Nearly 17 months after the Federal Trade Commission filed suit against the nation’s three largest pharmacy benefit managers (PBMs), the agency has reached a settlement with one of them: Express Scripts. The complaint alleged that PBMs harmed competition and patients by inflating insulin prices.
PBMs negotiate drug prices with pharmaceutical manufacturers and pharmacies on behalf of private health plans and public programs, such as Medicare and Medicaid. They leverage pooled purchasing power across dozens of plans to secure discounts and determine which drugs appear on plan formularies, as well as their order of preference. CVS Caremark, Express Scripts, and Optum Rx—the PBMs named in the FTC’s complaint—are vertically integrated with major insurers: Aetna, Cigna, and UnitedHealth Group, respectively. Together, they account for roughly 80% of U.S. prescription volume.
Health plans that lack vertical integration with a PBM can still access this negotiating leverage by contracting with one of the large PBMs. Although some PBMs charge flat administrative fees, compensation typically depends on manufacturer rebates tied to formulary placement. That structure can “steer” patients toward higher-rebated drugs over lower-priced competitors.
The FTC’s Theory: Rebates, List Prices, and Exclusion
The FTC alleged that this rebate-based model perversely incentivized drugmakers to raise list prices in exchange for higher rebates and preferred formulary placement. As the agency put it, “even when lower list price insulins became available that could have been more affordable for vulnerable patients, the PBMs systemically excluded them in favor of high list price, highly rebated insulin products,” thereby enriching PBMs and their affiliated group purchasing organizations (GPOs) while raising patient costs.
To support this theory, the FTC cited dramatic increases in insulin list prices, including a 1,200% increase in Humalog’s price, from $21 in 1999 to $274 in 2017. Notably, industrywide research showing that rebates and list prices rose in parallel has not established a causal link between the two.
Under the settlement, Express Scripts agreed to delink its compensation from drug list prices and negotiated rebates in its standard offerings to plan sponsors. It also agreed to stop preferencing higher-list-price versions of identical drugs over lower-priced alternatives and to “not calculate patient out-of-pocket costs based on list prices or other benchmarks that exceed the price of a drug net of any rebates.”
The agreement includes additional commitments. Express Scripts will provide plan sponsors with more extensive pricing and service data, relocate its GPO from Switzerland to the United States, and eventually cover purchases made through the administration’s TrumpRx direct-to-consumer drug portal, subject to legal or regulatory constraints.
Cheaper Insulin, Costlier Tradeoffs
Patients who rely on insulin and certain other drugs are the most immediate beneficiaries. The FTC estimates the settlement will reduce out-of-pocket costs by up to $7 billion over 10 years. Community pharmacies may also benefit from Express Scripts’ shift to an acquisition-cost-plus-dispensing-and-service-fee model, a change that several PBMs had already begun implementing, but that the settlement now formalizes.
Relocating the PBM’s GPO to the United States will also generate substantial domestic economic activity, with more than $750 billion in purchasing expected over the duration of the settlement order.
The settlement’s benefits, however, come with tradeoffs. PBMs typically pass most negotiated rebates through to plan sponsors, helping offset premiums. Tying compensation to rebate size creates strong incentives to negotiate aggressively. The Congressional Budget Office (CBO) has found that a rule requiring PBMs to pass rebates directly to patients at the point of sale would increase federal spending on Medicare and Medicaid by $177 billion over 10 years.
Employer-sponsored plans may respond by raising premiums or reducing benefits. Some patients may view lower or zero copays for specific drugs as a worthwhile tradeoff. Others will bear higher costs. Although plan sponsors may opt out of the settlement-compliant formulary, Express Scripts must offer that formulary by default and the settlement requires written opt-outs, a structure likely to influence negotiations and constrain flexibility.
Choosing Certainty Over Courtroom Odds
Against that backdrop, Express Scripts’ decision to settle warrants scrutiny. The company faced credible prospects of prevailing in litigation. The FTC alleged anticompetitive unilateral vertical conduct that no court has previously condemned as an “unfair method of competition.” A court would also have weighed countervailing consumer benefits. None of the defendant PBMs individually meets the legal threshold for presumptive monopoly power in unilateral conduct cases.
One explanation is strategic alignment. Express Scripts had already begun shifting away from rebate-based compensation toward flat administrative fees. Other PBMs have pursued similar models to differentiate themselves and appeal to sponsors seeking predictability and price transparency.
Another explanation is risk mitigation. The settlement avoids prolonged litigation costs and reputational damage and may reduce the likelihood of more restrictive legislation at the federal or state level. Congress, the White House, and state lawmakers have increasingly targeted PBMs, proposing limits on rebate practices, vertical integration, and negotiating authority. The FTC’s lawsuit and legislative uncertainty had already weighed on PBM share prices.
An Express Scripts settlement that leaves competitors facing unresolved litigation may have partially offset those losses. Express Scripts parent Cigna has stated that it expects no significant long-term harm to profitability from the settlement. Healthcare Dive reported that although Cigna’s stock dipped after the announcement, it recovered by the end of the trading day, and rose an additional 3% following the company’s earnings release.
When Enforcement Becomes Market Design
Whatever Express Scripts’ motivations, the settlement underscores a broader problem with the FTC’s current enforcement posture. Deploying scarce antitrust resources against business practices with contested and uncertain competitive effects risks reducing, rather than promoting, aggregate welfare—even when it delivers targeted price reductions for particular drugs. Settlements shaped less by adjudicated liability than by asymmetric litigation costs can chill lawful conduct, narrow firms’ ability to compete on design and contracting, and substitute regulatory redesign for competition policy. That approach sits uneasily with the FTC’s mandate to protect competition and consumers, not to restructure markets by consent decree.
