Federal Trade Commission sues major drug brokers for allegedly exaggerating insulin prices

CNN
—

The Federal Trade Commission (FTC) on Friday took action against the country's three largest pharmacy benefit managers, accusing the companies of artificially inflating list prices for insulin, causing patients to pay more for the drugs.

The agency alleges that CVS Health's Caremark Rx, Cigna's Express Scripts and UnitedHealth Group's Optum Rx and their affiliated purchasing organizations created a system that favored deep discounts from drug manufacturers, resulting in artificially high list prices for insulin. The companies, known as PBMs, are accused of excluding available insulin products with lower prices – which would have been more affordable for patients – in favor of more expensive insulins with higher discounts.

PBMs make their money through rebates and fees negotiated with drug manufacturers that are tied to a drug's list price. Insulin products with higher list prices result in higher rebates and fees for the PBMs, the lawsuit says.

“Millions of Americans with diabetes need insulin to survive, yet for many of these vulnerable patients, the cost of insulin medications has skyrocketed over the past decade, in part due 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 drug gatekeepers – have extorted millions of dollars off the backs of patients in need of life-saving medications. The FTC's administrative action is designed to put an end to the exploitative behavior of the three major PBMs and is an important step toward repairing a broken system – a repair that could have implications beyond the insulin market and restore healthy competition to lower drug prices for consumers.”

Andrea Nelson, general counsel for Cigna Group, said the agency's actions “continue a disturbing pattern of baseless and ideologically motivated attacks by the FTC on pharmacy benefit managers” and that Express Scripts will defend itself.

“Once again, the FTC – a government agency funded by taxpayer dollars – is proving that it doesn't understand drug pricing, preferring instead 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 up drug prices.

Optum Rx called the FTC's lawsuit “meritless” and said it “evidences a profound misunderstanding of how drug pricing works.”

“Optum Rx has negotiated aggressively and successfully with drug manufacturers for many years and taken additional steps to lower the cost of prescription insulin for our health insurance 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 it had made insulin more affordable and that the FTC's claim that this was not true was “simply false.”

“Any action restricting the use of these PBM negotiating tools would reward the pharmaceutical industry and return the market to a broken state. American companies and patients would then be at the mercy of prices set by drug manufacturers,” the company said in a statement.

According to the Pharmaceutical Care Management Association, the industry trade group, PBMs are lowering insulin costs by taking advantage of increased competition.

“The FTC's actions ignore the significant progress made by PBMs in reducing costs in the insulin market and are another example of the agency conducting 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.

The high cost of medications, including insulin, has long been a problem for many Americans. Presidents, lawmakers and regulators have been calling attention to the problem for years, but little has been done to truly solve it. The various players in the prescription drug supply chain, including manufacturers, PBMs and insurers, are blaming each other for high prices that many patients can barely afford.

In its complaint, the FTC alleges that PBMs engaged in a “discount-chasing strategy” that led to rising list prices for insulin and made it harder for Americans to obtain the vital drug. However, the agency also noted that its Bureau of Competition “remains deeply concerned about the role that drug manufacturers such as Eli Lilly, Novo Nordisk and Sanofi play in driving up the list prices of life-saving drugs such as insulin.”

Starting in 2012, PBMs threatened to exclude certain drugs from their drug lists – the list of drugs covered by health insurance plans – unless drugmakers paid higher rebates, the lawsuit says. This allegedly led drugmakers to raise their list prices so they could offer higher rebates and fees and maintain their placement on the drug lists.

This practice particularly affects patients whose insurance plans require deductibles and copayments, which require insureds to pay a portion of the cost rather than a flat rate, the FTC said. They often have to pay the list price and do not benefit from discounts.

Friday's action came just over two months after the FTC released a scathing interim report on the PBM industry following a two-year investigation, detailing how increasing concentration allowed the three largest players to fill nearly 80% of the roughly 6.6 billion prescriptions written in the U.S. last year — and reap big profits.

“The FTC's interim report lays out how dominant pharmacy benefit managers can drive up drug costs — including overcharging patients for cancer drugs,” FTC Chair Lina M. Khan said in a statement at the time. “The report also describes how PBMs can squeeze independent pharmacies that many Americans — especially in rural communities — rely on for their primary care.”

Express Scripts filed a federal lawsuit in Missouri this week, asking the commission to retract the report, which the company calls “unfair, biased, erroneous and defamatory.” Express Scripts argues that PBMs have no control over the list prices set by manufacturers and have no incentive to let those prices rise. In addition, the company said it passes more than 95% of the rebates and fees it collects on to its customers, including health insurers and employers.

“The FTC has taken unconstitutional action by issuing a report that ignores the evidence presented by our company and other PBMs, displays a clear ideological bias, and spreads a false and harmful narrative – a narrative that could harm the health care system by removing essential checks and balances, resulting in higher drug prices for American consumers,” Cigna's Nelson said in a statement on the lawsuit.