At yesterday’s Senate Finance Committee hearing, Chair Ron Wyden, D-Oregon, and Ranking Member Mike Crapo, R-Idaho, urged their colleagues to pass pharmacy benefit manager reform as soon as possible.
Debate on PBM reforms has heated up this month considerably, both in the executive and legislative branches of the federal government. The pursuit of more PBM transparency and the severing of links between prescription drug prices and the administrative fees earned by PBMs has bipartisan support in Congress. Proposed legislation on PBM reforms cleared two Senate committees on a bipartisan basis, but policy disagreements between the Senate and House have impeded progress and may sideline putting the pieces of legislation to a vote until after the November election.
In addition, The Hill reports that congressional appropriation bills unveiled earlier this month to fund the government and avoid a (partial) shutdown did not include reforms to the PBM industry.
PBMs function as intermediaries between health plans, employers and drug manufacturers. As middlemen they process insurance claims, create lists of therapeutics covered by insurance called formularies, establish different levels of cost-sharing for patients as well as other conditions of reimbursement of pharmaceuticals, review prescription drug utilization, negotiate rebates with manufacturers, establish pharmacy networks and manage and own specialty pharmacies. Their role as intermediary in the pharmaceutical supply chain is being scrutinized by lawmakers because of the perceived opacity of the PBM business model, potentially anti-competitive practices and high out-of-pocket costs for patients.
Proposed legislation which moved through both the Senate Judiciary and Finance Committees in 2023 would make fundamental changes to how PBMs operate. They would curb activities such as spread pricing—charging health plans which PBMs contract with more than they pay the pharmacy for medications and then keeping the “spread” or difference as profit—and claw backs of reimbursement payments from pharmacies.
Regarding claw backs, PBMs assess direct and indirect remuneration fees on pharmacies that dispense Medicare Part D (outpatient) drugs. Such fees are often charged long after a pharmacy has filled a Medicare prescription. PBMs assert they are clawing back money due to a pharmacy’s performance on certain quality measures. However, observers point to the arbitrary and opaque nature of these quality metrics.
Other bills in Congress aim to establish reporting requirements whereby PBMs would have to provide information to plan sponsors on rebates received from drug manufacturers. Rebates are payments from drug manufacturers to PBMs in exchange for moving market share towards preferred products on the formulary. The rebate system can create a warped incentive structure which drives up out-of-pocket costs for patients. PBMs sometimes favor higher list price drugs because of their higher rebates. But this can negatively impact patients as their cost-sharing is calculated on the basis of list prices.
PBMs see things differently. Their trade association, the Pharmaceutical Care Management Association acknowledges that there are problems with the prices of drugs which negatively impact patients, but pins the blame on drug makers. Moreover, PBMs maintain that health plans and employers in the private and public sector continue to hire PBMs because of the added value they deliver in terms of “lower drug costs, better health outcomes, and broad pharmacy access.”
Further, one of the big three PBMs, CVS Caremark, claims to be a leading agent of change, innovation and transparency in the market with its newly announced initiatives, including TrueCost, CostVantage and Choice Formulary initiatives.
White House Roundtable
Earlier this month, the White House held a roundtable on PBMs featuring the Federal Trade Commission Chair Lina Khan, Secretary of Health and Human Services, Xavier Becerra and billionaire entrepreneur Mark Cuban to discuss the role of PBMs in the prescription drug ecosystem. The point at issue was the set of concerns pharmacies and patients have about PBM business practices.
In prepared remarks, FTC Commissioner Khan addressed the meeting by stating that while “PBMs say that they help bring down drug costs … the stories we hear from patients and healthcare workers instead describe PBMs as dominant gatekeepers who have outsized power to decide how people do or don’t receive the life-saving prescription drugs they depend on. Too often, Americans are price gouged for these medications.”
Khan also discussed her agency’s comprehensive investigation of PBMs which began in June 2022 and is focused on transparency, spread pricing, rebates and other fees charged by PBMs. According to Axios, Khan said that 20 months into the inquiry the nations’ top three PBMs who control 80% of the market— CVS Caremark, Express Scripts, and Optum Rx—have not yet fully complied with the probe’s orders to turn over certain documents and data. She added that the FTC “won’t hesitate to use the full extent of our legal authorities to mandate compliance.”
At the roundtable, Cuban described ways in which some middlemen may mark up drug prices and distort market competition. He has been an outspoken critic of the PBM industry, specifically regarding the lack of transparency and high out-of-pocket costs for patients. His company, Mark Cuban Cost Plus Drugs, is disrupting pharmaceutical pricing, especially in the generics space. A few months ago, the company added another 1,000 medicines to the list of now 2,200 drugs it sells directly to patients, bypassing PBMs. Pharmaceuticals are sold for a fully disclosed price plus a 15% markup, a $5 pharmacy service fee and a $5 shipping fee.
PBMs see things differently. Their trade association, the Pharmaceutical Care Management Association acknowledges that there are problems with the prices of drugs which negatively impact patients, but pins the blame on drug manufacturers. Moreover, PBMs maintain that health plans and employers in the private and public sector continue to hire PBMs because of the added value they deliver in terms of “lower drug costs, better health outcomes, and broad pharmacy access.”
One of the big three PBMs, CVS Caremark, claims to be a leading agent of change, innovation and transparency in the market with its newly announced initiatives, including TrueCost, CostVantage and Choice Formulary initiatives.
Exhibit A of Marketplace Flaws: Slow Biosimilar Entry
Undoubtedly, PBMs play a consequential role, but given that they operate in complex and often obscure ways this can lead to perverse incentives in the system.
A nonprofit organization to advance biosimilars, the Biosimilars Forum, supports Senators Wyden and Crapo in urging Congress to pass comprehensive PBM reform. Their executive director, Juliana Reed, stated on March 14 that “PBMs stifle free market competition … PBMs block patients from having access to lower-cost biosimilars. There is no better example than biosimilars for Humira.”
Humira (adalimumab) is a blockbuster drug that has generated more than $200 billion in revenues since it was first approved two decades ago. Ten Humira-referenced biosimilars have launched since January 2023 at prices up to 85% lower-cost than the brand biologic. However, thus far Humira has only ceded 2% of its market share to biosimilars.
PBMs often favor the higher-cost high-rebate branded Humira biologic by either excluding biosimilars or placing the originator product in the same or even a preferred formulary tier relative to its lower-cost biosimilar alternatives. This can impact patients negatively as the higher list-priced products have higher levels of cost-sharing. The Biosimilars Forum points out that biosimilars have the potential to save the U.S. healthcare system up to $133 billion, but only if access to them is better facilitated by PBMs.
Notably, at yesterday’s press conference, Senators Wyden and Crapo were joined by pharmacy and patient advocates. There’s a sense of urgency among multiple stakeholders to get something done and correct for the flaws in the marketplace. But until now there’s been much more talk than concrete action.
