FTC Has Put PBMs, PBM Rebates in its Hot Seat

A week after announcing a study of the PBM industry, the Federal Trade Commission announced yesterday that it was stepping up possible enforcement actions targeting the industry's rebate practices. Rebates to exclude lower costs from formularies may constitute commercial bribery under the Robinson-Patman Act, the commission said.

On the heels of an announcement last week that it was going to conduct a thorough study of the pharmaceutical benefits management (PBM) industry, the Federal Trade Commission announced yesterday that it was ramping up possible enforcement action against PBMs, zeroing on rebate practice that, in the commission’s view, may constitute commercial bribes and restraint of trade.

The commission voted 5-0 to issue the six-page policy statement. The chair, Lina Kan, and three of the other commissioners, issued their own statements.

JC Scott, president and CEO of the Pharmaceutical Care Management Association, the trade association for PBM industry, issued a statement that said that the rebates had been studied multiple and the “the same conclusion reached – rebates lower prescription drug costs for consumers.” Scott’s statement said that PBM negotiations with drugmakers reduce consumer drug costs by nearly $1,000 per consumer each year, and that PBMs are expected to save health plans and consumers more than $1 trillion over the next 10 years.

Yesterday’s announcement came after the commission announced on June 7 that it was launching a study of the PBM industry. The commission has subpoena-like power to conduct such studies. As part of this one, commission is requiring the six largest PBMs to provide answers to a list of 38 questions about their businesses and business practices. Six PBMs receiving the questions that must answer are CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics. and MedImpact Healthcare Systems.

The possible connection between high list prices for insulin and rebates practices was mentioned in the overall policy statement and in the individual statements by the commissioners.

“…some have suggested that high rebates and fees to PBMs and other intermediaries may incentivize higher list prices for insulin and discourage coverage of the lowest-cost insulin products,” said the overall policy statement.

In her statement, Commissioner Rebecca Kelley Slaughter discussed the disproportionate burden of diabetes on Black and Hispanic people and that Black and Hispanic people are also make up a disproportionate percentage of people in the U.S. who don’t have health insurance or whose coverage exposes them to the burden of high list prices. “Exorbitant insulin pricing is even more disturbing from a racial and health equity standpoint,” wrote Slaughter.

Commissioner Alavro Martin Bedoya said in this statement that the focus on PBMs shouldn’t be taken as removing drug manufacturers for possible blame for high insulin prices: “Today’s statement may appear to focus on pharmacy middlemen — PBMs — but the statement very much focuses on both PBMs and manufacturers.”

In her individual statement, Kan said that that the wholesale price of insulin nearly tripled between 2009 and 2017. Without mentioning insulin specifically, Kan said that PBMs and other middlemen may exclude the lower-cost generics and biosimilar drugs from formularies to maximize rebates and fees.

“Such practices,” she said in her individual statement, “may violate the fundamental bargain at the center of the American prescription drug system, which is that brand drugs are given a period of patent exclusivity that is then followed by free and fair competition from generic or biosimilar alternatives at dramatically lower prices.”

The policy statement asserts that the commission has the power to take possible enforcement action against PBM rebates practices under the 1890 Sherman Act, the foundational antitrust law that prohibited monopolies and other anticompetitive business practices; the 1914 Clayton Act, which prohibits anticompetitive mergers and pricing; and 1936 Robinson-Patman Act, which prohibits discriminatory pricing and commercial bribery.


The press release about the commission’s overall policy statement says that “paying or accepting rebates in exchange for excluding lower cost drugs may constitute commercial bribery” under the Robinson-Patman Act.

“If buyers (say, an insurer and their insured customers) use an agent (say, a PBM) to negotiate on their behalf, and that agent takes payment from the seller (say, a drug manufacturer) this may create a conflict of interest,” Bedoya wrote in his statement. “It may also be a commercial bribery violating Robinson-Patman.”