Caremark, Express Scripts, and OptumRx Face FTC's Allegations of Rigging the Rebate System
On September 20, 2024: The Federal Trade Commission (FTC) has filed a lawsuit against three major pharmacy benefit managers (PBMs) — Caremark Rx, Express Scripts (ESI), and OptumRx — along with their affiliates. The FTC alleges that these companies engaged in unfair practices that artificially inflated the prices of insulin drugs, harming patients who rely on this life-saving medication. Below are the key points from the FTC's press release, explained in simple language:
Who Are the PBMs Involved?
Caremark Rx (affiliated with CVS Health)
Express Scripts (ESI) (affiliated with Cigna)
OptumRx (affiliated with UnitedHealth Group)
These companies control about 80% of prescription drug management in the U.S.
What Is the FTC Accusing Them Of?
The FTC claims that these PBMs:
Created a "rebate system" that forced drug manufacturers to increase insulin prices.
Excluded lower-priced insulin options from their drug lists (formularies) in favor of higher-priced, highly rebated versions.
Prioritized profits over patient needs, leading to higher out-of-pocket costs for vulnerable individuals.
The Broken Rebate System
PBMs make money by negotiating rebates (discounts) with drug manufacturers. The more expensive the drug, the higher the rebate and, in turn, the profit for PBMs. For example, Novo Nordisk sells Wegovy for about $1,350 a month, but PBMs negotiate a rebate (discount), say $450. The PBM keeps part of this rebate as profit. The higher the drug price, the bigger the rebate and the more profit for the PBM, which is why they often favor expensive medications like Wegovy over cheaper alternatives.
According to the FTC, this system led to an inflation of insulin list prices. Even when affordable insulin options were available, they were not included in drug formularies, making it difficult for patients to access them. For example, in Express Scripts' 2024 National Preferred Formulary Exclusions, it excluded the generic biosimilar glargine-yfgn (approximately $90–$100 per month) while recommending the branded Semglee (about $450 per month).
Alarming Increase in Insulin Prices
The average listing price of Humalog, a popular insulin, was $21 in 1999. By 2017, it had skyrocketed to $274 — an increase of over 1,200%. Typically, Humalog is not a Tier 1 drug, which is usually the least expensive option for patients covered by insurance. Instead, it is often classified as a Tier 3 drug, resulting in significantly higher costs for patients.
Similarly, Novolog U-100 by Novo Nordisk went from $122.59 in 2012 to $289.36 in 2018, with no pharmacological changes.
Impact on Patients
The FTC’s complaint highlights that many patients, especially those with deductibles and coinsurance, pay the full list price of insulin, rather than the discounted price after rebates.
The inflated list prices have made insulin unaffordable for one out of every four patients by 2019.
Vulnerable patients, including those who rely on high-deductible plans, often bear the burden of high prices, with some paying more than what insurers pay for the drug.
Real world story: Julia Blanchette, a research fellow, experienced this firsthand when her insurance shifted to a high-deductible plan. She recounted, "For the first few months of the year, the cost of my insulin exceeded my monthly wages." This financial strain forced her to allocate approximately $800 per month solely for insulin, highlighting the burden of paying full list prices due to insurance structures.
Statements from the FTC
Rahul Rao, Deputy Director of the FTC’s Bureau of Competition, stated that the actions of these PBMs have allowed them to "extract millions of dollars" at the expense of patients needing life-saving medication.
The FTC's lawsuit seeks to end these exploitative practices and restore competition to drive down drug prices.
The Role of Drug Manufacturers
The FTC also pointed out that drug manufacturers like Eli Lilly, Novo Nordisk, and Sanofi play a role in the high list prices.
While the current action focuses on PBMs, the FTC warned that drug manufacturers could also face legal action if they continue to engage in similar practices.
What Does This Mean for Consumers?
The lawsuit could lead to lower insulin prices if successful, benefiting millions of Americans who rely on this essential drug.
It’s part of a broader effort to fix a broken system where rebates have been prioritized over patient affordability, creating a market that rewards higher prices instead of competition.
Key Takeaways:
The FTC is suing the three largest PBMs — Caremark, ESI, and OptumRx — for practices that inflated insulin prices.
The rebate system used by these PBMs has caused insulin costs to soar, leaving patients with higher out-of-pocket expenses.
The lawsuit aims to bring transparency to the drug pricing system, holding PBMs and potentially drug manufacturers accountable for practices that hurt consumers.
PoundsPunch Comment:
The FTC’s lawsuit against big PBMs like Caremark, Express Scripts, and OptumRx is a bold move, but winning it won’t be a slam dunk. While the case highlights how these middlemen allegedly manipulated insulin prices by prioritizing high rebates over patient needs, proving that these practices were deliberately anticompetitive could get tricky. PBMs have long argued that rebates help lower net drug costs, and untangling that from price inflation claims won’t be easy.
Interestingly, during a recent congressional hearing, the CEO of Novo Nordisk also pointed the finger at PBMs, blaming their rebate demands for driving up insulin prices. It’s a reminder that the blame game isn’t one-sided—while PBMs are under fire, big pharma also plays a role in setting high list prices. Both sides have incentives to keep prices elevated, and that’s a big part of why insulin has become so costly.
In the end, the FTC has a tough road ahead, but if they can prove that these PBMs were exploiting the system at the expense of vulnerable patients, it could be a game-changer for drug pricing. It’ll be interesting to see how this plays out and whether it forces the industry to finally rethink its rebate practices.
Comments