The rising cost of prescription drugs has long been a concern, and legislators have been pouring over the complexities of healthcare’s supply chain to pinpoint where they might intervene to bring those costs down.
Recently, pharmacy benefits managers (PBMs) have been placed in the hot seat, with speculation that their crucial “middleman” placement in that supply chain might just make them the culprit. As a result, dozens of bills are proposed at the Federal level, while some have already passed in individual states: all of them aimed at changing how PBMs do business.
All parties can agree that patients need more affordable prescription drug options, but it’s unclear whether the battle cry for PBM legislation will help or simply lead to unintended consequences.
We’ll look at some of the more pressing Federal bills gaining bipartisan traction, the main issues they address, and the possible impact that may result.
Understanding the PBM Practices in Question
PBMs are intermediaries between insurers, drug manufacturers, and pharmacies, managing drug coverage for over 260 million Americans through Medicare, Medicaid, and commercial plans.
There are three elements of a PBM’s practices to understand that are central to understanding the proposed bills:
1. PBM Spread Pricing
PBMs charge health plans a higher rate than they pay pharmacies for medications, keeping the difference as profit. This practice is called spread pricing.
2. PBM Rebates
PBMs also earn rebates paid by drug manufacturers in exchange for their drugs’ preferred placement in formularies.
3. PBM Clawbacks
PBM clawbacks are a practice where patient copayments exceed the prescription cost. When pharmacies submit their claims, the PBM reclaims the excess, often a little over time or even months later.
At the state level, there are already:
- 21 states that prohibit clawbacks or retroactive denials
- 17 states requiring PBMs to report rebates
- 11 states preventing spread pricing
- 5 states requiring reporting to health plan sponsors
Proposed Federal PBM Legislation
The following are several of the most pressing pieces of Federal legislation aimed at restructuring how PBMs conduct business.
Pharmacy Benefit Manager Accountability Study Act of 2021
The PBM Accountability Study Act set into motion the need for greater financial transparency regarding how PBMs are compensated.
This study was conducted by the Government Accountability Office (GAO) to understand PBMs’ impact on competition, their use of rebates, how formularies are structured, and other concerns regarding their profits, especially concerning whether any of those rebates pass on savings to the patient. This Act lays the foundation for the following bills.
Promoting Access to Treatments and Increasing Extremely Needed Transparency (PATIENT) Act of 2023
On May 24, 2023, the House Energy and Commerce Committee advanced the Promoting Access to Treatments and Increasing Extremely Needed Transparency (PATIENT) Act (HR 3561) with a unanimous vote. The PATIENT Act seeks to:
- Ban PBM spread pricing for payments under Medicaid
- Expand hospital price transparency to PBMs
- Require PBMs to report rebates, fees, and any discounts to sponsors annually
Drug Price Transparency in Medicaid Act of 2023 (H.R. 1613) and (S.1038)
The Drug Price Transparency in Medicaid Act (H.R. 1613 introduced 3/17/2023 and S. 1038 introduced 3/29/2023) seeks to ban spread pricing for all Medicaid managed care, requiring pharmacies to be reimbursed based on the national average drug acquisition cost (NADAC).
Pharmacy Benefits Manager Accountability Act (H.R. 2679)
The PBM Accountability Act identifies legislator concerns regarding rebates, spread pricing, clawbacks, and PBMs showing preference to expensive drugs in their formularies.
It would require PBMs to disclose all out-of-pocket costs, rebates, and spending to plan sponsors.
Promoting Transparency and Healthy Competition in Medicare Act (HR 3282)
The Promoting Transparency and Healthy Competition in Medicare Act seeks clarifications and transparency for the number of diagnoses, patient risk factors, and prior authorizations requested, approved, and denied for patients under Medicare Part C and Medicare Part D.
The Patients Before Middlemen Act
The PBM Act would prevent PBMs contracting with Medicare Part D plans from tying service fees “to the price of a drug, rebates, discounts, or other fees.” PBMs would be forced to pay anything above their designated fee directly to the Department of Health and Human Services.
Pharmacy Benefit Manager Reform Act
The PBM Reform Act is introduced by the US Senate’s Health, Education, Labor and Pensions (HELP) Committee and proposes the following requirements:
- A ban on all PBM spread pricing.
- PBMs must pass on to plan sponsors all rebates, fees, discounts, and other remuneration negotiated by PBMs with drug manufacturers.
- PBMs must provide annual reporting to sponsors of expenses, costs, earnings, and reimbursements. PBMs must also provide semi-annual reports of drugs dispensed to plan members by pharmacies the PBM wholly or partially owns.
The bill provides civil penalties for violations and allocates funding to the Centers for Medicare & Medicaid Services (CMS) and the Department of Labor to implement these measures.
Pharmacy Benefit Manager Transparency Act of 2023 (S.127)
The Senate Commerce Committee passed the PBM Transparency Act of 2023, prohibiting PBMs from charging the plan a different amount than they reimburse the pharmacy (spread pricing).
It also stipulates:
- No clawbacks of reimbursement payments
- No “increasing fees or lowering reimbursements to pharmacies to offset changes to federally funded health plans”
- Annual reporting to the FTC
It empowers the FTC and state attorneys general to enforce the bill’s provisions.
PBMs can avoid these provisions by passing along 100% of price concessions or discounts to sponsors and disclosing all “costs, prices, reimbursements, fees, markups, discounts,” and other payments received.
The PBMs Push Back
The Pharmaceutical Care Management Association (PCMA) is the national association representing America’s pharmacy benefit managers (PBMs). The PCMA and other groups supporting PBMs have been vocal in their opposition against lawmakers.
These groups believe that Congress’ need for a scapegoat for soaring drug prices has given them tunnel vision when there are broad, systemic issues to address.
They say Congress blames PBMs for showing preference to more expensive drugs since their compensation is tied to the price charged, and often doctors fight to get treatments approved by these PBMs. Lawmakers claim they’re essentially practicing medicine without a license.
The PCMA and other groups respond that they have repeatedly been denied a voice at hearings, and it could be harmful to these bills being passed if their perspective were on record. They explain that PBM compensation is based on securing savings for employers, patients, and taxpayers.
Weakening their leverage to negotiate will shift even more power towards the drug companies they say are to blame for the rise in costs. Without PBMs, who would keep these powerful pharmaceutical companies accountable?
The PMCA also voiced their concern over the shift in power towards the FTC and other government agencies that would receive new funding for their oversight. They feel that independent panels and Congressional oversight committees may not understand the true intricacy of healthcare and the healthcare supply chain. And they worry those with so much power don’t understand the impact their decisions might have.
The Potential Fallout from PBM Legislation
It’s not clear what changes will come from the numerous Federal bills in process, but below we look at some of the main concerns.
The Impact on Transparency
The common thread of increased transparency from healthcare reform bills can be an opportunity to shed light on the importance of PBMs in the process. Since their role is to negotiate the best price for medications on behalf of plan sponsors, a clear record of their doing so should be to their benefit.
On the other hand, it’s hard to anticipate how this transparency might impact their ability to negotiate with drug manufacturers. Additionally, as sponsors gain direct access to how PBMs are compensated, they must also be educated on the intricacies of PBMs acting on their behalf.
If the focus remains on the end goal—bringing clarity to a complicated process to reduce costs—transparency could benefit everyone, despite the added burden it places on PBMs.
In every scenario, providing this transparency means PBMs will have to have a reliable data analytics platform that drives their ability to reduce costs, improve health outcomes, and present that same data to sponsors.
The Impact on Relations with Drug Manufacturers and Plan Sponsors
There are concerns that painting PBMs as the source of rising drug prices will weaken their ability to bridge the gap between drug manufacturers, pharmacies, sponsors—and, ultimately, patients. Not only could these outcomes put a strain on the supply chain, but they could also leave an unfilled gap that’s not addressed in legislation.
Relations between PBMs and drug manufacturers have become increasingly strained, as the groups used to rigorous negotiations are now pointing fingers at each other for causing the rise in drug costs.
Many legislators believe the PBMs’ impact on price is partly due to the centralized power of their parent companies (Cigna, Aetna, and UnitedHealth, for instance). Still, it’s difficult to foresee how decentralizing that power might impact the entire healthcare ecosystem.
At one extreme, it could broaden the healthcare landscape to include a wider range of smaller, independent PBMs, decentralizing the connection to the largest pharmacy chains and providers. Perhaps new, smaller PBM intermediaries could bring healthy competition to the market and, as a result, lower prescription costs.
At the other extreme, PBMs and supporting lobby groups have voiced their concern that healthcare runs the risk of being nationalized as if it were municipal utilities rather than a network of private enterprises.
It is entirely possible that the only way forward would be a total disruption to the free market under a federally-run healthcare system.
The Impact of Potential Legislative Overreach
Similar to concerns that disrupting the healthcare supply chain would lead to a fully nationalized solution to prescription planning, and thus drug manufacturing, many are concerned that recent bills place too much power in the hands of agencies, like the Federal Trade Commission (FTC), that would be responsible for monitoring PBMs.
Agencies would be given oversight power, accompanied by the need to fund new enforcement efforts.
The Impact on Drug Prices
Whether it is an issue of transparency in pricing, restructuring the ways PBMs are compensated, or concerns about how prices are negotiate with drug manufacturers, all roads lead to one crucial question: will any of this reduce the burden high drug prices place on patients?
The strictest considerations presented in the latest wave of legislation would force PBMs to pass all compensations forward to plan sponsors. These rebates, discounts, and other earnings come directly from their ability to negotiate what they place on formularies. Would there still be an incentive for PBMs to operate the same way, and if not, who would be responsible for setting prices? Would insurance providers deal directly with drug manufacturers or pharmacies?
If PBMs could earn sufficiently while passing all rebates and discounts to sponsors, would this change the sponsor’s role in healthcare? What would they need to disclose to patients? Indeed, is there any guarantee that passing these earnings forward to sponsors would reduce costs to their customers? Is it possible that blame for costs could simply shift from PBMs to sponsors?
The Power of Xevant’s Software Solutions for PBMs
Now more than ever, PBMs not only rely on data to negotiate effectively, but they also need to rely on this data to support their track record of dedication in serving the healthcare industry.
The exact direction isn’t clear, but with likely changes coming from the Hill, PBMs need a software platform that serves powerful analytics, maximizes their visibility, and provides actionable data to manage pharmacy spending.
You don’t have to wait for new legislation before working with powerful, transparent metrics. Try a free trial of Xevant’s software platform to negotiate the best prices on prescriptions today.