In recent years, drug pricing has topped the list of health policy priorities on Capitol Hill.
Whether it was the Inflation Reduction Act giving Medicare the power to negotiate certain prescription list prices or Sen. Bernie Sanders (I-Vt.) publicly castigating Moderna for considering hiking the cost of their COVID-19 vaccines, drug prices remain top of mind.
However, more and more, policymakers are shifting their focus from drugmakers to another player in the equation: the ever-evasive pharmacy benefit managers (PBMs). These entities play a complicated but critical role within the healthcare system as a whole.
PBMs are middle-of-the-distribution-chain companies that manage and define prescription drug benefits for health insurers, employers and other payers. They’re responsible for developing drug formularies of covered prescriptions for insurers, ultimately wielding sizable power over what drugs are available to patients and what the out-of-pocket costs are.
The controversy over their role goes back years and stems from PBMs’ participation in rebate negotiations with drug manufacturers.
While drugmakers set the list prices of drugs, PBMs seek higher and higher rebates, which in turn can drive up the list prices as manufacturers try to maintain profit margins.
This week, the Senate Finance Committee held a hearing that dug into the role PBMs play in drug prices. The hearing was the latest in a series of moves to hone in on PBMs and put them “in the hot seat,” as POLITICO noted.
In particular, some lawmakers seek legislation that will improve transparency among PBMs. In his opening statement at the hearing Thursday, Sen. Ron Wyden (D-Ore.) highlighted the evolution of PBMs, including their “new strategies” of “charging administrative fees tied to the price of the drug.”
“In recent years, it’s increasingly apparent that PBMs are using their data, market power and know-how to keep prices high and pad their profits instead of sharing the benefits of the prices they negotiate with consumers and the Medicare program,” Wyden said. “I believe this is an industry that is going in the wrong direction, and that’s having a big impact on the prices Americans are paying at the pharmacy counter.”
The role of PBMs continues to draw additional attention from federal lawmakers and has even spawned action at the state level.
Earlier this week, Ohio Attorney General Dave Yost filed a lawsuit against several major PBMs, including Cigna’s Express Scripts, Humana Pharmacy Solutions and Prime Therapeutics, alleging the companies were “price-fixing” and restricting the coverage of insulin and other drugs if they didn’t receive a certain rebate from a drug manufacturer.
While there has always been bipartisan support to set PBMs straight, Benedic Ippolito, a senior fellow in economic policy studies at the American Enterprise Institute, said he hadn’t seen “this level of a concerted effort until recently.”
“In the current push, there’s been this overarching question: ‘Are PBMs actually adding value or are they sucking up resources for no good reason?’” he said.
The question is difficult to answer given the highly complex relationship between PBMs, insurers and patients.
A 2020 study out of University of Southern California (USC) Schaeffer Center for Health Policy and Economics found that drug rebate increases are correlated with list price increases, which in turn drive up out-of-pocket costs for consumers.
To complicate matters even further, it’s often unclear to what extent high drug prices are driven by what the PBMs want and how much of it is what the insurers integrated with the PBMs want, Ippolito said.
Currently, there are two main aspects to the bipartisan push to scrutinize them – and both come from slightly different angles. Some lawmakers are targeting PBMs based on their purported effect on the pharmacy market and whether they’re squeezing out smaller independent pharmacies.
On the other side, plenty of lawmakers are examining PBMs and asserting they’re the root cause of dysfunctional pricing in the drug market overall. These critics question whether PBMs are pocketing too much money that should instead be directed toward lowering premiums for patients or to drugmakers.
“If you think [PBMs] are this entity that’s absorbing a bunch of money, but not producing anything valuable, that becomes an attractive target for policymakers,” Ippolito explained.
In Thursday’s hearing, Wyden pointed to PBMs’ tendencies to favor more expensive drugs in order to receive higher payments.
“In my view that’s a clear example of the perverse incentives PBMs have created that leave so many Americans fed up and outraged at the health care system in this country,” Wyden said.
For their part, Big Pharma lobbyists like PhRMA have also pointed fingers at PBMs as being the hidden source of high drug pricing while lawmakers and the general public have clamored for legislative reform.
“To some degree, PBMs have almost become the focal point around which all drug pricing problems can be directed somehow,” Ippolito said.
Finding themselves under intense scrutiny, PBMs have struck back in various ways.
Recently, trade groups that represent PBMs launched a seven-figure ad campaign aiming to counter arguments by pharma lobbying groups that they pocket savings instead of contributing those to lower premiums. PBM industry groups have also claimed that they in fact work to produce more savings for employers and consumers – though transparency around those issues has often not been ideal.
“Pharmacy benefit companies play a critical role working every day to secure savings,” the Pharmaceutical Care Management Association (PCMA), an industry lobbying group, said in a statement.
PCMA also argued that the “irreplaceable value of America’s pharmacy benefit companies” promote “solutions to increase competition as the best way to address the root cause of high drug prices.”
Ippolito noted there’s a strong argument for improving transparency when it comes to PBMs and it’s something that certainly has bipartisan backing. However, tangible pieces of legislation that get deeper than that – into “modernizing the rules of the road for PBMs,” as Wyden noted – may be much harder to whittle down.
“[This push against] PBMs brings both [parties] together and they’re all talking about the same thing, but when it comes to moving beyond transparency and writing down pieces of legislation, do enough people agree on what needs to change?” Ippolito said. “That’s a much harder piece of legislation to get passed.”
