In September 2024, the FTC sued three pharmacy benefit managers (PBMs), Caremark, Express Scripts, and OptumRx, for artificially inflating the cost of insulin drugs. The FTC alleges that these actions force patients to pay higher out-of-pocket costs for insulin. This article discusses the role of PBMs and the allegations made in the FTC lawsuit against pharmacy benefit managers.
What Are PBMs?
A pharmacy benefit manager (PBM) is any entity that performs pharmacy benefit management services for health plans, unions, large employers, and government entities. PBMs manage prescription drug benefits programs. The role of PBMs has expanded from health plan insurance claims processing to include activities as varied as claims adjudication, development and management of pharmacy networks, setting co-pays, determining the composition of drug formularies, and setting the criteria for prior authorization and what pharmacies are covered under a patient’s health insurance plan.
PBM services also include negotiating or administering rebates, discounts, or similar incentives on behalf of health plans.
PBMs are often referred to as “middlemen.” On one side, there is the health plan, for whom the PBM works, and on the other side, there are pharmacies, whom the PBM reimburses for dispensing prescriptions. The three largest PBMs, Caremark, Express Scripts, and OptumRx, hold nearly 80% of the prescription benefits market in the U.S.
Are PBMs Covered by HIPAA?
Under HIPAA, a pharmacy benefit manager (PBM) can be a “covered entity” if it meets the definition of “covered entity” (that is, if it is a provider engaging in one or more HIPAA transactions, a health plan, or a healthcare clearinghouse). If a pharmacy benefit manager is providing services to patients through managed care networks, it is likely that the PBM is acting as a business associate of a health plan. PBMs may also be business associates of healthcare providers.
FTC Lawsuit Against Pharmacy Benefit Managers: What Does the FTC Allege in its Lawsuit?
Beyond being regulated by HIPAA, PBMs are subject to regulation by the Federal Trade Commission (FTC), which enforces anti-competition and deceptive trade practice laws. In September 2024, the FTC sued Caremark, Express Scripts, and OptumRx, for engaging in alleged anticompetitive and unfair rebating practices.
According to the FTC, these actions have:
- Artificially inflated insulin drug list prices (the list price of a prescription drug is the lowest price a manufacturer will sell a drug for, regardless of the package size; it is the price that appears in a pharmacist’s computer)
- Impaired access to lower list price products
- Shifted the cost of high insulin prices to the most vulnerable patients
FTC Lawsuit Against Pharmacy Benefit Managers: What Are They Up To (Allegedly)?
PBMs wear many hats. PBMs determine the prescription drug prices that insurers pay and the payments that pharmacies receive. PBMs also negotiate rebates and discounts from drug manufacturers for the health insurance plans they work with.
According to a 2022 FTC press release, most consumers have health insurance that covers some part of their prescription medicine costs. These health plans, usually through PBMs or other middlemen, use “formularies” to define which medicines they will cover.
In its lawsuit, the FTC alleges that PBMs negotiate rebates with drug companies. Rebates involve the drug company giving a PBM a refund on the price of a drug in exchange for favorable placement (“preferred tier placement”) on the PBM’s formulary. If a drug is included in a preferred tier, the rebate will likely be higher—meaning, in theory, the potential for lower copayments for employees.
The lawsuit alleges that the rebates are frequently conditioned on a drug staying in a preferred tier. The FTC alleges that PBMs don’t just negotiate the rebates. PBMs, allegedly, often keep part or all of the rebate that they negotiate. Generally, the more expensive a covered drug is, the higher the rebate is.
The FTC alleges that even when lower list price insulins became available that could have been more affordable for vulnerable patients, the PBMs systematically excluded them in favor of high list price, highly rebated insulin products. These strategies, the FTC alleges, have enriched the PBMs, while resulting in vulnerable patients having to pay higher out-of-pocket costs for insulin medication.
FTC Lawsuit Against Pharmacy Benefit Managers: The Remedy
The FTC’s complaint seeks to stop what it views as unfair competition and unfair practices under Section 5 of the FTC Act by seeking a court order declaring that the practices are illegal.
How Can the Guard Help with HIPAA Compliance?
Compliancy Group’s healthcare compliance tracking solution, The Guard, contains a number of tools that HIPAA-covered entities, both small and large, can use to monitor their compliance with the HIPAA Privacy, Security, and Breach Notification Rules. These tools include QuickStart guides, template policies, self-audits, training, and vendor and incident management. Pharmacy benefit managers can use The Guard to develop and maintain compliance programs that safeguard patient protected health information (PHI).
