CORRUPT MANAGEMENT OF PRESCRIPTION DRUG INSURANCE

The Federal Trade Commission is suing the three dominant prescription drug insurance managers for practices that it alleges have spiked the price of insulin in the U.S. The suit claims these drug insurance managers have been “engaging in anticompetitive and unfair rebating practices that have artificially inflated the list price of insulin drugs and impaired patients' access to lower” cost alternatives. Drug insurance management was originally a cost-control effort that morphed into a profit center by getting rebates (i.e., kickbacks) from drug makers.

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The Federal Trade Commission (FTC) is suing the three largest pharmacy benefit managers (PBMs) for practices that it alleges have spiked the price of insulin in the U.S. to over 12 times what it was 20 years ago. PBMs are middlemen that manage the costs of prescription drug coverage for health insurers. They determine which drugs an insurance plan will pay for, what the co-pay for patients will be, and how much pharmaceutical manufacturers will be paid for their drugs. [1]

The FTC is suing Caremark Rx, Express Scripts, and Optum Rx, which process 80% of all prescription drug purchases in the U.S., for “engaging in anticompetitive and unfair rebating practices that have artificially inflated the list price of insulin drugs and impaired patients' access to lower” cost alternatives. Each of these PBMs has roughly $100 billion in annual revenue and is tied to a large insurance corporation: Caremark Rx to CVS, Express Scripts to Cigna, and Optum Rx to UnitedHealth.

The FTC’s suit does not come as a surprise. Last year, numerous local governments sued these three PBMs and the three large insulin manufacturers alleging they had conspired to increase the price of insulin. [2]

PBMs were originally created by insurance corporations to manage the growing costs of prescription drugs. The initial intent was to save insurance corporations and patients money by negotiating lower prices with the drug makers and incentivizing patients to use lower cost drugs, particularly generic drugs as opposed to brand name drugs. A key part of these efforts was the creation of lists of drugs the PBM and insurer would pay for along with a tiered set of co-pays for patients to incentivize the use of lower cost drugs. These lists are known as “formularies.” [3]

The PBMs discovered they could turn this cost-control effort into a profit center by getting rebates (i.e., kickbacks) from the pharmaceutical manufacturers by paying them well for their drugs and incentivizing patients to use those drugs.

This created all sorts of perverse incentives. The PBMs could increase their profits by steering patients to brand name drugs with higher prices and co-pays (as opposed to cheaper generic drugs) because the PBMs got bigger rebates on the higher priced drugs. The PBMs could also increase their profits and rebates by paying the drug makers inflated prices for their drugs, because that allowed the drug makers to give them bigger rebates (also sometimes referred to as discounts). However, this drove up the “list prices” of these drugs so that people without health insurance (or with health insurers other than those linked to these PBMs) paid more.

The FTC suit focuses on insulin, although the illegal practices it charges the PBMs with apply to all prescription drugs. In the case of insulin, the PBMs’ formularies (i.e., list of approved drugs) include only certain types or brands of insulin. These are typically NOT the lowest price insulin products but the ones that give the PBMs the highest rebates and profits. Their collusion with the insulin product makers to maximize their rebates and profits, drives up the price of these insulin products for all users. The FTC has warned drug manufacturers that their complicity in the PBMs’ practices raises serious concerns and that they may be named as defendants in future FTC actions.

As background, insulin was invented in the 1920s and the inventors refused to patent it to make it as readily and cheaply available as possible. Today, three pharmaceutical corporations control the market for insulin: Eli Lilly, Novo Nordisk, and Sanofi. They’ve used their market power to unjustifiably increase the price of insulin. For example, Eli Lilly’s leading insulin product, Humalog, costs 13 times more now, $274 a dose, than it did in 1999 when it was $21.

Two interesting notes: First, Express Scripts has sued the FTC for defamation over the findings of its study of the PBMs’ behaviors. These findings were a precursor to the FTC’s lawsuit. Second, the FTC is also looking at the PBMs’ practices that favor certain, often affiliated pharmacy chains (such as CVS in the case of Caremark) and harm other pharmacies, particularly independent (i.e., non-chain) pharmacies. These, probably illegal, practices reduce competition in the pharmacy business.

As noted, these practices of the PBMs and the pharmaceutical corporations are by no means limited to insulin. The City of Baltimore is suing drug maker Biogen alleging illegal collusion with the three big PBMs to block competition for its brand name multiple sclerosis (MS) drug, Tecfidera. Biogen has regularly increased the price of the drug from $52,500 for a year’s supply in 2013 to $90,000 in 2019, so the drug now provides almost half of Biogen’s revenue. [4] Biogen’s patent on the drug was expiring and it was desperate to maintain the revenue stream and its profits. The suit alleges that Biogen paid the three PBMs to structure their drug formularies to promote the use of its drug rather than lower-cost generic drugs. Biogen calls the payments “rebates” or “fees,” but, in reality, they are good, old-fashioned kickbacks.

Kentucky is suing Express Scripts alleging that it colluded with opioid makers to increase opioid sales through deceptive marketing and other strategies. The result was a deadly, on-going opioid addiction crisis that was linked to roughly 75,000 deaths nationwide in the last year. [5]

There are bills in Congress and in state legislatures that would tackle various elements of PBMs’ corrupt practices. I’ll keep you posted if any of the bills in Congress look like they may move forward. In the meantime, you might want to raise this issue with your state representative or senator, or your state’s public health agency, to learn if they are taking steps to stop the anti-competitive practices of PBMs.

[1]      Dayen, D., 9/20/24, “FTC sues PBMs for jacking up insulin prices,” The American Prospect (https://prospect.org/health/2024-09-20-ftc-sues-pbms-jacking-up-insulin-prices/)

[2]      Silverman, E. 9/26/24, “Baltimore sues Biogen, accusing it of blocking generic MS drugs,” The Boston Globe from Stat News

[3]      Editorial, 7/30/24, “Reining in pharmacy benefit managers,” The Boston Globe

[4]      Silverman, E. 9/26/24, see above

[5]      Schreiner, B., 9/28/24, “Kentucky sues Express Scripts,” The Boston Globe from the Associated Press