Congress eyes endgame for PBM legislation

Historic levels of dysfunction and infighting may be roiling Congress these days, but  lawmakers appear primed to act as soon as they can on at least one issue: Cracking down on pharmacy benefit managers.

Members of Congress, Capitol Hill staffers and industry stakeholders put high odds on some suite of healthcare bills winding up on President Joe Biden's desk before the legislative session ends. Several bipartisan bills tackling pharmacy benefit manager business practices emerged from House and Senate committees this year, making the legislation ripe for broader consideration. And lawmakers are always eager to brag to voters that they took action against high prescription drug prices.

Related: PBMs, Big Pharma face off in House hearing

“I think that PBMs—my characterization—are the train that drives the healthcare agenda in Congress in both the House and the Senate. Enormous interest,” Senate Finance Chair Ron Wyden (D-Ore.) said.

It’s a remarkable statement after concerns about PBMs on Capitol Hill previously failed to gain serious traction. But now Senate Majority Leader Chuck Schumer (D-N.Y.) has pledged to move a healthcare package this year that, while yet undefined, likely will gather in three major PBM bills that emerged from key committees. The Republican-led House has already united many of its measures targeting PBMs into one larger bill, which is among the first in line to get floor consideration once the lower chamber chooses a new speaker following the ouster of Rep. Kevin McCarthy (R-Calif.) from the post last week.

All told, the bills could make dramatic changes to how pharmacy benefit companies do business by opening a window into a notoriously opaque industry and, depending on which bills ultimately pass, placing unprecedented limitations on how PBMs earn money.

All of the measuress include transparency provisions that would require PBMs to reveal, to varying degrees, how much they pay for drugs, how much money they keep for themselves and what costs and savings get passed along to health plan sponsors and patients. All of the bills include some new restrictions on spread pricing, which is when PBMs charge insurers more for drugs than they paid. And provisions from the Senate would bar PBMs from linking compensation to the list prices of drugs, a practice that lawmakers and many advocates say incentivizes higher prices.

These legislative efforts coincide with an ongoing Federal Trade Commission investigation into PBM business practices that signals the Biden administration's interest in targeting PBMs.

Consolidation brought clout, attention

Pharmacy benefit managers attracted political scrutiny by significantly increasing their power in the healthcare marketplace over the decades. Companies that started out essentially as subcontractors to health insurance companies seeking savings on drug spending grew into sophisticated, opaque and lucrative operations. Furthermore, consolidation and vertical integration led to CVS Health subsidiary CVS Caremark, Cigna subsidiary Express Scripts and UnitedHealth Group subsidiary OptumRx controlling about 80% of the PBM market.

Moreover, it simply appears to be the PBM industry's turn to absorb flack about drug prices on Capitol Hill. Congress already took a cut at reducing pharmaceutical costs last year when Democrats passed the Inflation Reduction Act of 2022, which includes provisions lowering insulin costs and allowing Medicare to begin negotiating prices for 20 major drugs. That seems as far as lawmakers are prepared to go against the powerful pharmaceutical industry for now, leaving PBMs next in line.

“There are few concerns that connect more with people at the kitchen table than healthcare,” said Wyden. “Within that frame of how strongly people feel about healthcare is prescription drugs at the top of every list.”

The pharmaceutical industry, which is challenging the drug negotiations law in court, was largely cast as the villain during debates last year, but did its best to point at a different culprit: pharmacy benefit managers. According to drugmakers—and the expensive advertising campaign the Pharmaceutical Research and Manufacturers of America has waged—PBMs have become monopolistic middlemen that inflate costs to reap bigger profits.

The PBM industry naturally disagrees. These companies note that pharmaceutical companies are the ones that set the prices that function as the starting point for negotiations, and that PBM profit margins are slim. The Pharmaceutical Care Management Association, which represents PBMs, has expressed adamant opposition to the various legislative proposals, which it argues unfairly focus on its members and would be ineffective at reducing drug prices.

Still, Congress appears to have heard the drugmakers' arguments. Republicans and Democrats in both chambers introduced a slew of measures targeting PBMs this year, and key committees have boiled down many of those proposals and passed four broad pieces of legislation that could get considered on the floors of their respective chambers at any time.

Transparency, spread pricing, 'de-linking'

The House is further along in the process after leaders combined bills from the Energy and Commerce, Ways and Means, and Education and the Workforce committees to produce the Lower Costs More Transparency Act of 2023.

In the Senate, the Health, Education, Labor and Pensions Committee passed the Pharmacy Benefit Manager Reform Act of 2023, the Finance Committee passed the Modernizing and Ensuring PBM Accountability Act of 2023, and the Commerce Committee approved the Pharmacy Benefit Manager Transparency Act of 2023.

Opening the books of PBMs is a major focus of all. The House bill would required PBMs to disclose negotiated drug rebates and discounts, to provide employers with semi-annual data on prescription drug spending, acquisition costs, total out-of-pocket spending, aggregate rebate information, and the rationales for formulary placement. It also would require PBMs and third-party administrators to reveal the compensation they receive. It would take the least dramatic steps to change how PBMs earn money, targeting spread pricing only in Medicaid. The bill would require PBMs to charge Medicaid insurers only what they pay for drugs, plus modest administrative fees, barring PBMs from charging more for medicines or ingredients than they pay to acquire them.

"We are continuing to work to get it to the floor,” said House Energy and Commerce Committee Chair Cathy McMorris Rodgers (R-Wash.). “I believe it will pass.”

The three Senate bills include similar transparency requirements, although they also would require reporting to federal regulators, with the Finance bill mandating extensive reports to the Centers for Medicare and Medicaid Services and the Commerce measure ordering reports to the FTC.

The Senate legislation has more extensive restrictions than the House's on how PBMs earn money. The HELP and Commerce committee bills would ban all spread pricing. The Finance Committee measure targets spread pricing in Medicare Part D and Medicaid. It also would prohibit the practice of PBMs linking compensation to the list price of drugs. Many members of Congress and outside groups argue that linking PBM compensation to list prices creates a perverse incentive for drug companies to raise prices. The thinking goes that if a drug’s price is higher, the PBM can drive a bigger reduction, and pocket a greater share for profit.

PCMA predicts pharma windfall

The PCMA, in attacking all the bills, has argued that even the transparency provisions would be harmful because they would grant drug companies data allowing them to "tacitly collude" in preventing PBMs from negotiating better prices. The association ripped the “so-called ‘de-linking’ provision" in the Finance Committee bill, which it argues would undermine incentives for PBMs while handing “drug companies a profit-boosting windfall” worth $10 billion.

And banning spread pricing would only make it harder to deliver benefits that plan sponsors and employers want, PCMA President and CEO JC Scott has said. While it may sound unfair for a PBM to charge patients more for a drug than it paid, Scott compared spread pricing to how a caterer makes money running a buffet in testimony at an Energy and Commerce Committee hearing last month. The client pays a fee for a whole product, the caterer delivers it, keeps costs down and generates profits by finding ingredients it can get cheap, he said.

The PBM arguments do not appear to won many converts in Congress. Rep. Stephen Lynch (D-Mass.) told Scott he thought spread pricing was a “scam.”

In the end, whether significant PBM legislation passes this year or next may depend more on whether Congress can function at all than on any will to act. Hill staffers and lobbyists say it remains most likely that PBM legislation will clear Congress this year, even if they couldn’t say exactly what legislative vehicle would advance the proposals, such as an add-on to a government spending deal or as part of the broader healthcare package that Schumer has floated.

Wyden said a key sign of a willingness to move forward on PBMs is that no huge differences exist among the many pieces of legislation being pushed.

"It’s not as if one says 'Go here,' and the other goes, 'Let's go do something 180 degrees the other way.' It’s all about competition," Wyden said. "They’re all about markets, they’re all about rolling back the role of middlemen—there are many more similarities and there are differences."