Though many recent reforms regarding prescription drug affordability have been focused on manufacturers and health plans, pharmacy benefit managers ("PBMs") are also the focus of increased attention from federal policymakers and agencies.
Because the largest PBMs are often vertically integrated with providers, specialty pharmacies and/or prescription drug plan sponsors, other entities in the healthcare industry have attributed increased drug costs to PBMs' market shares and the resulting leverage that PBMs use to negotiate prices. However, various studies have found that PBMs "expand the economic pie" in prescription markets and redistribute savings from manufacturers and pharmacies to plan beneficiaries, by fueling competition that lowers retail and manufacturing prices. In 2019, the Government Accountability Office and the Department of Health and Human Services Office of the Inspector General ("HHS OIG") released reports finding that PBM-negotiated rebates lower prescription drug costs for Medicare Part D. Further, PBMs have been found to encourage drug innovation and generate savings on specialty medications, and they are expected to save plan sponsors and consumers more than $1 trillion from 2020 to 2029.
On March 1, 2023, the House Committee on Oversight and Accountability launched an investigation into PBM practices. Chairman James Comer stated that federal agencies administering health care programs for seniors, active-duty military, and federal employees are relying on PBMs as middlemen to set drug prices, which could open the door to government waste. The press release for the investigation also cited to the Committee Republicans' December 2021 report, which found that large PBM consolidation has forced manufacturers to raise their prices, and created conflicts of interest which distort the market and limit high quality care for patients.
In furtherance of the investigation, Chairman Comer has sent requests for information to the Office of Personnel Management, the Centers for Medicare and Medicaid Services ("CMS"), the Defense Health Agency, and several PBMs. Noting that CMS oversees the largest federal contracts with PBMs through the Medicare and Medicaid programs, Chairman Comer has asked CMS to provide information regarding the following:
- The accounting of rebates, fees, or other similar charges received by PBMs related to the Medicare or Medicaid program;
- All contracts between CMS and PBMs;
- All documents and communications related to oversight by CMS of PBM implementation and execution of Medicare or Medicaid contracts; and
- All documents and communications related to the recoupment of payments made improperly to PBMs within the Medicare or Medicaid programs.
The Senate is also investigating PBM practices: On February 16, 2023, the Senate Committee on Commerce, Science and Transportation convened a committee hearing on "Bringing Transparency and Accountability to Pharmacy Benefit Managers," in which the Committee Chair Maria Cantwell indicated similar concerns. She also emphasized the need for structural reforms, such as the bipartisan S. 127, Pharmacy Benefit Manager Transparency Act of 2023, which was introduced by Chair Cantwell and Senator Chuck Grassley on January 27, 2023.
These efforts by federal policymakers to increase oversight of PBMs add fuel to existing fires: Last year, the Federal Trade Commission ("FTC") launched an investigation into the PBM industry, seeking information on the competitive impact of the contracting and business practices of the six largest PBMs. The FTC has requested information on various topics including: pharmacy reimbursement data, pharmacy network contracts and administration, fees and claw-backs charged to pharmacies, drug formulary exclusions, policies for specialty and mail-order pharmacies, rebate contracts, audits of pharmacies, and any ancillary service agreements. The FTC also released a Policy Statement indicating its intent to act "expeditiously" to scrutinize PBM practices that violate the FTC Act, the Clayton Act, the Robinson-Patman Act, or the Sherman Act.
Additionally, the OIG announced its intent to issue a report on whether States provide adequate oversight of Medicaid MCOs to ensure accountability over amounts paid for prescription drug benefits to PBMs.
Meanwhile, state legislatures continue to pass various laws to further regulate PBMs, such as requiring transparent communication about drug cost information to patients; prohibiting discrimination against 340B entities; prohibiting PBMs from altering their drug formularies during the year; requiring registration with state insurance commissions; imposing certain requirements for generics and biosimilars on formulary exclusion lists, and allowing state entities to audit and review PBM practices.
Pharmacy trade associations and manufacturers have supported efforts to heighten oversight of PBMs. Meanwhile, PBMs argue that the proposed federal legislation would both provide for an egregious expansion of the FTC's authority and put at risk the savings that PBMs secure for health plans and patients.
We will continue to monitor and provide updates on these developments.
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