CVS Caremark, Express Scripts and Optum Rx are fighting back.
After the FTC filed a lawsuit in September, accusing the three major pharmacy benefit managers of engaging in anticompetitive rebating practices tied to insulin, the defendants have turned plaintiff. In November, they countersued the agency, claiming its lawsuit is unconstitutional.
The move could be a possible delay tactic, as well as a message to the FTC that they will leave no stone unturned in order to defend themselves, experts said. However, the PBMs’ argument may not be the most persuasive, while also reflecting a “level of arrogance,” according to one healthcare attorney.
He added that with this lawsuit, the PBMs are trying to “upend an established agency” that has been around a long time.
“[The FTC] exists with several kinds of policies or missions in mind, two of which are protecting consumers — and in the context of PBMs, we’re talking about patients as consumers — and also to promote healthy competition. The PBMs are saying, ‘Well, we think the agency is essentially entirely unconstitutional in terms of how it’s structured,’ [and] that’s a huge legal leap,” said Lucas Morgan, partner in Frier Levitt’s Healthcare and Life Sciences groups, in an interview.
Still, it’s difficult to predict who will come out on top in this battle, particularly with a more conservative Supreme Court and a change in administration.
The PBMs’ argument
In order to determine whether the PBMs’ lawsuit has any merit, it’s important to first understand why the FTC sued the PBMs to begin with.
According to the FTC, CVS Health’s Caremark, Cigna’s Express Scripts and UnitedHealth Group’s Optum Rx administer 80% of all prescriptions in the U.S. About a decade ago, the three PBMs created restrictive drug formularies (lists of preferred and non-preferred drugs) to exclude some medications from coverage, the FTC argued. This puts drug manufacturers at risk of not having their products covered for millions of Americans, and PBMs “began demanding higher and higher rebates from drug manufacturers in exchange for placing those drugs on their restrictive formularies,” the complaint alleges. Drug manufacturers began increasing the list price of their drugs in response.
The complaint also alleged that PBMs prefer high list price insulin products that have higher rebates over similar, low list price products.
For example, Caremark’s 2024 Standard Control Formulary seems to favor higher list price versions of Tresiba, while excluding the lower-cost options. Similarly, Express Scripts’ 2024 National Preferred Formulary appears to prioritize higher list price versions of Tresiba and Semglee, leaving out the more affordable versions. Optum Rx’s 2023 Premium Formulary preferred higher list price versions of Humalog and Lantus, while excluding their lower-priced alternatives (this was changed in 2024, however).
According to the PBMs, the FTC’s complaint calls for significant changes to current drug rebate contracts, requiring PBMs to overhaul their agreements with drug manufacturers, health plan sponsors and others. Their lawsuit also pointed to the fact that the FTC’s lawsuit is an administrative proceeding occurring in a venue that tends to favor the FTC, as opposed to one that’s in federal district court.
“This sweeping attempt to reshape an entire industry via law enforcement would never pass muster in a U.S. District Court,” the PBMs argued. “It is therefore unsurprising that the Commission brought this action in its own captive tribunal, where the Commission decides the allegations and the claims, sets the rules, does the fact-finding, chooses what the law is, and determines the outcome. Indeed, in the past 30 years, the Commission has found a violation in every action brought before it in its administrative proceeding, even as it notches many high-profile losses when it litigates in federal courts.”
The PBMs called the administrative proceeding “fundamentally unfair” and said it violates the constitution in three ways:
It involves private rights that should be handled in federal court by an independent judge, not within the Commission’s own in-house process
It protects its Commissioners and administrative law judges (ALJs) from presidential removal, which undermines democratic accountability and the executive branch’s authority
It lacks impartiality, with the same Commissioners acting as both prosecutors and judges, thereby violating the Due Process Clause of the Fifth Amendment
The PBMs’ lawsuit also argues that the FTC is attacking a segment of the drug distribution and benefit process that lowers drug costs and that it is seeking to interfere with PBMs’ ability to bring costs down. For example, the FTC seeks to ban PBMs from designing or assisting with designing a benefit plan that bases patients’ deductibles on the list price versus the net cost after rebates. This “would completely reshape how plan sponsors design prescription drug coverage in the United States,” PBMs argued in the lawsuit.
In separate statements, the PBMs made similar arguments and pointed the finger at drug manufacturers. David Whitrap, vice president of external affairs at CVS Health, said that its members pay less than $25 for insulin and noted that “any action that limits the use of PBM negotiating tools would reward the pharmaceutical industry and return the market to a broken state.”
A spokesperson for Express Scripts argued that the FTC is “trying to prevent us from doing a job we have done well for many years: putting pressure on pharmaceutical manufacturers to lower drug costs and help Americans live healthier lives.”
A spokesperson for Optum Rx, Elizabeth Hoff, said the lawsuit ultimately aims to require the FTC to resolve its claims “in a fair and unbiased forum instead of a proceeding where the FTC serves as prosecutor, judge and jury in violation of bedrock Constitutional principles.”
The FTC dismissed the lawsuit brought forth by the PBMs as a distraction.
“It has become fashionable for corporate giants to argue that a 110-year-old federal agency is unconstitutional to distract from business practices that we allege, in the case of PBMs, harm sick patients by forcing them to pay huge sums for life saving medicine. It will not work,” said Douglas Farrar, an FTC spokesperson, in an email.
Does the PBMs’ argument have any teeth?
While the PBMs are arguing that the administrative proceeding is inappropriate for this case, Morgan of Frier Levitt thinks the FTC is justified in its actions. He noted that the FTC’s complaint against the PBMs reflects the “hallmark” mission of the FTC: protecting consumers and ensuring healthy competition.
Morgan said that patients are possibly overpaying for drugs they need to survive, spurring the agency to action. Similarly, the agency was driven to address how lopsided the influence of the PBMs are with the big three controlling 80% of the marketplace.
“I think that it’s pretty easy for the FTC to establish that the work they’re doing in this case does align with promoting healthy competition,” Morgan said.
Another reason that the FTC is targeting the PBMs is because they are part of vertically integrated large healthcare companies with insurance operations, said Dr. Adam Brown, an emergency physician and founder of healthcare advisory firm ABIG Health, as well as a professor of practice at the University of North Carolina.
He added that the PBMs’ lawsuit seems to be a tactic to “gum up the system with lawsuits” to slow down the process.
Brown noted that there are reports of situations in which PBMs are directing patients to higher cost medications when there are other drugs that are cheaper, while the PBM is “reaping the benefit,” referencing a New York Times report.
Patients for Affordable Drugs, a patient advocacy organization, echoed Brown’s comments, arguing that the three PBMs are using the lawsuit against the FTC as a way to avoid accountability.
“Make no mistake, this countersuit is a distraction from the real issue: PBMs exploit their outsized influence in the pharmaceutical supply chain to boost profits at the expense of American patients,” said Merith Basey, executive director of Patients for Affordable Drugs, in an email. “Let’s be clear though PBMs are not the only culprits when it comes to high prices, however, drug manufacturers remain a driving force in ensuring Americans pay the highest prices in the world for their medications.”
When it comes to drug manufacturers, the organization argued that they play a significant role in drug prices by setting inflated list prices, which the FTC’s complaint also noted. For example, Ely Lilly’s Humalog list price has increased from $21 in 1999 to $274 in 2017.
It’s hard to predict for sure what the outcome of this legal battle will be due to the current political environment, experts noted. There is a chance this case could make its way to the Supreme Court, which is more conservative, according to Morgan.
“I think that the current Supreme Court would be interested in the opportunity to review a case like this,” he said. “I think that’s potentially where this is headed, is trying to see how quickly the PBMs can get this in front of the Supreme Court and say it’s time to take a look at the FTC. Now I’m not suggesting that means the Supreme Court would just entirely upend the FTC, but perhaps they suggest that certain structures or setups in the FTC are a problem from a constitutional standpoint.”
That’s assuming that the case gets up to the nation’s highest court to begin with.
With a change in administration, a case like this tends to lose momentum, especially if a new agency head is named and Lina Khan departs. A more conservative FTC may not be as interested in cracking down on large corporations.
But even that isn’t guaranteed because the previous Trump administration did express concerns over PBM practices, and scrutinizing the causes and the players contributing to high drug pricing is a bipartisan priority.
“You have the bipartisan support, but you also have bipartisan concern throughout the country from voters saying, ‘Hey, there are a lot of things we’re not going to agree on, but one thing we can agree on is we have concerns about the cost of healthcare in the United States,’ and that’s what this all comes back to,” Morgan said.
Photo: Valerii Evlakhov, Getty Images
