The FTC Insulin Case is About Access — and Rebates

After reading through the Federal Trade Commission’s compiaint against the three biggest pharmacy benefit managers and their affiliated group purchasing organizations on insulin pricing, several things have become clearer.

This complaint makes clear the case is about the influence that PBMs have not just over pricing of insulin but also on access, saying that the companies use their formularies to steer patients to certain drugs over others. The complaint indicates that although insulin products with lower list prices have become available, the three PBMs have excluded them in favor of products with high list prices and large rebates.

“This case challenges their role in designing, directing, and overseeing a reimbursement system, which generates billions of dollars in rebates and fees for them while incentivizing drug manufacturers to raise (not lower) the sticker price (i.e., list price) of their drugs,” the complaint says.

The ”race for rebates,” the FTC says, should have reduced drug costs. Instead, because patient out-of-pocket costs are tied to the prices before rebates, patient costs have increased. The commission said it is focusing on insulin as the “poster child” of a broken system, including the example of Humalog, which had a list price of $21 in 1999. Around 2012, rebates for Humalog started increasing, which led to higher list prices. Humalog’s price was $274 by 2017.

The year 2012 was pivotal, the FTC and others have said, in PBM evolution. That was the year when Express Scripts acquired Medco for $29.1 billion. (CVS Health had acquired Caremark in 2007 and United Healthcare had acquired a company that it would later rebrand Optum Rx.)

Before 2012, PBM formularies generally covered all approved medications, the FTC said, but the dynamic changed when they started to leverage their formularies in contracts with manufacturers. The suit alleges that the PBMs started to exert more influence over drug pricing and purchasing through preferential treatment on formulary based on rebates. Manufacturers, the FTC said, have been willing to pay higher rebates for preferred formulary placement.

George Huntley

In Medicare, the rebate process was put in place when Part D was enacted in 2006, George Huntley, CEO of Diabetes Leadership Council and the Diabetes Patient Advocacy Coalition, said in an interview. “At that time, Medicare couldn’t negotiate directly with pharmaceutical companies, so it forced plans to go through the PBMs.

“By 2012, [the PBMs] had learned how to play the rebate game,” Huntley continued. “Over the next decade, the rebates became onerous, and really drove the prices up. And it’s not just insulin.”

The FTC’s suit also suggested that because of arrangements with their own group purchasing organizations, PBMs have provided limited visibility into the rebates and how much is passed on to plans and employers. In fact, the suit quotes a former Optum executive who helped set up Emisar, Optum's GPO, as saying “the intention of the GPO is to create a fee structure that can be retained and not passed on to a client.”

Officials from CVS Caremark, Express Scripts and Optum Rx said in statements to Formulary Watch that they have worked to bring down the costs of insulin prices for consumers, with insulin out-of-pocket costs at or below the Biden Administration’s $35 cap for many insulin products through the Inflation Reduction Act.

Last year, Lilly, Sanofi and Novo Nordisk all began capping out-of-pocket costs on some insulins and in 2022, United Health and Optum also said they would be capping some insulins, as well.

While it is true that the Inflation Reduction Act lowered out-of-pocket costs to $35 for Medicare beneficiaries who need insulin, critics have pointed out that in the commercial market consumers may not be able to access those lower cost products because of formulary placement dictated by rebates and contracts with pharmaceutical manufacturers.

“The covert rebate practices employed by PBMs significantly contribute to higher out-of-pocket costs for patients at the pharmacy counter,” leaders from the Diabetes Leadership Council (DLC) and the Diabetes Patient Advocacy Coalition (DPAC), said in a statement. “By prioritizing expensive medications that yield the highest rebates from manufacturers, PBMs create a system that ultimately disadvantages patients. This opaque practice perpetuates a cycle where patients bear the financial burden while plans and PBMs profit. The entire structure is misaligned, leading patients to pay more for medications than they should.”

PBMs are Facing Increased Scrutiny

Karen Van Nuys, Ph.D.

At a House Judiciary Subcommittee hearing several weeks ago, industry leaders testified on the impact of a consolidated PBM industry on access and pricing. Karen Van Nuys, Ph.D., said that the rebates negotiated with pharmaceutical companies create “perverse incentives” where manufacturers compete for formulary position, which ultimately leads to higher prices for patients. Van Nuys is senior scholar and executive director of the Value of Life Sciences Innovation Program, Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California.

She said during the hearing that this dynamic is broader than insulin. In a recent study of Medicare Part D plan formularies, Van Nuys and her colleagues found that the share of compounds restricted in non-protected classes rose from an average of 31.9% in 2011 to 44.4% in 2020.

“Formulary exclusion, the most extreme form of utilization management, has been imposed especially aggressively,” Van Nuys said during the hearing. “By 2020, Medicare plan formularies excluded an average of 44.7% of brand-name-only compounds. Interestingly, drug formularies for Medicare Advantage plans, which are also responsible for patients’ hospital and other medical costs, were significantly less restrictive than those for standalone Medicare drug plans.”

The FTC’s administrative action seeks to fix a broken system that could “ripple beyond the insulin market and restore healthy competition to drive down drug prices for consumers,” Rahul Rao, deputy director of the FTC’s Bureau of Competition, said in a news release.

This FTC case comes after the commission's July 2024 interim report, which indicated that consolidation and vertical integration have given the large PBMs significant power and influence, created incentives to prefer their own organizations, led to conflicts of interests, steered patients to their own pharmacies and developed unfair contracts with independent pharmacies.

Not long after the FTC report, Senate Finance Committee Chair Ron Wyden, (D-Ore.) called for PBM reforms. And the House Oversight Committee held hearings in July in which both Republican and Democrat lawmakers questioned PBM leaders on their role in rising prescription drug costs.

Following those hearings, Chairman James Comer (R-Ky.) issued a report that said that three largest PBMs have used their position as middlemen “to enact anticompetitive policies and protect their bottom line.” The Committee’s report indicated that PBMs use opaque pricing to overcharge plans and payers, use rebates to favorable formulary placement, and employ utilization management tools that impact patient health outcomes.

What Happens Now?

The FTC announced last week that is was going to file this administrative complaint, alleging that CV Caremark, which is part of CVS Health; Express Scripts, which is part of Cigna; and Optum Rx, which is part of United Health Group; and their respective group purchasing organizations — Zinc Health Services, Ascent Health Services, and Emisar Pharma Services — have abused their dominance of the PBM industry to prioritize rebates collected from drug manufacturers and by doing so, are responsible for higher list prices for insulin.

Related: FTC Sues PBMs for Artificially Hiking Insulin Prices

As an administrative complaint, this lawsuit will be decided by an administrative law judge governed by the Federal Rules of Civil Procedure and not through a Federal court. This is a trial-like proceeding. After a hearing, the administrative law judge issues an “initial decision” with his or her findings of fact and conclusions. The judge can recommend an order to cease and desist or dismiss the complaint. Appeals can be taken to the full commission.

Lucas W. Morgan

“These types of proceedings tend to be more streamlined, and they tend to play out more quickly than a federal district court litigation,” Lucas W. Morgan, a partner at Frier Levitt’s Healthcare and Life Sciences groups, a firm that handles disputes with PBM, said in an interview.

Morgan said it’s unlikely the PBMs will resolve the case through consent agreements. “It is likely to go through agency’s form of discovery, which, generally speaking, does have some similarities to what you see in federal court litigation,” he said. “The big distinction would be it usually tends to be narrower and more limited. Administrative law judges are given a lot of discretion to control the proceedings.”

Huntley said ideally he would like to see Congress outlaw rebates and force manufacturers and PBMs to negotiate on net price. “My opinion is that we should outlaw this perverse incentive and this conflict of interest to force the negotiations down and negotiate on the lowest net price.”

No proposals in Congress have not gone that far to outlaw the use of rebates, but there is bipartisan support for reform. The House voted in December 2023 in support of Lower Costs, More Transparency Act aims to bring more transparency to the PBM spending, rebates and fees. Additionally, Rep. Earl L. “Buddy” Carter (R. Ga.), who is a pharmacist, has introduced several bills for PBM reform, including “delinking” PBM compensation from drug pricing, which Carter said would take away incentives to steer patients to higher-cost drugs.