Reports of the Current FTC’s Intellectual Integrity Have Been Greatly Exaggerated

Cite this Article
Daniel J. Gilman, Reports of the Current FTC’s Intellectual Integrity Have Been Greatly Exaggerated, Truth on the Market (July 10, 2024),

The Federal Trade Commission (FTC) has released its long-awaited report on pharmacy benefit managers (PBMs) as an “interim staff report.” And it’s yet another staff report that doesn’t name the relevant staff. On the one hand, it does contain some useful information on industry developments. On the other, it’s just not very good—at all. 

With apologies to the always-constrained staff, what I mostly recommend about the interim report is a serious and considered dissent by Commissioner Melissa Holyoak. My International Center for Law & Economics (ICLE) colleague Geoff Manne recommends it too

As Holyoak points out, the interim staff report is awfully thin on both economic and legal analysis. Anecdotes and case studies are fine as illustrations. But illustrations of what? Where is the systematic analysis of data? Apart from issue spotting—and the dramatic characterization of potential problems—where is the legal analysis? 

Background work on the report began in 2021. The commission contemplated compulsory orders in February 2022 (perhaps leading to the apparently instant departure of Marta Wosinska, who had only recently been appointed director of the FTC’s Bureau of Economics). Revised orders were issued in June 2022. So, the staff spent two to three years reviewing millions of documents in order to produce this unsigned “interim staff report” (so far, at least). Is this all we get?  

Were any economists harmed, or even mildly inconvenienced, in the study design or its execution?

Consider, by way of contrast, the FTC’s 2005 PBM report, based on a study expressly requested by Congress in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. There, too, the staff reviewed diverse documents, including high-level business documents and contracts, both downstream (between PBMs and health plan sponsors) and upstream (between PBMs and pharmaceutical manufacturers). There were also two stages of data collection (aggregate data on prices, generic substitution, and dispensing rates; and then, individual claims data). 

That report was both thorough and appropriately tempered. For example, the FTC was able to conclude that, in general (or on average), for the 2002-03 period studied, PBM ownership of mail-order pharmacies did not disadvantage plan sponsors but, on net, provided cost savings. At the same time, the report duly noted, e.g., that: 

[b]ecause… [the] data were aggregated, they do not answer the question whether each plan sponsor has negotiated the best possible deal or whether each PBM has fulfilled its contractual obligations due to each of its plan sponsor clients.

That is, there were concrete conclusions on price effects, among others, but because the data didn’t allow it, there were no concrete conclusions on the practices of individual PBMs. 

As I noted in October 2023, the 2005 report was caught up in a “flood of ill-considered withdrawals.” Having already announced the withdrawal of the 2015 Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act (by a purely partisan vote, less than a month into Chair Lina Khan’s tenure, and without a replacement policy on offer); then, the 1995 Policy Statement on Prior Approval and Prior Notice Provisions in Merger Cases (again on partisan lines); then, on a roll (and again on partisan lines), both the 2020 vertical merger guidelines that had been jointly issued by the FTC and the U.S. Justice Department (DOJ), and the FTC’s Commentary on Vertical Merger Enforcement, which it had published in December 2020 (both on party-line votes); and then—sorry for the never-ending sentence—the commission finally got around to clearing the health policy decks. 

As I wrote before:

Health policy was next on the block. On July 14, 2023, the commission voted to withdraw two of its prior statements on healthcare antitrust, the 1996 “Statements of Antitrust Enforcement Policy in Health Care” and the 2011 “Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.”

Less than a week later, the FTC issued a “Statement Withdrawing Prior PBM- (Pharmacy Benefit Manager) Related Advocacy Statements and Reports that No Longer Reflect Current Market Realities.” Specifically, they withdrew 11 advocacy documents and reports issued between 2004 and 2014. That was of interest for several reasons, and not just because I had drafted—jointly with a colleague in the FTC Bureau of Economics—most of the commission’s PBM-related advocacies from 2006 through 2014.

And as I wrote above, “sort of.” It turns out that the headline about “withdrawing” the report was public-relations spin. In reality, the various advocacy documents and reports remained available on the FTC web page, but the commission issued a disparaging statement and the posted materials were stickered with warning labels. Think cigarette warning labels or FDA “black box” warnings for certain pharmaceutical products.

Click on the link to the 2005 report. In a bright yellow box on the cover page, in bold print, we are warned that “This material is for reference only.” And therefore, one supposes, should not be consumed by children, the elderly, or others with diminished resistance to studies and advocacy comments. There followed this:

On July 20, 2023, the Federal Trade Commission issued a “Statement Concerning Reliance on Prior PBM-Related Advocacy Statements and Reports that No Longer Reflect Current Market Realities,” cautioning the public and policymakers against relying on certain FTC materials. Accordingly, these materials are presented on the FTC’s website for reference purposes only and should not be assumed to reflect current market conditions.

So, aspersions were cast and readers were warned, even if history wasn’t erased. Only a little bit Orwellian.

Ok. Things change. But leaving quibbles aside (isn’t “current” in “no longer reflect current market realities” redundant?), how so? A new PBM study (of a sort) had been commenced, but there were no preliminary findings from that study, and the repudiation was not accompanied by any account, however preliminary, of specific findings or policy recommendations that should no longer be considered reliable. Nor any basis, preliminary or otherwise, for why the commission was so sure that the “new market realities” undermined the 2005 report. 

For example, some of the earlier advocacy documents addressed candidate policy responses to certain concerns some parties had raised about PBMs, such as “any willing provider” (AWP) or “freedom of choice” (FOC) provisions. See, for example, this (now stickered) comment to the Centers for Medicare & Medicaid Services on “Contract Year 2015 Policy and Technical Changes to the Medicare Advantage and the Medicare Prescription Drug Benefit Programs.”

In discussing those policy proposals, the FTC staff had reviewed relevant empirical work on the effects of AWP and FOC provisions, including studies by experienced staff in the FTC’s Bureau of Economics, such as this one by Michael Vita and this one by Daniel Hosken, David Schmidt, and Matthew Weinberg (from 2020). Had more recent or more thorough research contradicted or qualified those findings or repudiated the policy concerns the staff had raised? Not to the best of my knowledge and, plainly, the commission didn’t say. 

So, now we have a new report. Or, if not a new FTC report, then a new, if unsigned, “interim staff report.” Things have changed since 2005 (or since the 2002-03 period, when data were collected for the 2005 report). There have been mergers and acquisitions (vertical and horizontal) and the report provides a picture (if not an original one) of various structural features of the PBM industry and certain chains of distribution. 

But how, specifically, does the interim staff report impugn data-based observations on price effects from the 2005 report? Or even, how generally? Indeed, it’s not clear that there’s any new data analysis identifying price effects (average or aggregate) of any of the acquisitions, or types of acquisitions, or business practices that the interim staff report finds worrisome. Are there mergers that ought to be unwound? Which ones? Because of what effects? And how do we know? 

Here, it’s hard to do better than quote from Commissioner Holyoak’s dissent:

to assert that market conditions have changed is one thing—but to ignore the 2005 Report without conducting a new empirical analysis of market conditions or explaining why the findings, conclusions, and empirical work no longer apply is a different matter entirely. Among other critical conclusions, the Report does not address the seemingly contradictory conclusions in the 2005 Report that PBMs, including vertically owned PBMs, generated cost savings for consumers. In fact, the Report does not present any empirical evidence to rebut the 2005 Report’s findings. Chair Khan’s statement fails to identify any scholarship or empirical evidence to support overturning and otherwise ignoring the 2005 Report. Instead, she cobbles together structural observations that in her apparent view dispenses with the need to conduct comprehensive and empirical analysis of the PBM market. I disagree.

I reckon I do too. 

Both Holyoak, in dissent, and Commissioner Andrew Ferguson, in concurrence, note the interim report’s heavy reliance on public comments (many anonymous) that were submitted independent of the 6(b) orders, as well as case studies. Informal comments and case studies may be significant, worrisome, and, perhaps, illuminating. Still, Commissioner Holyoak seems right to point out that “relying upon two examples, without any evidence (empirical or otherwise) that demonstrates they are representative, is not a substitute for rigorous analysis.” Commissioner Ferguson’s concurring statement also questions whether (or in what regards) these case studies are representative of PBM dealings with other drug products. 

And not to nitpick, here’s how the two case studies determine that “[t]he two case study drugs are widely used”: the interim staff report notes that, in 2021, “the Big 3 PBMs processed 232,000 abiraterone acetate (generic Zytiga) 30-day equivalent prescriptions for commercial and Part D plan members . . . and 182,000 imatinib mesylate (generic Gleevec) 30-day equivalent prescriptions for commercial and Part D member.” These drugs are used in the treatment of serious illnesses (prostate cancer and leukemia, respectively) and one shouldn’t make light of the cost of or access to impediments.

But the interim staff report tells us that there were “approximately 6.6 billion prescriptions dispensed by U.S. pharmacies in 2023.” And 30-day equivalent prescriptions seems an odd way to assess treatments that may run five months to several years (for abiraterone) to five years (for imatinib).

Again, the welfare of the patients is terribly important. But for study purposes, we might simply wonder how many patients are being treated with these specialty drugs, how many are being captured in the case study, and how representative the cases are—whether with respect to specialty drug products, cancer therapies, or prescription-drug products more generally. And we might wonder what antitrust analysis is on offer. 

As many have noted (among others, here I am way back in March 2023; here’s Dan Papscun writing for Bloomberg) staff departures came fast and furious during the first two years of Chair Khan’s tenure at the FTC. Still, it’s worth noting that many able and experienced staff remain. That’s true of the Bureau of Economics; it’s true of the Office of Policy Planning and the General Counsel’s Office; and it’s true of the enforcement bureaus. There are people who can (and do) conduct and publish serious research. 

That makes it all the more frustrating that the commission itself continues to advance shoddy work, and then feels the need to mischaracterize that work. It happened with the “withdrawals.” It happened with the supply-chain reports, as I described here and here. And it seems to be happening again.

The tone of the interim staff report is uniformly conclusory, the dearth of solid conclusions notwithstanding. The title page itself screams a lack of seriousness. This is an interim (or preliminary) report to which the commission attached neither the names of staff authors nor the commission’s own imprimatur. So why is it subtitled, “The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies”? Does that seem like the title of an academic study? An objective government report? An interim report on a serious study? An interim report on a study that has no real analysis or general findings of the impact of PBMs on drug costs (or prices) on average or in aggregate? Or—with apologies to the staff—a whole lot of sound and fury, signifying so much less. What happened to the expert agency?  

Good on Commissioner Holyoak for saying something.