Federal Trade Commission sues largest drug middlemen for allegedly inflating insulin prices

By Tami Luhby, CNN

(CNN) — The Federal Trade Commission took action Friday against the nation’s three largest pharmacy benefit managers, accusing the companies of artificially inflating insulin list prices that resulted in patients paying more for the medications.

The agency alleges that CVS Health’s Caremark Rx, Cigna’s Express Scripts and UnitedHealth Group’s Optum Rx and their affiliated group purchasing organizations created a system that prioritizes high rebates from drug manufacturers, leading to artificially high insulin list prices. The companies, known as PBMs, are accused of excluding available insulin products with lower prices — which could have been more affordable for patients — in favor of higher-priced insulins that provided higher rebates.

PBMs make money through rebates and fees, which are negotiated with drug manufacturers and are tied to a drug’s list price. Insulin products with higher list prices result in higher rebates and fees for the PBMs, the complaint alleges.

“Millions of Americans with diabetes need insulin to survive, yet for many of these vulnerable patients, their insulin drug costs have skyrocketed over the past decade thanks in part to powerful PBMs and their greed,” Rahul Rao, deputy director of the FTC’s Bureau of Competition, said in a statement. “Caremark, ESI, and Optum – as medication gatekeepers – have extracted millions of dollars off the backs of patients who need life-saving medications. The FTC’s administrative action seeks to put an end to the Big Three 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.”

The Cigna Group’s chief legal officer, Andrea Nelson, said that the agency’s action “continues a troubling pattern from the FTC of unsubstantiated and ideologically-driven attacks on pharmacy benefit managers” and that Express Scripts would defend itself.

“Once again, the FTC – a government agency funded by taxpayer dollars – is proving that the FTC does not understand drug pricing and instead is choosing to ignore the facts and score political points, rather than focus on its duty to protect consumers,” Nelson said in a statement, adding that if the agency succeeds, it will drive drug prices higher.

Optum Rx called the FTC’s suit “baseless,” saying “it demonstrates a profound misunderstanding of how drug pricing works.”

“For many years, Optum Rx has aggressively and successfully negotiated with drug manufacturers and taken additional actions to lower prescription insulin costs for our health plan customers and their members, who now pay an average of less than $18 per month for insulin,” Elizabeth Hoff, a company spokeswoman, said in a statement.

CVS Caremark said that it has made insulin more affordable and that to suggest otherwise, as the FTC has done, is “simply wrong.”

“Any action that limits the use of these PBM negotiating tools would reward the pharmaceutical industry and return the market to a broken state, leaving American businesses and patients at the mercy of the prices drugmakers set,” the company said in a statement.

The Pharmaceutical Care Management Association, the industry’s trade group, said PBMs are reducing insulin costs by leveraging greater competition.

“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 association said in a statement.

Market power

The high cost of drugs – including insulin – has long plagued many Americans. Presidents, lawmakers and regulators have called attention to the problem for years, but little has been done to substantially address it. The different players in the prescription drug supply chain – including manufacturers, PBMs and insurers – point fingers at one another as the cause of the high prices many patients struggle to afford.

In its complaint, the FTC alleges that PBMs followed a “chase-the-rebate strategy,” which led to soaring insulin list prices and made it harder for Americans to get the crucial medication. However, the agency also noted that its Bureau of Competition “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.”

Starting in 2012, PBMs began threatening to exclude certain medications from their formularies – the list of medications covered by a health insurance plan – unless drug manufacturers paid higher rebates, according to the complaint. That allegedly led drugmakers to increase list prices in order to provide higher rebates and fees and retain their formulary placement.

The practice particularly hurt patients whose insurance plans have deductibles and co-insurance, where policyholders have to pay a share of the cost rather than a flat charge, the FTC said. They often must pay the list price and don’t benefit from rebates.

Prior FTC inquiry

Friday’s action comes a little more than two months after the FTC published a scathing interim report on the PBM industry that followed a two-year inquiry. It detailed how increasing concentration enabled the three largest players to process nearly 80% of the roughly 6.6 billion prescriptions filled last year in the US – and to reap big profits.

“The FTC’s interim report lays out how dominant pharmacy benefit managers can hike the cost of drugs – including overcharging patients for cancer drugs,” FTC Chair Lina M. Khan said in a statement at the time. “The report also details how PBMs can squeeze independent pharmacies that many Americans – especially those in rural communities – depend on for essential care.”

Express Scripts filed a federal lawsuit in Missouri this week demanding that the commission retract the report, which the company called “unfair, biased, erroneous, and defamatory.” Express Scripts argues that PBMs have no control over list prices, which it says are set by manufacturers, and have no incentive to see such prices rise. Also, the company said it passes more than 95% of the rebates and fees it collects to its clients, including health insurers and employers.

“The FTC has taken unconstitutional actions in publishing a report that ignores the evidence provided by our company and other PBMs, demonstrates clear ideological bias and advances a false and damaging narrative – a narrative that could harm the health care system by removing essential checks and balances which would result in higher drug prices for American consumers,” Cigna’s Nelson said in a statement about that lawsuit.

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