Qayyum Ali
Associate Editor
Loyola University Chicago School of Law, JD 2025
Insulin is a life-sustaining medication for numerous individuals with diabetes. For an extended period, many have been forced to pay inflated prices for a product that is inexpensive to manufacture. However, individuals with diabetes may now have cause for cautious optimism regarding more cost-effective treatment options. This development arises as the Federal Trade Commission (FTC) has decided to address one aspect of the system responsible for the high cost of insulin. The FTC initiated legal proceedings against the three largest pharmacy benefits managers (PBM) on September 20, 2024. The action was taken in response to alleged unfair and anticompetitive rebating practices that were purported to have artificially elevated the list prices of insulin medications.
This decision was influenced by the FTC’s interim report, released on July 20, 2024, which examined the substantial influence PBMs have acquired due to healthcare industry consolidation. The report suggested that these entities’ significant impact on prescription drug pricing might necessitate regulatory intervention. Numerous politicians, pharmaceutical corporations, and government officials have asserted that PBMs contribute significantly to the elevated cost of prescription medications in the United States.
What are pharmacy benefit managers (PBMs), and who are the big BPM players?
PBMs are companies that administer prescription drug benefits for health insurance companies, large employers, and Medicare prescription drug plans – a cohort commonly referred to as payers. PBMs play a multifaceted role in the healthcare industry. They conduct negotiations with pharmaceutical companies and pharmacies to secure fees and volume-based discounts, called rebates, for payers. PBMs are responsible for creating formularies, which are lists of medications covered by insurance plans. Additionally, they handle claim processing to reimburse pharmacies and manage pharmacy networks. Some PBMs extend their services to include operating mail-order pharmacies. A PBM’s revenue stream typically consists of fees collected from payers and rebates obtained from drug manufacturers.
The FTC staff’s interim report reveals that in 2023, the U.S. pharmacy benefit management sector was dominated by three major players, collectively holding 79% of the market. CVS Caremark led with a 34% share, followed by Express Scripts at 23% and OptumRx at 22%. The remaining significant entities in this industry included Humana Pharmacy Solutions (7%), MedImpact Healthcare Systems (5%), and Prime Therapeutics (3%). Collectively, these six corporations accounted for 94% of the PBM market share.
Who owns the PBMs?
The five leading PBMs are subsidiaries of corporations that also deliver insurance and diverse healthcare services. CVS Health, which owns Caremark, has expanded its portfolio to include Aetna insurance, specialized mail-order pharmacies, a nationwide pharmacy network, and a physicians’ group. UnitedHealth Group is part of a conglomerate that owns OptumRx and encompasses United Healthcare insurance, specialty pharmacies, medical groups, and express medical and surgical facilities. Cigna‘s operations span an insurance division, Express Scripts, and a specialty pharmacy. Humana combines insurance provision with benefits management, while Prime Therapeutics receives investment from 19 separate Blue Cross Blue Shield plans.
FTC’s scrutiny and investigation into PBM misconduct
In 2022, the FTC launched an inquiry into the leading PBMs and their influence on drug pricing and availability. The investigation examined various aspects of PBM operations, including their fee structures, pharmacy reimbursement practices, and the retrieval of payments from out-of-network pharmacies. Additionally, the FTC scrutinized whether these companies directed patients toward their affiliated pharmacies and if they prioritized costlier medications that offered higher rebates over more affordable options.
Consistent with its preliminary report findings, the FTC initiated legal proceedings against the three major PBMs – CVS Caremark, Express Scripts, and OptumRx – in September 2024. The lawsuit is in its nascent stages, making the outcome uncertain. However, the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, which overruled “Chevron deference,” will impact numerous agencies, including the FTC. As a result, courts must now interpret federal laws without deferring to agency interpretations, instead relying on conventional statutory interpretation methods, such as plain language and legislative intent. This shift provides PBMs with new avenues to contest the FTC’s rulemaking and interpretations throughout all stages of the process.
Federal and state legislators also seek to regulate PBMs
Congressional records indicate that legislators have introduced approximately two dozen bills targeting PBMs since the previous year, including at least five with bipartisan support. Several have passed committees but have yet to be brought to a vote by the full Senate or House of Representatives. Separate bills aim to prohibit the practice known as “spread pricing,” wherein PBMs charge health plans a larger amount for a drug than they remit to pharmacies. Some legislation seeks to increase transparency by requiring these companies to provide more information regarding their non-public negotiations.
Rebates have also been a subject of proposed new governmental regulations. The Trump administration in 2020 sought to render rebates illegal for Medicare prescription drug plans by eliminating the safe harbor protection that shields rebates from federal anti-kickback legislation. The Biden administration subsequently postponed the implementation of this rule until 2023, and Congress further extended the delay until 2027.
The U.S. Department of Justice (DOJ) is investigating UnitedHealth Group, including the relationship between its UnitedHealthcare health insurance business and its OptumRx PBM unit. State legislatures are in the process of preparing legislation that may have significant implications for PBMs. On July 17, 2024, Pennsylvania enacted legislation regulating PBMs, which imposes restrictions on patient steering, prohibits penalties for utilizing local pharmacies, mandates a comprehensive study of PBM practices, and provides a definition for specialty drugs. In Arkansas, legislators and the Attorney General have leveled accusations against PBMs, citing delays in prescription fulfillment and price inflation. The New Jersey legislature has announced an investigation and impending legislation targeting PBMs. California is expediting the legislative process for a bill prohibiting spread pricing. Massachusetts has also introduced legislation aimed at eliminating spread pricing.
Is the downfall of PBMs imminent?
The bottom line is that the PBMs remain under siege from all corners. The FTC complaint follows an extended period of investigation and discourse regarding the industry by the Commission. However, the FTC’s legal action may be predicated on uncertain grounds due to its selection of venue, the expansion of Section 5 beyond conventional antitrust claims, and the comprehensive nature of the relief sought in contrast to its more limited allegations. Given these factors and the bipartisan initiatives at both federal and state levels, PBMs may be more likely to encounter legislative consequences before facing legal repercussions from the FTC.