FTC Sues Prescription Drug Middlemen Including CVS for Artificially Inflating Insulin Drug Prices
GoLocalProv News Team
FTC Sues Prescription Drug Middlemen Including CVS for Artificially Inflating Insulin Drug Prices
CVS headquarters is located in Woonsocket, Rhode Island.
The FTC’s administrative complaint alleges that CVS Health’s Caremark, Cigna’s ESI, and United Health Group’s Optum, and their respective GPOs—Zinc Health Services, Ascent Health Services, and Emisar Pharma Services—have abused their economic power by rigging pharmaceutical supply chain competition in their favor, forcing patients to pay more for life-saving medication. According to the complaint, these PBMs, known as the Big Three, together administer about 80% of all prescriptions in the United States.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe FTC alleges that the three PBMs created a perverse drug rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices. The complaint charges that even when lower list price insulins became available that could have been more affordable for vulnerable patients, the PBMs systemically excluded them in favor of high list price, highly rebated insulin products. These strategies have allowed the PBMs and GPOs to line their pockets while certain patients are forced to pay higher out-of-pocket costs for insulin medication, the FTC’s complaint alleges.
This is the latest in the battle between the FTC and the so-called "middlemen."
“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.”
CVS Fires Back
The company issued the following statement:
“CVS Caremark is proud of the work we have done to make insulin more affordable for all Americans with diabetes. To suggest anything else, as the FTC did today, is simply wrong. We stand by our record of protecting American businesses, unions, and patients from rising prescription drug prices.
CVS Caremark has led the way in driving down the cost of insulin for all patients: insured, uninsured, and underinsured. Our members on average pay less than $25, far below list prices and far below the Biden Administration’s $35 cap. Further, we also provide access to $25 insulin to every American, whether insured or uninsured, through our ReducedRx program at every one of our 67,000 network pharmacies and more than 9,000 CVS pharmacies.
Three brand drugmakers control nearly the entire insulin market, and without competitive lower cost generic alternatives, they raised their list prices by as much as 500% in lockstep with one another prior to 2012. That’s when CVS Caremark fueled increased competition by creating new formulary options to fight back against these manufacturer price hikes. We negotiated deep discounts on behalf of our clients – American businesses large and small, unions, and local, state, and federal government plans – and helped bring insulin back to affordable levels for their members.
Any action that limits the use of these PBM negotiating tools would reward the pharmaceutical industry and return the market to a broken state, leaving American businesses and patients at the mercy of the prices drugmakers set. We will defend the use of these tools vigorously as we continue working to safeguard our clients and their members from drug price gouging by pharmaceutical manufacturers.
FTC Says There Are Others Fueling the Problem
The FTC’s Bureau of Competition makes clear in a statement issued today that the PBMs are not the only potentially culpable actors – the Bureau also remains deeply troubled by the role drug manufacturers like Eli Lilly, Novo Nordisk, and Sanofi play in driving up list prices of life-saving medications like insulin. Indeed, all drug manufacturers should be on notice that their participation in the type of conduct challenged here raises serious concerns, and that the Bureau of Competition may recommend suing drug manufacturers in any future enforcement actions.
The PBMs Benefit from Higher List Prices
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, even though the PBMs and GPOs do not provide drug manufacturers with any additional services in exchange.
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—lists of prescription drugs covered by a health plan.
The PBMs’ Chase-the-Rebate Strategy Reduced Patients’ Access to Lower List Priced Insulins, the FTC Alleges
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 alleges.
Competition usually leads to lower prices as sellers try to win business. But in the upside-down insulin market, manufacturers—driven by the Big Three PBMs’ hunger for rebates—increased list prices to provide the larger rebates and fees necessary to compete for formulary access, the FTC’s complaint alleges. According to the complaint, one Novo Nordisk Vice President said that PBMs were “addicted to rebates.” While PBMs’ rebate pressures continued, insulin list prices soared. 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.
The complaint alleges that even when low-list-price insulins became available, the PBMs systematically excluded them in favor of identical high-list-price, highly rebated versions. As described in the complaint, one PBM Vice President acknowledged that this strategy allowed the Big Three to continue to “drink down the tasty … rebates” on high list price, highly rebated insulins.
The PBMs Caused the Burden of High Insulin List Prices to Shift to Vulnerable Patients, the FTC Alleges
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. Indeed, they may pay more out-of-pocket for their insulin drugs than the entire net cost of the drug to the commercial payer. Caremark, ESI, and Optum knew that escalating insulin list prices and exclusion of low list price insulins from formularies hurt vulnerable patients—yet continued to pursue and incentivize strategies that shifted the burden of high list prices to patients, the FTC’s complaint alleges.
Caremark, ESI, and Optum and their respective GPOs engaged in unfair methods of competition and unfair acts or practices under Section 5 of the FTC Act by incentivizing manufacturers to inflate insulin list prices, restricting patients’ access to more affordable insulins on drug formularies, and shifting the cost of high list price insulins to vulnerable patient populations, the FTC’s complaint alleges.
The Commission vote to file an administrative complaint was 3-0-2, with Commissioners Melissa Holyoak and Andrew N. Ferguson recused.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge.