PBM Antitrust Watch: Key Developments in Ongoing Litigation

The cost of insulin has skyrocketed in recent years, sparking a wave of legal action against Pharmacy Benefit Managers (PBMs). These companies, which manage prescription drug benefits for health insurers, are now facing intense scrutiny from federal regulators and plaintiffs.

In response, the Federal Trade Commission (FTC) has launched a significant investigation, culminating in a lawsuit against the three dominant PBMs, Caremark, Express Scripts, and Optum, which together handle over 80% of U.S. prescriptions. 

Meanwhile, a series of plaintiff lawsuits have emerged, further challenging these companies on grounds of market manipulation and antitrust violations.

This article explores the growing antitrust battle against PBMs, examining the legal theories behind these cases and what’s to come. Understanding these developments is crucial as this litigation trend gains momentum, regardless of your role in the legal landscape.

FTC PBM Investigation: From Report to Lawsuit

The Federal Trade Commission began a complete investigation of PBM practices in June 2022. This marked a major change in how they regulated the industry. The investigation targeted the six largest PBMs that control about 95% of U.S. prescriptions. These companies had to provide detailed records of their business practices within 90 days.

Progress of the FTC's approach

The FTC's view of PBMs changed dramatically throughout 2024. The agency had long seen PBMs as entities that promoted competition. However, they released two crucial reports that showed troubling industry practices. The second report looked at more than 50 medications dispensed between 2017 and 2022.

Key findings in the second FTC report

• The "Big Three" PBMs: Caremark, Express Scripts, and OptumRx made USD 7.30 billion in additional revenue from specialty generic drug markups between 2017 and 2022. 
• These PBMs also earned USD 1.40 billion through spread pricing practices. 
• Plan and patient costs rose by 21% for commercial claims and about 14-15% for Medicare claims.

The insulin pricing focus

The FTC later sued the three largest PBMs over their insulin pricing practices. The complaint states these companies created a "perverse drug rebate system" that artificially raised insulin prices while keeping lower-cost alternatives out. This strategy hurts vulnerable patients severely. By 2019, one in four insulin patients could not afford their medication.

Express Scripts' countersuit against the FTC

Cigna Group’s subsidiary, Express Scripts, fought back against the FTC with a legal challenge on September 17, 2024. Their 58-page complaint points out that 75% of the FTC's report citations came from public sources instead of investigation data. 

The company claims the FTC ignored "millions of documents and terabytes of data" they provided during the investigation. The lawsuit questions FTC Chair Lina Khan's involvement because of her previous writings and connections with pharmacist lobbying groups.

The legal fight grew more intense as Express Scripts pushed for the withdrawal of the July 2024 report. Andrea Nelson, chief legal officer for The Cigna Group, claimed it could damage the healthcare system by removing important checks and balances. However, The FTC stands firm that PBM practices have substantially affected drug pricing and market competition.

Understanding the Legal Theories in PBM Lawsuits

Plaintiffs have stepped up their legal challenges against pharmacy benefit managers with multiple liability theories. The FTC's enforcement policy statement shows several core legal frameworks that shape these cases.

Anticompetitive rebating practices

The FTC claims PBMs break Section 5 of the FTC Act through unfair rebating schemes that block cheaper alternatives. These deals might break trade restrictions under Section 1 of the Sherman Act and unlawful monopolization under Section 2. 

PBMs earn huge revenues from pharmaceutical manufacturers' rebates, as some industry leaders have noted that PBMs became "addicted to rebates".

Vertical integration concerns

The merger of PBMs with insurers and pharmacies has created heavy market concentration. The top three PBMs now handle nearly 80% of all U.S. prescription claims. This merger lets PBMs direct patients to their own pharmacies. These affiliated pharmacies often get 20 to 40 times higher reimbursement rates for specialty generics. 

The FTC report shows how PBMs force complex, one-sided contract terms on independent pharmacies. This makes reimbursement rates hard to predict.

Breach of fiduciary duty claims

Class actions against Fortune 50 employers have highlighted PBMs' alleged ERISA fiduciary duty breaches. PBMs charged between 5,000% to 10,000% markup for certain drugs in some cases. The lawsuits claim plan fiduciaries failed to assess excessive PBM fees. They allowed traditional pricing models that put rebates ahead of cost savings.

Price fixing allegations

Independent pharmacies filed class action lawsuits that claim illegal price-fixing between PBMs and discount card companies. These cases focus on PBMs' market power as they control nearly two-thirds of all prescriptions nationwide. 

An arbitrator found Prime Therapeutics violated antitrust laws through horizontal price-fixing with Express Scripts. This resulted in a USD 10.3 million verdict.

Analysis of Market Impact

Findings by non-profits and regulatory bodies show how PBMs utilize their market position through complex contracts, hidden pricing methods, and strategic formulary management to control drug access and pricing.

• Economic research shows the widespread effects of PBM practices. RAND Corporation found that U.S. insulin list prices were 10 times higher than other nations. 
• A report was prepared by the United States House Committee on Oversight and Accountability Staff claiming that PBMs moved some operations to Switzerland and Ireland through their GPOs, possibly avoiding transparency rules. 
• In the FTC’s Interim Staff Report, research proves PBM-affiliated pharmacies get 80-90% higher reimbursement rates than unaffiliated pharmacies for similar drugs.

Emerging Class Action Trends Against PBMs

PBM practices face unprecedented legal challenges as class action lawsuits continue to rise. Three distinct groups of plaintiffs lead these legal battles that signal a fundamental change in how courts examine PBM operations.

Independent pharmacy claims

Independent pharmacies have taken bold legal steps through multiple class actions. Recent lawsuits target GoodRx and major PBMs including CVS Caremark, Express Scripts, MedImpact, and Navitus. The cases point to complex price-fixing schemes that force pharmacies to pay full medication costs plus extra fees. 

Patient-driven litigation

Patient lawsuits now focus on copay assistance programs. New class actions claim violations of both ERISA and RICO statutes. Patients challenge PBM rules that stop manufacturer copay assistance from counting toward deductibles and out-of-pocket maximums. 

Self-insured health plans as plaintiffs

We anticipate a possibility that businesses and organizations that operate self-insured healthcare plans may emerge as plaintiffs in future litigation challenging PBM practices. Given that self-insured entities bear direct financial responsibility for employee healthcare costs, they could be positioned to assert claims that PBM contractual arrangements and opaque pricing mechanisms contribute to undue cost inflation. 

These entities may argue that the lack of transparency and potential overcharging by PBMs violates principles of fair dealing and contractual fairness, thereby imposing an unjustified financial burden on self-insured plans. 

The Evolving Battle Over Drug Pricing

The PBM industry faces major changes through ongoing regulatory pressure and private lawsuits. State laws make things even more complex. Lawmakers in multiple states have already proposed over a 100 PBM-focused bills. These changes show we're just at the start of this crucial legal fight over drug pricing and market competition.

Both sides face the evolving landscape of healthcare regulation and market dynamics. Plaintiff teams must assemble robust evidence to demonstrate how opaque pricing structures and questionable rebate strategies contribute to inflated drug costs, while defense attorneys are tasked with articulating the inherent complexities and contractual nuances that characterize PBM operations.

Lawyers need a complete understanding to handle these intricate cases well. This holds true whether they work for PBMs or plaintiffs. Rain intelligence helps track new litigation patterns as they emerge, ensuring you stay one step ahead.