FTC lawsuit claims rebate practices inflate insulin prices

Photo: Guido Mieth/Getty Images

The Federal Trade Commission has sued the three largest prescription drug benefit managers – Caremark Rx, Express Scripts and OptumRx – and their affiliated group purchasing organizations (GPOs) claiming they're engaging in anticompetitive and unfair rebating practices that artificially inflate the list price of insulin drugs.

The FTC said the practice impairs patient access to lower list price products and shifts the cost of high insulin list prices to vulnerable patients.

The FTC filed the administrative complaint against CVS Health's Caremark, Cigna's Express Scripts and UnitedHealth Group's Optum, and their respective GPOs – Zinc Health Services, Ascent Health Services and Emisar Pharma Services.

WHY THIS MATTERS

The complaint alleges that the companies have abused their economic power by rigging pharmaceutical supply chain competition.

The Big Three PBMs administer about 80% of all prescriptions in the United States.

The complaint charges that, even when lower list price insulins became available, the PBMs excluded them in favor of high list price, highly rebated insulin products. The FTC's Bureau of Competition said drug manufacturers such as Eli Lilly, Novo Nordisk and Sanofi have a role in driving up the list prices of medications like insulin. The Bureau of Competition may recommend suing drug manufacturers in any future enforcement actions, the FTC said.

The PBMs' financial incentives are tied to a drug's list price, also known as the wholesale acquisition cost. PBMs generate a portion of their revenue through drug rebates and fees, which are based on a percentage of a drug's list price. PBMs, through their GPOs, negotiate rebate and fee rates with drug manufacturers. As the complaint alleges, insulin products with higher list prices generate higher rebates and fees for the PBMs and GPOs.

The complaint further alleges that PBMs keep hundreds of millions of dollars in rebates and fees each year and use rebates to attract clients. PBMs' clients are payers, such as employers, labor unions and health insurers. Payers contract with PBMs for pharmacy benefit management services, including creating and administering drug formularies.

Insulin list prices started rising in 2012 with the PBMs' creation of exclusionary drug formularies, the FTC's complaint alleges. Before 2012, formularies used to be more open, covering many drugs. According to the complaint, that changed when the PBMs, leveraging their size, began threatening to exclude certain drugs from the formulary to extract higher rebates from drug manufacturers in exchange for favorable formulary placement. Securing formulary coverage was critical for drug manufacturers to access patients with commercial health insurance, the FTC said.

For example, the list price of Novolog U-100, an insulin medication manufactured by Novo Nordisk, more than doubled, from $122.59 in 2012 to $289.36 in 2018.

In 1999, the average list price of Humalog – a brand-name insulin medication manufactured by Eli Lilly – was only $21. By 2017, the list price of Humalog soared to more than $274.

According to the complaint, as insulin list prices escalated, the PBMs collected rebates that, in principle, should have significantly reduced the cost of insulin drugs for patients at the pharmacy counter. Certain vulnerable patients, such as patients with deductibles and coinsurance, often must pay the unrebated higher list price and do not benefit from rebates at the point of sale, the FTC said. They may pay more out-of-pocket for their insulin drugs than the entire net cost of the drug to the commercial payer.

THE LARGER TREND

Earlier this month, Express Scripts by Evernorth, a Cigna company, sued the FTC, demanding that it retract a July report on the pharmacy benefit manager industry.

The FTC report on pharmacy benefit managers was the result of a two-year investigation into PBM practices. It concluded that PBMs are "powerful middlemen" that are inflating drug costs and squeezing Main Street pharmacies.

Express Scripts is demanding that the FTC retract its report, claiming it's filled with "false and misleading claims" about the PBM industry.

"PBMs have no incentive to see list prices rise," according to Express Scripts. "List prices for branded drugs with rebates have grown less, not more, than list prices for branded drugs with no rebates."

In 2023, the Inflation Reduction Act capped out-of-pocket costs for insulin at $35 per monthly prescription for Medicare enrollees.

In March, Eli Lilly announced it was reducing the list price of insulin by 70% and capping out-of-pocket costs at $35 a month for people with commercial insurance.

ON THE RECORD

"Millions of Americans with diabetes need insulin to survive, yet for many of these vulnerable patients, their insulin drug costs have skyrocketed over the past decade thanks in part to powerful PBMs and their greed," said Rahul Rao, deputy director of the FTC's Bureau of Competition. "Caremark, ESI, and Optum – as medication gatekeepers – have extracted millions of dollars off the backs of patients who need life-saving medications. The FTC's administrative action seeks to put an end to the Big Three PBMs' 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."

Email the writer: SMorse@himss.org