Pharmacy Benefit Managers

Background

Pharmacy Benefit Managers (PBMs) are the middlemen who manage every aspect of the prescription drug benefits process for health insurance companies, self-insured employers, unions, and government programs. PBMs negotiate prescription drug prices with manufacturers on behalf of health insurance companies and use a rebate system in this process.

  • Despite their outsized impact on health costs, PBMs operate out of the view of regulators and consumers.
  • PBMs set prescription costs, decide what drugs are covered by insurance plans and in what order those drugs are placed on the formulary, and determine how those drugs are dispensed.

Rebates, “Spread Pricing” & “Clawbacks”

List prices are easily and publicly available and are the basis for patient cost-sharing. But because rebate contracts and net prices are secret, the full extent of the practice and how much it costs the health system in unrealized savings is unknown. PBMs have operated for decades with little to no oversight and even less transparency. This has invariably resulted in an overwhelmingly negative impact on patients’ access to care.

  • Nothing stops PBMs from pocketing these rebates and not passing the savings on to the patient. If the rebate process worked as intended – and the way patients are led to believe – patients would see a lower cost for their medicine at the pharmacy counter.
  • Drug rebates have increased considerably over the past decade, lowering drug costs for insurers but failing to result in lower out-of-pocket (OOP) costs for patients. OOP costs for patients often don’t reflect rebates paid and discounts given to the PBM. This is different from the way that patients pay for every other covered health care service – every time a patient pays their cost sharing for covered medical benefits, they pay the discounted rate their insurer has negotiated. The same should be true for prescription drugs.
  • Negotiating rebates from manufacturers and continuing to base the OOP cost on the list price, not the net price, is just one of the many tactics PBMs employ to enrich themselves at the expense of other stakeholders in the drug supply chain.
  • A practice known as “spread pricing” occurs when a PBM charges the patient or payer more than what the PBM reimburses to the pharmacy and pockets the difference.
  • PBMs use “clawback” payments to rescind payments made to pharmacies retroactively and arbitrarily.

PBM Landscape

  • In the current healthcare landscape, the three biggest PBMs control over 80% of the prescription drug market.
  • These PBMs are also vertically integrated with the largest insurance companies and wholly owned mail order and specialty pharmacies.
  • The result being that the leverage PBMs possess over the drug supply chain now includes the ability to direct patients towards a PBM-owned pharmacy.
  • Benefit Management is not confined only to the pharmacy space. Vision Benefit Managers are present in vision/optical healthcare and operate in the exact same way as their pharmacy counterparts.

Policy Landscape

The 118th Congress, perhaps more than any previous session, has been very active on the issue of PBMs. There are many current PBM bills with more on the horizon.

Senate

The Senate Health, Education, Labor, and Pensions (HELP) Committee PBM bill was advanced and reported favorably on May 11th. The Senate Finance Committee also released framework for their PBM bill. In addition to the Senate, there are several efforts in the House. Patients Rising Now offers the following recommendations to the HELP Committee PBM bill:

  • A provision to require cost-sharing obligations to be based on the net price of a drug;
  • A provision to de-link PBM compensation and administrative fees from the list price of a drug.

House

Congressman Earl “Buddy” Carter (R-GA-01) introduced two bills targeted at PBM interaction with Medicare and Medicaid:

  • The Drug Price Transparency in Medicaid Act (H.R.1613) o Makes a pass-through pricing model required for PBMs;
  • Prohibits spread pricing in Medicaid;

Increases transparency by conducting a survey on average drug acquisition costs.

  • The Protecting Patients Against PBM Abuses Act (H.R.2880) o Delinks PBM compensation from the price of a covered drug;
  • Prohibits spread pricing in Medicare Part D;
  • Prohibits PBM patient steering to financially aligned entities;
  • Strengthens reporting requirements.

Congresswoman Diana Harshbarger (R-TN-01) introduced the PBM Sunshine and Accountability Act (H.R. 2816) for PBMs operating in commercial healthcare. The bill:

  • Strengthens reporting requirements for PBMs and the total amount they receive in rebates, administrative fees, and clawbacks from pharmacies.

FTC

Beyond legislative efforts, on June 7, 2022, The Federal Trade Commission (FTC) announced a 6(b) study into the business practices of PBMs.

  • The six largest PBMs have been directed to deliver information and records regarding their business practices to the FTC.
  • The FTC has since added Group Purchasing Organizations to the scope of this study.

The House Committee on Oversight and Accountability is also conducting a study on PBMs. Neither study is anticipated to be available by year’s end.

Action Requested

The anti-competitive landscape PBMs now inhabit has led to increased out-of-pocket spending and a decrease in access to certain drugs & treatments.

  • Call-to-Action (Broad): Congress, along with the FTC must put a stop to these practices.
  • Call-to-Action (Congress): House Representatives should cosponsor H.R. 1613, H.R.2880, and H.R. 2816.
  • Call-to-Action (Senate): Senators should work with their colleagues on a comprehensive PBM package as soon as possible