PBM Reform on the Horizon

In recent years, lawmakers have increasingly focused on reforms to Pharmacy Benefit Managers (PBMs) — the intermediaries owned or hired by insurance companies to negotiate drug prices with manufacturers and pharmacies. Although PBMs can lower drug costs for insurers through these negotiations, their business practices can also lead to higher costs for patients.

PBMs typically receive discounts from drug manufacturers in the form of rebates, but they often retain a portion of these rebates instead of passing them on to consumers. This creates an incentive for PBMs to prefer high-cost drugs that offer larger rebates, ultimately leading to increased out-of-pocket costs for patients — especially for those with high deductibles or coinsurance based on the full list price of medications.

The financial impact is significant. Some research suggests that on average, PBMs lead to commercially-insured patients paying $6 more per prescription, Medicare beneficiaries about $13 more, and uninsured patients an additional $39 more per prescription.

Other challenges with PBMs as actors within the overall prescription drug ecosystem are the lack of transparency about their business models and the lack of business competition. Approximately 80 percent of the prescription drug market is controlled through the three major PBMs – Caremark (CVS Health), Express Scripts (Cigna), and OptumRx (UnitedHealth Group). A Federal Trade Commission (FTC) report revealed that anti-competitive practices and a lack of transparency among PBMs are contributors to high drug prices. Just last month, the FTC sued these three PBMs, alleging they prioritize high-cost drugs to maximize rebate earnings.

Currently, Congress is considering several bipartisan bills aimed at addressing the problematic practices of PBMs, and some of these could be included in year-end legislation. These proposals primarily focus on so-called “spread pricing,” increased transparency, and prohibitions against anti-competitive practices.

One such reform bill is the Lower Costs, More Transparency Act (LCMTA, H.R. 5378), which passed the House of Representatives in December 2023. It tackles spread pricing in Medicaid, where PBMs charge insurance plans more for the cost of a drug than it reimburses the pharmacy for their costs to actually dispense the drug to a beneficiary (which can sometimes be even less than it costs the pharmacy to actually purchase the drug in the first place).

The LCTMA also includes transparency provisions such as requiring participation in drug cost surveys and reporting on negotiated rates and costs. In total, the Congressional Budget Office (CBO) estimates that the PBM reforms in the LCMTA would save the federal government about $3 billion over ten years.

In the Senate, two bills that would reduce drug costs include the Modernizing and Ensuring PBM Accountability Act (MEPA, S. 2973), and Better Mental Health Care, Lower-Cost Drugs, and Extenders Act (BETTER Act, S. 3430). The MEPA would ban spread pricing in Medicaid and prohibit compensation directly tied to the costs of medications or the rebates secured from manufacturers, instead establishing compensation in Medicare in the form of a service fee. It would also require detailed reporting by PBMs to insurance plans on their pricing practices and the rebates they receive from drug manufacturers. Like the LCMTA, the MEPA would increase participation in drug cost surveys. The BETTER Act goes further by expanding these survey requirements and broadening the scope of data collection. These bills are projected to save between $700 million (MEPA) and $2 billion (BETTER Act).

In response to growing concerns about anti-competitive practices among PBMs, the Pharmacists Fight Back Act (H.R. 9096) targets practices like patient steering, which directs patients to PBM-affiliated pharmacies. This bill would limit PBMs’ abilities to restrict a patient’s choice of pharmacies and would tie pharmacy reimbursement to average drug costs in order to prevent PBMs from paying independent pharmacies less for drugs than the pharmacy pays for the drugs. It also bans spread pricing and delinks PBM compensation from drug prices for all federal health care programs, while requiring rebate sharing with consumers. CBO has not yet scored this bill.

Although PBM reforms may generate some savings for the federal budget, CBO suggests these savings may be limited compared to other prescription drug market reforms. Still, savings from PBM reform could serve as offsets to support other health care initiatives, and reforms could enhance protections for beneficiaries at the pharmacy counter, better aligning incentives for PBMs to negotiate more effectively on behalf of insurers and the businesses that pay for their employees to enroll in insurance plans.