The FTC’s statement is just another example of the agency implementing increased enforcement pressure under the leadership of Chair Lina Khan, with a focus on drug pricing and vertically integrated actors across the pharmaceutical supply chain as well as increased scrutiny of PBM practices.
Discussion
In a press release, the FTC explains that the PBM statement is a “response to PBMs’ continued reliance on older FTC advocacy materials that opposed mandatory PBM transparency and disclosure requirements.” In her July 20, 2023 individual statement, FTC Chair Lina Khan urges the public “not to continue to cite or rely on these outdated comments, reports, and studies” until new guidance is released. The “outdated” guidance at issue in the PBM statement includes nine advocacy letters published between 2004 and 2014 that advocated against proposals to increase regulatory oversight and transparency of PBMs, as well as two dated reports – a 2004 joint DOJ/FTC report and a 2005 FTC study on PBMs1– that the agency considers to “no longer accurately reflect the current state of the PBM industry.”
In its PBM statement, the FTC cites the “significant” changes the industry has undergone over the past twenty years, including “increased vertical integration and horizontal concentration; the growth of PBM rebates, list prices and [direct and indirect remuneration (DIR)] fees; and the expiration of prior FTC Consent Orders.” The PBM statement “discourages reliance” on the agency’s past PBM guidance until the FTC has completed its 6(b) study of PBMs which the agency announced more than a year ago in June 2022 and that remains ongoing.”2
Looking ahead
What is implicit in both the PBM statement and Chair Khan’s individual statement is that increasing PBM transparency and scrutiny of vertically integrated players is likely to be included as a policy goal made in any report stemming from the agency’s 6(b) study. Chair Khan noted that the FTC is considering a policy recommendation to promote transparency that would mandate disclosure requirements between PBMs and payors (such as large employers) and health care plans. Chair Khan suggests that, given the “extensive vertical integration” among PBMs and the entire drug supply and payment chain, such a disclosure mandate could work to mitigate the “severe information disadvantage” felt by employers and other payers in the marketplace. Khan has previously raised concerns about the fact that “largest PBMs are now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies.”3 The PBM statement, along with the new guidance with respect to vertical mergers included in the Draft Merger Guidelines issued by the FTC and DOJ on July 19, 2023, reflect significant skepticism of vertical integration, and signal that vertical transactions are likely to be scrutinized closely in the future (at least for the remainder of the present administration).
It remains to be seen what changes will be included in any new guidance stemming from the agency’s 6(b) study of PBMs. Until these findings are published, stakeholders would be prudent to accept the FTC at its word that “reliance on the Commission’s conclusions in certain prior statements and reports may be misplaced.”
Authored by Ilana Kattan, Ashley Ifeadike, and Jill Ottenberg.
References
1 The 2005 study concluded that “PBMs’ use of owned mail-order pharmacies generally is cost-effective for plan sponsors,” and that from 2002-2003 “prescription drug plan sponsors generally paid lower prices for drugs purchased through PBM-owned mail-order pharmacies than for drugs purchased through mail-order or retail pharmacies not owned by PBMs.”
2 FTC Chair Khan said that the study is intended to “shine a light” on the business practices of PBMs to determine their “impact on pharmacies, payers, doctors, and patients.” The PBM statement characterizes this study as a “culmination of the FTC’s long-standing and bipartisan interest in promoting competition in pharmaceutical markets, its concerns about how PBMs may be using market power to undermine competition from independent pharmacies, and its concern about the role of PBMs in determining the prices consumers pay for prescription drugs, including the impact of PBM rebates.
3 Statement of Chair Lina M. Khan Regarding 6(b) Study of Pharmacy Benefit Manager (Jun. 8, 2022).
