Wealthy Democratic donors, seemingly reinvigorated by the new-look presidential race, are publicly expressing contempt for Federal Trade Commission (FTC) Chair Lina Khan, one of the nation’s key antitrust watchdogs.
The goal, it appears, is to flex financial power and persuade Vice President Kamala Harris to remove Khan from her post if elected to office and to move Harris away from a Biden agenda they see as sour toward business-friendly deals.
Ousting Khan could have significant implications on the future of antitrust. In healthcare, that could mean a strategic shift in how pharmacy benefit manager (PBM) investigations are approached by the country’s premier competition protection agency.
It is also sparking a contentious, public debate on Khan’s effectiveness as chair.
“It’s been revolutionary what Khan has done on PBMs,” said Matt Stoller, director of research for the American Economic Liberties, an anti-monopoly think tank.
“I can say that to me, I think the commissioner has been right on PBMs [but] wrong on tech mergers,” said Cost Plus Drugs’ billionaire founder Mark Cuban, a vocal critic of PBMs and proponent of Harris’ campaign for president, in a statement to Fierce Healthcare.
Intense scrutiny of PBMs
Much of the FTC’s energy during Lina Khan’s reign has been spent assessing the world’s biggest tech giants including Amazon, Google and Apple, but, in June 2022, the agency launched an inquiry into the six largest PBMs in the country: CVS Caremark, Express Scripts, OptumRx, Humana Pharmacy Solutions, Prime Therapeutics and MedImpact Healthcare System.
Khan, and many bipartisan members of Congress, suspect PBMs are responsible for rising prescription drug prices, the closure of independent pharmacies and other unethical business practices due to vertical integration with health insurers.
Last month, the FTC released an interim staff report, arguing top PBMs overcharge patients for cancer drugs and steer patients toward its pharmacies. Some of the PBMs have not fully complied with the subpoenas, which could result in legal action, the agency said.
The report stirred up discontent among some industry observers and the PBMs. They said the report did not prove the FTC’s claims and used limited data while relying too heavily on anecdotes.
“It’s really an embarrassment given the many able economic and policy researchers on staff at the agency,” said Dan Gilman, Ph.D., senior scholar of competition policy at the International Center for Law & Economics and former attorney for the FTC. “There are many suggestions that there are, or may be, competitive problems, but there’s no analysis and there are no novel findings. It should be based on specific findings about specific practices, not anecdotes and loose intimations of competitive harm.”
Stoller has a different viewpoint.
“It’s ridiculous,” he said of criticisms to the report. “They used underlying claims data to show that two cancer drugs were overcharging for a profit of nearly $1.6 billion for three PBMs. Okay, that’s anecdotal. Hell of an anecdote, though.”
The interim staff report was cited relentlessly during a House hearing in front of execs from OptumRx, Express Scripts and CVS Caremark. It’s likely the FTC will produce a full staff report in the future. The agency may also sue these PBMs for its prescription rebate tactics surrounding drugs like insulin, The Wall Street Journal reported.
The FTC could have sued to enforce its civil subpoena against the PBMs, but that route would likely have slowed down the process further and used up more resources at the agency as the PBMs continue to slow-play the government. Instead, the agency chose to work with the information it had, interview competitors and obtain public comments in the hopes of embarrassing the PBMs into more action, said Stoller.
“There’s no unicorn,” he said. “There’s no perfect thing to do.”
Future of Lina Khan and PBM reform
Khan’s term expires in September. However, she will remain in the position until a replacement is appointed or she leaves the agency, unless all parties agree for her to stay.
It’s unlikely the next president would find good cause to fire Khan from her post, Blair Levin, a senior fellow with The Brookings Institution and policy adviser for New Street Research, explained in an analyst note.
“As a political matter, Harris might find it difficult to replace Khan without undercutting the Democratic majority on the FTC,” he wrote. “As Khan’s term is up in September, it is theoretically easy to name a new commissioner and designate that person, or a sitting commissioner chair. It may be difficult, particularly if Republicans control the Senate, to replace Khan, while keeping her in place avoids a political fight and/or diluting Democratic control of the FTC.”
Despite the onslaught of recent attacks, some believe Khan is in a stronger position of leverage now. She is now seen, very publicly, as taking on giant corporations and wealthy billionaires, good characteristics to have in front of an electorate.
Other groups, like the Competitive Enterprise Institute and TechFreedom, say Khan simply hasn’t been effective and oppose her actions, big donor pressure or not.
For example, several former FTC employees told Fierce Healthcare it appears Khan does not trust her staff, by slowing down enforcement cases, and she is predetermining outcomes based on her beliefs.
“I believe that there are staff who are still at the agency who could have produced a much better report than the interim one we’ve seen,” said Gilman. “A new chair—whether from a President Harris or a President Trump—wouldn’t necessarily imply undue influence.”
“I think she’s performed poorly. I’m not sure what anybody expected,” Gilman added, noting her inexperience. “Having been inside the building, I saw far too many managerial mis-steps, and that’s entirely independent of what you think of her general take on antitrust.”
Stoller said Khan fundamentally believes the FTC has been far too relaxed on antitrust, and toward PBMs broadly, under previous administrations. It takes time, he said, to change the bureaucracy inside the agency, and that complaints from some former FTC employees are likely because the revolving door from government to law firm is less lucrative.
“The critique is she’s way too aggressive but also not good on enforcement,” counters Stoller. “They’re just whining.”
It may make sense for Khan to remain at the FTC for practical reasons.
“We think that the major litigation efforts currently underway are not likely to be resolved until after she leaves, due to current schedule and the time for appeals,” explained Levin in his research note. ‘But if there is a government settlement, those in charge will seek her support for demonstrating that this was the best deal the government could get and that it is a good deal for the public.”
As for Harris, she has deep connections within the tech sector, but “the recalibration will be nuanced and seen in the details, rather an abrupt change of direction.”
Harris hasn’t commented on PBMs much in the past, though her running mate, Tim Walz, D-Minnesota, signed a transparency bill into law in 2019 that banned gag clauses and clawbacks, said law firm Frier Levitt.
Gilman wonders whether a more in-depth report after the election will produce the findings some parties are expecting.
“I doubt we’ll see the need for a general statutory or regulatory reform of the industry,” he said. “After several years of suggestions about a changed market since the FTC’s 2005 report, we still haven’t seen any substantial, systematic account of the sorts of relevant changes that would justify major policy reform. Maybe it’s there in-waiting, but I have to wonder.”
Still, PBMs are wildly unpopular in Congress and in states throughout the country. The legislation has not yet reached the finish line at the federal level, but it may be a case of when, not if.
“I don’t think PBMs are going to be able to withstand the pressure regardless of who gets elected,” said Stoller. “It’s hard to imagine that in five to 10 years PBMs exist in the way they exist now.”
How we got here
Speculation first gained steam when billionaire Democratic donors Reid Hoffman and Barry Diller went on national television to air grievances. Diller called Khan a “dope.” Hoffman said Khan was “not helping America” and should be replaced.
Hoffman, the co-founder of LinkedIn, later rejected claims he is making demands of Harris, noting he’s been supportive toward President Joe Biden.
Khan, to her credit, is admired by pockets of the left and right. In April, Khan was a celebrated guest on "The Daily Show" with Jon Stewart. Senators ranging from Bernie Sanders and Elizabeth Warren to Ed Markey and Jacky Rosen came to her defense in recent weeks, putting pressure on Democrats to keep Khan installed.
More surprisingly, she finds common ground with younger, Trump-supporting Republicans like vice presidential nominee JD Vance. These “Khanservatives” have even suggested Trump, if reelected, keep Khan as FTC chair, though that is highly unlikely, antitrust attorneys and ex-FTC insiders suspect.
But many in the pro-business community are vexed by how she runs the FTC and her red tape and enforcement of mergers.
Even after the backlash against Hoffman, C-suite executives keep going on national airwaves to blast Khan. Palantir founder JT Lonsdale called Khan a “total radical” and said she is “not respected by her staff.” Evercore founder Roger Altman agreed the Biden administration has been “too extreme,” but warned donors the public conversation is stirring up unnecessary controversy.
Harris told CNN last month it had “no policy discussions” about replacing Khan, noting she was the presumptive nominee for less than a week.
Since then, the Harris campaign has not returned a request for comment on her stance toward PBMs or Lina Khan. However, it seems the donors could be making some inroads.
Close Harris ally Maryland Gov. Wes Moore said on CNBC he expects a Harris-Walz ticket to be less stringent on antitrust regulations.