Drug Companies’ Relationships With Pharmacy Benefit Managers Come Under Scrutiny

Jaime Jones and Brenna Jenny survey how a variety of federal and state government agencies — including the FTC, DOJ, and state Attorneys General — have used their applicable enforcement tools to scrutinize relationships between drug manufacturers and Pharmacy Benefit Managers (PBMs).

Both federal and state governments have increasingly expressed interest in closely scrutinizing business practices between drug companies and PBMs, under a variety of legal theories ranging from antitrust to fraud and abuse.

In June 2022, the FTC announced that it will “ramp up enforcement against any illegal bribes and rebate schemes that block patients’ access to competing lower-cost drugs.” It issued a corresponding policy statement “put[ting] drug companies and prescription drug middlemen on notice that paying rebates and fees to exclude competitors offering lower-cost drug alternatives can violate competition and consumer protection laws.” This policy statement followed on the heels of another FTC announcement in June, disclosing that the FTC had launched a broad investigation of PBM practices, focusing on the six largest PBMs. 

While the FTC has yet to disclose any findings from this investigation or enforcement actions relating to rebates, these high-profile announcements are an indication that the FTC’s new leadership will be prioritizing investigations of PBM relationships in 2023.

Enforcement focus on drug company rebate arrangements with PBMs is part of a broader trend toward DOJ and whistleblowers actively using the FCA to target conduct that they allege undermines both competition and checks on drug pricing. Initially, such allegations primarily focused on drug company-sponsored patient assistance programs. This happened even though such programs were common, longstanding, and generally understood to be compliant with Department of Health and Human Services Office of Inspector General (HHS-OIG) guidance. More recently, DOJ has focused on arrangements between pharmaceutical companies alleged to have fixed the prices of generic drugs. They have argued that claims for defendants’ products are inflated compared with the price that would have prevailed had there been competition, which means they should be considered “false” claims under the FCA. There are certainly robust legal defenses that life sciences companies can use against that argument. However, this remains a developing area of law. Life sciences companies should therefore carefully evaluate and structure PBM rebates to ensure maximum protection.  

The FTC’s policy statement also creates some risk that DOJ and whistleblowers may attempt to argue that the FCA is liable because the rebate practices identified by FTC as “foreclose[ing] competition from less expensive generic and biosimilar alternatives” can inflate the price of drugs. Such an argument could be strengthened by comments from the HHS-OIG in the preamble to its now-withdrawn “rebate rule,” which sought to narrow safe harbor protection under the Anti-Kickback Statute for drug rebates.

In the state of Ohio, the Attorney General has been aggressively investigating PBM practices since 2019. In March 2022, his office issued new subpoenas to the major PBMs. Throughout last year, several drug companies disclosed in SEC filings that they had received inquiries from the Ohio and Illinois Attorneys General relating to trade and pricing practices and PBM relationships. This flurry of activity is consistent with a pattern of increasingly active state Attorneys General, who have often launched independent investigations that mirror or expand federal probes.

The views expressed in these articles are exclusively those of the authors and do not necessarily reflect those of Sidley Austin LLP and its partners. This article has been prepared for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers.
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