Caremark Rx, Express Scripts and OptumRx have been given permission to seek documents they say will show the government benefits from the same type of prescription drug rebating activity that's being targeted by the Federal Trade Commission's insulin pricing case.

FTC Administrative Law Judge Jay L. Himes issued an order on Thursday granting the pharmacy benefit managers permission to subpoena the U.S. Department of Health and Human Services for documents, over the objections of commission staff prosecuting the case.

The staff had argued that the information is irrelevant because the case is focused solely on the commercial sector and does not involve government-sponsored benefit plans, but the ALJ found that's not the case.

"The complaint refers to government entities and programs multiple times across six paragraphs, including allegations regarding out-of-pocket costs for Medicare patients and Medicare pricing and rebates of insulin drugs," the order said. "Accordingly, the adoption of rebates and closed formulary products by HHS plans appears relevant to respondents' defenses that the conduct alleged in the complaint is procompetitive and not unfair."

The pharmacy benefit managers filed a proposed reply brief on Thursday, which the judge denied as moot, saying they still need to see documents from HHS to show that government plans engage in and benefit from the same practices targeted by the case, even if the claims focus on commercial markets.

"The fact that the scope of this case is limited to 'commercial' formularies and clients does not render the information respondents seek from HHS irrelevant," the reply brief said. "Complaint counsel's relentless effort to paint this conduct as nefarious and unusual runs headlong into the fact that the government, through HHS and its subsidiary agencies, does the same thing for the same reasons."

The request is for documents from HHS about how it decides to structure rebate negotiations and to allocate the savings from rebates, as well as how it decides what drugs to place on formularies.

The companies said the documents will show that rebates are a valuable tool to help health plan sponsors reduce costs and improve benefits for their members, "not the predatory and oppressive scheme depicted in the complaint."

The commission's administrative case accuses Caremark, Express Scripts and OptumRx of using unfair rebate schemes when negotiating with pharmaceutical manufacturers over the prices that insurance companies and benefit plans pay for prescription drugs. The claims center on the use of rebates that enforcers say inflate prices by prioritizing insulin drugs with high list prices.

The country's three largest PBMs are each owned by larger healthcare conglomerates, with Express Scripts owned by Cigna Group, OptumRx owned by UnitedHealth Group Inc. and Caremark owned by CVS, which also owns health insurer Aetna Inc.

The FTC opposed the September discovery motion arguing that the complaint makes clear that the case is focused only on commercial plans, even though the pharmacy benefit managers also offer formularies to government plans. The documents from HHS are irrelevant, the commission said, because rebating practices and plan administration for government-sponsored insurance, like Medicare, occur under a different regulatory structure than commercial plans.

The commission said the PBMs also negotiate rebates and fees for Medicare separately and that out-of-pocket expenses for Medicare patients are set by regulation, noting that insulin costs for those patients were capped by the Inflation Reduction Act.

In the proposed reply brief, the companies argued that the information from HHS is relevant to the case because it will show that the government "encourages, engages in, and benefits from the very same conduct" the commission labels "unfair."

The PBMs said both commercial and government plan sponsors construct formularies that incorporate costs, including rebates, and prefer high-list price drugs when they carry lower net costs. They also both use rebates to pay for prescription drugs and other plan benefits, according to the reply brief.

The companies said the Centers for Medicare and Medicaid Services, the largest payer of health benefits in the country, receives drug rebates and that "Congress has made sure that it stays that way." The reply pointed to a rule proposed in 2019 that would prevent CMS from receiving rebates negotiated between PBMs and drug manufacturers that was estimated would cost the agency around $177 billion over a nine-year period.

"Recognizing the enormous benefit to CMS — and the Medicare and Medicaid beneficiaries it serves — from PBMs' rebating practices, Congress prevented the proposed rule from taking effect," the reply said. "The federal government, through the FTC, should not be able to target respondents with its left hand while excluding evidence of what its right hand is doing."

The judge's order on Thursday granting the motion said HHS's rulemaking and research appear to be relevant to the allegations.

The companies have moved to toss the case, arguing that the commission is exceeding its authority to address "unfairness" by going after a practice that reduces drug costs. They have also argued that drug manufacturers are the ones that set the list prices for insulin and that plan sponsors choose which drug formulary to use based on a number of factors beyond the rebates.

The companies are also seeking an injunction in federal court that would block the commission's enforcement action.

That case contends the commission's in-house administrative proceedings violate the companies' constitutional rights and targets removal protections for the FTC's commissioners and administrative law judges. An Eighth Circuit panel heard arguments on Wednesday for an appeal lodged after a lower court refused a preliminary injunction bid based on the claims.

Representatives for the FTC, Caremark and Optum declined to comment Friday. Representatives for Express Scripts did not immediately respond to a request for comment.

The FTC is represented in-house by Rebecca L. Egeland, Cindy Hong, Brian Morganelli and Arpan Patel.

Caremark and Zinc Health Services are represented by Enu Mainigi and Steven M. Pyser of Williams & Connolly LLP and Mike Cowie and Rani A. Habash of Dechert LLP.

Express Scripts, Evernorth Health Services, Medco Health Services and Ascent Health Services are represented by Daniel J. Howley, Charles F. Rule, Margot Campbell and Justin T. Heipp of Rule Garza Howley LLP and Jennifer Milici, Perry A. Lange and John W. O'Toole of WilmerHale.

OptumRx and Emisar Pharma Services are represented by Sophia A. Hansell, Michael J. Perry and Matthew C. Parrott of Gibson Dunn & Crutcher LLP.

The administrative case is In the Matter of Caremark Rx et al., file number 9437, before the Federal Trade Commission.