Lina Khan, the chair of the Federal Trade Commission.
Credit...Tom Brenner for The New York Times

F.T.C. Accuses Drug Middlemen of Inflating Insulin Prices

The case takes aim at the major pharmacy benefit managers, agency officials said, claiming that they favored more expensive insulin products and forced patients to pay more.

by · NY Times

The Federal Trade Commission said on Friday that it had taken legal action against the three largest pharmacy benefit managers, accusing the drug middlemen of inflating insulin prices and steering patients toward higher-cost insulin products to increase their profits.

The legal action targets CVS Health’s Caremark, Cigna’s Express Scripts and UnitedHealth’s Optum Rx and subsidiaries they’ve created to handle drug negotiations, agency officials said. The three collectively control 80 percent of prescriptions in the United States. Hired by employers and government health insurance programs like Medicare, pharmacy benefit managers, or P.B.M.s, are responsible for negotiating prices with drug makers, paying pharmacies and helping decide which drugs are available and at what cost to patients.

Agency officials said they had filed an administrative complaint, which is not yet public, that accuses the P.B.M.s of distorting competition and harming consumers. The agency is seeking to prohibit the benefit managers from favoring medicines because those drugs make them more money.

The agency’s five commissioners voted on the action, with the three Democratic appointees favoring it and the two Republicans recusing themselves.

Rahul Rao, an F.T.C. official, said in a news release on Friday that the largest P.B.M.s “have extracted millions of dollars off the backs of patients who need lifesaving medications.”

He said the agency’s legal action “seeks to put an end to the big three P.B.M.s’ 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 benefit managers denied the F.T.C.’s accusations. They said that they saved money for patients and payers and that they were being unfairly scapegoated for high drug prices set by pharmaceutical manufacturers. “This baseless action demonstrates a profound misunderstanding of how drug pricing works,” said Elizabeth Hoff, a spokeswoman for Optum Rx.

David Whitrap, a spokesman for CVS Caremark, said his company “is proud of the work we have done to make insulin more affordable for all Americans with diabetes.” He added, “To suggest anything else, as the F.T.C. did today, is simply wrong.”

Insulin has been a poster child for high drug prices, after years of price increases by manufacturers. Eli Lilly, Sanofi and Novo Nordisk control most of the market. The agency’s action does not name the drug makers as defendants, though the agency said in a news release that drug manufacturers should be on notice and that it may recommend suing them in the future.

Some eight million Americans with diabetes rely on insulin to survive. For years, many patients faced high out-of-pocket costs, leading some to ration their insulin.

Today, insulin prices have receded as a problem for most patients, thanks to $35 monthly caps on out-of-pocket costs mandated by the federal government for Medicare patients and similar voluntary limits by the manufacturers for people with private insurance. Some patients on newer versions of insulin still face higher out-of-pocket costs.

Just weeks before the presidential election, the agency is tackling an issue that Vice President Kamala Harris has signaled an interest in. Campaigning at a community college in Raleigh, N.C., in August, Ms. Harris promised to “demand transparency from the middlemen who operate between Big Pharma and the insurance companies, who use opaque practices to raise your drug prices and profit off your need for medicine.”

Former President Donald J. Trump has not campaigned on the issue, but in 2018, his administration proposed a sweeping change that would have threatened the benefit managers’ business model. The proposal was never enacted. Mr. Trump’s administration also created a model for capping Medicare patients’ out-of-pocket costs for some insulin products that was later expanded under President Biden.

P.B.M.s have increasingly come under scrutiny for their role in high drug prices. An investigation by The New York Times published in June found that the benefit managers often act in their own interests, at the expense of patients, employers and taxpayers.

The F.T.C., under the leadership of Lina Khan, has become more aggressive in challenging P.B.M.s, after years of taking a hands-off approach. In July, the agency issued a report that sharply criticized the benefit managers and hinted at a potential legal action. On Tuesday, Express Scripts started the legal volleying with a federal lawsuit against the F.T.C., accusing the agency of making false and misleading claims about the industry in the July report.

Andrea Nelson, a Cigna executive, said in a statement on Friday that the agency’s legal action “continues a troubling pattern from the F.T.C. of unsubstantiated and ideologically driven attacks on pharmacy benefit managers.”

Compared with her predecessors, Ms. Khan has adopted a much more expansive view of anticompetitive harm. Her efforts to take on big business across industries including tech, supermarkets and pharma have generated mixed results and criticism that the F.T.C. is overstepping its authority. In suing Amazon and now the giant health care conglomerates, she has engaged in battles with some of the world’s biggest companies.

The agency filed its complaint against the P.B.M.s through its administrative process, which starts a proceeding before an administrative or in-house judge who will hear the case. The complaint is expected to become public as early as Monday.

The F.T.C.’s action focuses on one of the benefit managers’ key jobs: negotiating discounts from the manufacturers of brand-name drugs. Pharmaceutical companies agree to pay these discounts in exchange for benefit managers making their drugs available to patients.

Manufacturers set an initial sticker price, from which the benefit manager negotiates a series of discounts. The P.B.M. passes the bulk of the money along to the employer or government that hired it, but it retains a fraction for itself, which can amount to billions of dollars.

P.B.M.s often have an incentive to push patients toward more expensive drugs, because they typically make money that way. For example, because cheaper generic drugs usually do not carry any discounts, P.B.M.s make more money if they favor brand-name products.

Over time, P.B.M.s have negotiated larger discounts, delivering more money back to their clients but also exerting upward pressure on the initial sticker prices, which manufacturers have increased to maintain their profits.

With insulin, P.B.M.s secured bigger and bigger discounts that have now cut the initial sticker prices by more than half for employers and governments. But the P.B.M.s’ demand for discounts was a key factor in why insulin manufacturers for years increased their sticker prices, officials said.

As a result, patients have suffered, because the price they pay at the pharmacy counter is sometimes based on the initial sticker price.

The agency claims that P.B.M.s have exploited this system to their advantage, at the expense of the patients.

In recent years, insulin manufacturers have released identical versions of some of their most popular insulin products that carry lower sticker prices. If P.B.M.s encourage patients to take these versions, they typically make less money.

The agency claims that even after the versions with lower sticker prices came out, P.B.M.s continued to favor the versions that had higher sticker prices and made them more money. The agency said that its complaint cited one P.B.M. vice president who said this strategy allowed the biggest P.B.M.s to continue to “drink down the tasty … rebates.”

The future of the F.T.C.’s legal action may hinge on the outcome of the presidential election. If Mr. Trump is elected, he could remake the commission, which could settle or withdraw the case. That may come down to who advises him.

“I am deeply skeptical of anything this Federal Trade Commission is doing in this space,” Joe Grogan, a former Trump administration official who is thought in Washington to be a potential candidate for a health policy job in a second Trump term, said in an interview on Friday. “This looks to me like it’s rushed before the election.”

Mr. Grogan, who is a paid consultant to the trade group for P.BM.s, predicted that commissioners appointed by Mr. Trump would not automatically dismiss the case but would decide whether to pursue it based on its merits.

There is a divide among Republican officials on whether P.B.M.s should be blamed for high drug prices. A number of conservative attorneys general have brought lawsuits against the benefit managers, including on insulin pricing, and some Republicans in Congress have proposed curbing some of the benefit managers’ business practices. But other top Republicans have defended P.B.M.s and said the F.T.C. is overreaching.

Noah Weiland contributed reporting.

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