The intermediaries in the prescription drug supply chain are stuck between a rock and a hard place, facing congressional scrutiny and pharmaceutical-industry-backed efforts to reform the multibillion-dollar industry.
Pharmacy benefit managers (PBMs) have emerged as a bipartisan target in a divided Congress.
Members across the aisle have introduced at least a dozen bills so far this year that would address the impact of increasing consolidation among PBMs and lack of transparency into prescription drug access and pricing.
“It’s just absolutely maddening and I think we have an area here … where we can actually work together and have some bipartisanship I dare say,” said Rep. Stephen Lynch (D-Mass) during a recent House Oversight Committee hearing on PBMs.
The three biggest PBMs — which control roughly 80 percent of the market — are CVS Health’s CVS Caremark, Cigna’s Express Scripts and UnitedHealthcare’s Optum.
Each of these PBMs is owned by parent companies that also own health insurers. Consolidation and the vertical integration of PBMs into health care companies is a high priority for the lawmakers championing these reforms.
“When PBMs negotiate with a pharmacy or a health insurer, they are either negotiating with themselves or one of their direct competitors. This can create incentives to do things that have negative impacts on patients,” Rep. James Comer (R-Ky.), chairman of the Oversight Committee, said during the recent hearing.
The Pharmaceutical Care Management Association (PCMA), the trade association representing PBMs, contends that none of the legislative proposals would lower drug prices.
“Instead of focusing on legislation that risks increasing drug costs, Congress should refocus on enacting policies that promote more competition in the prescription drug marketplace, including policies that eliminate common and egregious drug company practices aimed at extending patents in highly anti-competitive ways,” Greg Lopes, assistant vice president of strategic communications at the PCMA, told The Hill in a statement.
What does a PBM do?
PBMs operate in the middle of the drug supply chain and develop formularies, the list of drugs that insurance providers will cover. By leveraging their influence over what medicines are covered, PBMs negotiate rebates and discounts from manufacturers.
These companies also contract with pharmacies to reimburse them for drugs that are dispensed. One tactic that has garnered particular criticism is the practice of spread pricing, when PBMs receive a reimbursement from health plans that’s higher than what they pay to pharmacies, keeping the difference.
“At some point, they recognized that they could actually control what drugs are preferred or not preferred based on their central position in working with the insurance industry,” said Robert Levin, president of the Alliance for Transparent and Affordable Prescriptions (ATAP), a coalition aimed at addressing PBM practices.
“By creating preferred drugs, they could then create a system of ‘How do you get to be on that preferred, top tier list?’ And the obvious way for them was to extract money from the manufacturers in trade for their ability to access the insurance market.”
How lawmakers are taking action
The House Oversight and Accountability Committee held its second hearing on PBMs last week, during which members on both sides of the aisle demonstrated their shared resolve for PBM reform.
Lawmakers on the panel took a critical eye toward PBM practices, both in how patients are impacted and what effect they have on the market.
Rep. Pete Sessions (R-Texas) said he believed the three major PBM giants engaged in “anti-competitive behavior, which should be against the federal law.”
The Pharmacy Benefit Manager Transparency Act, introduced in January by Sens. Maria Cantwell (D-Wash.) and Chuck Grassley (R-Iowa), has been a top target for industry lobbyists rooting for and against the bill.
The bill would bar PBMs from engaging in what it refers to as “deceptive” practices, such as charging an insurer more than what the PBM reimburses a pharmacy. The Senate Committee on Commerce, Science and Transportation approved the legislation in March, and it hasn’t moved since.
If enacted, the bill would reduce the federal deficit by $740 million over the next 10 years, the Congressional Budget Office estimated.
But Lopes, the PCMA spokesperson, contends the bill “fundamentally misconstrues the role of pharmacy benefit companies and unfairly proposes to take away employers’ choice and flexibility in how they construct their pharmacy benefits to best fit the needs of their patient populations.”
The Modernizing and Ensuring PBM Accountability (MEPA) Act was approved by the Senate Finance Committee in July. According to a Finance Committee aide, a version based on the chairman’s mark could be introduced as early as this week.
Outside of Congress, the Federal Trade Commission (FTC) is conducting an inquiry into PBMs and their impact on prescription drug access. In July, the FTC issued a statement cautioning against reliance on prior materials from the agency that opposed PBM transparency requirements.
The FTC said those older statements and studies “no longer reflect current market realities.”
The lobbying battle over PBM reform
This mounting attention on PBMs has spurred a massive PR campaign to sway public perception both for and against the industry.
The national trade association representing PBMs is spending more money than ever on federal lobbying and hired two new lobbying firms this summer to advocate for the industry.
The PCMA spent $6.2 million on federal lobbying in the first half of 2023, on pace to blow past the $8.7 million it spent on federal lobbying in all of 2022, according to disclosures analyzed by the money-in-politics research group OpenSecrets.
The PCMA spent $3.4 million in the second quarter alone, the most it’s ever spent on federal lobbying in a single quarter.
“Pharmacy benefit companies are lowering drug costs by $148 billion annually while providing employers, unions, states, and others a variety of coverage choices and flexibility that help them provide affordable, quality Rx coverage,” Lopes said, noting that targeting PBMs puts that value “at risk.”
In a statement issued Monday in response to the Oversight hearing, the group sought to refocus the blame for high drug prices back onto manufacturers.
“Fierce competition in the generic market is what drives down prices,” the PCMA said.
During last week’s hearing, Dr. Rena Conti, a health care economist and associate professor in the Questrom School of Business at Boston University, also pointed out that “Drug prices are set high in the United States because, simply, drug manufacturers can charge them, and we will pay them.”
Why drugmakers are fighting back
The influential trade association representing those manufacturers, Pharmaceutical Research and Manufacturers of America (PhRMA), has been doggedly going after PBMs.
PhRMA is consistently among the top five organizations spending the most money on federal lobbying, and it spent $14.5 million in the first six months of 2023 lobbying on a range of issues, including the Pharmacy Benefit Manager Transparency Act.
The pharmaceutical industry is itself navigating a changing landscape as the Centers for Medicare & Medicaid Services moves to negotiate drug prices as directed by the Inflation Reduction Act (IRA). The landmark legislation signed into law by President Biden last fall included provisions to lower prescription drug prices.
Lobbyists cited the IRA more on federal lobbying disclosures than any other bill last year, with PhRMA at the front of the pack, according to disclosures analyzed by OpenSecrets.
“If you look at the IRA, not only did it give government bureaucrats a lot of power to make political decisions over what medicines people can get now and in the future, it did nothing to address the abuses in the PBM market that we're talking about today,” Nick McGee, deputy vice president of public affairs at PhRMA, told The Hill in a phone interview.
The passage of the IRA was a huge blow to PhRMA, which has gone through its in-house lobbying transitions over the past year. Last week, the industry group named Steve Tilton, the top lobbyist at Takeda and a former two-time PhRMA vice president, as its new senior vice president of federal advocacy.
“We can't address the issues of patient affordability if we're not addressing the abuses in the PBM system, and so that's going to continue to be a priority for us,” McGee said.
PBMs face fire from doctors, AARP
It’s not just the pharmaceutical industry going after PBMs.
The AARP, which supported the IRA drug price provisions opposed by PhRMA, has also backed several PBM reform bills. In August, the organization sent letters endorsing the PBM Transparency Act, Modernizing and Ensuring PBM Accountability Act and Patients Before Middleman (PBM) Act.
"Lowering drug prices cannot be done in a vacuum. As AARP continues the fight to hold drug companies accountable for price gouging older Americans, we also support bipartisan efforts that work to correct behavior in the entire prescription drug supply chain," Bill Sweeney, AARP senior vice president for government affairs, told The Hill in a written statement.
"The PBM Transparency Act, as well as other pending drug price reform bills, will help lower costs for consumers," he said.
The American Medical Association also sent a letter to Cantwell and Grassley in March supporting the PBM Transparency Act and the Prescription Pricing for the People Act.
The American Pharmacists Association, National Association of Manufacturers and a host of other organizations and public figures have voiced support for some congressional PBM reforms.
Physicians say the presence of PBMs threatens the “sanctity” of the doctor-patient relationship.
“The PBMs, I just don't see them producing anything. They only produce red tape and bureaucracy," said Levin from ATAP told The Hill.
Levin, who has practiced medicine for 35 years, can recall what the health care space was like before PBMs became commonplace and says their growth has been accompanied by “more frustration, more obstacles, roadblocks.”
This story was updated at 10:41 a.m.