A Discovery Plan for Pharmacy Benefit Managers Collusion

TL;DR

This paper analyzes a novel case of market design collusion among pharmacy benefit managers (PBMs), focusing on auction mechanisms and fairness standards to detect explicit communication and unfair conduct.

Contribution

It introduces a new perspective on PBM collusion as auction design manipulation and proposes a method to operationalize fairness standards based on economic auction theories.

Findings

Discovery of explicit communication among PBMs in 2012.

Identification of changes in the auction's winner determination equation.

Argument that anecdotal comparisons of net prices are insufficient for collusion detection.

Abstract

The Federal Trade Commission has recently filed an administrative complaint against the Big 3 pharmacy benefit managers claiming they engaged in unfair conduct in violation of Section 5 of the FTC Act. They never used the word collusion in the complaint and chose not to sue under The Sherman Act, Section 1. We view this as a novel case of market design collusion rather than a case of price collusion. The Big 3 PBMs are conceptualized as auctioneers soliciting rebate bids off unit list prices in exchange for favored positions on formularies. We will show how the fairness standard of the FTC Act can be made operational by judging fairness against economic theories of good auction design. Discovery is focused on finding explicit communication among the Big 3 PBMs in 2012 to change the so-called winner s determination equation of this auction, adding high gross rebates as a basis for formulary position assignments. On the other hand, we will argue that a case based on a bevy of anecdotes comparing only net unit prices will fail due to complexities in the winners determination equation.