Pressure builds on prescription drug middlemen as the companies see stocks and profits rise

Correction: Self-funded payers such as state and local governments , unions, companies, and pension funds are suing drugmakers and middlemen over their insulin pricing practices. An earlier version of this story incorrectly listed insurance companies as among the plaintiffs. This version has been updated.

A wide group of plaintiffs in a national insulin pricing lawsuit are seeking to add a group of shadowy companies set up by health conglomerates as they argue that two layers of prescription drug middlemen are illegally inflating the price of the lifesaving medicines.

Meanwhile, one of the biggest of the conglomerates, CVS Health, last week announced better-than-anticipated profits as its CEO complained that criticism of the drug middlemen was unfair.

A large group of state and local governments, unions, companies, and pension funds are suing the three middlemen that control access to about 80% of insured patients in the United States. They’re also suing the three companies that make almost all of the insulin sold in the country. 

The suit claims that the drugmakers and the middlemen conspired to raise prices and profits from the drug, which many diabetics need to survive.

The Federal Trade Commission last year filed a lawsuit against the middlemen making similar claims.

Meanwhile, litigation and legislation has been filed across the United States against the middlemen and their corporate parents alleging that they artificially raise prices on a wide swath of drugs so they can make more money.

Known as pharmacy benefit managers, or PBMs, the middlemen represent insurers — including those owned by their parent corporations — in drug transactions. They create networks of pharmacies and determine how much to reimburse them — including pharmacies they own and others they compete with. Independent pharmacies have long complained that the big PBMs’ parent companies have used that opaque, possibly conflicted process to drive them out of business.

Importantly, the big PBMs also decide which drugs to cover with insurance and which to give preferential treatment, often in the form of the lowest copayments. Drugmakers want their products to be covered, so they pay the PBMs huge, often non-transparent fees and discounts to get them on the lists, known as formularies, and to get preferential treatment.

The lawsuits against the companies — CVS Health, United Health Group and Cigna-Express Scripts — accuse them of excluding cheaper forms of insulin from the formularies in pursuit of ever higher payments from drugmakers. This has the effect of unfairly driving up prices, the FTC, state and local governments and self-funded insurers all say. 

Now the plaintiffs in the multi-district suit filed by the state and local governments and other self-funded groups seeks to sue yet another set of middlemen created over the past five years by the health conglomerates. 

Called “group purchasing organizations,” they negotiate rebates on PBMs’ behalf. Two are headquartered overseas and their critics said they were created to hide their business behind yet another black curtain amid increasing scrutiny of the industry. They also claim it’s a way to extract even more fees and make more money.

The group purchasing organizations, “retain billions in additional fees from manufacturers and (obscure) the payment trail of rebates that rightfully belong to self-funded payers,” Mark Pifko, co-lead counsel in the litigation, said in a statement.

The FTC is already suing the purchasing organizations on similar grounds.

Amid lawsuits from the feds and every other level of government, CVS last week reported $4.6 billion in profit for 2024, beating expectations and sending its stock price soaring.

On the earnings call, CEO David Joyner took the unusual step of complaining that those governmental entities that were suing were picking on his company.

“One of the most powerful forces helping to offset rising health care costs is PBMs like (CVS) Caremark,” Joyner said, according to Fierce Healthcare. “These entities remain the only part of the drug supply chain (that is) entirely focused on lowering costs, but have erroneously been subject to deceptive rhetoric and misinformation.”

However, CVS and the other two health conglomerates have refused to make public all of their data relating to pricing, pharmacy reimbursements, fees, and manufacturer discounts, so one can’t know if the companies are offsetting rising health care costs or adding to them. Even so, Joyner complained that others were cherry picking data.

“So when you look at all the data, not cherry-picked data points like those specifically referenced in the FTC interim reports, the conclusion is clear: PBMs deliver savings to their clients,” he said. “Caremark has been and continues to be a critical solution to help ensure Americans pay less for drugs.”