Pfizer, Sanofi’s Pharmaceutical Rebate Suits Get on FTC’s Radar

July 2, 2021, 10:00 AM

A string of pharmaceutical manufacturers’ lawsuits challenging payers’ and benefit managers’ “preferred” drug lists have caught federal antitrust regulators’ attention.

Pfizer Inc., Sanofi S.A., other care providers have sued competitors for allegedly giving rebates to insurers and pharmaceutical benefit managers in return for their products getting on preferred formulary lists.

In a report released in May, the Federal Trade Commission told Congress that the lawsuits—alleging that such exclusive rebates stifle competition—could establish legal theories that the agency would monitor.

Those lawsuits, and the FTC’s review of them, could set the ball rolling on how pharmaceutical rebates are regulated, and possibly change the way hundreds of drugs reach consumers, industry watchers say. But the complex industry runs on contracts with specific terms and unique relationships, and applying antitrust law to fact-specific cases is proving to be difficult for plaintiffs, a factor that could influence regulators’ decision to enforce or push for changes.

“The FTC may use the losses in private cases as evidence that the current interpretations or applications of antitrust laws are inadequate, and maybe as an argument that the laws need to be changed,” said Barbara Sicalides, a partner at Troutman Pepper LLP.

Insurers use pharmacy benefit managers, or PBMs, to negotiate lower pricing with drug manufacturers. Manufacturers pay rebates to get on PBMs’ formulary lists, with terms that often block competitors’ products. The practice creates a “rebate wall” for competitors that want to market their products to PBMs’ subscribers.

The rebate program practice has gone largely unchecked even as PBMs have consolidated in recent years, according to a 2020 report by Xcenda, LLC, a health care consulting firm owned by AmerisourceBergen.

Three of the largest PBMs—CVS Caremark, a subsidiary of CVS Health Corp.; Express Scripts, a subsidiary of Cigna Corp.; and OptumRx, a subsidiary of Optum Inc.—now control 74% of the prescriptions in the U.S. market, according to the report.

‘Highly Fact-Specific’

Companies’ lawsuits against their competitors over rebate walls could test the limits of certain antitrust theories—such as bundling and exclusive dealing—as applied to rebate programs’ practices that arguably lower consumers’ drugs prices.

But the FTC cautioned against drawing a common conclusion from the cases. “Application of these theories is highly fact-specific,” the agency said in its report.

Defining the market, the extent of how competition was stifled, contract duration, and agreement termination terms are some of the facts to be established by plaintiffs in their cases, it said.

“By flagging these cases the FTC is making an emphasis on the fact that these are really specific cases, and that not every rebate is going to foreclose on a market to the extent that it violates antitrust laws,” said Carol O’Keefe, an antitrust attorney at Korein Tillery LLC.

The agency also is pointing out that private cases have so far come up short in establishing a clear path to challenge rebate programs, attorneys said.

“Basically, it seems like there hasn’t been enough private litigation that’s gone far enough to say these rebate walls are going to be easily challengeable,” said Lucy Clippinger, an antitrust attorney with Baker & Miller PLLC.

Giant Names

The cases the FTC cited are in varying stages of their battles, with mixed results.

Pfizer claimed in 2017 that Johnson & Johnson violated antitrust laws by threatening UnitedHealthcare that it would withhold significant rebates unless the health insurance giant denied coverage of Pfizer’s drug Inflectra—an immunosuppressive drug used to treat severe arthritis and Crohn’s disease—in favor of its own drug, Remicade.

“Pfizer continues to believe in the merits of its case and welcomes FTC consideration of these important issues,” a company spokesperson said in an email to Bloomberg Law.

A federal court rejected Johnson & Johnson’s motion to dismiss in 2018, and the case is now headed for discovery, according to an April Johnson & Johnson SEC filing. Johnson & Johnson said in the filing that healthcare system costs have gone down “because we continue to compete vigorously.”

Sanofi-Aventis U.S. LLC, a unit of Sanofi S.A., sued Mylan N.V. with similar claims in 2017. A federal district court granted summary judgment, finding that Mylan didn’t violate antitrust laws by offering rebates to insurers that excluded a Sanofi product that competed with Mylan’s EpiPen. Sanofi-Aventis has appealed the decision in the U.S. Court of Appeals for the Tenth Circuit.

Shire settled its claim against Allergan Inc. in 2020 after alleging that Allergan coerced insurance plan administrators into excluding Shire’s products through exclusive deals, product bundling, and rebates.

Several class action lawsuits challenging rebate programs are also working their way through the courts on behalf of direct and indirect purchasers of drugs, according to court filings.

Obstacles Ahead

Plaintiffs’ failure to notch a clear victory so far illustrates the challenges ahead for regulators or others looking to make a dent in rebate walls.

Defenders of rebate programs can argue that they extract lower prices from drug makers and help lower costs for consumers. And that poses additional challenges for plaintiffs.

“When the conduct in question involves lowering prices, the cases are much more difficult to win because the economic evidence, the scrutiny, and elements of proof are much harder to muster,” Sicalides said.

The FTC’s report to Congress may well be the agency’s attempt to show the legal and resource limitations it faces in enforcing perceived anticompetitive behavior in the pharmaceutical industry, attorneys said.

“The FTC may be using this information as part of their argument to Congress that they should have increased funding as well as additional legal tools,” Sicalides said. “I think the outcomes of those cases will be used whether its a failure or success.”

Without more specific legal guardrails created through legislation that carve out specific anticompetitive behavior, the courts will have to interpret whether rebate programs violate the law, attorneys say. The lack of progress for such cases could discourage other private players from challenging rebate programs, as well as stymie any FTC enforcement.

“It makes legal challenges to rebate walls less attractive for both private plaintiffs and the government because trying to break new legal ground is expensive and has a substantial chance of failure for both groups,” Clippinger said.

To contact the reporter on this story: Siri Bulusu in Washington at sbulusu@bloombergtax.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com

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