*Billy Cadogan
I. Introduction
The United States began to spend significantly more on prescription drugs per capita compared to the rest of the world in the mid-1990s.[1] The increase in prices and the business practices within the prescription drug industry have gotten so out of hand that the Federal Trade Commission (FTC) filed a lawsuit against the three biggest pharmacy benefit managers (PBMs) for anticompetitive practices and market manipulation, alleging the PBMs steer patients toward more expensive drugs and exclude cheaper alternatives from their formularies.[2] The FTC filed suit against the three largest PBMs on September 20, 2024 for engaging in anticompetitive and unfair rebate practices which have led to artificially inflated prices and limited access to lower-priced alternatives.[3] The suit and FTC investigation have potential to bring transparency and fairness to the prescription drug market.[4]
II. The Problem
The three PBMs in the suit handle nearly 80% of all prescription drug claims in the United States—almost four out of every five prescription claims.[5] Additionally, five of the six largest PBMs are part of larger health insurance companies, allowing them to incentivize their own pharmacies and exclude competitors, causing prices to go up as access is restricted.[6] Allowing such vertical integration of PBMs, health insurers, distributors, and providers creates a dangerous situation: the vertical integration causes prices of life-saving medications to increase drastically for no reason beyond boosting profits.[7]
Vertical integration does not present such a significant problem in European countries because the European supply chains have government-controlled checks on prices to protect consumers.[8] It does not necessarily follow that the United States needs government-controlled price checks; however, requiring more transparency within PBMs may create enough accountability to stop PBMs from drastically increasing prices and engaging in other anticompetitive practices.[9]
III. Regulations Work
The Biden administration’s Inflation Reduction Act set price caps on Insulin at $35 a month for Medicare beneficiaries, but the cap does not extend to patients with private insurance.[10] The Biden administration also negotiated price cuts under Medicare for ten common prescription drugs.[11] Price negotiations and caps seem to step in the right direction to lower prescription prices for everyone.[12]
IV. Repercussions of FTC Investigation and Lawsuit
Actual effects and implications from the FTC’s investigation and looming lawsuit are not yet apparent.[13] The investigation could trigger stricter government regulations, whether from legislatures or specific agencies such as the Food and Drug Administration.[14] Stricter regulations may target PBMs’ anticompetitive practices.[15] Regulations could also focus on limiting the vertical integration that gives pharmaceutical companies more control over prescription drugs in almost every facet of the supply chain, including manufacturing, distributing, developing formularies, processing insurance claims, and pricing.[16] Regulations could force an indeterminate level of change upon vertically integrated PBMs, ranging from partial separation to complete disassembly and breakup.[17]
Stricter regulations offer an effective way to stop anticompetitive practices, or at least minimize the negative effects of monopolistic behavior.[18] The Affordable Care Act (ACA) demonstrates how legislation can improve prescription drug affordability; the ACA lowered the percent of low-income adults who cited cost as a reason for skipping prescription doses from 39% in 2010 to 24% in 2016.[19] In 2016, “14 percent of insured Americans reported that . . . they did not fill a prescription or skipped doses because of the cost, compared with two percent in the U.K.”[20] Rates of unfilled or skipped prescriptions increased to 33% when considering Americans who did not have continuous insurance coverage.[21]
V. Conclusion
More regulation within the prescription drug industry may help to increase transparency, combat anticompetitive behavior, or control prices.[22] The ACA demonstrates that government intervention is an effective tool to make drug prices affordable for consumers.[23] High, unaffordable drug prices cause consumers to skip their prescriptions.[24]
The prescription drug industry will not cut into its own profits to lower prices and make medications more affordable.[25] President-elect Donald Trump’s second administration, along with a Republican-controlled Congress, may have some alterations or even a complete repeal of the Inflation Reduction Act’s negotiation policy.[26] Robert F. Kennedy Jr., Trump’s nominee for Secretary of Health and Human Services, mentions setting drug prices by matching prices paid in Europe, so more changes could be on the way.[27] A solution to the affordability crisis will need to come from government interventions that break up or regulate PBMs to foster a more competition-friendly market.[28] The lawsuit by the FTC,[29] price negotiations by the Biden administration,[30] and transparency bills passed in several states[31] all provide steps in the right direction to make prescription medications more affordable; however, these are just the beginning stages to solving a problem that affects every American.[32]
*Billy Cadogan is a second-year day student at the University of Baltimore School of Law, where he is a Staff Editor of the Law Review and a Distinguished Scholar of the Royal Graham Shannonhouse III Honor Society. He received his bachelor’s degree in criminal justice from the University of Maryland. He is a licensed real estate agent in Maryland and hopes to work in real estate law in the future.
[1] Simon F. Haeder, Why the US has Higher Drug Prices than Other Countries, The Conversation (Feb. 7, 2019, 6:31 AM), https://theconversation.com/why-the-us-has-higher-drug-prices-than-other-countries-111256.
[2] Rita Numerof, How FTC’s Battle with PBMs Could Reshape the Pharmaceutical Industry, Forbes (July 20, 2024, 9:00 AM), https://www.forbes.com/sites/ritanumerof/2024/07/20/how-ftcs-battle-with-pbms-could-reshape-the-pharmaceutical-industry/. Pharmacy benefit managers administer prescription drug insurance benefits, establish drug formularies which put products in certain tiers or leave them out of coverage completely, “negotiate drug prices with pharmaceutical manufacturers, contract with pharmacies to dispense drugs, process pharmacy claims, and decide how much to reimburse pharmacies for dispensing prescriptions.” Id. The tier determines copay amounts. They serve as a middleman for insurers, pharmacies, drug manufacturers, and employers/plan sponsors. Id.
[3] FTC Sues Drug Middlemen for Artificially Inflating Insulin Drug Prices, Fed. Trade Comm’n (Sept. 20, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/09/ftc-sues-prescription-drug-middlemen-artificially-inflating-insulin-drug-prices; see also Caremark Rx, LLC, 2024 WL 4382226.
[4] Id.; Transparency seems to be the beginning stage of regulating prescription drug prices with New York, Connecticut, New Jersey, Florida, and Minnesota passing prescription drug price transparency bills. Rachel L. Lamparelli & Scott A. Memmott, New York Enacts Prescription Drug Price Transparency Bill, Morgan Lewis (Feb. 15, 2024), https://www.morganlewis.com/pubs/2024/02/new-york-enacts-prescription-drug-price-transparency-bill.
[5] Numerof, supra note 2.
[6] Id.
[7] Lindsay Whitehurst, Supreme Court Rejects Appeal From ‘Pharma Bro’ Martin Shkreli, Associated Press (last updated Oct. 7, 2024, 3:30 PM), https://apnews.com/article/martin-shkreli-pharma-bro-profits-supreme-court-7106c838e7939ae94d3d445270643662.
[8] Haeder, supra note 1.
[9] Numerof, supra note 2. Other anticompetitive practices include PBMs’ practice of threatening drug manufacturers with excluding their drugs from formularies causing the manufacturers to lose out on a significant percentage of sales. Federal Trade Commission, FTC Sues Prescription Drug Middlemen for Artificially Inflating Insulin Drug Prices (Sept. 20, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/09/ftc-sues-prescription-drug-middlemen-artificially-inflating-insulin-drug-prices.
[10] Annika Constantino & Mary Wellons, Federal Trade Commission to Sue Drug Middlemen Over Prices of Medications Including Insulin, Source Says, CNBC (last updated July 10, 2024, 6:08 PM), https://www.cnbc.com/2024/07/10/ftc-to-sue-pbms-over-drug-prices-including-insulin.html.
[11] Simon F. Haeder, Biden Administration’s Negotiated Price Cuts for 10 Common Prescription Drugs Likely to Save Medicare Billions, Beginning in 2026, The Conversation (Aug. 19, 2024, 8:25 AM), https://theconversation.com/biden-administrations-negotiated-price-cuts-for-10-common-prescription-drugs-likely-to-save-medicare-billions-beginning-in-2026-236978.
[12] This does not create any direct impact on private insurance plans. However, Medicare prices could serve as a benchmark price, or price could rise in private insurance plans to make up for the lowered Medicare price. KFF, While Medicare Drug Price Negotiations Don’t Apply to Private Insurance, 3.4 Million People with Employer Coverage Take at Least One of the Selected Drugs (Aug. 14, 2024), https://www.kff.org/health-costs/press-release/while-medicare-drug-price-negotiations-dont-apply-to-private-insurance-3-4-million-people-with-employer-coverage-take-at-least-one-of-the-selected-drugs/.
[13] Numerof, supra note 2.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Dana O. Sarnak, David Squires, Greg Kuzmak & Shawn Bishop, Paying for Prescription Drugs Around the World: Why Is the U.S. an Outlier?, The Commonwealth Fund 8 (Oct. 2017), https://www.commonwealthfund.org/sites/default/files/documents/___media_files_publications_issue_brief_2017_oct_sarnak_paying_for_rx_ib_v2.pdf.
[20] Id. at 6.
[21] Id.
[22] See Numerof supra note 2.
[23] Id.
[24] Id.
[25] See supra Part II.
[26] Mary Caffrey, The Trump Sequel: What to Expect on PBMs, 340B, Drug Pricing, and RJK Jr, AJMC (Nov. 12, 2024), https://www.ajmc.com/view/the-trump-sequel-what-to-expect-on-pbms-340b-drug-pricing-and-rfk-jr. President-elect Donald Trump picked Robert F. Kennedy, Jr. to serve as Secretary of the Department of Health and Human Services in the second Trump administration. See generally Consider This, Trump nominates RFK Jr. to remake healthcare. Nat’l Pub. Radio (November 15, 2024, 4:54 PM ET). https://www.npr.org/2024/11/15/1213159025/trump-nominates-rfk-jr-to-remake-healthcare.
[27] Id.
[28] See supra Parts III and IV.
[29] See supra Part I.
[30] See supra Part III.
[31] See Lamparelli and Memmott supra note 4.
[32] See Haeder supra note 1; see also Lamparelli and Memmott supra note 4.
University of Baltimore Law Review 