FTC's Past Advocacy on PBMs is Misguided

On July 20, 2023, David Balto made a statement regarding FTC's past advocacy on PBMs at the Commission's Open Meeting. He argued that the FTC’s staff’s past advocacy is misguided and creates obstacles to sensible regulation. Moreover, he stated that the FTC should issue a statement to withdraw reliance on past PBM advocacy. Below is his full statement.

Statement of David Balto Commission Open Meeting July 20, 2023

I am David Balto a public interest antitrust attorney in Washington, D.C. You can find information about my practice at www.dcantitrustlaw.com. I am the former Assistant Director of Policy and Evaluation for the Policy Section of the FTC’s Bureau of Competition and attorney advisor to Chairman Robert Pitofsky. In both of these positions I had extensive responsibilities of the FTC’s policy advocacy. I write and testify to strongly support the Commission’s issuing a statement to withdraw reliance on past staff PBM advocacy.

My testimony is based on over 30 years of experience as a public interest antitrust attorney and an antitrust enforcer for both the Department of Justice and the Federal Trade Commission (FTC). From 1995 to 2001, I served as the Policy Director of the FTC’s Bureau of Competition and the attorney advisor to Chairman Robert Pitofsky. In both of these positions I had extensive responsibilities of the FTC’s policy advocacy.

Currently, I work as a public interest antitrust attorney in Washington, DC. I have represented consumer groups, public interest organizations, health plans, unions, employers, retail and specialty community pharmacy associations, and even PBMs on PBM regulatory and competitive issues. I led the consumer opposition to the Express Scripts/Medco and CVS Caremark mergers. I led the consumer opposition to the proposed mergers of Anthem and Cigna and Aetna and Humana and worked with consumer groups to oppose CVS’ acquisition of Aetna. I have testified before Congress on PBM competition on four occasions and before fourteen state legislatures on the need for PBM reform and regulation and served as an expert witness for the State of Maine on its PBM legislation which mandated transparency.

I also counsel small plan sponsors and government entities on their negotiations with PBMs and have first-hand experience about the substantial lack of transparency in the market. Perhaps some very large plan sponsors can secure some transparency but it comes at a significant cost. a

As you are aware for several years the Commission has expended significant vital resources in issuing advice letters to state legislatures and federal regulators opposing efforts to reform the PBM market. These statements seemed misguided since the states had significant evidence of anticompetitive and anticonsumer actions by PBMs. In for the most part the statements relied on economic theory and an outdated economic study rather than hard evidence. And often these statements were contrary to the positions of unions, consumer groups and major employers seeking reform.

I frequently testified against the FTC staff advocacy letters and on occasion prevailed and convinced the legislatures to regulate in spite of the FTC advocacy. (Mississippi 2011, Minnesota 2009, North Dakota 2005).

Of course, most of the advocacy is from around 2004-7 and as the Commission certainly recognizes the market has changed dramatically since then – it is highly concentrated and profits have skyrocketed. The Commission’s observation in approving the Express Scripts Medco merger that the market was “intensely competitive” seems profoundly misguided from today’s perspective.

The Commission staff’s past advocacy against PBM transparency created roadblocks to state and federal efforts for transparency. I know this first hand since I was an expert witness in the litigation that upheld Maine’s first in the nation legislation that required PBM transparency. The FTC staff advocacy hampered efforts at other state PBM transparency legislation and was used by PBM advocates to suggest significant harm from transparency legislation. The advocacy seemed particularly misguided since transparency is essential to the workings of a competitive market and both Republican and Democratic Administrations embraced transparency as part of health care reform.

As I testified before the Senate Finance Committee in May 2022:

“For example, the FTC has consistently opposed PBM transparency even though both Republican and Democratic Administrations have been strong advocates for healthcare transparency. In many cases, the FTC staff has relied on an outdated 2005 FTC mail order study, which Commissioner Julie Brill acknowledged was “antiquated.” Ultimately, many states rejected the FTC advocacy and adopted state regulations, but the broad statements in the FTC’s own advocacy hamper the ability of states or Federal regulators to engage in meaningful PBM regulation.”

https://www.commerce.senate.gov/services/files/5807DDD6-EA20-42A4-97B1-73541F832839

I document the multifaceted transparency requirements in other healthcare markets in my testimony.

Perhaps the “low water” mark for the FTC’s advocacy was a proposal by the Employee Benefit Security Administration of the Department of Labor in 2014 to require a degree of transparency for plan sponsors (so they could fulfill their fiduciary duty). A broad coalition including Consumers Union, HR Policy Association (an association of Fortune 50 corporations), the National Coordinating Committee of Multiemployer Plans (an AFL CIO subsidiary representing over 25 million covered lives) and others testified in support. (I also testified in support http://www.dcantitrustlaw.com/assets/content/documents/testimony/ebsa.David%20Balto%20EBSA%20Testimony%206-19_Final.pdf ). The FTC staff opposed the regulation, although Commissioner Brill dissented, explaining the FTC staff relied on the outdated mail order study and misguided view of the level of competition in the market. https://www.ftc.gov/system/files/documents/public_statements/579031/140819erisaletter.pdf

Considering how profits have skyrocketed and anticompetitive practices have proliferated Comissioner Brill was prescient.

As the FTC knows from recent Congressional hearings there is an emerging bipartisan consensus that the PBM market is severely broken and there is a great need for reform. Yet the FTC’s past advocacy is currently being used as a weapon of those opposing sensible reform. In particular those who oppose transparency rely on the FTC staff’s statements that transparency will lead to collusion. I firmly disagree with that suggestion. The staff basically relies on an example from decades ago in a foreign market. They do not provide a single example where this occurred in a U.S. market. Second, although there may be a theoretical argument that excessive transparency can lead to collusion, I think that is rather unlikely in this market. It assumes that buyers will disclose the precise amount of rebates to rival manufacturers. I have represented payors for years and based on my experience I doubt that would occur. Moreover, in my 15 years as an antitrust enforcer including working as the FTC Policy Director, I cannot recall a single case where transparency led to the type of collusion the FTC staff suggests.

Finally, some opponents of transparency may suggest there is transparency in the market. Perhaps some very large plan sponsors are able to secure rebate and pricing information, but that does not protect the smaller plan sponsors in the market who lack those resources.

The FTC’s staff’s past advocacy is misguided and creates obstacles to sensible regulation. The FTC should issue a statement to withdraw reliance on past PBM advocacy.