Pharmacy benefit manager legislation explained

Pharmacy benefit managers have played an increasingly powerful—and profitable—role in the US healthcare system over the past few decades. As pharmaceutical spending continues to rise, policymakers and regulators are directing more scrutiny towards these middlemen, which may soon face stricter federal rules governing their business practices.

PBMs are under fire now after years of consolidation and vertical integration culminated in CVS Health’s CVS Caremark, Cigna’s Express Scripts and UnitedHealth Group’s OptumRx collectively controlling about 80% of the market. Congress also is eyeing PBM legislation as the next step in addressing prescription drug costs following the enactment of the Inflation Reduction Act of 2022, which included provisions aimed at drugmakers.

Two key congressional committees have advanced legislation this year that would compel PBMs to disclose more about how they negotiate deals with drugmakers and determine how much employers, health insurance companies and patients pay for prescription medicines. One measure would go even further by placing new limits on PBM business practices such as spread pricing. A third congressional panel is investigating the industry, as is the Federal Trade Commission.

Here’s what to know about PBMs.

What are pharmacy benefit managers?

PBMs negotiate with pharmaceutical manufacturers to develop formularies of covered medications on behalf of health insurers, employers and government programs such as Medicare Part D. PBMs also usually operate mail-order pharmacies.

Why is the government focused on PBMs?

These companies have enormous influence over the availability and cost of prescription drugs for people with many forms of health coverage, and the evidence is mixed whether PBMs are truly successful in their stated mission to bring down costs. The arrangements PBMs make with drugmakers over formulary placement, prices and rebates are complex and often opaque, making it difficult for clients and regulators to determine whether the companies are prioritizing their own profits or the needs of the insurers, employers, policyholders and taxpayers they serve .

What is Congress proposing?

There are several bills in play to introduce greater transparency into PBM business practices. Some go further by laying out limits on what the companies may do, including two that have already moved through committees.

Greater disclosure is a common theme, and is the core focus of the Promoting Access to Treatments and Increasing Extremely Needed Transparency (PATIENT) Act of 2023, which the House Energy and Commerce Committee unanimously approved in May. Under this measure, PBMs would be required to provide employers with detailed annual data on prescription drug spending, including acquisition costs, out-of-pocket spending, formulary placement rationale and aggregate rebate information.

The Senate Health, Education, Labor and Pensions Committee advanced further-reaching bipartisan legislation, the Pharmacy Benefit Manager Reform Act of 2023, in May. This bill takes direct aim at controversial and lucrative business practices that critics see as contributors to high drug costs. If made law, pharmacy benefit managers would have to significantly alter how they operate and earn money.

PBMs would be required to pass along the full value of drugmaker rebates to plan sponsors and patients, disclose the prices they negotiate with pharmaceutical companies, reveal the fees they pay pharmacists to dispense medications and report how much they earn from drug company copayment assistance programs. The measure also would ban the practice of spread pricing, which is when PBMs charge more for drugs than they pay manufacturers and pocket the difference.

Senate Finance Committee leaders debuted yet another PBM bill in June that aims to transform the industry’s business model under Medicare Part D. The bipartisan Patients Before Middlemen (PBM) Act of 2023 would exclude administrative fees, rebates and similar sources of revenue from prices, which has the potential to eat into PBM profits and which the legislation’s authors maintain would lower costs.

In addition to these legislative efforts, the House Oversight and Accountability Committee began an investigation into PBM business practices in March. The FTC initiated a similar probe last year that has broadened to include group purchasing organizations affiliated with PBMs.

Why is Congress acting now?

Discontent over escalating prescription drug prices has been mounting for many years, and it appears that it’s the PBM industry’s turn in the spotlight after President Joe Biden and Congress addressed other aspects of the pharmaceutical cost problem in the Inflation Reduction Act.

“The momentum illustrates frustration around PBMs from employers, patients and lawmakers,” said Alan Gilbert, vice president of policy for the Purchaser Business Group on Health, a coalition of large employers. “The building frustration has led to the bipartisan support you see in Congress to make changes to hold them accountable.”

What happens next?

The bills that emerged from the House and Senate health committees have gone as far as they can without congressional leaders deciding to put them before all members for votes. The overwhelming support for those measures in committee may indicate a favorable chance they will see votes on passage, and even trips to Biden’s desk. The Senate Finance Committee has not yet held a hearing or scheduled a vote on its PBM bill. Moreover, Congress has a full agenda, and PBM legislation has yet to rise to a top priority.

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