CASE BACKGROUND
One in four healthcare dollars is spent caring for people who have diabetes. The cost of medications has skyrocketed over the past 20 years. These price increases do not derive from the rising cost of goods, production costs, investment in research and development, or competitive market forces. Instead, defendants allegedly engineered them to exponentially increase their profits at the expense of payors like plaintiff.
Defendants Eli Lilly, Novo Nordisk, and Sanofi (collectively, the “manufacturer defendants” or the “manufacturers”) manufacture nearly all insulins and other diabetes medications available in the U.S. Defendants CVS Caremark, Express Scripts, and OptumRx (collectively, the “PBM defendants” or “the PBMs”) are pharmacy-benefit manager conglomerates that work in concert with the manufacturers to dictate the availability and price of the at-issue drugs for most of the U.S. market. Nationwide, the PBM defendants are: (a) the three largest PBMs, (b) the largest pharmacies, and (c) owned and controlled by entities that own three of the largest insurance companies—Aetna (CVS Caremark), Cigna (Express Scripts), and UnitedHealthcare (OptumRx).
For transactions in which the PBM defendants control the insurer, the PBM, and the pharmacy (e.g., CVS Caremark–Aetna–CVS Pharmacy)—these middlemen capture as much as half of the money spent on each insulin prescription. The PBMs establish formulary offerings (i.e., approved drug lists) that determine which diabetes medications are covered for nearly every payor in the U.S.
Given the PBMs’ market power and the crucial role their standard formularies play in the pharmaceutical payment chain, both defendant groups understand that the PBM defendants wield enormous influence over drug prices and purchasing behavior. The manufacturers set the initial list prices for their respective insulin medications. Over the last 20 years, list prices have sharply increased in lockstep, even though the cost of production has decreased.
To gain access to the PBMs’ formularies, the manufacturers gain the PBMs’ approval by artificially inflating their list prices and then paying a significant, yet undisclosed, portion of that inflated price back to the PBMs (collectively, the “manufacturer payments”). The manufacturer payments bear a variety of dubious labels, including rebates, discounts, credits, inflation/price protection fees, and administrative fees. By whatever name, the inflated list prices and resulting manufacturer payments are an alleged quid pro quo for inclusion and favorable placement on the PBMs’ formularies. Defendants consequently profit from the “rebates” and other manufacturer payments, which are shielded from payors’ contractual audit rights, thereby precluding payors from verifying the components or accuracy of the “rebates” that payors receive.
Although the PBM defendants represent both publicly and directly to their client payors that they use their market power to drive down prices for diabetes medications, these representations are false and deceptive. Instead, the PBMs allegedly intentionally incentivize the manufacturers to inflate their list prices.
Because the purchase price of every at-issue diabetes medication flows from a false list price generated by defendants’ alleged unfair and deceptive scheme, every payor in the U.S. that purchases these life-sustaining drugs, including plaintiff, has been directly harmed by this pricing scheme.
