Prescription drug middlemen fight FTC oversight at Eighth Circuit

ST. LOUIS (CN) — Express Scripts and other major pharmacy benefit managers asked the Eighth Circuit on Wednesday to declare the Federal Trade Commission’s in-house administrative proceedings unconstitutional.

“Congress has impermissibly given the FTC power that the Constitution assigns to the courts … and to the president," plaintiff’s attorney Daniel S. Volchok, of D.C.-based WilmerHale, argued to the three-judge panel. “With that power, the FTC is bringing coercive, highly consequential internal proceedings against private parties, proceedings in which — and this is our due process challenge — it has, in recent years, always ruled for itself.”

In September 2024, the prescription drug middlemen sued the FTC over a report that blamed them for high drug costs. A few days later, the FTC hit back with an administrative claim accusing the three largest pharmacy benefit managers of anticompetitive practices that artificially inflate the price of insulin drugs.

Now the middlemen are targeting the FTC, its commissioners — Andrew Ferguson, Rebecca Kelly Slaughter and Alvaro M. Bedoya — and FTC Chief Administrative Law Judge D. Michael Chappell, claiming the agency’s in-house proceeding would restrict their ability to negotiate lower drug prices for their clients.

The pharmacy benefit managers’ motion for an injunction against the proceeding was denied in February, prompting their appeal to the Eighth Circuit. The crux of their claim is that the FTC’s administrative court is unconstitutional because it puts the agency in the role of investigator, prosecutor and judge.

Department of Justice attorney Daniel Aguilar, who represents the FTC, pushed back on the due process claims.

“Their claim is that over eight years, the FTC initiated and determined liability in about 12 or 13 cases,” Aguilar said. “Statistics, by themselves, do not present a due process violation. I don’t understand them to have identified any precedent finding a due process violation based solely on statistics.”

Volchok clapped back on that claim during his rebuttal.

“On due process, it’s not 12 or 13-0 — it’s 30-0, going back 25 years, and it’s not just the statistics in internal adjudication,” Volchok said. “The key point is that the FTC has fared far worse when it has brought claims in an Article III court where, of course, it does not get to judge the merits of its own allegation. There is instead a truly neutral arbiter.”

Article III courts are the federal courts, including the Court of Appeals and the U.S. Supreme Court.

U.S. District Judge Bobby E. Shepherd, a George W. Bush appointee, asked Volchok if there is precedent in which a federal appeals court upheld a preliminary injunction against an ongoing agency proceeding based on a structural constitutional challenge. Volchok cited one case, but said there were no others he was aware of.

“Because of that, doesn’t that really caution extreme, extreme care and hesitancy on the part of the court to sustain this kind of challenge on a preliminary basis?” Shepherd responded.

Volchok also argued that FTC commissioners are insulated from presidential oversight, an argument Aguilar disputed pointing out that the president has removed two FTC commissioners.

“The remaining commissioners who have the president’s trust continue to oversee this administrative complaint,” Aguilar said. “There’s been no showing that the president’s displeased with how this adjudication is going, and so I think the only way that they’re entitled to any kind of injunction, absent compensable harm, is showing the entire statutory scheme is just unworkable — the removal restrictions are so integral to the entire operation that they can’t be severed, and therefore, because the statutes unworkable, you can’t go forward. But they haven’t made that claim.”

Plaintiffs, in their brief, insist that the dismissal of their injunction was in error.

“First, the court wrongly concluded that two cases from nearly a century ago foreclosed the court from ruling in plaintiffs’ favor,” the pharmacy benefit managers argue. “Indeed, the Supreme Court recently made clear that one of those cases reflects a lenient approach to the separation of powers that can be extended no further than its facts. The district court impermissibly disregarded that directive. Second, the district court (while recognizing that being subjected to an unconstitutional proceeding causes irreparable harm) erroneously concluded that that harm was not great enough to warrant a preliminary injunction.”

Defendants, in their brief, claim the dismissal should stand because plaintiffs are unlikely to succeed on their claims.

Chief U.S. Circuit Judge Steven M. Colloton, a George W. Bush appointee, and U.S. Circuit Judge Ralph R. Erickson, a Donald Trump appointee, rounded out the panel, which took the arguments under advisement. There is no timetable for a decision.

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