Five Drug Pricing Issues to Watch in 2023

12 min read

Despite a busy 2022, drug pricing remains a hot topic at the federal and state levels, with a number of recent developments and trends worth monitoring heading into 2023. In the past year, the FTC increasingly focused on the role of Pharmacy Benefit Managers ("PBMs") in drug pricing as well as the potential for rebate agreements concerning drug formulary coverage to violate the antitrust laws, increasing the potential for investigations and enforcement actions. Congress passed long-sought drug pricing measures in the 2022 Inflation Reduction Act ("IRA"), such as Medicare direct negotiation of drug prices, but how the law will be implemented or challenged in court remains to be seen. With a divided House and Senate, future drug pricing legislation is uncertain, but both parties have shown interest in regulating certain PBM practices. States continued their recent pace of legislative activity on a wide range of issues. Developments on these issues top our five drug pricing issues to watch in 2023.

1. The FTC's expanding focus on the role of PBMs and manufacturer rebating practices. On June 7, 2022, the FTC announced a Section 6(b) inquiry into the PBM industry.  The stated purpose of the inquiry is to analyze the "competitive impact of the contracting and business practices" of PBMs, including practices that "have drawn scrutiny in recent years," such as the use of clawbacks, steering patients to PBM-affiliated pharmacies, administrative restrictions on coverage (e.g., prior authorizations), and the effect of manufacturer rebates on formulary design and drugs costs.

Only a week later, on June 16, the FTC issued its "Policy Statement of the Federal Trade Commission on Rebates and Fees in Exchange for Excluding Lower Cost Drug Products." In that enforcement policy statement, the FTC states that agreements between manufacturers and PBMs involving rebates paid in "exchange for excluding lower cost drug products" may violate Sections 1 and 2 of the Sherman Act, Section 3 of the Clayton Act, Section 5 of the FTC Act, and even the commercial bribery provision of the Robinson-Patman Act (Section 2(c)).

The combination of the ongoing Section 6(b) inquiry and new enforcement policy statement signal a growing FTC focus on pharmaceutical rebating practices that is likely to continue—and possibly expand—in 2023. For example, the FTC filed a September 2022 complaint alleging pesticide manufacturers Syngenta Crop Protection and Corteva, Inc. used loyalty rebates to allegedly exclude competing generic pesticide products. In its press release announcing the complaint, the FTC made clear that the lawsuit is part of a "broader push" to challenge supposedly anticompetitive rebating practices in a number of industries, including pharma:

"The FTC's complaint is part of a broader push to unlock competition and innovation in the American economy, protect consumers and small businesses, and crack down on unfair tactics by dominant companies. The FTC has a long track record of suing to stop pay-for-delay schemes that reward generic drug makers for not competing. And this past June, the agency announced that it would ramp up enforcement against illegal rebates and kickback schemes to middlemen in the pharmaceutical industry aimed at keeping generic drugs out of the market—an anticompetitive tactic similar to the one alleged in today's complaint."3

It remains to be seen whether this "broader push" will materialize into similar enforcement actions targeting rebating practices in the pharma industry. While antitrust challenges to rebating practices have faced an uphill battle in recent years,4 it is possible that the FTC may seek to exercise its newly expansive view of its authority under Section 5 of the FTC Act (discussed in more detail below) to challenge pharmaceutical rebating practices or other forms of discounting as unfair methods of competition.

Further, as is always the case, it is possible that the FTC’s public statements and criticisms of PBM and manufacturer rebating and discounting practices could embolden state attorneys general and private plaintiffs to pursue actions of their own in 2023.

2. FTC's New Policy Statement on Section 5 of the FTC Act signals increased risks of investigation and enforcement. On November 10, 2022, the FTC issued its long-awaited "Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act" ("Statement"), announcing its new policy regarding the circumstances in which the Commission may seek to take action against supposedly unfair methods of competition under Section 5 of the FTC Act. The Statement presents an expansive view of FTC's Section 5 authority and outlines a scope that reaches beyond the Sherman and Clayton Acts to encompass various other types of supposedly "unfair conduct" that may negatively affect competitive conditions.

The Statement defines an unfair method of competition as conduct that "goes beyond competition on the merits."5 Conduct goes beyond competition on the merits, according to the FTC, when it (1) is "coercive, exploitative, collusive, abusive, deceptive, predatory, or involve[s] the use of economic power of a similar nature" and (2) "tend[s] to negatively affect competitive conditions."6 The FTC will weigh these two criteria on a sliding scale—that is, the more evidence of one criteria, the less evidence is needed for the other.7 Departing from established principles, the Statement also specifies that it is not necessary to show "actual harm" from the challenged conduct, that there is no "market power" requirement, and that the "the inquiry will not focus on the 'rule of reason' inquiries more common in cases under the Sherman Act, but will instead focus on stopping unfair methods of competition in their incipiency based on their tendency to harm competitive conditions."8 Further, the Statement indicates that justification defenses may have limited, if any, impact on an assessment of fairness and that the FTC will not conduct any sort of "net efficiencies test" or "numerical cost-benefit analysis."9

The final section of the Statement, which outlines what the FTC describes as "historical examples" of unfair methods of competition, includes noteworthy takeaways for the pharma industry. The list includes examples of contracting arrangements common in the pharmaceutical industry that according to the FTC now may be viewed as an "incipient violation of the antitrust laws" or conduct "that violates the spirit of the antitrust laws" and thus within the scope of Section 5.10

Under "incipient violations," for example, the Statement lists "loyalty rebates, tying, bundling, and exclusive dealing arrangements that have the tendency to ripen into violations of the antitrust laws by virtue of industry conditions and the respondent's position within the industry."11 Similarly, under "conduct that violates the spirit of the antitrust laws," the Statement lists "de facto tying, bundling, exclusive dealing, or loyalty rebates that use market power in one market to entrench that power or impede competition in the same or a related market."12

A number of commentators have suggested that rebating practices in the pharma space will be a Section 5 priority for the FTC heading into 2023.13 Although filed just prior to issuance of the Section 5 Statement, the FTC's complaint challenging the rebating practices of pesticide manufacturers Syngenta and Corteva mentioned above suggests the FTC is looking for Section 5 cases to bring, at least at this stage in parallel with traditional Sherman Act claims, as that complaint includes both.

Regardless of whether the FTC uses its expansive new view of Section 5 to bring enforcement actions against PBMs and manufacturers in the near future, the Statement raises more questions than answers for drug manufacturers trying to determine where the FTC is seeking to draw the line on contracting practices in the industry.14

3. Congress authorizes Medicare price "negotiation," but future legislative efforts are uncertain. After the Biden Administration's Build Back Better Act ("BBBA") stalled in the Senate, Democrats folded drug pricing priorities from the BBBA into the Inflation Reduction Act ("IRA"), which they successfully passed in August 2022.

The IRA includes curtailed versions of long-sought components championed by Congressional Democrats including: empowering the Department of Health and Human Services ("HHS") to "negotiate" drug prices on a narrow set of innovator products that have been approved for at least 7 years (for small-molecule drugs) or 11 years (for biologics) under Medicare Part B and D (and imposing civil fines and an excise tax of up to 95% for noncompliance); imposing rebates on certain Medicare Part B and D drugs with price increases greater than the rate of inflation (similar to the inflationary rebate provisions under Medicaid); capping out-of-pocket costs for prescription drugs under Medicare Part D; and limiting copays for insulin to $35 under Medicare Part D.15 President Biden's October 2022 Executive Order, intended as a supplement to the law, directs HHS's Center for Medicare and Medicaid Innovation to consider and test new payment and delivery models to lower drug costs, including value-based care payment models.16

The Medicare price negotiation provisions in the IRA have garnered the most attention. Manufacturers and other stakeholders have raised concerns that the law will curb innovation and signaled their intent to challenge the provision.17 Congressional Republicans have echoed concerns regarding the potential impact on innovation, with a group of Republican Senators introducing legislation to repeal the direct negotiation provision of the IRA.18 While revisions to the IRA seem unlikely in the near term with Democrats in control of the Senate, Republican lawmakers may challenge regulatory implementation of the drug price negotiation provision through congressional hearings and other oversight activities.19

With the first 10 drugs subject to negotiation slated to be selected in 2023, and those prices set to become effective 2026,20 the government has begun staffing up to move forward with its price negotiation mandate,21 but has yet to issue guidance or rulemaking. Any such guidance or rulemaking will be reviewed closely by the industry and can be expected to be fodder for legal challenges, which has been the case in the past with implementation of programs that involve drug pricing. For example, earlier this year manufacturers successfully challenged a rule change that would have required manufacturers to include consumer co-pay assistance in Medicaid best price calculations in certain instances.22

The prospect for meaningful legislative activity on other aspects of drug pricing in the upcoming divided Congress seems low. Pending bills aimed at bolstering competition from generic drugs and revising antitrust and patent law saw little activity in 2022 and appear to face dimmer odds with the House in Republican control.23 An area with a potentially greater chance for movement, however, is legislation regulating PBM practices. Like the FTC, both Republican and Democratic members of Congress have shown increasing interest in PBM practices and their effect on drug prices.

One notable pending bill is the Pharmacy Benefit Manager Transparency Act of 2022. Introduced in May 2022 by a group of Senate Republicans and Democrats, the bill seeks to ban certain PBM practices, such as spread pricing and unfair clawbacks, as "unfair and deceptive acts or practices."24 The bill also would require PBMs to disclose to the FTC a range of financial information on spread pricing and clawbacks, in an effort to increase the transparency of those practices.25 Whether Congress will move forward in the coming year with this or any other bill on PBMs, or any other drug pricing legislation, remains to be seen.

4. Key aspects of the federal 340B program continue to be litigated. Court decisions regarding facets of the federal government's 340B drug pricing program, which requires drug manufacturers to make statutorily mandated pricing available to "covered entities" serving needy patients (e.g., hospitals and clinics in low income areas), continued to roll in during 2022, and more are expected in 2023. Cases regarding the 340B program bear watching given the increasing size of the program, which now is the second largest government drug program and accounted for roughly $44 billion in discounted purchases in 2021.26

In a June 2022 decision, American Hospital Association v. Becerra, the Supreme Court struck down an effort by HHS to lower drug reimbursement rates paid to 340B covered entities. Hospitals and hospital associations challenged HHS's power under the Outpatient Prospective Payment System to cut the statutory reimbursement rate that the federal government pays to 340B hospitals for outpatient drugs purchased pursuant to the 340B program.

In a unanimous decision, the Supreme Court held that the government did not have the authority to adjust the reimbursement rates to covered entities, unless the government conducts a survey of the covered entities' acquisition costs—which the government had not performed.27 Following the Supreme Court's decision, the lower court vacated the government's reduced reimbursement rate for the remainder of 2022,28 and the American Hospital Association in turn is urging HHS to reimburse hospitals for cuts made in previous years.29

Appellate court guidance on the role of contract pharmacies in the 340B system is expected in 2023. Three federal courts of appeals are poised to decide whether drug manufacturers can restrict the availability of 340B-priced drugs to contract pharmacies, i.e., the retail pharmacies hired by covered entities to dispense 340B drugs to eligible patients. To address their concerns about covered entities' growing use of contract pharmacies to dispense 340B drugs, including the potential for fraud, duplicate discounts, and drug diversion, manufacturers began restricting contract pharmacy access to 340B price discounts. HHS issued violation letters to these manufacturers stating that such restrictions violated the 340B statute. Litigation over the manufacturer restrictions and HHS violation letters ensued, resulting in a split among district courts.30 Appeals in each of the pending cases have been fully briefed and argued.31

5. State focus on drug pricing likely to continue. This past year has seen state legislators continue their efforts to regulate on a wide range of drug pricing issues, such as increasing price transparency, capping out-of-pocket costs for insulin, and limiting certain PBM practices.32 These efforts continue a trend from the past several years and suggest more of the same for 2022.

States also continue to defend their legislative efforts in court. Most recently, 35 state attorneys general filed an October 2022 amicus brief in the US Court of Appeals for the Tenth Circuit supporting Oklahoma's statutory regulation of PBMs.33 The lawsuit, filed by the Pharmaceutical Care Management Association ("PCMA"), seeks to enjoin Oklahoma from enforcing its Patient's Right to Pharmacy Choice Act on grounds that it is preempted by federal ERISA and Medicare laws.34 In 2020, the US Supreme Court rejected a similar challenge by the PCMA to an Arkansas law.35 Meanwhile, California's Assembly Bill 824, commonly referred to as the State's pay-for-delay legislation, remains limited to settlement agreements negotiated, completed, or entered into within California's borders.36

White & Case's Global Competition/Antitrust Group and the White & Case Pharmaceuticals & Healthcare Industry Group are tracking these developments in competition and drug policy closely, with a specific focus on potential investigations and litigation.

1 FTC Matter No. P221200, June 6, 2022; see also FTC Launches Inquiry Into Prescription Drug Middlemen Industry, FED. TRADE COMM'N (June 7, 2022). Section 6(b) of the FTC Act authorizes the FTC to seek documents and data without a specific law enforcement purpose.
2 FTC Matter No. P221200, June 6, 2022; see also FTC Launches Inquiry Into Prescription Drug Middlemen Industry, FED. TRADE COMM'N (June 7, 2022). 
FTC and State Partners Sue Pesticide Giants Syngenta and Corteva for Using Illegal Pay-to-Block Scheme to Inflate Prices for Farmers, FED. TRADE COMM'N (Sept. 29, 2022).
4 See, e.g., Sanofi-Aventis US, LLC v. Mylan, Inc. (In re EpiPen Epinephrine Injection, Mktg., Sales Pracs. & Antitrust Litig.), 44 F.4th 959, 1006 (10th Cir. 2022) (affirming summary judgment dismissal of antitrust challenge to manufacturer rebates for formulary position).
5 Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act at 8 (Nov. 10, 2022).
6 Id. at 9.
7 Id. at 9-10.
8 Id.
9 Id. at 11.
10 Id. at 12.
11 Id. at 12-13.
12 Id. at 13-16.
13 See, e.g., FTC May Go After Pharma Bundling, Rebates, Patent Processes With Reactivation of Section 5, PINK SHEET (Nov. 10, 2022).
14 Gabrielle Wanneh, FTC's Revival Of Enforcement Policy Could Discourage Drug Rebates, INSIDEHEALTHPOLICY (Nov. 17, 2022) (quoting J. Mark Gidley:  "There's nothing from this policy statement that allows me to sit down with a client and say, 'You really shouldn't do this because it violates Section 5 or it might violate Section 5.' They're not saying anything about what Section 5 really means. They just say it's something a business does that is quote unquote unfair.").
15 See Inflation Reduction Act of 2022, HR 5376, 117th Cong. (2022), Subtitle B, Part 1 – Lowering Prices Through Drug Price Negotiation; id. at Part 2 – Prescription Drugs Inflation Rebates; id. at Part 3 – Part D Improvements and Maximum Out-of-Pocket Cap for Medicare Beneficiaries; id. at Part 5 – Miscellaneous, § 11406, Appropriate Cost-Sharing for Covered Insulin Products Under Medicare Part D.
16 See Executive Order on Lowering Prescription Drug Costs for Americans, WHITE HOUSE (Oct. 14, 2022).
17 See RA Effect: Alnylam Acting 'Rationally' In Halting Second Orphan Indication For Amvuttra – Analysts, PINK SHEET (Nov. 7, 2022).
18 Protect Drug Innovation Act, S. 4953, 117th Cong. (2022).
19 See, e.g., Letter to the Hon. Xavier Becerra from Cathy McMorris Rogers, Republican Leader, Committee on Energy and Commerce and Kevin Brady, Republican Leader, Committee on Ways and Means (Aug. 29, 2022) (letter from House Republican committee leaders highlighting concerns regarding direct price negotiation, including effect on innovation, and seeking transparency and committee hearings on implementation); see also Republican Leaders in Congress Want to Undercut Drug Pricing Law: What's the Opportunity?, PINK SHEET (Nov. 8, 2022).
20 Inflation Reduction Act of 2022, H.R. 5376, 117th Cong. (2022), Subtitle B, Part 1 – Lowering Prices Through Drug Price Negotiation.
21 See Ahmed Aboulenein, Hiring and Data: How the US Will Set Up New Medicare Drug Price Talks, REUTERS (Aug. 22, 2022).
22 See Pharm. Research & Manufs. of Am. v. Becerra, No. 1:21-cv-1395, 2022 US Dist. LEXIS 88736 (D.D.C. May 17, 2022).
23 See Michael J. Gallagher, et. al., Drug Pricing Issues to Watch in 2022,  WHITE & CASE (Jan. 28, 2022) (discussing the Preserve Access to Affordable Generics and Biosimilars Act, S. 64, 116th Cong. (2019); The Affordable Prescriptions for Patients through Promoting Competition Act, H.R. 4398, 116th Cong. (2019); The Stop STALLING Act, H.R. 2374, 116th Cong. (2020); The Affordable Prescriptions through Improvements to Patent Litigation Act, H.R. 3991, 116th Cong. (2019).
24 Pharmacy Benefit Manager Transparency Act of 2022, S. 4293, 117th Cong. § 2(a) (2022); see also Michael Gallagher et al., Federal Legislators and FTC Keep PBMs Center Stage During Pricing Debate, WHITE & CASE (July 5, 2022).
25 Pharmacy Benefit Manage Transparency Act of 2022, S. 4293, 117th Cong. § 4 (2022); see also Michael Gallagher et al., Federal Legislators and FTC Keep PBMs Center Stage During Pricing Debate, WHITE & CASE (July 5, 2022).
26 See Adam Fein, The 340B Program Climbed to $44 Billion in 2021—With Hospitals Grabbing Most of the Money, DRUG CHANNELS (Aug. 15, 2022).
27 American Hospital Ass'n v. Becerra, 142 S. Ct. 1896 (2022).
28 See American Hospital Ass'n v. Becerra, 18-2084, 2022 US Dist. LEXIS 175449 (D.D.C. Sept. 28, 2022).
29 See Melinda Hatton, General Counsel and Secretary, American Hospital Ass'n, AHA Statement on Court Ruling Halting 2022 340B Drug Pricing Program Cuts, AMERICAN HOSPITAL ASS'N (Sept. 28, 2022).
30 See Sanofi-Aventis US LLC v. HHS, 570 F. Supp. 3d 129, 203-04 (D.N.J. Nov. 5, 2021) (holding manufacturers cannot unilaterally impose restrictions on offers to covered entities); AstraZeneca Pharms. LP v. Becerra, 21-cv-00027, 2022 US Dist. LEXIS 27842, at *15 (D. Del. Feb. 16, 2022) (vacating violation letter and finding letter was based on flawed statutory assumption that manufacturers are required to facilitate sales of covered drugs under 340B by dispensing to an unlimited number of contract pharmacies); Novartis Pharms. Corp. v. Espinosa, No. 21-cv-1479, 2021 US Dist. LEXIS 214824, at *18-19, 28-29 (D.D.C. Nov. 5, 2021) (vacating violation letters and finding that 340B does not entirely prohibit manufacturers from imposing conditions on the use of contract pharmacies, but deferring opinion on the type of conditions that may be allowed); Eli Lilly and Co. v. HHS, No. 1:21-cv-0081, 2021 US Dist. LEXIS 209257, at *78-82 (S.D. Ind. Oct. 29, 2021) (setting aside violation letter as arbitrary and capricious, but finding that 340B statute does not permit manufacturers to impose conditions on covered entities' access to discounts).
31 Sanofi-Aventis US, LLC v. HHS, No. 21-3167 (3d Cir.); Novo Nordisk Inc. v. HHS, 21-3168 (3d Cir.); AstraZeneca Pharms. LP v. Secretary of HHS, 22-1676 (3d Cir.); Novartis Pharms Corp v. Espinosa, No. 21-5299 (D.C. Cir.); Eli Lilly and Co. v. Becerra, No. 21-03128 (7th Cir.).  After oral argument, the Seventh Circuit has requested additional briefing on its jurisdiction to hear the case. See Eli Lilly and Co. v. Becerra, 21-03128 (7th Cir. Nov. 1, 2022), ECF No. 76.  The D.C. Circuit ordered a limited remand for the lower court to determine the finality of its decision, which the lower court confirmed.  See Novartis Pharms. Corp. v. Espinosa, No. 21-05299 (D.C. Cir. Nov. 1, 2022), ECF No. 55.  Both appeals remain pending.
32 See Michael J. Gallagher et al., 2022 Drug Pricing Update: States Continue Legislative Push Even As Congress Passes Long Sought Changes, WHITE & CASE (Sept. 14, 2022).
33 See Brief of Amici Curiae States of Minnesota et al. in support of Appellees and Affirmance, Pharm. Care Mgmt. Ass'n v. Mulready, No. 22-06074 (10th Cir. Oct. 18, 2022), ECF No. 33.
34 See Pharm. Care Mgmt. Ass'n v. Mulready, No. 5:19-cv-00977, 2022 US Dist. LEXIS 83510, at *2-3 (W.D. Okla. Apr. 4, 2022).
35 Rutledge v. Pharm. Care Mgmt. Ass'n, 141 S. Ct. 474 (2020).
36 Ass'n for Accessible Meds. v. Bonta, No. 2:20-cv-01708-TLN-DB, 2022 US Dist. LEXIS 27533 (E.D. Cal. Feb. 14, 2022).

Cansu Gunel (International Associate, Washington) contributed to the development of this publication.

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