Photograph of a pharmacy's shelves stocked with prescriptions and drugs

Pharmacy benefit managers (PBMs) have become the hot potato of the healthcare industry that nobody wants to hold.

State and federal government leaders around the country have introduced legislation that goes after the heart of PBM’s business practices. At the federal level, several bills have been introduced (but not passed) surrounding PBMs. Here’s a quick recap:

  • Commerce Chair Maria Cantwell (D-WA) and Sen. Charles Grassley (R-IA) advanced their “Prescription Pricing for the People Act of 2023” (113) through the Commerce Committee.
  • Senator Bernie Sanders (D-VT) and Bill Cassidy (R-LA) introduced the “Pharmacy Benefit Manager Reform Act” (1339) includes limits on spread pricing, full rebate pass-throughs, and broad reporting requirements for PBMs and their affiliates.
  • A bipartisan group of Senators introduced “The Patients Before Middlemen Act,” which would prevent PBMs that contract with Medicare Part D plans from tying service fees to the price of a drug, rebates, discounts, or other fees.
  • Senator Jon Tester (D-MT), with Senators Shelley Moore-Capito (R-WV), Sherrod Brown (D-OH), and James Lankford (R-OK) introduced the “Protect Patient Access to Pharmacies Act” (S. 2052). Their bill seeks to rein in direct and indirect remuneration fees (DIR fees) PBMs collect in Medicare Part D plans and to address tactics that prevent some community pharmacies from participating in provider networks.

On the House side, the Energy and Commerce (E&C) Health Subcommittee reviewed three PBM-related bills among 17 total, unanimously advancing one, the “Providers and Payers COMPETE Act” (H.R. 3284).

In May, the full E&C Committee held a markup session during which they considered H.R. 3284 and a compilation of provisions from 3 PBM reform bills named the “PATIENT Act of 2023” (H.R. 3561). By unanimous vote, the full Committee reported both bills favorably to the full House, where they await Floor consideration.

Meanwhile, state legislators have been busy introducing and passing bills related to PBMs. In fact, all 50 states have enacted at least one law on PBMs since 2016, accounting for more than 150 laws in total.

The laws vary, but these topics have the most support:

  1. Prohibiting gag clauses on pharmacies — Prohibits a PBM from including in their contract with a pharmacy any provision that prevents a pharmacy or pharmacist from disclosing specific information to a patient, including: the existence or availability of lower-cost, therapeutically equivalent alternatives; copayment or coinsurance information; information as to how the patient may pay a lower price for their prescription, including paying the cash price instead of using their insurance plan. (43 states)
  2. Limiting patient cost-sharing – In 28 states, patients are protected from high medication costs. They only have to pay the lower of three options: the National Average Drug Acquisition Cost (NADAC), the wholesales acquisition cost (WAC), or other approved costs. This is typically achieved by using manufacturer rebates or coupons.
  3. Requirements for PBM licensure/registration — Requires a PBM to be licensed with the state before operating or conducting business as a PBM. Typically requires renewal of licensing every one to three years. (25 states)
  4. Prohibiting clawbacks/retroactive denials –Prohibits PBMs from retroactively reducing payment to a pharmacy on a clean claim after the point of sale, except as the result of an audit or adjudication. (21 states)

Brief History of PBMs

Pharmacy Benefit Managers haven’t always been controversial. First established in the 1960s, PBMs have their roots in claims administration. As prescription drug coverage increased in the private sector, insurance companies were faced with the daunting challenge of efficiently managing a high volume of relatively small dollar claims. Having mastered the art of data standardization, PBMs became leaders in the field of electronic claims processing. From there, PBMs created pharmacy networks and pioneered mail service benefits that enabled patients to receive medication through the mail at discounted prices. This was followed by the introduction of online, real-time electronic drug claims processing in the late 1980s. It wasn’t long before PBMs started to fill a larger, more critical role for their clients, expanding into the clinical side of pharmacy cost management.

Current State of PBMs

Currently, there are 66 pharmacy benefit manager companies. The three largest – Express Scripts (an independent publicly-traded company), CVS Caremark (the pharmacy service segment of CVS Health and a subsidiary of the CVS drugstore chain), and OptumRx (the pharmacy service segment of UnitedHealth Group Insurance) – control approximately 89% of the market and employ about 270 million people.


SOURCE: National Law Review, August 21, 2023, Volume XIII, Number 233

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