FTC Probes Pharma and PBM Anti-Competitive Practices

Takes aim at actions that limit access to lower-cost drugs, calls for revamp of M&A-impact guidelines.

The effects of pharmaceutical company mergers and acquisitions on innovation, industry structure, and relationships with pharmacy benefit managers (PBMs) have become a prime target of the Federal Trade Commission (FTC) as factors contributing to high drug prices. Following a two-day public hearing on the impact of pharma industry consolidation on product development and marketing, the FTC announced plans to ramp up enforcement of PBM rebate and payment practices and its intent to take enforcement action against manufacturers and PBMs that engage in actions to reduce competition and boost costs to consumers.1

These developments stem from ongoing FTC efforts to assess PBM business practices, leading to the announcement earlier this month of a formal inquiry into the activities of six leading PBMs. Of particular interest is how these middlemen impact independent pharmacists and patient access and outlays for drugs, particularly for insulin.2 The FTC investigation focuses on the six largest PBMs in the industry: CVS Caremark, Express Scripts, OptumRx, Humana, Prime Therapeutics, and MedImpact Healthcare Systems. A key issue is whether greater vertical integration of these large PBMs with health insurance companies and mail order and specialty pharmacies limits where patients can purchase medicines and how much they have to pay at the pharmacy counter.

The probe of PBM rebates and fees aims to shed light on how drug manufacturers support schemes that can curb competition and raise drug costs to gain favorable formulary listings for a manufacturer’s products. The FTC says it will assess exclusionary rebates and formulary practices that limit access to lower-cost medicines, including generics, and notes that the payment or acceptance of rebates or fees in exchange for excluding lower cost-drugs from formularies may constitute commercial bribery. Of particular interest for the FTC is the impact on these arrangements on rising prices for insulin, a major concern for members of Congress and federal health agencies.3

Mergers and competition

Many of these issues were raised at the Commission’s recent two-day workshop on pharmaceutical industry M&As.4 The meeting on June 14-15 addressed the need to update or revise merger guidelines utilized by the FTC and Department of Justice (DoJ) antitrust division in evaluating the impact of proposed mergers on market concentration and potential drug innovation and marketing. Leading economists and antitrust experts presented their views, along with regulatory authorities from the EU and UK concerned about the broader global effects of industry consolidation.

The analysts noted that the traditional strategy for ensuring that a proposed merger does not increase market concentration is to require the companies involved to sell off certain products that treat the same disease or compete in the same market segment. However, several antitrust experts noted that such divestitures often were not effective in maintaining market competition and have led to a shrinking group of dominant drug manufacturers.

A related topic was the fate of divested assets and whether the purchaser went on to maintain competition in the field. Of particular interest is the impact of mergers on divestitures involving experimental drugs or biologics in the pipeline and the chances for successful development of a test product by the larger, merged firm. Panelists described the rise in “killer acquisitions,” where large pharmas purchase a startup company to reduce future competition for its own therapy in development and how scientists in an acquired firm often get pushed aside by new management. But many small biotech companies also maintain that being acquired by a larger pharma provided the financial security needed to continue R&D. One proposed remedy may be to monitor R&D levels and patent output by merged parties, an admittedly tricky business.

The workshop reflected more than a year of analysis of pharmaceutical industry competition and marketplace conditions by the FTC, DoJ, state attorneys general, Canada’s Competition Bureau, the European Commission Directorate-General for Competition, and the UK Competition and Markets Authority. The aim is to determine the need to adjust merger analysis related to proposed biopharma purchases in order to promote competition and prevent price increases arising from anticompetitive behavior.

FTC has recently notched some wins in challenging large mergers involving hospitals and healthcare systems, as seen in recent announcements that several large health systems were abandoning such proposed transactions. In opposing the consolidation of large healthcare entities serving overlapping markets, the Commission warned that such mergers could raise prices and reduce quality of care.

The experts analyzing pharma consolidation also addressed how mergers that create larger corporations gain added clout in negotiations with PBMs for favorable formulary positions. Several panelists noted that a manufacturer with a broad product portfolio that includes certain “must-have” blockbuster medicines can wield greater clout in gaining preferred PBM listings. The FTC plans to scrutinize how mergers of large and mid-size firms may generate advantages in dealing with PBMs and insurance companies, analysis likely to bolster efforts in Congress to enact reforms for certain PBM operations and policies.

At the same time, major drug manufacturers have challenged the increased market power of PBMs that allows them to exclude important medicines from formularies, including lower-cost generics and biosimilars. A report posted in May by the Pharmaceutical Research and Manufacturers of America (PhRMA) documents PBM formulary restrictions on dozens of drugs.5 Independent pharmacists and generic drugmakers similarly have testified at Congressional hearings on the anticompetition practices of PBMs. Drug costs, spending, and access ultimately will drive further debate and reform proposals on these issues.

References

  1. https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-ramp-up-enforcement-against-illegal-rebate-schemes
  2. https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-launches-inquiry-prescription-drug-middlemen-industry
  3. https://www.ftc.gov/system/files/ftc_gov/pdf/P221201SlaughterStatementRebateInsulin.pdf
  4. https://www.ftc.gov/news-events/events/2022/06/future-pharmaceuticals-examining-analysis-pharmaceutical-mergers
  5. https://phrma.org/resource-center/Topics/Access-to-Medicines/New-Report-Finds-Largest-PBMs-Restrict-Access-to-More-Than-1150-Medicines