FTC puts PBMs 'on notice' with enforcement policy surrounding drug rebates

The Federal Trade Commission (FTC) will boost enforcement and scrutiny against drug rebates that could block patient access to cheaper pharmaceuticals shortly after the agency announced a probe into pharmacy benefit managers.

The agency issued Thursday an enforcement policy statement (PDF) that targets rebates and fees which can prohibit competitors from targeting lower-cost drug alternatives. FTC outlined what rebates or fees could spark a move against a PBM or other intermediary, which could potentially result in fines or penalties.

“Today’s action should put the entire prescription drug industry on notice: when we see illegal rebate practices that foreclose competition and raise prescription drug costs for families, we won’t hesitate to bring out full authorities to bear,” said FTC Chair Lina Khan in a statement.

The FTC has charged that rebates could be driving up prices of vital drugs such as insulin, the list price of which has increased by more than 300% in recent decades. 

The agency’s policy statement said it will go after “exclusionary” rebates which cut off competition from a less expensive alternative like a generic or a biosimilar. It also targeted actions that entail “including prescription drug middlemen to place higher-priced drugs on formularies instead of lower-cost alternatives” in a manner that shifts costs to payers and patients.

Paying or accepting rebates or fees in exchange for excluding any lower-cost drugs on a formulary could also draw the agency’s attention.

“Some rebates and fees are conditioned on the volume of sales of certain high list price prescription medicines,” the agency said in a release. “In addition to other factors, some have suggested that high rebates and fees to PBMs and other intermediaries may incentivize higher list prices for drugs and discourage coverage of the lowest-cost products.”

Rebates are a common tool used by PBMs and insurers, especially those on Medicare Part D. But the method has garnered increased scrutiny from pharmacies and the prescription drug industry that say the rebates are used to pad profits for PBMs and that the entities won’t put pharmaceuticals on their formularies without a higher rebate. 

The PBM industry group Pharmaceutical Care Management Association (PCMA) slammed the FTC’s statement, saying rebates have been a tool that can lower drug costs.

“Drug manufacturers alone set and raise drug prices, and PBMs are holding drug companies accountable by negotiating the lowest possible cost for drugs, including insulins, on behalf of patients,” the group said in a statement.

PCMA wants the federal government to examine the entire drug supply and payment chain, especially as drugmakers have hiked prices “by 159% over the past 10 years.”

FTC’s policy statement is the latest action the consumer enforcement agency has taken against the PBM industry this month.

The agency has demanded documents and records on business practices from six major PBM giants. The FTC wants to find out whether vertical integration in the industry between insurers and PBMs has affected patient access to prescription drugs and costs.