How the FTC’s Latest Health Care Lawsuit Sets a Potentially Dangerous Precedent

Sean Heather
Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce

Published

September 24, 2024

The Federal Trade Commission (FTC) announced that it is bringing an administrative lawsuit against three of the nation’s largest pharmacy benefit managers (PBMs) and warned drug manufacturers that the agency may sue them next. This action, consistent with the FTC's revised Section 5 policy statement and its quest to revitalize Robinson-Patman, is the agency's latest effort to target rebates and engage in price setting.

Implications of the FTC Lawsuit

While health care markets are complex, competition can be fierce, and innumerable statutory and regulatory obligations can create ambiguity for market participants, the FTC’s lawsuit raises serious concerns about the true motives of the agency.

Several Commissioners have openly expressed outright disdain against PBMs and drug manufacturers. While it’s expected that Members of Congress freely express their views, the level of prejudgment shown by Commissioners, who are supposed to enforce the law objectively, undermines the agency’s credibility.

Making matters worse, the FTC is bringing its lawsuit internally, where its own hand-picked Administrative Law Judge will issue an initial non-binding decision, and its commissioners will serve as the judges. The decision to avoid federal court draws out the process and prevents the parties from reaching a neutral federal court until appeal.

Federal courts are increasingly questioning the constitutionality of this administrative model. The FTC’s decision to file suit internally, despite prior statements from Commissioners, will only amplify allegations of a “kangaroo court” against the agency.

Finally, the FTC’s suit raises alarming questions of bias and politics. Former Commission Wilson resigned over a similar situation where Chair Khan’s refused to recuse herself from sitting as a judge given the bias views she held in that case. The FTC’s timing – less than two months before the election – and recent behavior suggests that this lawsuit is driven more by political motives than by a genuine effort to enforce the nation’s competition laws.

Predetermined Outcome

Led by Chair Khan in February 2022, the agency attempted to launch a study that was designed to condemn PBMs. The FTC’s chief economist resigned in protest and the Republican commissioners called on the agency to develop a study with an “objective design and credible guarantees that an expert-driven process will produce a data-driven report.”

Ultimately the study was reworked and in June 2022 it was commissioned with bipartisan support. However, rather than wait to complete that study, the agency rushed to release a highly unusual “interim report” that is void of proper empirical analysis and fails to map allegations to consumer harm. Commissioner Holyoak and Commissioner Ferguson both made clear the state of the study was far from complete, with Holyoak going so far as to object to its release.

Leading up to the complaint there have been months of public statements where the three other Commissioners have chosen to speak out openly against PBMs. To further pave the way, last July, Chair Khan, Commissioner Slaughter, and Commissioner Bedoya voted to discard the previous FTC work on PBMs, not because new, credible research has shown it to be outdated, but because the work previously done on a bipartisan basis doesn’t support their views.

Despite their extensive public comments establishing their preconceived views, Chair Khan, Commissioner Slaughter, or Commissioner Bedoya saw no reason to recuse themselves ahead of voting out the lawsuit and now will also sit in judgement. In stark contrast, Commissioner Ferguson and Commissioner Holyoak, who only recently joined the agency, recused themselves to avoid potential conflicts of interest.

In February, the House Judiciary Committee issued a report, Abuse of Power, Waste of Resources, and Fear: What Internal Documents and Testimony from Career Employees Show About the FTC Under Chair Lina Khan. It found in part, that:

Managers expressed concern that Chair Khan was making decisions for headlines, and not making decisions to win cases. One manager told the FTC’s Chief of Staff that he “sense[d] that outside influences...have an undue impact on [FTC] priorities, investigation management, and enforcement decisions” and warned that the FTC “should never make an enforcement-related decision for the sake of PR.”
Managers at the FTC routinely raised concerns that Chair Khan was making decisions for headlines and outside pressure was having an undue influence on her decisions.

Everyone wants to find ways to make healthcare more affordable, but the FTC is meant to be an impartial agency that follows the facts and enforces the law without bias. Unfortunately, this lawsuit reveals those days are behind us.