In a groundbreaking move that is becoming more common under the current FTC regime, the Federal Trade Commission has launched a legal assault on the three largest prescription drug benefit managers (PBMs) in the United States, accusing them of artificially inflating insulin prices and engaging in unfair practices that harm vulnerable patients. This action marks a significant step in addressing the skyrocketing costs of life-saving medications and sheds light on the complex, often opaque world of pharmaceutical pricing.

The FTC’s complaint targets Caremark Rx (owned by CVS Health), Express Scripts (ESI, owned by Cigna), and OptumRx (owned by United Health Group), along with their affiliated group purchasing organizations (GPOs). These PBMs, known as the “Big Three,” collectively control about 80% of all prescriptions in the country, wielding enormous influence over drug pricing and availability.

At the heart of the FTC’s allegations is a perverse rebate system that prioritizes high rebates from drug manufacturers, leading to artificially inflated insulin list prices. This system has allowed PBMs and GPOs to line their pockets while forcing certain patients to pay higher out-of-pocket costs for insulin, a medication critical for millions of Americans with diabetes.

The stark reality of insulin pricing is laid bare in the FTC’s complaint. In 1999, the average list price of Humalog, a brand-name insulin manufactured by Eli Lilly, was a modest $21. Fast forward to 2017, and that same medication’s list price had soared to more than $274 – an astronomical increase of over 1,200%. This dramatic price hike has had devastating consequences, with one out of every four insulin patients unable to afford their medication by 2019.

The FTC’s Deputy Director of the Bureau of Competition, Rahul Rao, didn’t mince words when describing the situation: “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.”

But how did we get here? The FTC’s complaint alleges that the problem began in 2012 when PBMs started creating exclusionary drug formularies. Before this, formularies were more open, covering many drugs. The PBMs, leveraging their size, began threatening to exclude certain drugs from their formularies unless manufacturers provided higher rebates in exchange for favorable placement.

This created a perverse incentive structure. Instead of competition driving prices down, as one might expect, manufacturers were driven to increase list prices to provide larger rebates and fees necessary to compete for formulary access. A Novo Nordisk Vice President was quoted as saying that PBMs were “addicted to rebates.”

The situation worsened when lower list price insulins became available. According to the FTC, the PBMs systematically excluded these more affordable options in favor of identical high list price, highly rebated versions. One PBM Vice President allegedly acknowledged that this strategy allowed the Big Three to continue to “drink down the tasty … rebates” on high list price, highly rebated insulins.

This rebate system has particularly devastating effects on vulnerable patients. Those with deductibles and coinsurance often must pay the unrebated higher list price and do not benefit from rebates at the point of sale. In some cases, these patients may pay more out-of-pocket for their insulin than the entire net cost of the drug to the commercial payer.

The FTC’s action against these PBMs is a significant step, but it’s important to note that they’re not the only players in this complex system. The FTC’s Bureau of Competition has made it clear that drug manufacturers like Eli Lilly, Novo Nordisk, and Sanofi also play a troubling role in driving up list prices of life-saving medications like insulin.

This isn’t the first time these issues have been brought to light. In fact, Uprise RI has previously reported on the role of PBMs in drug pricing. In March 2022, we published an article titled “Pharmacy Benefit Managers: Mystery Middlemen Managing Your Prescription Drugs,” which explored the often-overlooked role these entities play in the pharmaceutical supply chain.

More recently, in July 2024, we reported on a bombshell FTC report accusing CVS of a massive drug price manipulation scheme. This latest action by the FTC seems to be a continuation of their efforts to address systemic issues in pharmaceutical pricing.

The FTC’s complaint alleges that Caremark, ESI, and Optum, along with their respective GPOs, have violated Section 5 of the FTC Act by engaging in unfair methods of competition and unfair acts or practices. The Commission voted 3-0-2 to file the administrative complaint, with two commissioners recused.

It’s important to note that this is just the beginning of the process. The issuance of the administrative complaint marks the start of a proceeding where the allegations will be tried in a formal hearing before an administrative law judge.

As consumers and patients, we should pay close attention to the outcome of this case. The FTC’s action could potentially lead to significant changes in how insulin and other prescription drugs are priced and distributed in the United States. It’s a complex issue, but one that directly affects the health and financial well-being of millions of Americans.

In the meantime, the FTC encourages consumers to learn more about how competition benefits them and to file antitrust complaints if they suspect unfair practices. As this case progresses, it will undoubtedly shed more light on the intricate and often opaque world of pharmaceutical pricing, potentially paving the way for a more transparent and fair system in the future.