How PBM legislation would transform the industry

Modern Healthcare

The pharmacy benefit manager industry could look a lot different soon if Congress follows through with bipartisan efforts to pass bills governing the sector.

PBMs such as CVS Caremark, Express Scripts and OptumRx would face new transparency requirements that would give health insurance companies, employers, customers and regulators new insights into how they negotiate prices for prescription medicines—and how much of the savings they generate find their way to patients and plan sponsors. Pending legislation also would prohibit lucrative practices such as spread pricing.

Related in Modern Healthcare: Congress is taking aim at PBMs. Here's why and what happens next.

If Congress surmounts its protracted efforts to fund the federal government for the remainder of fiscal 2024 and to reauthorize key programs, a handful of PBM measures could see action in 2024. One bill, the Lower Costs, More Transparency Act of 2023, passed the House 320-71 last month.

Less than two years after Congress and President Joe Biden enacted policies targeting drugmakers, their attention to pharmaceutical prices has moved on to the PBM industry, which has played an increasingly large role in the healthcare system over the decades. CVS Health subsidiary CVS Caremark, Cigna subsidiary Express Scripts and UnitedHealth Group subsidiary OptumRx dominate the sector and are key examples of how consolidation and vertical integration have transformed the healthcare system.

Under the bills Congress is considering, PBMs would be required to disclose drug rebates and discounts and to scale back business practices, including spread pricing. This could diminish PBM profits and force companies to rethink how they generate value for clients.

Any shake up within the sector could open the door for smaller PBMs to compete with CVS Caremark, Express Scripts and OptumRx, which held a combined 80% combined market share in 2022, according to the Drug Channels Institute.

CVS Caremark and Express Scripts did not respond to interview requests. OptumRx deferred to the Pharmaceutical Care Management Association, a PBM trade group.

"The impact to all PBMs is that they're not going to get the same level of savings if their hands are tied and they're restricted from using the proven tools that they use today to lower costs," said Katie Payne, senior vice president of public affairs at PCMA.

Transparency

Insurers, employers and others that do business with pharmacy benefit managers would have access to better information enabling them to choose among competing PBMs.

“We're not trying to expose trade practices here. What we're trying to do is to have transparency," said Rep. Buddy Carter (R-Ga.), a pharmacist by training who sponsored two bills included in the Lower Costs, More Transparency Act.

If the law changes, PBMs would have to adapt, and even the reporting requirements would come at a cost.

Companies probably would need to hire staff to produce reports in the mandated format, said Karen Van Nuys, senior fellow at the University of Southern California Schaeffer Center for Health Policy and Economics.

Opponents of the reporting requirements warn that sharing PBMs’ negotiated prices with pharmaceutical companies would enable drugmakers to collude.

"Rather than everyone getting lower prices, those who have the lowest prices are able to bid their prices up,” said former Rep. Ryan Costello (R-Pa), a lobbyist who represents PCMA. “If PBMs lose negotiating power that means Big Pharma has more negotiating power. That means they don't have to give as much of a discount.”

And even something as simple as transparency can prove troublesome. For example, hospitals have been required to disclose pricing information in a standard format since 2021, but compliance has lagged over compatibility issues.

Navigating change

The consequences of new public policy would affect larger and smaller PBMs differently. Deep-pocketed companies such as CVS Caremark, Express Scripts and OptumRx likely could weather any financial struggles, Van Nuys said.

“For the ones that are vertically integrated, they have all sorts of levers that they can pull to change the way that a particular piece of legislation is going to hit them,” Van Nuys said.

If smaller PBMs take a financial hit, they may turn to deal-making to stay afloat. Some may take a page out of the major PBMs’ playbook and integrate with insurance companies, while others may look to merge with rivals.

“I don’t see any way around it. They’re going to have to consolidate or get wiped out,” said Joe Grogan, a visiting senior fellow at the USC Schaeffer Center who was director of the White House Domestic Policy Council under President Donald Trump.

In addition, some smaller PBMs are already touting a transparent business model and signing up clients looking for an alternative to the big players. That could give them a head start while traditional PBMs adjust to a new regulatory regime.

Mark Cuban effect

Traditional PBMs are already updating their business models amid emerging competition.

CVS Caremark and Express Scripts announced cost-plus drug pricing options last year akin to how the Mark Cuban Cost Plus Drug Co. sells medications for 15% more than cost, plus a pharmacy fee.

These new offerings indicate Congress is on the right path, said Rep. Brett Guthrie (R-Ky.), who chairs the Energy and Commerce Committee’s Health Subcommittee and sponsored a bill included in the House package.

“The PBM is only going to be able to charge what the market lets them charge, and if they're offering the best value, they're going to get the business,” Guthrie said.

Politics and policy

Congress has a packed agenda, but there appears to be a bipartisan and bicameral effort to rein in PBMs.

The House-approved Lower Costs, More Transparency Act would require PBMs to report how much drugmakers charge, how much in rebates PBMs collect, and their rationales for formulary placement and cost-sharing policies. The bill also would ban spread pricing—when a PBM charges more for prescriptions than they pay pharmacies and pockets the difference—in Medicaid.

The Senate is also eyeing PBMs. While senators have indicated the chamber would not simply adopt the House-passed legislation, several Senate committees have approved similar bipartisan bills. And Majority Leader Chuck Schumer (D-N.Y.) may combine PBM measures with other healthcare bills into a package this year.

“What we're trying to do is not brand anybody a bad guy [or] anybody a good guy. We want to expose the price and the cost of the system, let people make decisions and let that drive the cost,” Guthrie said.

Reporter: LAUREN BERRYMAN