, 2024, when we got news from the (Murdoch-owned) Wall Street Journal ("WSJ" if you subscribe, you can view the article at https://www.wsj.com/health/pharma/ftc-to-sue-drug-managers-over-insulin-prices-b46af71f but it requires a paid subscription to read the entirety of the article) that the FTC intends to sue the largest Pharmacy Benefit Managers (PBMs). Because the WSJ article is hidden behind a paywall, instead I relied upon Politico's FREE article (see https://www.politico.com/news/2024/07/10/ftc-pharmacy-insulin-drug-00167342 for the Politico article) on the same topic. 

In recent years, the Wall Street Journal has been on something of a crusade to discredit the Federal Trade Commission because as a bipartisan organization, its move to protect competition threatens the existence of monopolies. That said, there was really nothing in the very short WSJ article which was really opinion-based as many of the WSJ's various anti-FTC articles in recent years have been (the article was not an opinion-based diatribe as if the FTC was somehow overreaching; rather this particular WSJ stuck pretty much to the facts). 

Politico's article reports: "A lawsuit could be filed as soon as this month, said the four people, granted anonymity to discuss a confidential matter, though no final decision has been made." 

Just two days earlier (on July 8, 2024), the FTC published an "interim report" (see https://www.ftc.gov/reports/pharmacy-benefit-managers-report for access to the interim report) "on the prescription drug middleman industry that underscores the impact pharmacy benefit managers (PBMs) have on the accessibility and affordability of prescription drugs". Interim reports are somewhat atypical, but not completely unheard of from government agencies. In the case of the FTC, it likely means the Commission intends to sue. The decision to publish an interim report rather than the full report is attributed, in part, because the biggest PBMs have refused to supply the data the FTC subpoenaed from them in the first place. The biggest PBMs have a LOT they would prefer to keep hidden.

As for the FTC's legal authorities to require data, former FTC Commissioner Rohit Chopra (before he resigned to accept a more senior position leading the Consumer Financial Protection Bureau "CFPB") said it best when he wrote: "FTC orders are not suggestions." 

In fact, federal law has long recognized that FTC as the only government entity which is explicitly, legally-entitled to subpoena information without having a specific law enforcement intent; there is considerable legal precedent upholding that. But big PBMs have long behaved in a lawless manner, relying on a peculiar "safe harbor exemption" to the Federal Antikickback Statute and the industry trade organization known as the Pharmaceutical Care Management Association (PCMA) has sued relentlessly to preserve that special exemption from laws which prohibit commercial bribery. Unfortunately, lawmakers seem vaguely clueless about their own role in enabling that lawless behavior, but it is clear that there is a long history of bipartisan wrongdoing due to willful ignorance about the actions of both political parties.

And yet, CVS Health/Caremark (Aetna), United Healthcare's OptumRx and Cigna's Express Scripts have been the biggest hold-outs by refusing to comply with the FTC subpoenas for data or only providing pieces of data instead of all that was demanded. 

Which is a good reason to believe the FTC is likely to sue them soon. But the point about insulin prices kind of explains why that could become a centerpiece of the litigation. The reason is because a robust public data-set already exists for prices in the insulin therapeutic class of drugs. Right now executives from the big three PBMs should be worried the FTC will WIN its pending lawsuit. A victory there would no doubt make it easier to break-up the vertically-integrated (with commercial healthcare insurance companies) PBMs.

Think about what it means when businesses must rely upon a special "safe-harbor exemption" to a bribery law as the PBMs now do; it seems clear that the PBMs are merely attempting to delay the inevitable.

According to the July 10, 2024 article(s), the FTC intends to sue CVS Caremark, Express Scripts and OptumRx over their "negotiating tactics" for drugs in the insulin therapeutic class of drugs specifically. We will have to wait until a lawsuit has been legally filed to read the details, but it seems very clear that sufficient data is already known about PBM game-playing on insulin (including from the Senate Finance Committee as well as University of Southern California researchers, as well as the U.S. Office of Inspector General also found that PBMs were wrongly screwing U.S. taxpayers out of money they are entitled to) and all of that it could potentially be applied to and submitted to the Court for the litigation (and indeed on virtually any drug or device sold by retail pharmacies) even if the PBMs fail to supply the data they are withholding. The reason is because data exists in the public domain about the PBM impact on insulin prices which FTC can use instead. So, for now, the FTC will sue over insulin. A victory there would likely boost cases down the road to force big insurance companies to choose between their health insurance businesses or their PBM businesses leading to divestitures of one or the other.

Recall that back on March 4, 2024, FTC Chair Lina Khan spoke at a White House Roundtable on PBMs (see her prepared remarks at https://www.ftc.gov/system/files/ftc_gov/pdf/2024.03.04-chair-khan-remarks-at-the-white-house-roundtable-on-pbms.pdf for more) stated unequivocally: "So far, the PBMs have not fully complied with our orders to turn over documents and data. FTC orders are not suggestions, and we won't hesitate to use the full extent of our legal authorities to mandate compliance."

According to the WSJ, Politico and Axios among others, the FTC intends to sue the three largest PBMs for "allegedly using negotiating tactics to steer patients to use more expensive drugs" which is a violation of the FTC Act, the Sherman Act, and the Clayton Act to name a few. It may also violate other laws. Perhaps unsurprisingly, insulin was cited as a specific example, with markups on that becoming a poster-child for a dysfunctional market in recent years.

FTC is unique in that by law, it is required to be staffed in a bipartisan manner, consisting of Commissioners from both major political parties. Commissioners serve seven year terms although their terms can potentially be renewed by Congress. Oddly, two of the FTC Commissioners named by Donald Trump (Noah Philips and Christine Wilson) both resigned, which left President Biden in a unique position to name the Republican Commissioners of HIS own choosing. So far, the Senate has been in no particular hurry to confirm the Biden-named Republican FTC replacement Commissioners even if doing so could assist the Commission's longer-term goals by ensuring the selection of FTC Commissioners who take the role of genuine antitrust enforcement seriously, rather than being little more than undisciplined partisan hacks whose only aim is to stymie anything FTC aims to do, which apparently was all the Trump-named FTC Commissioners aimed to do.

As the Guardian author and research director of the American Economic Liberties Project (see https://www.theguardian.com/us-news/2024/mar/09/lina-khan-federal-trade-commission-antitrust-monopolies for the article) eloquently wrote:

"Charged with enforcing antitrust law and promoting consumer protection, the FTC is nominally the regulator charged with stopping deals that will harm consumers. But under successive administrations – Republican and Democratic – some critics charge the FTC stood by as industry after industry consolidated power in the hands of fewer and fewer companies."

The steady monopolization of market after market arguably began during the Reagan administration, but for the past 40 years, as one industry after another has consolidated, it has really been only in more recent years that average Americans have really suffered direct consequences of a failed, ideological policy decision which had prevailed for 40 years. But it is also the reason for consumer price inflation at the supermarket has occurred in spite of economic data that would suggest inflation should not really exist. Instead, massive supermarket retailers have steadily raised their prices on goods Americans buy in order to meet their quarterly earnings numbers even while their cost of acquiring goods have fallen.

In the supermarket space, for example, in February 2024, the FTC joined with the attorneys general of a number of states and sued to block the largest proposed supermarket merger in U.S. history — Kroger Company's $24.6 billion acquisition of the Albertsons Companies, Inc. — alleging that the deal was anticompetitive. The FTC actually filed two cases against the Kroger acquisition, including one with the State of Oregon's Attorney General against that acquisition.

Monopolists do not like antitrust enforcement (see the American Economics Liberty Project's tracking of the Wall Street Journal articles against FTC Chair Lina Khan at https://www.economicliberties.us/press-release/economic-liberties-launches-new-tracker-exposing-wsjs-unhealthy-obsession-with-chair-lina-khan/ for more), but it can indeed be very effective when the antitrust laws are actually enforced. Some companies (including in the pharmaceutical space) have opted to call off their planned mergers, while others decided to fight the legal challenges against their acquisitions/mergers in court. Beyond that, however, is the underlying message that antitrust enforcement has potential to work, if and when the federal government actually chooses to enforce antitrust laws (including the Clayton Act, the Sherman Act and the FTC Act) which are already on the books.

The litigation on the PBMs is likely to be one such example (hopefully we will see more when the lawsuit happens). The insurance company-owned PBMs (with CVS Health's acquisition of Aetna being an ever-so-slight role-reversal) will fight to delay this as long as possible.