Pharmacy Benefit Managers and Generic Pharmaceuticals Pricing Conspiracy : Unveiling Lock-In Mechanisms, Structural Shortcomings and Antitrust Evidence

Titanic-scale multistate generic pricing antitrust litigation has been underway since December 2016, involving increasingly a myriad of generic drug manufacturers and drugs. Forty-seven states allege a pricing conspiracy wherein twenty defendants participated in a multitude of specific horizontal conspiracies to fix prices and markets for fifteen generic drugs in a manner to injure robust generic competition. However, this litigation may have overshadowed an overlooked but important concern. This article argues that the behind-the-scenes conspiracy between generic manufacturers and so-called pharmacy benefit managers (“PBMs”) may have constituted an integral part of the overarching conspiracy alleged in the litigation. PBMs play a pivotal role as intermediaries in the pharmaceutical supply chain and orchestrate a multitude of inter-generic conspiracies. The pharmaceutical industry well situates PBMs in a dominant position to have exclusive and full access to price information and exert influence over profit-maximizing pricing strategies of generic manufacturers. This fact serves as strong evidence that generic manufacturers locked in the PBM-constrained industrial structure are highly incentivized to buy off PBMs in order to control the overarching pricing conspiracy. PBMs’ role in the pharmaceutical logistical chain allows them to further anticompetitive generic collusion, taking the form of vigorous manipulation of two cost-saving schemes: manufacturer rebates and pharmacy reimbursement. The article thoroughly examines the mechanics of how PBMs specifically manipulate these schemes utilizing the complex pricing system, and further provides circumstantial and economic evidence strongly implicating the generic-PBM conspiracy and pragmatic suggestions for prospective antitrust scrutiny