FTC proposes to settle with Express Scripts: What it means for manufacturers

Importantly, while the Order introduces a Standard Offering with these new requirements, Express Scripts retains the ability to negotiate alternate agreements with plan sponsors if certain processes set forth in the Order are followed. Thus, the practical effect of the Order will depend heavily on the extent to which plan sponsors choose to adopt the Standard Offering versus maintaining their existing arrangements or choosing other alternatives.

In September 2024, FTC filed a complaint against the three largest PBMs, including Express Scripts, alleging that their contracting practices produced “artificially inflated” insulin list prices by rewarding high rebates and disfavoring lower list-price options.

FTC framed the insulin market as an “upside-down” competitive environment. To secure formulary coverage for their drugs, manufacturers paid PBMs rebates tied to the drugs' list prices. This linkage drove list prices higher, not lower, FTC said, as PBMs demanded higher rebates in exchange for formulary coverage and manufacturers paid them. FTC alleged that, at the same time, PBMs “systematically excluded” lower list-price products from coverage, again preferring higher list-price products that generated higher rebates. According to FTC, this dynamic affected multiple parts of the health care ecosystem at once: manufacturers' pricing strategies, PBM formulary design, plan sponsor coverage decisions, and—most importantly to FTC—patients whose cost sharing was tied to drug list prices and who, therefore, did not benefit from higher PBM rebates.  

The Order requires Express Scripts to make a Standard Offering available to all plan sponsors—a baseline set of terms that would require Express Scripts and its affiliates to implement significant changes to their business practices, including increased transparency, revised formulary rules, and new compensation structures. The Order does not require plan sponsors to accept the Standard Offering; nonetheless, the Standard Offering will impact stakeholders across the drug supply chain if it becomes the industry benchmark, as FTC apparently hopes.

The implementation date for the Order is January 1, 2027, but several key provisions have compliance deadlines of January 1, 2028 (or “as soon as commercially feasible” but no later than that date). If approved, the Order will remain in effect for ten years. An independent monitor will be appointed for three years to oversee Express Scripts' compliance with the Order.

For manufacturers, the mandated Standard Offering may prompt a re-evaluation of pricing and contracting strategies in the following notable ways:

• Pricing structures that direct discounts to the point of sale. The Standard Offering anchors member-patient pricing to “Net Unit Cost” at the point of sale through two main requirements. Express Scripts must (1) ensure that members’ out-of-pocket-costs are “no higher than the Net Unit Cost of each drug” and not based “on the List Price,” and (2) “enable Members to receive the benefit of any Rebate or discounts applicable to any Drug Product directly at the point of sale.” These requirements may accelerate demand for pricing structures that PBMs can reliably and simply translate into discounts at the point of sale (e.g., those with minimal reconciliation risk and fewer conditions), rather than competition for rebates that may be hard to pull forward to the pharmacy counter.
• Fewer high-list-price versions of identical low-list-price drugs. The Order generally prohibits Express Scripts from offering or administering a standard formulary in which a drug’s “High-WAC Version” is covered and its “Low-WAC Version” is (1) “omitted,” (2) placed on a “less favorable tier,” or (3) subjected to restrictions not applicable to the High-WAC Version, such as prior authorization requirements. These provisions address formulary design and aim to ensure that, where they exist, lower-priced versions of drugs are not disadvantaged in the Standard Offering. Those plan sponsors who prefer rebates over lower net unit costs will still be able to achieve that goal by opting out of the Standard Offering and covering only the High-WAC Version of certain drugs, although it’s also possible that fewer plans will be open to that strategy going forward as a result of this provision.
• Compensation not tied to list prices. Finally, the Order requires that PBM compensation under the Standard Offering “not be based, directly or indirectly, on the List Price of any Drug Product.” The intent of this provision is to reduce reliance on list price-based fee structures that have been criticized as creating an incentive for PBMs to favor higher list price drugs and to shift compensation toward alternative, potentially more transparent fee arrangements. The scope is limited to compensation received by Express Scripts and its affiliates from manufacturers related to their Standard Offering, however, and does not apply to rebates or potentially other forms of fees that may be shared with plan sponsors or otherwise structured so as not to be “compensation received” from manufacturers.

It remains to be seen whether the Standard Offering—and any changes to industry standard pricing terms between PBMs and manufacturers—will become the norm. If the Standard Offering gains broad market acceptance, the Order could signal a meaningful change in PBM contracting dynamics, rebate strategies, and pricing models. Conversely, if most plan sponsors opt for alternative arrangements, the reach of the Order's reforms may be limited, and many traditional PBM practices could persist. Accordingly, the settlement's ultimate impact on manufacturer pricing and rebate strategies will largely depend on whether plan sponsors migrate to the Standard Offering.

The Consent Order also may serve as a template for potential resolutions involving other PBMs, which could materially expand its industry impact.

In any event, manufacturers should continue to assess how the services and fees in PBM agreements should be treated from a price reporting and Anti-Kickback Statute compliance perspective. And if the Standard Offering does become truly standard, it is possible that larger rebates will become a less reliable route to preferred formulary status and manufacturers will need to re-evaluate their pricing and contracting strategies accordingly. 

Authored by Ron Wisor, Eliza Andonova, Laura Hunter, and Mike Dohmann.