Antitrust Lawyer Blog Commentary on Current Developments

State AGs Must Fill The Void to Challenge PBM Misconduct

Last month’s meeting between Attorney General Jeff Sessions and several state attorneys generals reminds us that sound antitrust enforcement is not just a federal affair.  Indeed, many of the seminal antitrust cases including cases creating key principles of monopolization and merger law were brought by state attorneys generals.  State attorneys generals have used the power to protect consumers against anticompetitive and fraudulent conduct in credit card, pharmaceutical, computer and many other markets crucial to consumers.

States have significant advantages over federal enforcers.  They are closer to the market and recognize the direct harm to consumers.  They have the ability to secure monetary damages.  States are often customers and victims of anticompetitive schemes.  State enforcers can bring combined antitrust and consumer protection cases.  And although each state has limited antitrust and consumer protection resources, states increasingly are using multi-state task forces to investigated and prosecute unlawful conduct.

The strategic advantages of State Attorneys Generals are substantial. They have the authority to investigate and challenge mergers as well as the practices of PBMs under various federal and state laws including the False Claims Act (most states have enacted analogous false claims acts), state law deceptive trade practices acts, and the antitrust laws.

Much of the recent attention to escalating drug prices has focused on Pharmacy Benefit Managers (“PBMs”), the drug middlemen, who are driving up drug prices and reducing consumer choice.  Appropriately the President’ Blueprint to Reduce Drug Prices is focusing attention on how the lack of PBM competition and transparency permit PBMs to use their market power to drive up drug prices. In many cases, PBM customers such as states, health plans and employers do not receive the full benefit of these rebates because PBMs do not always classify certain fees as rebates.

Unfortunately federal antitrust enforcement has simply dropped the ball on PBM competition.  Over the past decade, the PBM industry has gotten stronger as it has undergone significant horizontal and vertical consolidation, leaving the market with just three large participants – Express Scripts, CVS Health, and OptumRx – that cover more than 85 percent of the PBM market.  And the FTC has opposed efforts by states to adopt sensible regulations.

PBM rebate schemes also interfere in the relationship between doctors and their patients.  PBMs often prevent consumers from getting the drugs they need or force consumers to switch drugs so they can secure higher rebates.  Consumers lose through higher prices, less choice and threatened health care.

In short, the current system is broken, federal enforcers are passive and we need strong enforcement by state attorneys generals to protect competition and consumers.

Fortunately the states are there to protect consumers and competition and they have tremendous interest in controlling drug spend.  States are clearly victims of these schemes as significant drug price increases take a substantial amount out of state budgets.  Indeed, the states have begun to take matters into their own hands.  In 2018, there have been more than 80 bills related to PBM regulation that were introduced in state legislatures across the country and 27 became law as of Aug. 1, 2018.  Some of this legislation relates to requiring PBMs to have a fiduciary duty to its health plans, prohibiting gag clauses or PBM contract provisions that limit a pharmacist’s ability to inform customers about the least expensive way for customers to purchase prescription drugs; prohibiting a PBM from setting patient copays at a higher level than the health plan’s cost of the drug; requiring rebate transparency; and limiting PBM requirements on independent pharmacies.

State AGs need to use their enforcement powers to stop the egregious practices harming consumers.  There are clear precedents for state action.  In the past decade a coalition of over 20 state attorneys generals brought a series of cases against the three major PBMs for manipulating the rebate process – switching patients to less safe, more expensive drugs in order to secure greater rebates.  Thousands of consumers were prevented from using the drugs they needed and that worked.  Ultimately the state cases were settled with penalties and damages of over $370 million.

The orders in these cases have expired and it seems that the PBMs have returned to their playbooks of misleading consumers and preventing them from getting the drugs they need. State AGs can obtain huge healthcare fraud settlements and judgments, which can provide an additional source of revenue for the states.  As PBMs are increasingly scrutinized by the federal and state authorities, State AG investigations and complaints are likely to increase.

While historically State AGs typically coordinate with the federal government, they can certainly act alone or along with other states.  Some State AGs with active enforcement agendas have sought to elevate their enforcement levels during periods when they have anticipated or perceived a reduction in federal enforcement.  The DOJ and FTC have had a light hand in terms of scrutinizing PBM conduct so State AGs seem to be filling the void.  Such an uptick in state level PBM enforcement is now in play and PBMs should take note of the resulting enhanced risk.

Ohio and other State AGs are preparing to increase their enforcement activities due to the slow progress by the federal government.  In July, Ohio Attorney General Mike DeWine put “PBMs on notice that their conduct is being heavily scrutinized, and any action that can be taken and proven in court will be filed to protect Ohio taxpayers and the millions of Ohioans who rely on the pharmacy benefits provided.”  Ohio’s investigation began at the end of 2017, and he expects the ongoing investigation to result in major lawsuits against PBMs.

In February 2018, Arkansas Attorney General Leslie Rutledge announced that she opened an investigation into CVS Caremark’s reimbursement practices after reviewing complaints of plummeting prescription medication reimbursement rates paid to local pharmacies.  She is concerned that the PBM’s “reimbursements do not cover the actual cost of the medications.”  If the local pharmacies’ prescription reimbursement rates are lower than their costs to purchase the drugs, they may eventually have to close their doors, which in turn, harms patients.

State AGs are essential to protecting consumers against anticompetitive PBM practices and making the drug prescription market work more efficiently.  Sound enforcement actions against PBMs that are behaving poorly are essential.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com