Major Pharmacy Benefit Managers Sue FTC, Challenging Constitutionality of Insulin Pricing Case
Three of the nation’s largest pharmacy benefit managers (PBMs), CVS Health (CVS), UnitedHealth Group (UNH), and Cigna (CI), have filed a lawsuit against the Federal Trade Commission (FTC), alleging that the agency’s antitrust case concerning high insulin prices is unconstitutional. The lawsuit, filed in the U.S. District Court for the Eastern District of Missouri, marks a significant escalation in the ongoing legal battle between the FTC and the PBM industry, raising crucial questions about the FTC’s authority and the future of drug pricing regulation in the United States.
Key Takeaways:
- Constitutional Challenge: CVS, UnitedHealth, and Cigna argue the FTC’s administrative process violates their Fifth Amendment due process rights.
- Private Rights Dispute: The PBMs contend that the FTC’s claims involve private rights best litigated in federal court, not the agency’s internal court.
- “Fundamentally Unfair” Process: The companies criticize the FTC’s process as lacking democratic accountability due to the insulation of commissioners and judges from presidential removal.
- High Stakes for Insulin Prices: The case centers on allegations that PBMs manipulate the rebate system, inflating insulin costs for patients.
- Industry Dominance: The three PBMs involved control a substantial portion (approximately 80%) of the nation’s prescription drug market.
The FTC’s Case and the PBM’s Response
In September 2024, the FTC initiated an administrative lawsuit against CVS’s Caremark, Cigna’s Express Scripts, and UnitedHealth’s OptumRx, accusing them of employing a “perverse” rebate system that artificially inflates insulin prices. The FTC contends that these PBMs use their significant market power to negotiate rebates with drug manufacturers, ultimately benefiting themselves while driving up costs for consumers. The agency’s administrative process involves an internal hearing before an administrative law judge, followed by a final decision from the FTC commissioners.
However, the PBMs vehemently disagree with this characterization. In their lawsuit, they argue that the FTC’s administrative process is fundamentally flawed and violates their constitutional rights. Their complaint contends that “This sweeping attempt to reshape an entire industry via law enforcement would never pass muster in a US district court.” The core of their argument centers on the Fifth Amendment’s Due Process Clause and the claim that the FTC’s in-house court lacks the impartiality and accountability necessary for a fair hearing. They maintain that the case should be heard in a federal district court where they believe they have a greater chance of a fair and impartial hearing.
Due Process Concerns and the FTC’s Response
The PBMs’ lawsuit highlights concerns about the FTC’s internal administrative process. They argue that the administrative law judge and the FTC commissioners are essentially insulated from presidential oversight and, therefore, lack the necessary democratic accountability. This insulation, they contend, creates a significant risk of bias that undermines their right to due process. The companies claim that resolving such crucial issues about their business practices within the FTC’s internal system is inherently unfair and potentially damaging to their reputations and operations.
Responding to the lawsuit, FTC spokesperson Douglas Farrar stated, “it has become fashionable for corporate giants to argue that a 110-year-old federal agency is unconstitutional to distract from business practices that we allege, in the case of PBMS, harm sick patients by forcing them to pay huge sums for life saving medicine. It will not work.” This statement underscores the FTC’s firm stance on the validity of its administrative process and its determination to pursue its case against the PBMs.
The Role of Pharmacy Benefit Managers (PBMs)
PBMs occupy a crucial position within the U.S. pharmaceutical supply chain. They act as intermediaries, negotiating drug prices with manufacturers on behalf of health plans (insurance providers), processing pharmacy claims, and managing formularies (lists of covered medications). Their influence on drug pricing is undeniable. The three companies involved in this lawsuit—Caremark, Express Scripts, and OptumRx—collectively manage a substantial share of the nation’s prescription drug benefits, giving them considerable clout in negotiations.
The Rebate System and Its Critics
At the heart of the FTC’s case, and the PBMs’ rebuttal, is the rebate system itself. PBMs negotiate rebates (discounts) with drug manufacturers, creating incentives for manufacturers to set higher list prices knowing these discounts will be negotiated. Critics argue this structure artificially inflates drug costs for consumers, as insurers eventually pay a negotiated price derived from a higher list price, meaning patients bear some of the increased costs through higher premiums or co-pays. This system remains highly complex and opaque, frequently leading to uncertainty and accusations of manipulating prices to the detriment of patients, especially those with chronic conditions such as diabetes.
Previous Legal Maneuvers and Future Implications
This lawsuit represents the latest chapter in an escalating conflict between the PBMs and the FTC. A month before filing the current suit, CVS, UnitedHealth Group, and Cigna had demanded that FTC Chair Lina Khan and two other commissioners recuse themselves from the agency’s case, citing alleged bias. This request was denied by the FTC, further escalating the tension.
The outcome of this constitutional challenge will have considerable implications for both the pharmaceutical industry and the FTC’s regulatory authority. If the courts side with the PBMs, it could significantly limit the FTC’s ability to regulate the PBM sector and other industries using its administrative court process. This could potentially lessen the agency’s ability to curb anti-competitive behaviors. Conversely, an FTC victory could bolster the agency’s power and could lead to increased enforcement actions targeting practices deemed harmful to consumers.
This legal battle goes beyond the immediate dispute over insulin prices and directly impacts the ongoing debate about drug pricing in the United States. The high cost of prescription drugs, particularly insulin, has been a major concern, leading to calls for greater transparency and regulation within the pharmaceutical supply chain. This comprehensive suit compels a deeper discussion on issues of affordability, democratic accountability, and the scope of regulatory power. The coming months will undoubtedly reveal further developments in this pivotal legal showdown.
