Report: FTC used insufficient analysis in its investigation of Pharmacy Benefit Managers

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A new Competitive Enterprise Institute report delves into major problems with a Federal Trade Commission report critical of Pharmacy Benefit Managers (PBMs). PBMs are specialized businesses hired by employers, unions, and insurance companies to manage prescription drug benefits and negotiate with pharmaceutical companies to obtain lower drug prices.

In this current lame duck session of Congress, some lawmakers are calling on House and Senate leaders to pass legislation aimed at curtailing how PBMs do business. The CEI paper explains why the flawed FTC report should not be used as grounds for anti-PBM legislation or, for that matter, anti-PBM litigation by the FTC itself.

"The FTC under Chair Lina Khan put out an 'interim' report critical of PBMs that lacks rigorous economic data and analysis on how PBMs effect prescription drug prices for consumers," said Jessica Melugin, co-author of the CEI report, FTC Flunks Interim Report: Pharmacy Benefit Managers study fails on many levels. "The FTC has strayed far from its core mission of protecting consumers from harm, as evidenced by its economically deficient report on PBMs and subsequent, baseless litigation accusing those businesses of wrongdoing."

"When considering legislation restricting PBMs, lawmakers should be aware that the FTC has not thoroughly investigated the effects of PBMs on consumer drug prices," said Alex Reinauer, report co-author.

The CEI paper, part of its Eye on FTC project, parses out several specific problems with the FTC report:

• It omits an evaluation of how PBMs affect consumer drug prices.
• It lacks empirical evidence concerning competition in the prescription drug market.
• It focuses on dubious considerations of industry consolidation, market share, and business incentives - devoid of evidence on whether any of that poses a problem.
• It cites news media reporting as evidence on drug prices - not data the agency obtained from its own investigation into PBMs (under the auspices of power granted to the agency under Section 6(b) of the Federal Trade Commission Act).
• It relies too heavily on public comments submitted to the FTC, notwithstanding many of those comments are either anonymous or else written by adversarial pharmaceutical interests that dislike negotiating with PBMs.

Despite those many shortcomings, the FTC in September filed an administrative complaint against the three largest PBMs only two months after its interim report was released. That report has been cited by critics of PBMs as justification for legislative action against the industry.

> View the report, FTC Flunks Interim Report: Pharmacy Benefit Managers study fails on many levels, by Jessica Melugin, director of CEI's Center for Technology and Innovation, and Alex Reinauer, CEI Research Fellow.

> Related analysis:
A Free Market Solution for Drug Distribution
The FTC Goes Evidence-Free > For more information on CEI's Eye on FTC project, visit EyeOnFTC.com.