The fight to lower prescription drug costs is underway. Congress has introduced a handful of bipartisan bills aiming to tackle drug prices by increasing transparency on pharmacy benefit managers (PBMs) and their practices that increase drug prices for group health plans. Congressional committees have also taken an interest in examining PBM practices. The lack of federal action thus far has led states to patch together their own PBM transparency laws, but there is hope that the Pharmacy Benefit Manager Reform Act will pass and lead the charge to additional federal reform measures that lower drug spending for plan sponsors and their participants.

What Is a PBM?

A PBM manages pharmacy benefits on behalf of a health plan, insurer or plan sponsor. The PBM conducts activities beyond those of a third-party administrator—The PBM negotiates prices with drug manufacturers and is designed to influence the behaviors of providers and patients who can affect the outcomes and cost of a pharmacy benefits plan. Employers typically work with PBMs to design the plan, including deciding deductibles, copays and coinsurance. The employer then relies on the PBM to correctly administer prescription drug benefits. The PBM typically develops formularies, processes claims, handles rebate reimbursement and conducts drug utilization reviews to help contain costs. To learn more about PBMs, see KFF Health News’ article “PBMs, the Brokers Who Control Drug Prices, Finally Get Washington’s Attention.”

Key Legislation: Pharmacy Benefit Manager Reform Act

A key piece of legislation that advanced by a vote of 18-3 by the Senate Health, Education, Labor, and Pensions (HELP) Committee on May 11, 2023 was the bipartisan Pharmacy Benefit Manager Reform Act (S 1339).

The bill:

• Seeks to ban spread pricing. In spread pricing, PBMs charge health plans more than they pay pharmacies for the same drug and keep the difference for themselves. Within 30 months of enactment, the bill would require that “an entity providing pharmacy benefit management services on behalf of” a group health plan or health insurance issuer offering group or individual health insurance to “ensure that the total amount required to be paid by the plan or issuer and participant, beneficiary, or enrollee for a prescription drug covered under the plan or coverage, does not exceed the price paid to the pharmacy.” The bill includes an exemption for penalties paid by the pharmacy in certain instances.
• Requires PBMs to pass rebates and fees they collect from drug manufacturers to health plans. Rebates are payments from drug manufacturers to PBMs, often in exchange for giving their drug preferred formulary placement. The bill would require reporting of rebates, payments and fees to insurers and would require PBMs to pass these rebates and other discounts to the health plan in a timely manner. Currently, PBMs can retain rebates for themselves, which can incentivize higher list prices for prescription drugs. Although PBM rebates would not go directly to patients, lawmakers hope that plan sponsors will lower premiums and other out-of-pocket costs. 
• Bans certain clawbacks by PBMs. The clawbacks concern fees incurred by pharmacies that dispense Medicare Part D drugs. The fees can be charged by PBMs long after a Medicare prescription has been filled.
• Requires transparency and justification reports. Drug companies must provide transparency and justification reports to the U.S. Department of Health and Human Services 30 days before raising the prices of certain drugs.
• Mandates GAO study of opioid overdose reversal drugs. An amendment to the bill includes a requirement that the Government Accountability Office (GAO) conduct a study of actions that can be taken to protect access to Naloxone/Narcan and to report on out-of-pocket costs and insurance coverage of these drugs.
• Prohibits gag clauses in PBM contracts. Currently, PBM contracts may contain gag clauses that prevent pharmacies from telling patients that paying for a prescription with cash or another option may be less expensive than using insurance.
• Requires a report on PBMs as fiduciaries. The U.S. Department of Labor secretary must submit a report to Congress studying the impact of considering PBMs as fiduciaries under ERISA with respect to group health plans.

The bill has been sent to the full Senate for consideration. 

Other Recent Congressional Developments

Senate and House committees are currently reviewing bills concerning PBMs. Here is a look at what committees are acting on.

• The Senate Judiciary Committee advanced the Prescription Pricing for the People Act of 2023 (S 113) on February 9, 2023, which directs the Federal Trade Commission (FTC) to investigate and report on questionable practices by PBMS and requests FTC provide Congress with appropriate policy recommendations. Meanwhile, FTC started inquiries detailed in the next section.
• Senate Committee on Commerce, Science and Transportation passed the Pharmacy Benefit Manager Transparency Act (S 127) on March 22, 2023, which bans “deceptive unfair pricing schemes,” prohibits reimbursement clawbacks and requires PBMs to report to FTC the dollar amount they make through spread pricing and pharmacy fees.
• The Senate Finance Committee released a bipartisan framework on April 20, 2023 for reducing prescription drug costs and implementing PBM reform. The framework aims to address the “increasingly complex and opaque” interactions between the entities involved in delivering and paying for prescription drugs, including the consolidation of numerous drug supply chain stakeholders. The framework identifies four key challenges within the PBM industry requiring policy solutions: misaligned incentives that drive up prices and costs, insufficient transparency that distorts the market, hurdles to pharmacy access, and behind-the-scenes practices that impede competition and increase costs.
• The House Energy and Commerce Committee advanced the Promoting Access to Treatments and Increasing Extremely Needed Transparency (PATIENT) Act (HR 3561) on May 24, 2023, which requires PBMs to compile annual reports for employers with information including drug spending, out-of-pocket costs and rebates.
• The House Committee on Oversight and Accountability held a hearing May 23, 2023 on the role of PBMs in the pharmaceutical market and anticompetitive practices. Key takeaways from the hearing according to the Oversight Committee include that PBMs engage in anticompetitive tactics to their own benefit that harm patient care and increase costs; that increased transparency of PBM industry is necessary to determine the impact of PBM tactics on patients, the pharmaceutical market and health care programs administered by the federal government; and that Congress has a responsibility to act. The Oversight Committee will continue to examine PBM practices to determine legislative solutions that can benefit patients and reduce prescription drug costs.

Several other bills were introduced in the House and Senate and have not yet been considered by committees.

FTC Oversight

On June 6, 2022, FTC announced the launch of an inquiry into the PBM industry, requiring the six largest PBMs (CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Pharmacy Solutions, Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc.) to provide information and records regarding their business practices. The FTC inquiry looks at the role of PBMs and their impact on the access and affordability of prescription drugs. On May 17, 2023, FTC inquired at the role of group purchasing organizations (GPOs) that negotiate drug rebates on behalf of other PBMs.

According to FTC, the goal of the inquiries is to shed light on PBM practices, including “charging fees and clawbacks to unaffiliated pharmacies; steering patients towards PBM-owned pharmacies; potentially unfair auditing of unaffiliated pharmacies; the use of complicated and opaque pharmacy reimbursement methods; and negotiating rebates and fees with drug manufacturers that may skew the formulary incentives and impact the costs of prescription drugs to payers and patients.”

State Action

A growing patchwork of state laws on PBM reform and lowering drug costs has spread due to the lack of federal action taken thus far. As of May 26, 2023, according to the National Academy for State Health Policy, 22 bills in 14 states have been introduced on transparency, 137 bills in 43 states have been introduced on PBMs, and 17 bills in 13 states have been introduced on prescription drug affordability review.

Stay tuned to the International Foundation for updates on PBM reform.

Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.