FTC Wades Into World of Pharmacy Markets

On June 6, 2022, the Federal Trade Commission (FTC) resolved and subsequently issued a long-awaited order—from the community pharmacy perspective—to companies representing the country’s largest pharmacy benefit managers (PBMs) to file a special report focused largely on vertical integrations and their effects on drug rebate strategies, provider networks, and reimbursment.¹

The order requires these companies to submit their special report within 90 days, putting the deadline just after Labor Day 2022.

Relatively Long, Penetrating List of Response Groupings

The order asks for a list of responses broken into 38 distinct groupings. Many of the items required in these groupings cut straight to the heart of community pharmacy’s concerns about a level playing field, including narrow networks, potential loss-lead strategies, self-channeling, and spread pricing. The response request could require tons of paper or terabytes of data on a plain reading of the order. The amount of data and documents being asked for is quite extensive, including copies of contracts among PBMs, providers, sponsors, and other actors.

Where the Inquiry Ultimately Goes and Ends Is Anyone's Guess

The last line of the order is notable, “You are advised that penalties may be imposed under applicable provisions of federal law for failure to file special reports or for filing false reports.”¹ If we assume that reports are filed, and those reports are accurate, there are many different eventualities that could come to pass.

Eventuality No. 1: Legal Stall Ball

Legendary University of North Carolina basketball coach Dean Smith called it “The Four Corners Offense.”

The idea was to keep the ball away from the other team when your team had a sufficient lead in the game by putting offensive players in the 4 farthest corners of the court and playing a game of, essentially, “keep away,” not really making a good faith effort to try to score a basket but rather running out the clock to win the game.

When you are ahead, you want to stay ahead, and no doubt, PBMs have mobilized an army of workers to not only respond to the order, but also limit or otherwise mitigate disclosures of sensitive data, processes, strategies, and workforce correspondence. They could use lawyering to drag out the length of time it takes for the FTC to receive the information, even if a response is provided by Labor Day.

Eventuality No. 2: Statistical and Process Aggregation Stall Ball

Because the pharmacy sector’s business practices, contracts, and data streams are notoriously complex, stall ball can also come in the form of statistical and process aggregation. It is notable that although the list of 38 inquiry groupings is long, many of the process and business practice inquiries could be considered imprecise and vague.

For example, consider item No. 21, “Describe the company’s policies and criteria for determining reimbursement of specialty drugs, and submit all documents relating thereto.”¹

A response to that item could be as short as a page or as lengthy as many thousands of pages. Similarly, data files come in all different forms of aggregation, with reasonable individuals perhaps disagreeing about how granular a particular rebate upon rebate upon rebate—with all clawbacks, fee items, and share-backs included—is sufficient to describe a particular business practice that might be deemed anticompetitive or customer unfriendly.

Eventuality No. 3: Political Stall Ball

The exceeding complexity and sheer size of the industry, with nearly $1 trillion in top-line transactions in a given year, require much person hours, political will, and time to see through to the intended goals of the FTC a fair and fulsome inquiry to ensure that markets are functioning as needed and prescribed by any regulatory frameworks there-in. As the work moves from months to years, the political energy behind the effort will have to be sustained and directionally consistent to achieve the intended ends.

Eventuality No. 4: Inquiry Becomes Superficial and Finds No "There, There"

If responses are sufficiently superficial and the commissioners either lack the foundational experience to identify improprieties or the worldview that discovered business practices are commonplace in a complex and aggregated world, there is the possibility, if low at this point, that the FTC will find no “there, there” and move on to other matters.

Eventuality No. 5: Inquiry Reveals a Gordian Knot that FTC Analysts Struggle to Untangle

If it takes the respondent-companies tens of thousands of personnel to create and execute on complex and layered systems of agreements and pricing spreadsheets, does the FTC have the expertise and person power to put all the pieces together to get a plain-sight view into potential anticompetitive practices? Even very targeted analysis performed by some of the world’s most well-informed and well-trained analysts can take months to produce.

Eventuality No. 6: Piercing Veil Leads to Greater Public Awareness of Pharmacy Sector Business Practices

Any sort of finding or report produced by the FTC, whether in-depth or superficial may produce greater public awareness of the pharmacy sector business practices. Items that draw a straightforward line from business practice to increasing costs to patients will be the most significant.

Eventuality No. 7: Greater Public Awareness Leads to More Involvement by Agencies, Courts, and Legislators

One of the biggest questions to ask as an observer at this early stage is, what will be included in interim and final reports, and who will have access to what data, sections, or underlying findings and work in those reports?

Eventuality No. 8: FTC "Follows the Money" and Takes a Particular Interest in Specialty Pharmacy

With “specialty” pharmacy continuing its growth well past the now 50% of total drug spending and including the biggest ticket items and the most focused profit schemas, the world of specialty has enjoyed safety from regulation by essentially being cordoned off from other products and treated differently by PBMs. Explaining the definition of specialty pharmacy and what defines those networks and why the customers, products, and providers are treated differently than nonspecialty will be difficult for the respondents.

Eventuality No. 9: Spread-Pricing Findings Send "Cash Pay" Strategies Into Overdrive

Perhaps no other section of the order is of more interest to community pharmacies than the one most directly inquiring about spread pricing.

By the order’s definition, the term “spread-price amount” means “the difference between the total amount paid by a PBM to a pharmacy for a prescription, and the total amount paid by the plan sponsor to the PBM for the same prescription.”¹

Alongside the new rules for direct and indirect remuneration fees to disclose total reimbursement at the point of sale, community pharmacy advocates have been screaming for transparency to show how little their portion of the margin pie is compared with the sector’s other actors, and to give sunlight to the reality that cash pay is often cheaper than using insurance.

Eventualities No. 10 to No. 1000-Plus

This is only a list of 11, but this order and inquiry could lead to many other eventualities. It is hard to say at this point with any certainty what might happen over the next few months or years. One thing is certain though: There will be a lot of eyes on the FTC throughout.

ABOUT THE AUTHOR

Troy Trygstad, PharmD, PhD, MBA, is the executive director of Community Pharmacy Enhanced Services Network (CPESN) USA, a clinically integrated network of more than 3500 participating pharmacies.

REFERENCE

1. Order to file a special report. Federal Trade Commission. June 6, 2022. Accessed July 7, 2022. https://www.ftc.gov/system/files/ftc_gov/pdf/P221200PBMModelOrder.pdf