New legislation that’s wending its way through Congress is taking aim at some of the more egregious practices by the country’s largest pharmacy benefit managers, but it’s uncertain that the measures will actually reduce costs.
PBMs play a significant role in the health insurance ecosystem by contracting with insurers and self-insured employers to control their drug costs. But reports over the past few years have questioned just how well these influential players help employers, health plans and enrollees actually save money. They’ve also been accused of keeping most of the savings they generate instead of passing them on to their clients and health plan enrollees.
Bipartisan legislation has been introduced that takes aim at some PBM practices that have come under fire. The main measure that’s in play is Pharmacy Benefit Manager Reform Act (S. 1339), sponsored by Senators Bernie Sanders (I-VT) and Bill Cassidy (R-LA):
The bill addresses the following practices that have come under fire for driving up payer costs:
Spread pricing – A PBM charges health plans more than it pays the pharmacy for a medication and retains the difference in costs. The bill would ban this.
Rebates – PBMs receive rebates from drugmakers in exchange for the PBM giving their products preferred status and greater market share on the plan formularies. The bill would require that rebates drug companies pay PBMs be passed through to plan sponsors.
Clawbacks – These are remuneration fees that pharmacies that dispense Medicare Part D (outpatient) drugs have to pay PBMs, which can charge these fees long after a pharmacy has filled a prescription. The bil; would ban certain clawback provisions.
Why it likely won’t work
The problem with this legislation is that it’s a double-edged sword and it’s not a panacea that will reduce costs for payers.
According to the National Alliance PBM Playbook Report, there are a number of areas of concern (that the bill doesn’t address):
Vertical integration – PBMs and their business affiliates control the drug supply chain from the initial sale by the manufacturer through the final sale to a consumer.
PBM-owned pharmacies – PBMs send patients to mail order and specialty pharmacies that they own. When they own the pharmacies, PBMs choose which drugs are dispensed. And coincidentally, they typically choose the most profitable and most expensive medications.
Market consolidation – Three PBMs (“Big 3”) control more than three-quarters of all the prescription drug business in the US.
Biased & conflicted requests for proposal – The largest PBMs pay significant referral fees to pharmacy benefit consultant firms (including those operating their own coalitions) to steer and influence the PBM selection process in their favor.
Lack of transparency and misleading contracts – PBMs have sought to obscure their business practices, which include self-serving contract definitions that favor high-cost/high-rebate drugs on their formularies and recharacterizing rebates as services fees.
Pharma-driven incentives to confound market pressures – At the center of pharma manufacturers’ market access strategy are the large incentives they give PBMs for favorable formulary placement. This strategy creates conflicts through rebates, credits and other incentives that restrict competition on formularies.