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Bipartisan Congressional Effort Takes on PBMs in the Battle to Lower Drug Prices

Real Clear Health
June 6, 2023
By Havilah Wingfield

Pharmacy Benefit Managers (PBMs) are companies that work with health insurance plans to administer prescription drug benefits, but they could be predatorily increasing the price you pay for your medication. Although Congress is currently considering several bills to improve oversight and accountability of PBMs’ controversial behaviors, lawmakers should go even further and ensure that patients benefit most from these efforts.

Most targeted is the PBM practice of spread pricing in how they are reimbursed for purchased drugs, but they’ve developed several questionable ways to extract money from the supply chain from drug manufacturer to patient.

With spread pricing, PBMs don’t just get a flat fee for their management services. Instead, they make more money if they favor expensive drugs on the formulary (the list of allowed drugs on a health plan) and discourage the use of cheaper ones. They keep a share of the difference between the manufacturer’s artificially high list price of a drug and the net price—which is the lower rate that they negotiate to pay the manufacturer. This difference is called a rebate. The higher the manufacturer sets its list price, the more money the PBM makes through the rebate.

Most recently, lawmakers are considering legislation that would prohibit spread pricing, certain clawbacks (extracted delayed additional fees from pharmacies) and require that drug rebates be fully passed along to drug plan sponsors.

The Senate took up PBM legislation in January with the Prescription Pricing for the People Act (S.113) and the Pharmacy Benefit Manager Transparency Act (S.127). In the first one (S.113), Congress wants the Federal Trade Commission (FTC) to investigate PBMs for anticompetitive and monopoly behaviors. The second one (S.127) would ban deceptive exploits such as clawbacks unless they “(1) pass along 100% of any price concession or discount to the health plan, and (2) disclose specified costs, prices, reimbursements, fees, markups, discounts, and aggregate payments received with respect to their PBM services.” According to the Congressional Budget Office, this bill could save the American people $740 million over 10 years.

In March, the House Committee on Oversight and Accountability started investigating PBMs’ potential predatory practices. Then members in both houses introduced the Drug Price Transparency in Medicaid Act (H.R. 1613 and S.1038) to ban spread pricing with Medicaid, protect independent pharmacies, and require transparency on the PBM’s acquisition costs. The Congressional Budget Office predicts that this bill could cut spending on certain Medicaid premiums by $1 billion over 10 years.

April saw another slew of bills, starting with the House’s PROTECT 340B Act of 2023 (H.R.2534) that will “prevent PBMs from adjusting eligible pharmacies for a federal drug pricing program.” Then the House proposed the Pharmacy Benefits Manager Accountability Act (H.R.2679) to mandate certain transparency reporting from PBMs. Bipartisan House sponsors introduced the Protecting Patients Against PBM Abuses Act (H.R.2880) to govern PBM behavior with Medicare Part D program, including delinking PBM reimbursements from the cost of the drugs.

In May, the Senate HELP committee passed their Pharmacy Benefit Manager Reform Act (S.1339) to move it on to being voted on by the whole Senate. The bill will prohibit “spread pricing and certain claw backs by PBMs, and requires that rebates be passed through to plan sponsors,” but it doesn’t do the two most-essential things: separate patient cost from list price and cause rebates to “pass-through” to patients, not just insurers or PBMs.

The patient price being linked to the manufacturer’s list price instead of the PBMs’ net price is one of the biggest and most basic problems within the PBM controversy. And it’s the patients who are having difficulty affording their medication, so making sure the rebates benefit the insurers is not far enough. Maybe insurers will pass a lot of this cash back to patients, but their track record for this in other areas is not great.

Congressional efforts are on the right path: involving the FTC over PBM monopoly behavior, banning spreading pricing and certain clawbacks, protecting independent pharmacies, and producing transparency of PBM contracting and payment behaviors. All of these changes could help to bring down the patient’s cost of drugs, which for some people are prohibitively high.

But these efforts only extend to Medicare Part D beneficiaries the essential severing of the patient price and the PBM reimbursement rate from the manufacturer’s list price—which, again, is set artificially high to win favor with the PBMs’ making the drugs available to patients. Until PBMs are paid only for their drug chain administrative efforts, and not based on bogusly high drug prices and how much patients have to pay for them, we will still be struggling to get the medication we need.

 

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