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With the FTC’s more expansive approach to antitrust, PBMs are in the crosshairs

STAT News


The Democrats leading the Federal Trade Commission are hoping to expand the agency’s authority to crack down on unfair business practices — and the shift could have major implications for its ongoing scrutiny of pharmacy benefit managers.


The FTC has for years allowed mergers and business tactics that lower prices for consumers, even if they put small companies out of business. Now, under Chair Lina Khan, the agency is focused more on protecting competitors, especially small and medium businesses.


It’s a major philosophical shift in the world of antitrust enforcement, especially for industries whose practices the FTC polices, like PBMs. And those drug industry middlemen, which negotiate rebates with drugmakers in exchange for formulary placement, figure prominently into Khan’s plans to reinvigorate the FTC’s enforcement of fair competition. Already in 2022, the FTC opened a formal investigation into several major PBMs, including CVS Caremark, Express Scripts, OptumRx, and Humana, and their role in shaping prescription drug costs.


The new approach may have particular ramifications for the way the FTC regulates competition between PBMs and smaller, independent pharmacies. In addition to negotiating over prices and formulary placement with drugmakers, PBMs also contract with pharmacies to dispense drugs, and sometimes steer patients to their affiliated drugstores.


Independent pharmacies hope the FTC’s increased scrutiny will help stem pharmacy closures.


PBMs say the FTC’s scrutiny is misplaced, and that a broader study of the entire drug supply chain would be more illuminating. The middlemen, their trade group argues, are the only ones working to lower drug costs.


It’s not clear yet exactly how far the FTC will go with these new authorities, and it’s not clear when it’ll publish the results of its investigation. But antitrust experts told STAT that the shift could represent a major expansion of the agency’s powers — and could have big consequences for the broader drug supply chain.


“FTC’s power to challenge unfair conduct will be supercharged because of this change of policy,” said David Balto, former policy director of the FTC’s Bureau of Competition.

“If there’s an exclusionary network that drives consumers to PBM pharmacies, that could clearly be unfair.”


At the heart of the FTC’s new philosophy is a legal concept known as the “consumer welfare standard.” The idea, which has been the country’s overarching antitrust doctrine since the late 1970s, is that authorities should only worry about business practices that hurt consumers, with higher prices or less supply. Practices that might hurt competitors or increase unemployment don’t factor in.


Khan, who President Biden appointed to lead the FTC, has famously pushed for the agency to move away from that philosophy.


It’s clear, from the way she and other Democrats talk about PBMs, that the pivot will influence the ongoing investigation into the industry. Three PBMs — CVS Caremark, Express Scripts, and Optum Rx — manage about 80% of prescriptions written in the United States, according to the Health Industries Research Center, and they are all part of corporations that include large insurers. These large corporations influence which medicines are covered by insurance and how much patients pay out of pocket.


STAT Related: FTC will investigate pharmacy benefit managers and their role in prescription drug costs


Speaking at a National Community Pharmacists Association conference in October, Khan said decades of a permissive approach to mergers in the name of efficiency might’ve led to higher prices and less competition, “so we are in a moment of reassessment.”


“When you actually look at the empirical evidence and the research, it suggests that on a whole set of metrics, it’s actually independent community pharmacies that are outcompeting the big chains, be it on quality of service, be it on price, be it on wait times,” Khan said.


Similarly, Democrat-appointed Commissioner Alvaro Bedoya in September bemoaned PBMs’ treatment of small pharmacies. He said independent pharmacies are the only place in many rural areas to fill prescriptions, get shots, and get answers to medical questions, but “rural independent pharmacies are closing one after another after another.”


“What has this focus on efficiency meant for rural America?” Bedoya asked. “And what would it look like to return to fairness?”


FTC’s study of the industry will delve into PBM interactions with both drugmakers and pharmacies, but antitrust experts interviewed by STAT expect the new emphasis on fairness to apply more to their relationship with pharmacies, with whom PBMs directly compete.


A.J. Barbarito, an associate with the law firm Frier Levitt, said the FTC could target tactics that steer patients toward PBM-affiliated pharmacies or to pay independent pharmacies less to dispense drugs than it costs pharmacies to buy them. When the FTC requested public input on PBM business practices, pharmacist complaints about those practices flooded in, and Barbarito expects those responses to influence the commissioners.


“They would be more likely to go after the relationship between PBMs and pharmacies as opposed to drug manufacturers,” Barbarito said.


The PBM lobbying group Pharmaceutical Care Management Association declined to discuss the FTC policy shift, but in reference to the FTC probe of the industry, spokesperson Greg Lopes said the group is confident the analysis will confirm that PBMs lower prices for consumers. Lopes also pointed to figures from the National Community Pharmacists Association that show more pharmacies opened than closed between June of 2021 and June of 2022.


“The most effective study of issues around drug costs for consumers would examine the entire supply chain. PBMs are holding drug companies accountable by negotiating the lowest possible cost on behalf of consumers, and by driving and delivering local competition that consumers are demanding,” according to a PCMA statement.


The challenge to Democratic commissioners is that their plan runs counter to about four decades of legal precedent, according to both opponents and supporters of the agency’s new direction.


Case law tends to favor PBMs. Last summer, for example, a U.S. appeals court ruled that EpiPen maker Mylan didn’t violate antitrust law by paying PBMs to not cover a competing emergency treatment for allergic reactions, called Auvi-Q. Typically, more choice means cheaper prices, but the court said that in the health care market, the opposite can be true, because the rebates that drugmakers pay for favorable formulary placement lower costs for the insured.


“Choice comes at a cost,” the ruling states.


STAT Related: A CVS whistleblower lawsuit comes at a pivotal moment for the FTC’s probe of pharma and PBMs


Roy Englert, a partner at Kramer Levin who won that lawsuit over EpiPen rebates, said the FTC’s policy shift is an overreach. He argued that Congress hasn’t given the FTC power to make such big philosophical shifts, and that the new policy will ultimately lead to higher prices.


“What [the] FTC wants to do is the polar opposite of what the Supreme Court has said antitrust laws are all about,” Englert said.


Democrats disagree. David Vladeck, who ran the FTC’s Bureau of Consumer Protection, said the agency has, since its founding, had the power to regulate broader, less clear examples of “unfairness.” It just hasn’t taken that approach in the past, largely because there are decades of court cases that focused narrowly on prices.


“So it’s back to the future,” Vladeck said.


Vladeck also said consumers care about more than prices alone. Former FTC Chair William Kovacic, a Republican, seconded that opinion. He said the FTC is returning to caring about what’s good for citizens, not just what’s good for consumers in their role as buyers of goods and services.


“That’s unmistakably a shift,” Kovacic said.


STAT Related: FTC puts drugmakers and PBMs on notice that it will crack down on illegal rebate schemes


However, he said success would require a concerted effort, possibly across administrations, to appoint federal judges who back the FTC’s new direction and would uphold the arguments in court cases. Even then, he said, a majority of the U.S. Supreme Court would likely resist change.


Khan said at the pharmacist conference that Congress is positioned to help the FTC on this front, and she noted that there is bipartisan interest in reforming PBM practices. Senate Finance Committee Chair Ron Wyden (D-Ore.) has criticized PBMs for contributing to the closure of pharmacies in his state, and his office recently said he’s expressed “preliminary interest” in PBM reforms this year.


Sen. Chuck Grassley (R-Iowa), who used to chair the Finance Committee and is the top Republican on the Judiciary Committee, is also interested in PBMs. Grassley and Sen. Maria Cantwell (D-Wash.) introduced a bill last year that would stop some PBM practices that pharmacies dislike, including prohibiting PBMs from “unfairly” taking back pharmacies payments.


“There is a growing recognition that concentration of economic power and monopolization can undermine economic liberty and open markets in ways that are resonating beyond just one party,” Khan said.



About the Author: John Wilkerson, STAT Washington Correspondent

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