FTC to Ramp Up Enforcement Against Any Illegal Rebate Schemes, Bribes to Prescription Drug Middleman That Block Cheaper Drugs

The Federal Trade Commission announced that it will ramp up enforcement against any illegal bribes and rebate schemes that block patients’ access to competing lower-cost drugs. The enforcement policy statement issued today puts 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. The agency will use its full range of legal authorities to combat illegal prescription drug practices that foreclose competition and harm patients.

“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 our full authorities to bear,” said FTC Chair Lina Khan. “Protecting Americans from unlawful business practices that are raising drug prices is a top priority for the Commission.”

Most consumers have health insurance that covers some part of their prescription medicine costs. These health plans, usually through prescription drug middlemen like pharmacy benefit managers, use “formularies” to define which medicines they will cover. Drug companies use rebates to have their drugs placed on formularies or on preferred tiers of formularies to ensure those drugs are covered.

These rebates are often conditioned on the drug staying in a preferred position on the formulary. Some rebates and fees are conditioned on the volume of sales of certain high list price prescription medicines. 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.

The FTC is concerned that rebate practices may be driving up the list price of insulin, a life-saving treatment for the roughly 8 million Americans who rely on it to control their diabetes. The list price of insulin has soared over the last two decades, increasing by over 300 percent. The rising list price of insulin may cause some patients to face increasing costs. On average, the list price of a one-year supply of insulin has risen to nearly $6,000 per year, with patient out of pocket costs ranging from $1,288 for the uninsured to $613 for the insured as of 2017.

The FTC’s enforcement policy statement outlines the legal authorities that may apply when dominant drug companies pay rebates and fees to middlemen to foreclose competition from less expensive generic and biosimilar alternatives:

• Exclusionary rebates that foreclose competition from lower-cost medicines may constitute unreasonable agreements in restraint of trade under Section 1 of the Sherman Act; unlawful monopolization under Section 2 of the Sherman Act; or exclusive dealing under Section 3 of the Clayton Act.
• Inducing 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 may violate the prohibition against unfair methods of competition or unfair acts or practices under Section 5 of the FTC Act.
• Paying or accepting rebates or fees in exchange for excluding lower cost drugs may constitute commercial bribery under Section 2(c) of the Robinson-Patman Act, which prohibits compensating an intermediary to act against the interests of the party it represents in the transaction.

The Commission voted 5-0 to issue the policy statement. Chair Lina M. Khan issued her verbal remarks, and Commissioners Rebecca Kelly Slaughter, Christine S. Wilson, and Alvaro Bedoya issued statements.