The Federal Trade Commission filed another ambitious lawsuit on September 20, 2024, against three major pharmaceutical benefit managers (PBMs) that serve as middlemen between pharmaceutical manufacturers and commercial insurers. The defendants are CVS Health’s CareMark, Cigna’s Express Scripts, and UnitedHealth’s OptumRx, who together control the affordability and accessibility of 80% of prescriptions in the U.S. The FTC’s administrative complaint alleges that the PBMs violated The FTC Act 15 U.S.C. § 45 which prohibits “unfair or deceptive acts or practices in or affecting commerce.” The FTC argues the three PBMs have engaged in unfair practices by creating exclusive drug formularies that favor including drugs with higher rebates and fees which drives insulin inflation and harms vulnerable patients.
Exclusive drug formularies created by PBMs have flipped the pharmaceutical industry competitive market upside down to where competition drives insulin prices upwards, instead of down. Around 2012, PBMs implemented these formularies to ensure covered drugs which they resold to commercial insurers were safe and effective. However, the exclusivity of formularies forced pharmaceutical manufacturers to raise list prices of drugs to maintain their profits while increasing the rebates for PBMs. Manufacturers that do not raise drug prices or offer larger rebates risk losing millions of dollars in drug sales. Therefore, uninsured patients must fund larger rebates by paying increased drug prices or else forgo essential pharmaceutical treatment. Patients are also harmed by PBMs favoring high-list price (usually name brand) drugs when creating their formularies. Because pharmaceutical manufacturers can offer larger rebates for name brand drugs, PMBs exclude cheaper generic drugs to increase their profits. Consequently, insured patients are forced to spend more than necessary for critical drugs which they purchase frequently such as insulin.
Exclusive drug formularies specifically harm diabetic patients who cannot reasonably choose to discontinue purchasing insulin, switch insulin products, or switch health plans to avoid these harmful practices by PBMs. They unfairly force vulnerable patients to bear the financial burden of increasing PBM profits or risk great bodily harm from stopping medication.
Insulin has been used for more than a century to manage diabetic blood sugar levels and has been reasonably priced for 85 years prior to 2012. However, when PBMs began implementing exclusive drug formularies, between 1999 to 2017, prices increased steeply. During this time there was a 1200% increase in the list price of insulin from $21 to $274. U.S. consumer spending on insulin has also tripled since 2012, from $8 billion to $22.3 billion. Insulin is relied upon by 8 million diabetic Americans for disease management and is inexpensive to manufacture, yet its list price is inexplicably and unjustly exorbitant.
Although the Inflation Reduction Act has capped costs for patients with Medicare, increased insulin list prices have harmed uninsured patients. These uninsured diabetics are forced to pay the list price for insulin out-of-pocket. PBMs are aware that approximately one-quarter of patients can no longer afford insulin and reported that 1 million Americans ration their insulin which can have severe consequences, including death.
To be held liable for “unfair acts or practices in or affecting commerce” under The FTC Act, the three PBMs practices must be found to have (1) caused or were likely to cause substantial injury to consumers, (2) not have been reasonably avoidable by consumers, and (3) not been outweighed by countervailing benefits to consumers or to competition. If the three PBMs charged with violation of The FTC Act are found to have used unfair practices when implementing exclusive drug formularies, there are implications for the whole pharmaceutical industry which could hugely reign in drug pricing.
The future of the case against the three PBMs could hinge on the results of the 2024 Presidential election. Vice President Harris has shown interest in holding PBMs accountable for their actions in drug pricing inflation while former President Trump has yet to mention drug price inflation during his 2024 campaign. Further adding to the uncertainty of the suit is the divide among Republican officials over whether the FTC is overreaching, or PBMs should be held accountable.
Regardless of the election results, action is needed to prevent further harm from befalling vulnerable patients forced to pay the full list price for critical drugs like insulin.