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State AGs Must Protect Consumers and Fill The Void to Challenge PBM Misconduct

Last fall’s meeting between the Department of Justice and several State Attorneys General reminds us that sound antitrust enforcement is not just a federal affair. While the Department of Justice called the meeting to discuss the antitrust concerns regarding the consolidation of information and data on technology platforms, the State Attorneys Generals turned the focus of the meeting to consumer protection and data privacy issues. Although they did not see eye to eye on all the issues, the states were clear that they will not stand on the sidelines. Indeed, the states appear to be taking the lead and will coordinate a multi-state antitrust and consumer protection inquiry into the practices of the tech platforms.

Many of the seminal antitrust cases including cases creating key principles of monopolization and merger law were brought by state attorneys generals. State Attorneys Generals have used the power under federal and their own state statutes to protect consumers against anticompetitive and fraudulent conduct in credit card, pharmaceutical, computer and many other markets crucial to consumers.

Much of the recent attention to escalating drug prices has focused on Pharmacy Benefit Managers (“PBMs”), the drug middlemen, who are driving up drug prices and reducing consumer choice. Appropriately the President’s May 2018 Blueprint to Reduce Drug Prices is focusing attention on how the lack of PBM competition and transparency permits PBMs to use their market power to drive up drug prices. In many cases, PBM customers such as states, health plans and employers do not receive the full benefit of these rebates because PBMs do not always classify certain fees as rebates.

Unfortunately, federal antitrust enforcement has simply dropped the ball on PBM competition. The recent approval of the CVS/Aetna deal makes that crystal clear. Over the past decade, the PBM industry has gotten stronger as it has undergone significant horizontal and vertical consolidation, leaving the market with just three large participants – Express Scripts, CVS Health, and OptumRx – that cover more than 85 percent of the PBM market. And the FTC has opposed efforts by states to adopt sensible regulations.

PBM rebate schemes also interfere in the relationship between doctors and their patients. PBMs often prevent consumers from getting the drugs they need or force consumers to switch drugs so they can secure higher rebates. Consumers lose through higher prices, less choice and threatened health care.

In short, the current system is broken, federal enforcers are passive and we need strong enforcement by state attorneys generals to protect competition and consumers.

States have significant advantages over federal enforcers. They are closer to the market and recognize the direct harm to consumers. They have the ability to secure monetary damages. States are often customers and victims of anticompetitive schemes. State enforcers can bring combined antitrust and consumer protection cases. And although each state has limited antitrust and consumer protection resources, states increasingly are using multistate task forces to investigate and prosecute unlawful conduct.

The strategic advantages of State Attorneys General are substantial. They have the authority to investigate and challenge mergers as well as the practices of PBMs under various federal and state laws including the False Claims Act (most states have enacted analogous false claims acts), state law deceptive trade practices acts, and the antitrust laws.

The states have begun to take matters into their own hands. In 2018, over 80 bills related to PBM regulation were introduced in state legislatures across the country and dozens of them were signed into law. Some of this legislation relates to requiring PBMs to have a fiduciary duty to its health plans, prohibiting gag clauses or PBM contract provisions that limit a pharmacist’s ability to inform customers about the least expensive way for customers to purchase prescription drugs; prohibiting a PBM from setting patient copays at a higher level than the health plan’s cost of the drug; requiring rebate transparency; and limiting PBM requirements on independent pharmacies.

There are clear precedents for state action. In the past decade a coalition of over 20 State Attorneys General brought a series of cases against the three major PBMs for manipulating the rebate process – switching patients to less safe, more expensive drugs in order to secure greater rebates. Thousands of consumers were prevented from using the drugs they needed and that worked. Ultimately the state cases were settled with penalties and damages of over $370 million.

The orders in these cases have expired and it seems that the PBMs have returned to their playbooks of misleading consumers and preventing them from getting the drugs they need. State AGs can obtain huge healthcare fraud settlements and judgments, which can provide an additional source of revenue for the states. As PBMs are increasingly scrutinized by the federal and state authorities, State AG investigations and complaints are likely to increase.

While historically State AGs typically coordinate with the federal government, they can certainly act alone or along with other states. Some State AGs with active enforcement agendas have sought to elevate their enforcement levels during periods when they have anticipated or perceived a reduction in federal enforcement. The DOJ and FTC have had a light hand in terms of scrutinizing PBM conduct so State AGs seem to be filling the void. Such an uptick in state level PBM enforcement is now in play and PBMs should take note of the resulting enhanced risk.

Indeed, Ohio and other states are increasing their enforcement activities due to the slow progress by the federal government. In July, then Ohio Attorney General and current Ohio Governor Mike DeWine put “PBMs on notice that their conduct is being heavily scrutinized, and any action that can be taken and proven in court will be filed to protect Ohio taxpayers and the millions of Ohioans who rely on the pharmacy benefits provided.” Ohio’s investigation began at the end of 2017.

And just this week, the new Ohio Attorney General Dave Yost announced he is seeking repayment of nearly $16 million paid to the OptumRx by the Bureau of Workers’ Compensation. A report found that the PBM overcharged the state and violated its contract by failing to adhere to agreed discounts on generic drugs. Yost will take OptumRx to nonbinding mediation, and that fails, the dispute will be taken to court. He has also promised further action against PBMs, saying “they took our money.”

In February 2018, Arkansas Attorney General Leslie Rutledge opened an investigation into CVS Caremark’s reimbursement practices after reviewing complaints of plummeting prescription medication reimbursement rates paid to local pharmacies. She is concerned that the PBM’s “reimbursements do not cover the actual cost of the medications.” If the local pharmacies’ prescription reimbursement rates are lower than their costs to purchase the drugs, they may eventually have to close their doors, which in turn, harms patients.

Fortunately, state AGs are there to protect consumers and competition and they have tremendous interest in controlling drug spending. States are clearly victims of these PBM schemes as significant drug price increases take a substantial amount out of state budgets. State AGs have the tools and need to use their enforcement powers to stop the egregious practices that are currently harming consumers. They are essential to protecting consumers and making the market work. Other State AGs should follow the examples of Arkansas and Ohio, and launch investigations and enforcement actions to stop abuses and ensure that PBMs are actually lowering drug costs.

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