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Increased Focus on PBMs and Federal Litigation Update

July 13, 2022

For more information about this blog post, please contact Khaled J. KleleRyan M. MageeConnor Breza, William R. Meiselas or Labinot Alexander Berlajolli.

The FTC Signals Increased Enforcement Against Prescription Drug Rebate Programs

The Federal Trade Commission (“FTC”) issued an enforcement policy statement on June 16, 2022 announcing that it will increase enforcement against any illegal bribes and rebate schemes that block patients’ access to competing lower-cost drugs. These rebates are sometimes used so that certain drugs are placed on formularies to ensure those drugs are covered by insurance. Some of the rebates and fees cited by the FTC are conditioned on the volume of sales of certain high list price prescription medicines such as insulin in particular.

The FTC raised concerns that high rebates and fees to pharmacy benefit managers (“PBMs”) and other intermediaries act to incentivize higher prices for affected drugs while also discouraging coverage of other lower cost products. Specifically, the FTC has expressed concern that rebates are driving up the price of insulin since the list price of insulin has increased by over 300 percent over the past twenty years.

In its enforcement policy statement, the FTC asserts that it “intends to closely scrutinize the impact of rebates and fees on patients and payers to determine whether any of these provisions have been violated.”

Bipartisan Bill to Increase PBM Transparency

The bipartisan Pharmacy Benefit Manager Transparency Act of 2022 was introduced in the United States Senate on May 24, 2022. This law would allow the FTC to further regulate PBMs and increase drug pricing transparency. The law would regulate certain disfavored methods such as spread pricing and payment clawbacks.

If passed, this legislation would allow the FTC and state attorneys general to impose civil penalties on PBMs for any violations plus an additional penalty of up to $1 million. This law would also require PBMs to file an annual report with the FTC on how they charge payers and pharmacies for prescription drugs.

The proposed law also includes certain affirmative defenses for PBMs including that the conduct was non-pretextual and reasonably necessary to: (1) prevent a violation of or comply with federal or state law; (2) protect patient safety; or (3) protect patient access.

U.S. Supreme Court Rejects UnitedHealthcare CMS Overpayment Rule Appeal

On June 21, 2022 the U.S. Supreme Court denied UnitedHealthcare’s petition for a writ of certiorari seeking review of a U.S. Court of Appeals for the District of Columbia Circuit reversal of a 2018 decision that vacated Medicare's overpayment rule. The rule in question requires insurers to refund payment to the Centers for Medicare & Medicaid Services (“CMS”) within 60 days if the insurer learns a diagnosis lacks medical record support.

UnitedHealthcare’s primary argument was that the overpayment rule was subject to “actuarial equivalence.” The D.C. Circuit Court ruled that actuarial equivalence does not apply to the overpayment rule, and found that there was no legal basis for UnitedHealthcare’s claim. Specifically, the D.C. Circuit Court held that “[e]ven if actuarial equivalence applied as UnitedHealth suggests, it would be UnitedHealth's burden to show the systematically skewed inaccuracies on which its theory depends, which it has not done.”

The center of the dispute involved audits conducted by the Department of Health & Human Services (“HHS”), which determined that more than 40% of the risk scores in each of two UnitedHealthcare plans were inaccurate as a result of unsupported diagnoses. HHS has estimated that the impact on payments for those two contracts is greater than $500 million.

U.S. Supreme Court Reverses 340B Program Cuts in Favor of Hospital Groups

On June 15, 2022 the U.S. Supreme Court reversed the decision of the D.C. Circuit Court in favor of a group of hospitals challenging HHS’ $1.6 billion cut to the 340B program under the Medicare Outpatient Prospective Payment System. The 340B Program is a drug price control program that allows certain qualifying providers serving uninsured and low-income patients to purchase outpatient drugs from manufacturers at discounted prices.

The D.C. Circuit Court had previously held that HHS had the authority to make these cuts but the unanimous decision of the U.S. Supreme Court held that HHS may not vary the reimbursement rate for 340B hospitals absent a survey of hospitals’ acquisition costs. As such, the Supreme Court held that, “HHS's 2018 and 2019 reimbursement rates for 340B hospitals were therefore contrary to the statute and unlawful.”

Our Team

Khaled John Klele

Khaled John Klele

Labinot Alexander Berlajolli

Labinot Alexander Berlajolli

William R. Meiselas

William R. Meiselas

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