Reforming PBMs Puts Money In Patients’ Pockets

Nov 20, 2023

When it comes to lowering drug prices and making medicines more affordable, lawmakers have many opportunities for interventions that save patients money. We’re already seeing positive impacts from last year’s historic Inflation Reduction Act (IRA), which has capped insulin prices, saved taxpayers billions on price-gouging from drug corporations and eliminated all out of pocket costs on vaccines for Medicare beneficiaries. But the IRA is just a first step. Provisions like inflationary caps to stop drug corporations from raising prices faster than negotiations, negotiated prices on drugs, and cost caps on drugs like insulin should be expanded to benefit even more people in Medicare as well as people with other kinds of insurance or with no insurance at all. After all, people of all ages and incomes are struggling with healthcare affordability, regardless of what kind of coverage they have. Unless more action is taken, hundreds of millions of Americans will continue to be at the mercy of drug corporations and their relentless profiteering.

But drug corporations aren’t the only ones profiting from jacking up our prescription drug prices. Pharmacy Benefit Managers (PBMs), sometimes called “middle-men,” are key players in the prescription drug distribution chain who influence affordability. PBMs negotiate and manage prescription drug benefits on behalf of health insurers, Medicare Part D plans, large employers, and other payers. They play an important behind-the-scenes role in determining drug costs by developing formularies and negotiating rebates and discounts between drug corporations and pharmacies. PBMs collect rebates that are a percentage of the manufacturer’s list price. These rebates and assorted other questionable practices are increasing scrutiny in Congress over how PBMs may contribute to rising prescription drug costs.

Drug corporations relentlessly insist that PBM rebates are forcing higher prices while the PBMs claim that a larger and larger share of the rebate is actually being passed along to insurers. Since rebates aren’t disclosed, there’s no way to resolve the argument without increasing transparency. A recent study found that the share of rebates PBMs passed through to insurers and payers increased from 78 percent in 2012 to 91 percent in 2016.5 But many small insurers and employers say they do not receive this share of savings.

PBMs also practice “spread pricing,” whereby PBMs are reimbursed at a higher price for generic drugs than what the PBMs actually pay pharmacies for these drugs. The PBMs keep the difference but quantifying the amount that accrues to PBMs is hard because of lack of reporting and transparency and because there’s limited consideration of value versus price in the system. 

Although voters are much more animated at the prospect of taking on drug corporations than PBMs, bipartisan support for PBM reforms is growing in Congress and numerous proposals have emerged to increase transparency and accountability in this murky system. 

House 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 which passed out of the E&C Committee last week. 

Meanwhile, in the Senate, the Health, Education, Labor and Pensions (HELP) Committee passed the Pharmacy Benefit Manager Reform Act of 2023 and the Senate Finance Committee passed the Modernizing and Ensuring PBM Accountability Act (MEPA), legislation that would bring more transparency, accountability and competition to pharmacy benefit manager practices in the drug supply chain, helping to lower out-of-pocket costs for patients. 

All the proposals include transparency provisions that would require PBMs to disclose, at different levels,  how much they pay for drugs, how much money they retain and what costs and savings get passed along to health plan sponsors and patients. Under the current rules, this information is largely obscured. Also all the measures feature some restrictions on spread pricing, the practice of charging insurers more for drugs than the PBMs paid. The Senate bill would bar PBMs from linking compensation to drug formularies, a practice that lawmakers and many advocates say incentivizes higher prices. These legislative efforts coincide with an ongoing Federal Trade Commission (FTC)  investigation into PBM business practices and follow up on earlier administrative action that also is intended to increase transparency and accountability. 

Across the political spectrum, lawmakers are eager to make progress on regulating PBMs to lower drug costs for consumers, so despite a very polarized legislative context, PBM reform has a good chance at passage. And it’s about time. Rooting out waste, grift, and inefficiency in every stage of the prescription drug process and system can only help with savings and access that will benefit millions.