In a recent lawsuit, the State of Ohio has accused certain pharmaceutical benefit managers, or “PBMs,” of violating state antitrust laws. According to the complaint, the PBMs have leveraged their market dominance to enrich themselves in multiple ways at the expense of other market participants and consumers in Ohio.
By way of background, PBMs are intermediaries in the pharmaceutical transactional chain that manage prescription drug benefits for entities that provide such benefits—often health insurance companies, large employers, and union benefit funds. As we wrote in a previous blog post, a circuit court recently observed that PBMs’ negotiations with manufacturers can have pro-competitive effects because those negotiations can lead to lower drug costs. One way in which PBMs may help to lower costs is by inviting manufacturers to compete in a variety of ways, including for favorable placement on their formularies, which are lists of drugs covered by end-consumers’ health plans. For example, a manufacturer might offer a higher rebate on a prescription drug in exchange for the benefit plan not disadvantaging that drug versus other competing drugs.
In its complaint, however, the Ohio Attorney General alleges that certain PBMs have actually caused the price of pharmaceuticals to skyrocket and have harmed consumers through a distortion of the negotiation process. The complaint alleges that PBMs, which were introduced to lower drug prices, have become “the problem” by “morbidly manipulat[ing] both sides of the market, demanding higher drug prices while negotiating larger fees from the manufacturers.”
With respect to rebates, the complaint alleges that PBMs’ demands for steeper rebates have effectively caused manufacturers to set higher list prices. At the same time, Ohio alleges, PBMs have recategorized large portions of the money flowing from manufacturers as “administrative service fees” or similarly labeled payments, ensuring that they pocket money that would have otherwise flowed to the consumer. All the while, the complaint alleges, PBMs have allegedly withheld information from their constituents that would allow for audits of the rebate information, but shared information among themselves to fix and increase the prices of drugs.
As for the other side of the transactional chain—the pharmacies that dispense prescription drugs to patients—the complaint alleges that the PBMs have forced independent pharmacies to accept reimbursement rates significantly lower than what the pharmacies pay to acquire and dispense the drugs. At the same time, the complaint alleges, the PBMs do not reduce the amount they charge health plans, allowing them to “pocket[] the difference” that the pharmacies would have otherwise received.
The complaint names as defendants PBMs Express Scripts, Prime Therapeutics, and Humana Pharmacy Solutions. It also names as a defendant Ascent Health Services, a group purchasing organization of which Express Scripts is a controlling owner. It does not name PBMs CVS Caremark or Optum Rx, which, as the complaint alleges, together with Express Scripts handle approximately 75% of prescriptions nationwide.
The Ohio Attorney General’s complaint is but one of the many recent efforts by government actors to rein in PBMs’ perceived anticompetitive practices. Other states, including California, Oklahoma, Georgia, New Mexico, Kansas, Arkansas and Mississippi, have announced their own investigations into PBMs, and new legislation introduced in the Senate targets PBMs’ pricing practices and imposes new reporting requirements. Last summer, the FTC also announced a study of the PBM industry and released a policy statement previewing further investigations and enforcement actions against PBMs and other intermediaries.
We will continue to monitor this lawsuit and other developments in the prescription drug industry.
