New Legislation in Washington Focuses on Pharmacy Benefit Managers

At least 7 bills targeting PBMs have been introduced this year. Our managed care panel assesses the legislation’s ability to reduce health care costs, as well as prospects for passage.

Washington has clearly set its sights on pharmacy benefit managers (PBMs) in 2023. At least 7 bills have been introduced that are designed to increase transparency, prohibit spread pricing, clamp down on rebates, reduce patient out-of-pocket costs, and ban tying PBM compensation to medication list prices.

We asked a group of managed care experts to assess if the legislation would lead to intended cost reductions and what the likelihood is that these initiatives will pass Congress and receive President Biden’s signature.

Our panelists included:

• Larry Hsu, MD, medical director, Hawaii Medical Service Association, Honolulu
• David Marcus, managing director, National Railway Labor Conference, Washington, DC
• Gary Owens, MD, president of Gary Owens Associates, Ocean View, DE
• Norm Smith, principal payer market research consultant, Philadelphia
• F. Randy Vogenberg, PhD, RPh, principal, Institute for Integrated Healthcare, Greenville, SC

Increasing Transparency

The PATIENT Act of 2023¹ would require PBMs to report details of their negotiations with pharmaceutical companies, price and rebate data, and formulary/benefit models.

Would transparency-related measures produce actual savings or result in cost-shifting?

Dr Owens: PBMs have extraordinarily complex financial arrangements that few of us understand.  But I don’t know if this legislation will ultimately produce savings. The prohibitive cost of drugs is not only a PBM issue.  Pharmaceutical companies institute exorbitantly high launch prices, even in cases where the government underwrites research. We need to get our arms around how drugs should be priced based on the actual value they bring. Simply regulating PBMs will not solve the problem.

Mr Smith: The PBM industry is built on lack of transparency, which allows PBMs to dictate prices to the end user—the patient. In terms of legislative impact, a top executive at CVS/Caremark recently assured investors that it planned to maintain net revenue² if forced to be transparent. Legislation might impact PBM revenue, but it would not likely result in net savings overall.

Mr Marcus: I agree. PBMs will simply charge administrative fees to offset their losses in revenue. On the other hand, transparency would provide plan sponsors with a more level playing field when evaluating PBM services and might result in less price distortion.

Dr Vogenberg: Past efforts to improve transparency with insurance brokers did not significantly alter the landscape or foster real change with employer benefits or decision-making. I expect some differences with the PBM-focused transparency issues, but change is likely to be incremental.

Dr Hsu: The savings could be meaningful, since previously undisclosed pricing deals would be out in the open and unlikely to be used effectively going forward.

Do you think transparency-related measures have a chance of passing and receiving the president’s signature?

Dr Owens:  This may be a case where both sides of the aisle can get behind the legislation and see it through.

Dr Hsu: There is wide public support for the drug-related measures in the Inflation Reduction Act. Transparency measures might be able to ride a similar wave toward passage.

Mr Marcus: Of all the measures in play, those dealing with transparency have the best chance to make it through. Both parties have distain for PBMs’ lack of transparency. PBMs will have a tough time arguing against the concept.

Mr Smith: It is likely to pass the House and will get through the Senate. The key to getting it through the GOP-controlled House is for the Biden administration to not position it as a victory for the president.

Dr Vogenberg:  Given the full slate of the Congressional agenda, I’m not sure this will even come to the floor. As of this writing, no floor vote has been scheduled; it is not a top priority of Congressional leaders. There could be more meaningful action on this at the local and state level.

For the record, my analysis here applies to all legislation assessed in this article.

Prohibiting Spread Pricing

Dr Vogenberg’s comment on state action is apropos here, as some states have recently banned the PBM practice of reimbursing pharmacies only a portion of what the Medicaid managed care programs reimburse and pocketing the difference. The Protecting Patients Against PBM Abuses Act³ extends the ban to all states for Medicare Part D plans. The Pharmacy Benefit Manager Transparency Act of 2023⁴ and the PATIENT Act do the same for employer-sponsored and Medicaid plans, respectively.

Would spread pricing-related measures produce actual savings or result in cost-shifting?

Dr Owens: Eliminating spread pricing is a reasonable step toward additional transparency. Whether it will save dollars overall is an open question.

Dr Hsu: PBMs most assuredly will shift to other tactics to make up any losses—more attractive pricing for their services, different rebate structures, and/or administrative fees.

Mr Marcus: It would be a clear win for pharmacies, but I agree that it would become an exercise in cost-shifting and have a minimal impact on overall savings.

Mr Smith: While these bills could have a positive impact across various insured groups of patients, the dollar amounts here are much lower when compared with rebate dollars.

Dr Vogenberg: For those reasons and others, laws banning spread pricing may not deliver the intended results.

Do you think spread pricing-related measures have a chance of passing and receiving the president’s signature?

Dr Owens: PBM pricing tactics is a murky area that could use more regulation. Although a few legislators might object because they prefer less regulation of business, I see this as an area where there will be bipartisan support.

Mr Marcus: I agree. Both Democrats and Republicans will be able to take credit for this win.

Mr Smith: I agree as well, but as I mentioned earlier, the savings do not represent a sizable portion of PBM revenues.

Dr Hsu: I do not think this will get through. Spread pricing is a complex concept. The public clearly understands the need for transparency, but spread pricing is a fuzzier issue.

Requiring All Rebates to be Passed Onto Plan Sponsors

The Pharmacy Benefit Manager Reform Act⁵ would prohibit PBMs from keeping a portion of the negotiated rebate. The entire rebate, along with any negotiated fees, alternative discounts, and other remuneration would have to be passed onto plan sponsors.

Would rebate-related measures produce actual savings or result in cost-shifting?

Dr Owens: PBMs and many sponsors already have 100% pass-through agreements in place, but we don’t know which revenue streams are considered rebates and which are not.  Rebates encourage high list cost from pharma to then support lower net prices using rebates. This can create an upward spiral of list prices for drugs, especially in competitive areas. So making them more transparent is a step in the right direction, but not necessarily a fix.

Mr Marcus: This measure may help level the market in areas where larger plan sponsors and health plans are more likely to already be getting 100% of revenue. Smaller groups would have the same opportunity. But I worry that in response, PBMs would further obfuscate revenue by using rebate aggregators, who negotiate on behalf of PBMs. PBMs will find a way to recoup lost revenue.

Dr Hsu: If forced to fully pass rebates on, PBMs will negotiate other deals with manufacturers and still get paid.

Dr Vogenberg: The actual impact if passed is not fully clear. A lot depends on regulatory clarity and enforcement. This could be another case where passage does not deliver the intended results.

Mr Smith: If PBMs were required to pass 100% of rebates and other fees, I can’t see how they could survive as more than a third-party adjudicator. However, if passed, the bill would result in low list prices in competitive drug classes.

Do you think rebate-related measures have a chance of passing and receiving the president’s signature?

Mr Smith: This bill would attract the most opposition from PBMs. There is no way it passes in its current form.

Mr Marcus: PBMs are probably lobbying very hard against this and will offer greater transparency as a compromise.

Dr Hsu: On the other hand, the public grasps the concept of passing savings onto the end user. Congress is listening, so you never know.

Dr Owens: Of course passage is possible, but this measure may not get through a deeply divided Congress.

Reducing Beneficiaries’ Out-of-Pocket Costs

The Fairness for Patient Medications Act⁶ would cap cost-sharing and base it on net price vs list price. Whereas the HELP Copays Act⁷ would prohibit the use of copayment accumulator programs and mandate that health plans include manufacturer coupons and assistance programs to accrue toward cost-sharing.

Would measures related to reducing out-of-pocket costs produce actual savings or result in cost-shifting?

Dr Owens: Calculating rebates at the time of sale is difficult to operationalize. It makes more sense to take copayments/coinsurances based on the actual price paid to the pharmacy net of any discounts and dispensing fees. Plus it is easier to implement. In addition to banning accumulator programs, why not also target copayment assistance by manufacturers? These alternatives would get to the root cause of the problem.

Mr Marcus: Neither Congress nor the White House is likely to support legislation addressing point of sale rebates, since it would have adverse cost effects on Medicare Part D. Both the Congressional Budget Office⁸ and the Centers for Medicare & Medicaid Services⁹ previously projected such increases.

Copay accumulator programs are more likely to be revamped because both consumers and pharma are supportive. Copay maximizers are living on borrowed time as litigation moves through the courts and pharma develops more sophisticated counter measures.

Do you think measures tied to reducing out-of-pocket costs have a chance of passing and receiving the president’s signature?

Mr Smith: A year before the next presidential election, these bills appear likely to gain broad support in Congress. Why would leadership not want to reduce out-of-pocket expenses? Of course, insurers can make up for the lost copays by raising premiums.

Mr Marcus: Patients may experience some cost sharing relief at the expense of plan sponsors. Eventually, however, premiums will be raised to reflect the additional expense. The end or weakening of maximizer programs will also put pressure on premiums.

Decoupling PBM Compensation from List Prices

The Patients Before Middlemen Act¹⁰ and Protecting Patients Against PBM Abuses Act would prohibit PBMs from earning profits based on Medicare Part D medication list prices. Compensation would instead take the form of flat fees.

Would measures related to decoupling PBM compensation from list prices produce actual savings or result in cost-shifting?

Dr Owens: As mentioned, manufacturer prices bear little relationship to a drug’s value or developmental cost. Simply regulating the PBMs will not fix the problem.

Mr Marcus: Straight administrative fee models can reduce costs but come with drawbacks. Mail order and PBM-owned specialty pharmacies are not incentivized to control acquisition cost, since it can be passed onto an [associated services organization]. Per claim fees might also lead to attempts to generate additional volume.

Do you think measures tied to decoupling PBM compensation from list prices have a chance of passing and receiving the president’s signature?

Mr Smith: No. This change is too radical and will be seen as a poison pill by the industry. Lobbying efforts against it will be strong. I would recommend not [addressing] both rebates and delinking from list prices until there was certainty the votes were there.

Mr Marcus: Capping insulin cost for commercially covered individuals seems a better path than limiting profit from Medicare Part D.