?? Clash of Titans: The Feds and Pharma Lock Horns Over Spiraling Health Care Costs

?? Clash of Titans: The Feds and Pharma Lock Horns Over Spiraling Health Care Costs

by Ashi Colina and Joey Bose

?The healthcare debacle in the USA has finally come to a head. Exorbitant drug pricing schemes catalyzed by shady middlemen ensconced in a cloak of operational ambiguity has galvanized the collective action of the Biden-Harris Administration, the U.S. Federal Trade Commission (FTC), the Department of Health and Human Services (HHS), and the Department of Justice (DOJ). This massive show of force may prove to be more bite than bark; These agencies are out for blood as they seek to mitigate anticompetitive practices in the pharmaceutical industry with the ultimate goal of reducing healthcare costs.

The industry, however, is not going down without a fight.

As part of the Biden-Harris Administration’s broader strategy to address prescription drug costs, the FTC is intensifying its focus on practices that could hinder competition and inflate drug prices. The FTC’s multifaceted approach includes issuing policy statements, new rules, and scrutinizing rebates by drug companies and patents that obstruct generic competition. The agency’s progress is palpable, targeting multiple entities and activities in the pharma sector such as Pharmacy Benefit Managers, Megamergers & Acquisitions

Pharmacy Benefit Managers (PBMs)

The FTC is investigating PBMs for their role in prescription drug pricing and practices that may limit consumer choice, steer patients toward their own pharmacy businesses, and inflate prices through deceptive middleman activity (e.g., hoarding rebate vouchers that were intended to be passed on to consumers and engaging in “spread pricing,” wherein the PBM charges insurance payers more for drugs than they pay the retail pharmacy, pocketing the “spread”) [reference].

To fully elucidate the role that PBMs play in the healthcare sector is deserving of another article, so we'll keep this as short and sweet as possible.

PBMs have entrenched themselves as the middlemen between not one, not two, but THREE entities within the prescription drug reimbursement ecosystem, taking a clip on every single transaction and interaction with the major entities involved: the healthcare plan (insurance payer), the drug developer/manufacturer, and the retail pharmacies. PBMs started off as a concierge service provided to insurance payers aid in the processing of many, small claims in the 1960s. Over the next few decades, they expanded their services to creating pharmacy networks that would accept payment directly from the PBM, leaving the patient with a small copay and drastically simplfying the reimbursement process. As PBMs grew, they began leveraging their large scale to command pricing power and negotiate which drugs would be covered by insurance (their "formularies"). This was followed by the advent of real-time, electronic claims processing in the late 80's and facilitating two-way communication between health insurance company and pharmacy, enabling them to collect a wealth of clinical data [reference].

In theory, PBMs are supposed to use their scale to bring down prescription drug costs, but they have figured out ways to charge both administrative fees and "back end" fees on drug sales, as well as pocket the discounts ("rebates") that were intended to be passed back to the health plan and ultimately subsidize premiums. Over the decades, PBMs have consolidated power and are now being incorporated into the largest health insurance plans and the pharmacies themselves. To further complicate things and obfuscate incentives, entities called Group Purchasing Organizations (GPOs) have formed to negotiate drug rebates on behalf of PBMs.

Seriously, WTF is going on?

The FTC is trying to find out. Recently, the commision issued compulsory orders to two GPOs to open up their books and shed some light on their relationships with PBMs. This action follows compulsory orders issued to the six largest PBMs (CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc.) that examine PBM's role at the the epicenter of the pharmaceutical system. I have a feeling that the vertical integration of PBMs with health insurance companies and mail-order and specialty pharmacies was the tipping point for Lina Khan (the Commissioner of the FTC). Something has to be done...

According to the press release...

The inquiry is aimed at shedding light on several practices that have drawn scrutiny in recent years including:

  • fees and clawbacks charged to unaffiliated pharmacies;
  • methods to steer patients towards pharmacy benefit manager-owned pharmacies;
  • potentially unfair audits of independent pharmacies;
  • complicated and opaque methods to determine pharmacy reimbursement;
  • the prevalence of prior authorizations and other administrative restrictions;
  • the use of specialty drug lists and surrounding specialty drug policies;
  • the impact of rebates and fees from drug manufacturers on formulary design and the costs of prescription drugs to payers and patients.

This is a perfect segue into this next section, wherein we examine the effects of consolidation on markets and what it means for your healthcare premiums and bills.

Mergers and Acquisitions

Capitalism is reliant on unencumbered competition to drive innovation, optimize financial efficiency, and maximize consumer choice. What is often forgotten is that early-stage innovation is heavily influenced by later-stage dealmaking as an exit opportunity for venture-stage investment (as do IPOs). Mergers & Acquisitions have always played a significant role in the biotech and pharma sectors, with an acquisitive model of new drug discovery and development catalyzing early-stage biotech innovation in the early 2000’s and onward. Clearly, a balance must be struck between facilitating dealmaking and a total laissez-faire approach to regulating markets.

Downfield blocking

  • Recently, The FTC filed a lawsuit to block Amgen’s acquisition of Horizon Therapeutics, ultimately settling with Amgen after an almost two year ordeal that generated massive anxiety in the pharma deal-making landscape. The settlement included conditions to prevent monopolistic practices.
  • Similarly, the FTC reached a settlement with e-prescription provider Surescripts, with a resolution premised on conditions to prevent monopolistic practices.
  • Likewise, the FTC filed a lawsuit challenging U.S. Anesthesia Partner’s rapid purchase and consolidation of several anesthesia practices, driving up the cost of anesthesia services.
  • Along the same vein, the FTC sued John Muir Health to block the acquisition of sole ownership of San Ramon Medical, premised on the allegation that the deal would drive up healthcare costs. IQVIA’s acquisition of Propel Media was also blocked by the FTC on the basis that the acquisition would give IQVIA a market-leading position in healthcare advertising.

Challenging innovation

The FTC is challenging over 100 patents–including medications and medical devices (e.g., asthma inhalers and epinephrine autoinjectors)–listed in the Federal Drug Administration’s (FDA) Approved Drug Products and Therapeutic Equivalence Evaluations publication (commonly known as the “Orange Book”), arguing the patents unfairly hinder competition for generic equivalents and drive up costs for consumers. These challenges are aligned with the joint FTC and Federal Drug Administration’s (FDA) policy statement warning pharmaceutical companies that make and sell name-brand drugs that they could face legal action for improperly or inaccurately listing patents in the Orange Book.

New rules

  • Noncompetes No More? The FTC proposed a new rule to ban noncompete agreements. By the FTC’s estimate, such agreements stunt innovation and entrepreneurship and the cessation of the practice could save consumers $148B annually on healthcare costs.
  • Seeing Clearly–Eyeglass Rule: The FTC is updating the Ophthalmic Practice Rules to increase competition and patients’ ability to choose where to get their prescriptions filled.

A legal triumvirate

The FTC is not alone in these efforts, however. The DOJ and the HHS are on board, too. In an effort to protect Americans’ access to affordable healthcare, the DOJ’s Antitrust Division has emphasized its commitment to weeding out anticompetitive practices and market consolidation by ramping up antitrust enforcement. The Division has cracked down on inflated drug pricing and limiting consumer choice.

These efforts include:

  • ?United States v. Teva Pharmaceuticals: Criminal case resulting in a penalty in excess of $200M against a domestic cartel and retrieval of over $50M worth of pharmaceuticals for those in need.
  • United States v. Harwin: Defendant pled guilty to conspiracy that limited cancer patients’ options for life-saving care.

The Division also shares the FTC’s sentiment regarding non-compete agreements and labor law issues. The Division has filed numerous amicus briefs, commentary, and policy statements in support of a competitive job market, including employees and employers in the healthcare sector.

The DOJ has also partnered with HHS to protect health care markets. In a Memorandum of Understanding with the HHS Office of Inspector General, the DOJ outlined several means for interagency collaboration including information and data sharing to mitigate any mergers and/or acquisitions falling through the cracks and closely scrutinizing the impact of those deals. The Memorandum also addresses a reciprocal referral program which would allow the agencies to refer potentially illegal activity to each other and jointly coordinate policy, strategy, and training. The DOJ’s effort goes beyond policy and enforcement: it is expanding its workforce to protect health care markets by appointing a Counsel for Health Care to navigate and implement protective policy as well as assist the DOJ in antitrust enforcement efforts.

On its own accord, HHS is engaging in efforts to promote transparency and increase competition. Like the FTC and DOJ, the HHS will appoint a Chief Competition Officer to evaluate anticompetitive practices. The HHS has now begun releasing ownership data, information beneficial to researchers in analyzing competition and market trends as well as consumers in choosing where–and from who–to obtain care. The HHS has also made improvements to CMS hospital price transparency regulations, requiring hospitals to adopt a standardized approach in posting cost and charge data in an effort to streamline review and enforcement capabilities, allow the public to learn what a hospital charges for its services and third-parties to develop consumer-friendly information, and for regulations to be enforced.

The HHS, like the FTC and DOJ, are also cracking down on predatory marketing and monopolistic practices by proposing new rules that would further restrict insurance plans’ from offering high compensations in an effort to promote plans that are in the consumers’ best interests rather than interests aligned with the insurance agent/broker’s financial incentives.

Not going down without a fight

Despite the increase in government efforts and legal actions to slow down the industry, drugmakers are fighting back. Major drugmakers Bristol Myers Squibb, Novartis, Novo Nordisk, and J&J Janssen have filed lawsuits challenging the constitutionality of the IRA and the new Medicare negotiations framework set to go into effect in 2026. The IRA’s medication negotiation framework would allow the Government to negotiate drug prices for drugs without generic equivalents directly with pharmaceutical companies and is slated to affect ten major drugs in its first round of negotiations, many of which belong to these major drugmakers. Recently, the four companies argued for an opportunity to present their cases in a back-to-back fashion in what seems to be an effort to tag-team the Government and drown out its position. In a major first round victory, a New Jersey federal judge has ruled to allow all four companies to present their cases simultaneously due to their overlapping nature. In a battle of four against one, the pharmaceutical companies have positioned a legal strategy with the hopes that at least one of their arguments will pass muster and allow their cases against the Act to proceed.

These drugmakers are not the only ones challenging the IRA, however. AstraZeneca, Merck & Co., and Boehringer Ingelheim are also challenging the propriety of the negotiations framework imposed by the Act. In addition to constitutional challenges, AstraZeneca alleges the IRA was implemented in violation of the Administrative Procedure Act. Merck & Co. alleges the IRA’s forced negotiation process runs afoul of the U.S. Constitution's Fifth Amendment as it is an unconstitutional taking of property because the Act threatens to force manufacturers to relinquish and transfer patented pharmaceutical products to Medicare for public use. Similarly, Boehringer Ingelheim–known for its Type 2 diabetes medication Jardiance–sued to block the implementation of the negotiation process, citing the Fifth Amendment’s right to due process and just compensation. Limited to three rounds of government negotiations, and less than two years to go before prices go into effect, pharmaceutical companies are hurriedly making their way through the federal court system in the hope that The Supreme Court will hear their cases in time. With the abundance of constitutional challenges presented, if the cases remain live, the Government and pharmaceutical companies could very well be headed to the U.S. Supreme Court to present their positions.

Takeaways

Regardless of success, the effects of the Biden-Harris’ Administration’s IRA and agencies’ efforts to reel in the health industry will be felt–and have already been felt–by both the pharmaceutical industry and consumers. We are witnessing a pivotal moment in the ongoing struggle to rein in the healthcare debacle in the United States, particularly focusing on the pharmaceutical sector's opaque pricing mechanisms and anticompetitive practices. The Biden-Harris Administration, backed by the Federal Trade Commission (FTC), the Department of Health and Human Services (HHS), and the Department of Justice (DOJ), is taking a formidable stance against these practices with a multi-pronged strategy aimed at increasing transparency and competition. This concerted effort targets the complex web of entities that contribute to inflated drug prices, from Pharmacy Benefit Managers (PBMs) to patent strategies that block generic competition. Thankfully, the FTC is taking proactive measures to dismantle the entrenched power of PBMs and challenge the consolidation in the industry that stifles innovation and consumer choice. While the government's aggressive posture signals a determined push for reform, the pharmaceutical industry's resistance, as evidenced by the lawsuits challenging the Inflation Reduction Act's (IRA) negotiation framework, indicates a looming legal battle that could shape the future of drug pricing and healthcare costs in the United States.


General Disclaimer: The information, views, and opinions contained herein are those solely of the author(s) and do not reflect the official view(s), policy(ies), or position(s) of any other author, agency, organization, company, or employer. The information contained herein is not, nor should it be construed as legal, financial, or other professional advice. Any and all information contained herein is taken as is and without guarantee and/or warranty of completeness, accuracy, timeliness, performance, merchantability, or fitness for a particular purpose. This site may contain links to external websites and the author(a) does not guarantee accuracy, relevance, timeliness, or completeness of any information on those external links or websites.

Investment Dislaimer: The contents of this article are not to be construed with investment advice. The information presented in this article is a compilation of current events, technical analyses, corporate press releases, and the author's personal viewpoints about the biotechnology industry. While efforts have been made to provide accurate and timely information, there may be inadvertent errors, omissions, or inaccuracies. Therefore, investment decisions should not be made solely based on the content of this article. The article may contain statements that are forward-looking in nature, encompassing predictions and future expectations that are subject to inherent risks and uncertainties; as such, actual outcomes may significantly deviate from those expressed or implied herein. This article serves purely as an informational and entertainment resource, and should not be construed as an endorsement to purchase or sell any financial securities. Prior to engaging in any investment activities, it is imperative that you conduct comprehensive due diligence and consult with a qualified financial advisor.

Slava M. Burdman

Finance Executive, Strategic Life-Sci & Business Planning Adviser

11 个月

It's disheartening to see the pharmaceutical industry depicted solely as a realm of greed and deceit, while the government is painted as the righteous hero looking out for the people's interests. However, these oversimplified narratives often lead to populist and hyped perceptions. Addressing the soaring costs of healthcare demands nuanced solutions, as socialist cost controls can stifle innovation and hinder improvements in quality of life. Finding the right balance and implementing thoughtful policies is crucial to navigating these complex issues effectively.

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Helen McCormack

Founder and CEO @ Voitheia BioScience Ltd | Clinical-stage biopharmaceuticals

11 个月

Fantastic article....

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