The Federal Trade Commission (FTC) has amplified its public presence over the past couple of months. In July, the FTC released a report on practices of pharmacy benefit managers (PBMs), which I myself thought to be of little value. It seemed to be nothing more than a basic explanation of the PBM model, specifically the rebates and the drug pricing spread that the industry uses for profit. I may have underestimated the agency’s new resolve.
Last week, the FTC took the war on PBM practices up a notch. On September 20, it announced a lawsuit against the big 3 PBMs for “creating a broken rebate system that inflated insulin drug prices, boosting PBM profits at the expense of vulnerable patients.” In a well-timed bit of media savvy, the agency took the case to the American people as part of the September 22nd episode of 60 Minutes.
The FTC’s more-aggressive stance on the PBM industry may signal decision making regarding mergers and acquisitions involving large health care systems, which has been occurring frequently over the past 20 years. The FTC Commissioner Lina Kahn admitted on 60 Minutes that it has not sufficiently scrutinized the anticompetitive effects of this consolidation.
Express Scripts objected to the way the FTC characterized its business practices in the July report, suing the FTC for “unsubstantiated, false, and biased claims about the PBM industry.” It is very easy at this point, after years of rebates, to be skeptical of their perspective. (Of course, we do understand that pharmaceutical companies bear much responsibility for rising drug costs in the US.)
I’m fairly certain that sympathy for PBMs today is limited. As we’ve outlined often in the past, the PBMs are principally responsible for the dismal uptake of adalimumab biosimilars in 2023. They seemed to be most motivated to encourage biosimilar uptake only after reaching co-branding or private-labeling agreements, where they have an opportunity to earn additional revenue.
The FTC’s interest and action on the PBMs’ treatment of insulin products, where it favored high-priced drugs over lower price products so that they may obtain more rebate revenue, may serve notice on rebating practices for other drugs. How many times have we hoped that rebate contracts would be addressed so that the market competition from biosimilars would work as intended? This actually goes beyond the first Trump administration, and congressional hearings that sought to revisit the rebate safe harbor regulations that has long been in effect. Rahul Rao, Deputy Director of the FTC’s Bureau of Competition, stated, “The FTC’s administrative action seeks to put an end to the Big 3 PBMs’ exploitative conduct and marks an important step in fixing a broken system—a fix that could ripple beyond the insulin market and restore healthy competition to drive down drug prices for consumers.”
It makes little difference to Commissioner Khan and the US health care system that the price of insulin is being capped at $35 per month after heavy scrutiny on manufacturers and PBMs and finally legislation. The PBMs, payers, and their self-insured employer clients must change their approach to net pricing and avoid the tantalizing rebate revenue that they value so greatly.
In one of my next posts, I’ll speak to another insidious mechanism by which rebates are costing the health system, patients, and employers, just to continue to bolster the revenue of a pharmaceutical company.
