Co-Authored by Matthew B. Roberts and Benjamin Bosmans-Verdonk
Pharmacy Benefit Managers (PBMs) have recently been facing increased scrutiny and negative attention. PBMs first formed in the late 1960’s and were originally designed to negotiate drug prices with drug manufacturers on behalf of their clients and to help insurance companies manage claims for prescription drugs. This original purpose has morphed into a much more influential function which now includes a dominant role in the full administration of drug benefits across the American health care delivery system. Gradually, PBMs have assumed a role typical of health plans or insurers, without being regulated as such. PBMs are now creating drug formularies, making drug coverage decisions, determining medical necessity through utilization management policies that overturn physicians’ orders, and are entering into exclusive contracts with certain pharmacies that impact the operation of physicians and other pharmacies. This expanded role has led many to argue that these ‘middlemen’ in the drug supply chain have an inordinate amount of influence and control over provider’s decision-making process and patients’ access to drugs without much, if any, regulatory oversight. PBMs have found ways to expand their role within the health care delivery system while at the same time exponentially increasing their profits. The three giants in the PBM market, CVS Caremark (owned by CVS), Express Scripts (owned by United Health) and Optus RX (owned by Cigna) are estimated to control 80% of the overall PBM market.1 The remaining work is divided among smaller, up-and-coming players battling for their place in the highly concentrated, yet extremely lucrative industry.1 The global PBM business is expected to garner a revenue of $740 billion by 2029, which would be a 50% jump from the $495 billion generated in 2022.1 But where business blooms, scrutiny rises.
Even though the original purpose of PBMs was to reduce the cost of prescription drugs and to keep drugs affordable, the current nationwide debate is whether PBMs do in fact lower drug prices and make them more affordable and accessible. Because PBMs have historically not been regulated, there was a lack of transparency how PBMs operated. Multiple state and federal lawsuits have been commenced against PBMs for overcharging public programs for drugs, unjust enrichment, misrepresentation, fraud, and failure to meet ethical and safety standards.2 Many of these actions have already resulted in hundreds of millions of dollars in damages to providers, plans, patients, and States, while others are still ongoing.2 The opaque nature of PBM corporate ownership and control, as well as the confidential arrangements with key players in the health care delivery system are speculated to be
causing increases in drug and medication prices without a clear and justifiable reason. What’s more, the historical lack of transparency hampers the ability of policymakers to effectively respond to the high and escalating pharmaceutical costs. In addition, the current PBM business model has created conflicting incentives for PBMs within their role in the drug supply chain and is causing the erosion of physician-led medication therapy management. PBMs often operate with a low deference to physicians’ opinions on the appropriate drug to give a patient and the PBMs are making unpredictable, sometimes clinically invalid, prescribing decisions to advance the interests of drug benefit stakeholders at the expense of patients. It has become increasingly more difficult for physicians to determine at the point-of-care what treatments are preferred by a particular health plan, what level of cost-sharing awaits their patients, and what medications are subject to utilization management requirements. From a patient perspective, PBMs create additional problems such as creating barriers to the timely access to effective drugs. In addition, patients can lose coverage for certain prescriptions without understanding why and can be forced to adjust to abrupt formulary changes while already having to manage a chronic condition or sickness.
In reaction to complaints about PBMs by health care providers, many States have taken action to improve transparency and address the PBMs’ expanded growth and influence. In recent years, PBMs have increasingly been subjected to State inquiries and enforcement actions, with 28 States having recently passed some kind of PBM legislation. South Carolina and Florida are two of the latest states to pass such regulatory statutes, and more are expected to follow. The new State regulatory measures are very broad: The majority of states have adopted regulation frameworks that require PBMs to register or obtain licensure and have authorized applicable regulatory agencies to promulgate rules and regulations. Besides that, States have passed laws that require PBMs to disclose pricing and cost information such as data on rebates, payments, and fees collected from manufacturers, insurers, and pharmacies. Other statutes address, among other things, utilization management policies, spread pricing, patient steering, cost-disclosures, and/or the use of gag- clauses. For example, in May 2023, Florida Governor Ron DeSantis signed into law what is considered the “most comprehensive legislation in Florida history to increase accountability and transparency for prescription drug costs.”3 Governor DeSantis said that “PBMs have managed to escape the public eye and work in the shadows for far too long.”3 The new legislation, setting out a robust regulatory framework, was passed to build “a foundation of transparency for pharmacy benefit manager practices and drug prices in Florida, allowing consumers to make the best choices for their own health.”3
Also on a Federal level there is pending legislation to address the concerns raised about PBMs. These efforts seem to be gaining some momentum with bipartisan support. In May 2023, the Pharmacy Benefit Manager Reform Act of 2023 was advanced by the Senate Health, Education, Labor, and Pensions committee by an 18-3 vote.4 Chair Bernie Sanders (I–Vermont) and Dr. Bill Cassidy (R–Louisiana) introduced the measure and elucidated that “[it] is at its core about improving transparency.”4 The bill would ban spread pricing, and compel PBMs to pass along rebates from drug manufacturers to employers and policyholders.4 PBMs would also have to report their earnings from drug company copayment assistance programs and be required to fully disclose how much they pay pharmaceutical companies and pharmacists.4 Although opponents of PBM regulation warn for potential drawbacks and seek other alternatives,4 the general consensus in Washington D.C. remains the same: it is time that PBMs were more closely regulated and evaluated by Congress.
The House Energy and Commerce Committee recently unanimously approved (49-0) a similar PBM bill that “will tell patients the price they will pay for care, who owns their doctors’ office and how much pharmacy benefit managers are making off of their medicine,” according to Chair Cathy McMorris Rodgers, who sponsored the bill.5 Other senators and house lawmakers have also voiced that they plan to introduce even more regulation in the wake of a PBM investigation by the House Oversight and Accountability Committee. In the midst of all this, coinciding with congressional efforts, executive actions are taking place: The Centers for Medicare and Medicaid Services proposed that PBMs be required to disclose the prices they pay for medications under Medicaid and the Federal Trade Commission has widened the scope of its ongoing investigation of PBM activity that began last year.5
It appears that we are at an inflection point for the PBM industry. As PBMs have grown in influence and profitability within the health care delivery system, the market is now pushing back on the expansion of PBM power and profits. After various litigation challenges and a significant trend toward regulation by state and federal legislative branches, it seems that much more transparency and regulatory control of PBMs is both expected and demanded. Physicians, drug manufacturers, policyholders, and pharmacists are all calling on political leaders to take steps to curtail the role of PBMs. Providers and health plans themselves have recently been subject to federal and state legislative efforts to create more transparency on their rates and it seems that this trend toward transparency will move into the PBM industry as well. It remains to be seen whether additional transparency and regulations will address the concerns raised by health care providers and patients about PBM activity and whether PBMs can play a meaningful role in the reduction of drug costs as originally intended
- Beyond the Big Three PBMs (managedhealthcareexecutive.com)
- PBM Litigation Overview - PBM WATCH
- Governor DeSantis Signs Most Comprehensive Legislation in Florida History to Increase Accountability and Transparency for Prescription Drug Costs (flgov.com)
- Senate HELP Committee approves PBM bill | Modern Healthcare
- PBM legislation passes House Energy and Commerce Committee | Modern Healthcare