Last week, Vermont's Attorney General filed suit against two pharmacy benefit managers ("PBMs"), alleging that the PBMs "are driving up drug prices and foreclosing patients' access" to life-saving prescription drugs. The lawsuit brings state antitrust claims under the Vermont Consumer Protection Act, contending that the PBMs engaged in misrepresentation and unfair practices which both inflated the cost of and reduced access to prescription drugs. The complaint alleges that these two PBMs control 95% of the Vermont pharmacy benefit market.
The complaint calls out PBMs as the "literal hub of the healthcare universe[,]" underscoring the state's theory that concentration has allowed PBMs to "distort[ ] the market to their benefit at the expense of Vermont patients and payors." The lawsuit contends that the PBMs used their market power to increase payments from manufacturers in exchange for inclusion on formularies. Further, the Vermont Attorney General argues that the PBMs leverage their relationships with affiliated captive specialty pharmacies, resulting in a "windfall" of profit margins while harming unaffiliated, independent pharmacies which must accept low reimbursement rates to remain in the PBMs' networks. The suit alleges harm to both payors (including the state of Vermont) and patients who use specialty drugs such as treatments for cancer and multiple sclerosis. The state critiques the PBMs' lack of transparency, pricing and formulary structures, and vertically-integrated business models as contributing factors to this harm.
Shortly after, the AIDS Healthcare Foundation ("AHF"), a specialty pharmacy, filed a lawsuit in federal court in Louisiana, alleging similar federal and state antitrust and consumer protection claims against the largest PBM in the state. Under a similar theory as the Vermont Attorney General, AHF contends that the PBM used its market power in Louisiana to prevent independent specialty pharmacies from competing.
These complaints are the first lawsuits following the Federal Trade Commission's ("FTC") July interim staff report regarding the agency's study of PBMs. The FTC's report described a pattern of vertical consolidation in the prescription drug industry, which the agency believes allows PBMs to exert "significant power over the pharmaceutical supply chain." The FTC concluded that, due to industry consolidation, the largest PBMs can control prescription drug prices and patient access, and that they have the incentive to "self-preference" their own affiliated business by steering patients away from smaller independent pharmacies and leveraging their size to employ unfair contract terms.
The two actions are likely the start of many incoming lawsuits empowered by the FTC's theory, even directly citing the FTC's interim staff report. Businesses in the prescription drug industry should expect further inquiry into the pharmacy benefit and prescription drug markets, as well as additional lawsuits tracking the path charted by the FTC, Vermont, and AHF. Given this enhanced scrutiny, companies would be wise to monitor developments and take steps to mitigate risk in this space. Companies along the supply chain should also prepare for the possibility of subpoenas and information requests. Reed Smith can help with that process, and we will continue to monitor these lawsuits and the FTC's study through our substantive antitrust, merger control, and compliance initiatives. For more details on our global antitrust practice, visit the Reed Smith website.
This article is presented for informational purposes only and is not intended to constitute legal advice.