On September 20, 2024, the Federal Trade Commission (“FTC”) filed an administrative complaint against Caremark Rx, Express Scripts and OptumRx, and their affiliated group purchasing organizations (“GPOs”), for engaging in anticompetitive and unfair rebate practices resulting in the artificial inflation of insulin prices. The FTC alleged that by creating a system in which drug manufacturers compete for preferred formulary placement by paying rebates to pharmacy benefit managers (“PBMs”), PBMs have contributed to the rising costs of insulin as manufacturers increase insulin list prices to keep up with PBMs’ rebate demands. According to the complaint, the PBMs’ conduct, and that of their GPOs (Zinc Health Services, Ascent Health Services and Emisar Pharm Services, respectively), violates Section 5 of the FTC Act and harms vulnerable patients.
The charges outlined in the complaint will be tried in an evidentiary hearing before an administrative law judge, currently scheduled for August 27, 2025. This new development falls within the context of heightened regulatory scrutiny from the FTC on PBMs, including an ongoing FTC investigation into overall PBM practices. The FTC’s administrative complaint also comes just three days after Express Scripts filed its own complaint against the FTC in the U.S. District Court for the Eastern District of Missouri, regarding the FTC’s PBM investigation and related investigatory Interim Report.
FTC’s Administrative Complaint
The FTC’s complaint argues that the rise in insulin prices began in 2012 with PBMs’ creation of exclusionary drug formularies. Before this time, PBMs’ prescription drug formularies (used by health plans) were generally more open and covered many drugs. According to the complaint, this changed when PBMs began to exclude certain drugs from their formularies and give other drugs favorable formulary placement in exchange for higher rebates from drug manufacturers. In the “upside-down insulin market,” the FTC alleges, manufacturers – driven by Caremark Rx, Express Scripts and OptumRx’s “hunger for rebates” – increased their insulin list prices in order to provide the PBMs with larger rebates needed to secure preferred formulary placement for the manufacturers’ insulin. The complaint further alleges that even when lower-priced insulin products became available, the PBMs systematically excluded these drugs from their formularies in favor of identical higher-priced and highly rebated versions.
According to the FTC, the largest three PBMs and their respective GPOs engaged in unfair methods of competition and unfair acts or practices under Section 5 of the FTC Act by (i) incentivizing manufacturers to inflate insulin list prices; (ii) restricting patients’ access to more affordable insulins on drug formularies; and (iii) shifting the cost of high price insulins to vulnerable, diabetic patients. The FTC issues an administrative complaint when it has reason to believe that the law has been or is being violated and that a proceeding is in the public interest.
FTC’s Ongoing Investigation of PBMs
The FTC’s administrative complaint comes in the midst of an ongoing investigation by the FTC of PBMs. In June 2022, the FTC launched a broad investigation into PBM practices as part of an initiative to examine PBMs’ impact on drug pricing, independent pharmacies and the pharmaceutical supply chain as a whole. In July 2024, the FTC released an Interim Report as part of this investigation. Titled Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies, the Interim Report accused PBMs of inflating drug prices and of keeping rebates offered by drug manufacturers instead of passing them on to pharmacies, a practice known as spread pricing. The report also implied that PBMs made these practices hard to uncover by purposefully creating an opaque system aimed at evading regulatory scrutiny. Importantly, the FTC’s PBM investigation goes beyond insulin and examines PBM practices with respect to the entire pharmaceutical industry.
On September 17, 2024, Express Scripts sued the FTC in federal court to demand that the FTC withdraw its July 2024 Interim Report, which Express Scripts characterizes as following “prejudice and politics, not evidence or sound economics.” Express Scripts’ complaint describes the FTC’s report as “flawed, biased and defamatory,” lacking key evidence and relying on unverifiable public comments. Arguing that PBMs actually serve to lower prescription drug costs for health plan sponsors and their members, Express Scripts is seeking a court order to vacate the Interim Report and recuse FTC Chair Lina Khan from further FTC actions pertaining to Express Scripts.
Practical Takeaways
The FTC’s and Express Scripts’ complaints come amidst heightened regulatory scrutiny on PBMs at both the state and the federal levels. As numerous states pass new legislation targeting PBMs and their practices, several bipartisan bills have also been proposed in the U.S. Senate and the U.S. House of Representatives addressing PBM activities. The FTC’s latest action against the top three PBMs over insulin prices signals that the pressure on PBMs is unlikely to subside. The FTC hopes this case will have broader market implications, potentially leading to lower prices for other drugs.
Hall Render routinely works with pharmacies, health plans and PBMs on a wide range of PBM issues and will continue to monitor state and federal developments in this area.
For further information or assistance regarding this topic, please contact:
- Julie Lappas at (317) 977-1490 or jlappas@hallrender.com;
- Matt Reed at (317) 429-3609 or mreed@hallrender.com; or
- Your primary Hall Render contact.
Special thanks to Antoine Neumann, Summer Associate, for his assistance in preparing this alert.
Hall Render blog posts and articles are intended for informational purposes only. For ethical reasons, Hall Render attorneys cannot—outside of an attorney-client relationship—answer specific questions that would be legal advice.
