On June 7, 2022, the Federal Trade Commission (FTC) unanimously voted to initiate a study into how business practices employed by some pharmacy benefit managers (PBMs) may impact prescription drug pricing and patient access to drugs.[1]

In the pharmaceutical drug sector, PBMs administer prescription drug plans for most Americans with health coverage through employers, health insurers, unions, Medicare, and Medicaid. In doing so, PBMs negotiate with and manage pharmacy networks, as well as negotiate drug prices or price concessions with manufacturers of pharmaceutical and biologic products. The FTC announcement follows a robust public comment period during which the FTC received more than 24,000 comments from pharmacies, manufacturers, patients, and other actors that addressed concerns regarding certain PBM practices.[2]

While the FTC’s proposed study solely targets PBMs, such analysis may lead the FTC to study the practices of other entities in the drug distribution or payment chains that impact pharmaceutical pricing and reimbursement. This Insight addresses the broader implications of the study and provides takeaways for PBMs, pharmaceutical manufacturers, pharmacy services administrative organizations, and pharmacies.


The mission of the FTC is to protect consumers and competition by preventing anticompetitive, deceptive, and unfair business practices through law enforcement, advocacy, and education without unduly burdening legitimate business activity. The vision of the FTC is “a vibrant economy characterized by vigorous competition and consumer access to accurate information.”[3]

For this analysis of PBMs, the FTC is using its authority under section 6(b) of the Federal Trade Commission Act, which empowers the FTC to use compulsory process to conduct a wide range of studies that do not have a specific law enforcement purpose.[4] The FTC can issue orders to companies to demand certain information. Recipients of these orders typically have 90 days from the date they receive the order to respond.[5]

The FTC announced that its PBM-focused 6(b) study would include “compulsory orders to CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc.,” requesting data on their business practices.[6] Not only do these entities operate PBMs, but almost all of them also have significant lines of business in the insurance payer and pharmacy sectors. Of note, the FTC states that the study will investigate certain PBM business practices surrounding:

  • 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.

While the FTC cannot initiate enforcement actions based on the outcome,[7] the study’s conclusions could lead the FTC to open more targeted investigations of PBM companies and of any other non-PBM company actors whose practices might fall within the investigation’s purview. The study also could spur more federal policymaker focus on PBMs and other actors in this PBM/pharmaceutical drug sector.

FTC’s 2005 PBM Study

This 6(b) study is not the first time the FTC has considered how certain PBM business practices may impact prescription drug costs. Almost two decades ago, following a Congressional request, the FTC released a year-long study evaluating the cost-effectiveness of mail-order pharmacies owned by PBMs.[8] The study focused on whether an employer plan sponsor’s agreement with a PBM aligns the plan’s interests with the PBM’s incentives to avoid a conflict of interest by examining “whether a PBM that owns a mail-order pharmacy acts in a manner that maximizes competition and results in lower prescription drug prices for its plan sponsor member.”

This prior FTC study concluded that PBM ownership did exactly that.[9] For example, one study conclusion found that “[f]or a common basket of drugs dispensed in December 2003 with the same-size prescriptions, retail prices typically were higher than mail prices at both large PBMs and retailer-owned PBMs.”[10] The study also dealt with (i) generic substitution and dispensing, finding that rates of such substitution at PBM-owned pharmacies were generally equal to those at retail or mail-order pharmacies not owned by PBMs, and (ii) “switching” of brand drug prescriptions, finding that PBMs rarely “switched” patients from one brand drug to another or to a chemically distinct drug.[11]

Parallel Legislative and Federal Agency Activity Related to Drug Pricing

The FTC’s new 6(b) study is not occurring in a vacuum, as federal policymakers continue several efforts to address high drug costs and patient out-of-pocket spending, many of which focus on regulating activities involving PBMs. For instance, in June, the FTC announced an enforcement policy statement that expressed the FTC’s intent to examine rebates and fees paid by drug manufacturers to PBMs and other intermediaries in exchange for disfavoring the lowest-cost drug products, including those for insulin.[12]

Some speculate that the U.S. Congress will revive aspects of its bipartisan drug pricing package, known as the Prescription Drug Pricing Reduction Act (PDPRA), which could occur through various legislative vehicles. The PDPRA, originally introduced in 2019, requires PBMs to publicly disclose drug discounts and PBM financial audits to account for the true net cost of a drug, among several other policy changes.[13] Currently, however, the U.S. Senate’s drug pricing language that was sent to the U.S. Senate’s Parliamentarian just last week does not contain such provisions specific to PBMs.[14]

Meanwhile, the U.S. Senate has held at least one hearing in the Subcommittee on Consumer Protection, Product Safety, and Data Security on transparency in the prescription drug market and specifically on how PBMs’ operations may contribute to higher drug prices for consumers.[15] Separately, Senator Chuck Grassley (R-IA) recently introduced a bill that seeks “to prevent unfair and deceptive acts or practices and the dissemination of false information” related to PBM services.[16] For instance, the proposed federal legislation would require PBMs that own a pharmacy to annually report to the FTC “any difference in reimbursement rates or practices, direct and indirect remuneration fees or other price concessions, and clawbacks between a pharmacy that is owned, controlled, or affiliated with the pharmacy benefit manager and any other pharmacy.”[17] Clawbacks, and pharmacy direct and indirect remuneration fees or other price concessions, refer to pharmacy reimbursement terms in the commercial and Part D space, respectively, that the PBM adjusts after a patient has left the pharmacy. Just this spring, the Centers for Medicare & Medicaid Services (CMS) finalized a federal rule that would require such pharmacy price concessions to be included in a pharmacy’s negotiated price in the Medicare Part D program. According to CMS, this change means greater transparency of true pharmacy reimbursement while simultaneously lowering Part D beneficiaries’ out-of-pocket costs.[18]

At the federal regulatory level, the drug distribution and payment sectors are keeping an eye on the Office of Inspector General’s (OIG) final rule that would require all pharmaceutical manufacturer rebates in Medicare Part D to be passed along to Medicare patients at the point of sale in an effort to reduce patients’ out-of-pocket spending (the “Rebate Rule”).[19] However, last November, President Biden signed legislation that would further delay the implementation of this Rebate Rule to January 2026.[20]

The Consolidated Appropriations Act of 2021, which became law on December 27, 2020,[21] focused on transparency efforts that require group health plans and health insurance issuers offering group or individual health insurance coverage to submit information annually to the Departments of Health and Human Services, Labor, and the Treasury (collectively, the “Departments”).[22] Included in this new federal disclosure obligation is information related to prescription drug cost trends, overall spending on prescription drugs, and premiums and the impact of rebates and other remuneration on premiums and out-of-pocket costs.[23] Last fall, the Departments issued a final federal rule that implemented these new reporting requirements while delaying enforcement of certain aspects until the end of 2022.[24]

At the state level, state legislation to regulate PBMs has increased following the U.S. Supreme Court’s decision in Rutledge v. Pharmaceutical Care Management Association, which held that the federal Employee Retirement Income Security Act (ERISA) does not preempt state law that requires PBMs to reimburse pharmacies at a price equal to or higher than the price the pharmacies paid their wholesalers or state law that regulates pharmacy appeal procedures.[25] State legislation has focused on state licensure/registration of a PBM, transparency disclosures and reports to the state on PBM business activities, prohibitions on PBMs favoring their own retail and/or mail-order pharmacies, and restrictions or prohibitions on certain PBM contracting activities with in-state programs (e.g., Medicaid) or with pharmacies.[26]

Parties dealing with the pricing and payment of pharmaceutical drugs should pay close attention to the upcoming FTC study:

Manufacturer Takeaways

  • The sole aspect of the FTC study pertaining to drug manufacturers specifically is aimed at reviewing rebates and fees from drug manufacturers in relation to formulary design; however, more broadly, the study will look at the costs of prescription drugs to payers and patients.
  • Regarding formulary placement, manufacturers may want to examine rebate agreements with PBMs to ascertain the contract terms for disclosing such rebates and assess whether there are rebate types, other arrangements, or service fees that could be vulnerable to potential mischaracterization by third parties.
  • Other PBM practices also may come under FTC scrutiny. For example, manufacturers recently argued that PBMs engage in recategorizing drugs as specialty drugs in a manner that permits the PBMs to incur a financial benefit from available pharmaceutical manufacturer financial patient assistance programs.[27]

PBM Takeaways

  • Not all PBMs use the same pricing and reimbursement tools, and such tools may also vary within a given PBM depending on client circumstances, including regulatory requirements. However, PBMs that may use certain practices that are the subject of recurring federal and state policymaker scrutiny like spread pricing in Medicaid managed care programs, may want to consider alternative arrangements ahead of the FTC’s recommendations.[28] Spread pricing is an arrangement in which a PBM reimburses a network pharmacy for dispensing a drug to a patient at one rate but then charges the payer a higher rate for covering that same drug.[29] The spread created from this arrangement is retained as PBM profit.[30] PBMs may want to review their current arrangements with network pharmacies for compliance purposes.
  • Similarly, PBMs may want to review any existing rebate models where rebates are not passed through to patients, an issue that was at the center of the federal policy change in the Rebate Rule (referenced above). In addressing a similar arrangement in Part D for pharmacy price concessions, CMS has referenced its own authority, apart from that of the OIG, to make similar changes.
  • Related to pharmacies, PBMs may want to examine reimbursement terminology in their contracts with unaffiliated pharmacies and whether such terms could be broadly interpreted by third parties as “fees” or “chargebacks.” PBMs also may want to consider the net reimbursement for pharmacies in network, and how and when such reimbursement is disclosed to the pharmacy.

Pharmacy Services Administrative Organization (PSAO) Takeaways

  • The spotlight on PBMs, especially through Congressional hearings, has raised questions about other intermediaries in the pharmaceutical section, including PSAOs.[31] PSAOs are contract representatives for networks of independent and franchised pharmacies. PSAOs negotiate with PBMs on behalf of independent and regional pharmacies regarding contracting and administrative services that can encompass pricing tools, pharmacies’ reimbursement, and compliance with pharmacy audits from PBMs.[32]
  • The FTC study stated that the FTC will investigate “potentially unfair audits of independent pharmacies.”[33] Such inquiry may necessitate queries on how the PSAO businesses help pharmacies answer and comply with such PBM audits.
  • The FTC study also stated that the FTC will review how fees and clawbacks are charged by PBMs to unaffiliated pharmacies. The PSAO information could provide insights into the magnitude and prevalence of such fees and clawbacks in a PSAO network and the impact on individual pharmacies likewise participating in the PSAO network.

Pharmacy Takeaways

  • The majority of the FTC’s study initiatives center on PBM practices that may impact pharmacies, with a specific focus on independent pharmacies.
  • For instance, fees and clawbacks charged by PBMs to unaffiliated pharmacies have been an advocacy focus of pharmacies, especially independent pharmacies, for some time. Indeed, as previously mentioned, CMS finalized a rule that would require PBMs to assess pharmacy price concessions (sometimes referred to as “fees” or “clawbacks”) at the point of sale as opposed to after a patient has left the pharmacy counter, thereby providing more transparency to pharmacies into the concession amounts.
  • The FTC also is contemplating reviewing what pharmacies contend are over-complicated and opaque methods to determine pharmacy reimbursement and how such methods could impact patients. The FTC study could go in many directions here, including an analysis of the veritable alphabet of pricing methods used to determine reimbursement in the commercial market (e.g., wholesale acquisition cost (WAC), average wholesale price (AWP), maximum allowable cost (MAC), etc.), as well as the impact of the timing of adjustments that are made retrospectively (after the prescription is filled).
  • The FTC study also could consider pharmacy reimbursement methodologies across all sorts of payer types, including in federal health care programs like Medicaid. Pharmacies might be interested to note that some previous drug pricing proposals on Capitol Hill have contemplated mandating disclosure of pharmacies’ National Average Drug Acquisition Cost (NADAC) to the federal government.[34] Currently, NADAC pricing is used in the Medicaid program as a barometer for all Medicaid pharmacy reimbursement, but some states, like West Virginia, have made NADAC pricing a floor for reimbursement in the commercial market.[35] The reporting of NADAC to the federal government is currently voluntary.


As the FTC proceeds with its study, all business entities touching the PBM space may want to review current business practices to reconfirm compliance. Epstein Becker Green attorneys are available to assist such businesses in investigating and navigating the potential implications of the proposed FTC study and other related legislative and administrative developments on their future strategy and business operations.

* * *

This Insight was authored by Alan J. Arville, Richard H. Hughes IV, Stephanie W. Kanwit, Mark E. Lutes, Kala K. Shankle, and Constance A. Wilkinson. For additional information about the issues discussed in this Insight, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.


[1] FTC Launches Inquiry Into Prescription Drug Middleman Industry (June 7, 2022), available at https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-launches-inquiry-prescription-drug-middlemen-industry.

[2] Id.

[3] About the FTC, available at www.ftc.gov/about-ftc.

[4] A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority (May 2021), available at https://www.ftc.gov/about-ftc/mission/enforcement-authority/.

[5] Id.

[6] FTC Launches Inquiry Into Prescription Drug Middleman Industry (June 7, 2022), available at https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-launches-inquiry-prescription-drug-middlemen-industry.

[7] A Brief Overview of the Federal Trade Commission’s Investigative, Law Enforcement, and Rulemaking Authority (May 2021), available at https://www.ftc.gov/about-ftc/mission/enforcement-authority/.

[8] FTC Issues Report on PBM Ownership of Mail-Order Pharmacies (Sept. 6, 2005), available at https://www.ftc.gov/news-events/news/press-releases/2005/09/ftc-issues-report-pbm-ownership-mail-order-pharmacies.

[9] Id.

[10] Id.

[11] Id.

[12] Policy Statement of the Federal Trade Commission on Rebates and Fees in Exchange for Excluding Lower-Cost Drug Products (June 2022), available at https://www.ftc.gov/system/files/ftc_gov/pdf/Policy%20Statement%20of%20the%20Federal%20Trade%20Commission%20on%20Rebates%20and%20Fees%20in%20Exchange%20for%20Excluding%20Lower-Cost%20Drug%20Products.near%20final.pdf.

[13] Prescription Drug Pricing Reduction Act of 2020, available at https://www.finance.senate.gov/imo/media/doc/PDPRA%202020%20Section%20by%20Section.pdf.

[14] Senate Finance Committee, Draft Text of Subtitle I-Prescription Drug Pricing Reform (released and sent to the U.S. Senate Parliamentarian for further consideration on July 6, 2022), available at https://www.finance.senate.gov/imo/media/doc/070622%20Prescription%20Drug%20Pricing%20Reform%20Leg%20Text.pdf.

[15] Ensuing Fairness and Transparency in the Market for Prescription Drugs (May 5, 2022), available at https://www.commerce.senate.gov/2022/5/ensuring-fairness-and-transparency-in-the-market-for-prescription-drugs.

[16] Pharmacy Benefit Manager Transparency Act of 2022, S. 4293, 117th Congress, available at https://www.congress.gov/bill/117th-congress/senate-bill/4293/text.

[17] Id.

[18] See Medicare Program; Contract Year 2023 Policy and Technical Changes to the Medicare Advantage and Medicare Prescription Drug Benefit Programs; Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency; Additional Policy and Regulatory Revisions in Response to the COVID-19 Public Health Emergency, 87 Fed. Reg. 27704, 27834 (May 9, 2022), available at https://www.federalregister.gov/documents/2022/05/09/2022-09375/medicare-program-contract-year-2023-policy-and-technical-changes-to-the-medicare-advantage-and.

[19] See Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees, 85 Fed. Reg. 76666 (Nov. 30, 2020), available at https://www.federalregister.gov/documents/2020/11/30/2020-25841/fraud-and-abuse-removal-of-safe-harbor-protection-for-rebates-involving-prescription-pharmaceuticals.

[20] Infrastructure Investment and Jobs Act, Pub. Law No. 117-58 (signed into law Nov. 15, 2021), available at https://www.congress.gov/bill/117th-congress/house-bill/3684/text.

[21] Consolidated Appropriates Act of 2021 (signed into law Dec. 27, 2020), available at https://www.congress.gov/116/bills/hr133/BILLS-116hr133enr.pdf.

[22] Id.

[23] Id.

[24] 86 Fed. Reg. 66,662 (published Nov. 23, 2021).

[25] Rutledge v. Pharm. Care Mgmt. Ass’n, 141 S. Ct. 474 (2020).

[26] 2022 State Legislative Action to Lower Pharmaceutical Costs (June 9, 2022), available at https://www.nashp.org/rx-legislative-tracker/.

[27] See, e.g., Johnson & Johnson Health Care Sys. v. Save On SP, LLC, 2:2022cv02632 (complaint filed May 4, 2022).

[28] Medicaid Program Cost of Pharmacy Services Under Managed Care (Sept. 17, 2020), available at https://www.osc.state.ny.us/state-agencies/audits/2020/09/17/medicaid-program-cost-pharmacy-services-under-managed-care; CMS Issues New Guidance Addressing Spread Pricing in Medicaid (May 15, 2019), available at https://www.cms.gov/newsroom/press-releases/cms-issues-new-guidance-addressing-spread-pricing-medicaid-ensures-pharmacy-benefit-managers-are-not; Auditor’s Report: Pharmacy Benefit Managers Take Fees of 31% on Generic Drugs Worth $208M in One-Year Period (Aug. 16, 2018), available at https://ohioauditor.gov/news/pressreleases/Details/5042.

[29] CMS Issues New Guidance Addressing Spread Pricing in Medicaid (May 15, 2019), available at https://www.cms.gov/newsroom/press-releases/cms-issues-new-guidance-addressing-spread-pricing-medicaid-ensures-pharmacy-benefit-managers-are-not.

[30] Id.

[31] See Hearing on Ensuring Fairness and Transparency in the Market for Prescription Drugs, 117th Congress (May 5, 2022) (statement of JC Scott, Pharmaceutical Care Management Association) available at https://www.commerce.senate.gov/services/files/61891DE9-AB7F-4325-97C3-531B4C0C8D7B.

[32] The three biggest PSAOs have their own franchised pharmacies that are associated with the three largest pharmaceutical wholesalers.

[33] FTC Launches Inquiry Into Prescription Drug Middleman Industry (June 7, 2022), available at https://www.ftc.gov/news-events/news/press-releases/2022/06/ftc-launches-inquiry-prescription-drug-middlemen-industry.

[34] H.R. 5376, Build Back Better Act, Rules Committee Print 117-18, p. 616 (released Nov. 3, 2021), available at https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR5376RH-RCP117-18.pdf.

[35] See West Virginia Insurance Bulletin, No. 22-03 (issued Jan. 6, 2022), available at https://www.wvinsurance.gov/Portals/0/pdf/pol_leg/IB_22-03_PBM_Pharmacy_Reimbursement.pdf.

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