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July 01, 2022

FTC Issues Policy Statement Putting PBMs on Notice

On June 16, 2022, the FTC unanimously voted to issue an enforcement policy statement putting Pharmacy Benefit Managers (PBMs) on notice that the payment of rebates and fees by drug manufacturers to PBMs resulting in the exclusion of lower-cost drug alternatives offered by competitors from the PBM’s formularies may violate competition and consumer protection laws. The vote comes a little over one week after the FTC announced an inquiry to study the competitive impact of the operations and business practices of PBMs.

The FTC’s policy statement claims that “rebates and fees may shift costs and misalign incentives in a way that ultimately increases patients’ costs and stifles competition from lower-cost drugs.” The policy statement emphasizes that the price of insulin nearly tripled between 2009 and 2017, increasing out-of-pocket costs for both insured and uninsured Americans. The FTC argues that in “addition to other factors, some have suggested that high rebates and fees to PBMs and other intermediaries may incentivize higher list prices for insulin and discourage coverage of the lowest-cost insulin products.” 

A formulary is a list of generic and brand name prescription drugs covered by a health plan. PBMs typically develop and/or maintain formularies on behalf of health plans. It is a common practice for drug manufacturers to pay rebates and fees to have their drugs included on formularies or placed on preferred formulary tiers where the drug is assigned a copay lower than that of therapeutically similar competing drug. The FTC explains that some “rebates and fees are conditioned on the sales volume of specific drugs or the exclusion of competing drug products from the same formulary tier.”

The FTC argues that these rebates and fees “may incentivize PBMs and other intermediaries to steer patients to higher-cost drugs over less expensive alternatives…[which] could lead to increased costs for both patients and payers…[and] insulate more expensive drugs from competing with less expensive alternatives.” Comparatively, the PBM industry has long argued that rebates drive competition among manufacturers and generate savings that benefit both health plans and consumers. 

The FTC contends that rebates that exclude competition from less expensive alternatives may constitute unreasonable agreements in restraint of trade under Section 1 of the Sherman Act; unlawful monopolization under Section 2 of the Sherman Act; or exclusive dealing under Section 3 of the Clayton Act. Additionally, manufacturer payments that induce PBMs to place higher-cost drugs on formularies in place of lower-cost alternatives “may violate the prohibition against unfair methods of competition or unfair acts or practices under Section 5 of the FTC Act.” 

The FTC also highlighted that paying or accepting fees in exchange for excluding lower-cost drugs from formularies may violate Section 2(c) of the Robinson-Patman Act, “which prohibits payments to agents, representatives, and intermediaries who represent another party’s interests in connection with the purchase or sale of goods.” The FTC noted “at least one court has held that this provision may reach rebates paid by drug manufacturers to PBMs.”

The FTC intends to closely scrutinize the impact of rebates and fees on patients and payers to determine whether any of these provisions have been violated. Additionally, the FTC will monitor private litigation and “file amicus briefs where it can aid courts in analyzing unlawful conduct that may raise drug prices,” and will continue to study this issue. Importantly, however, the policy statement stopped short of suggesting that all such rebates and fees may be problematic and clarified that “nothing prevents drug manufacturers, PBMs, and health plans from negotiating good-faith rebates and fees for legitimate services that increase value to payers and patients.”

While the policy statement does not bind the FTC or the public — or confer any right of action on any person — the FTC’s issuance of a policy statement on the heels of its announced inquiry of the six biggest PBMs signals an aggressive approach in targeting the prescription drug market. The issuance of the policy statement “should put the entire prescription drug industry on notice: when we see illegal rebate practices that foreclose competition and raise prescription drug costs for families, we won’t hesitate to bring out full authorities to bear,” said FTC Chair Lina Khan in a statement. PBMs should take note that the policy statement appears to challenge the PBM industry to demonstrate that rebate savings are sufficiently passed through to payers and patients and that fees are justifiable for legitimate services. 

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