Pharmacy benefit manager reform fails to make the cut in federal funding package

By Tami Luhby, CNN

(CNN) — For a moment, it looked like Congress would actually enact reforms of controversial pharmacy benefit managers after several years of introducing bills and holding hearings.

But it was not to be. The slate of measures that would have injected more transparency into the industry and changed some of its practices were stripped from the massive bipartisan government funding package that was torpedoed by President-elect Donald Trump and billionaire Elon Musk on Wednesday.

The final, vastly slimmed-down legislation, which prevented the federal government from shuttering, was signed by President Joe Biden on Saturday.

However, the efforts to overhaul the PBM industry will likely continue next year. Trump blasted the industry at a recent news conference at Mar-a-Lago, after saying that Americans pay too much for drugs.

“We have a thing called the middleman. You know the middleman, right?” Trump said at his Florida estate. “The horrible middleman that makes more money frankly than the drug companies, and they don’t do anything except they’re a middleman. We’re going to knock out the middleman.”

Health care industry middlemen

Pharmacy benefit managers serve as middlemen between drug manufacturers and insurers, employers and governments. They negotiate rebates from pharmaceutical companies, determine which medications are covered by insurance plans and pay pharmacies. But they have raised the ire of Congress and others with their opaque practices.

The now-dead funding deal would have required PBMs to provide more information on the rebates they negotiate and retain, as well as what they pay for drugs and how much they compensate pharmacies. It would have removed the connection between the price of drugs and the compensation the PBMs receive in Medicare Part D drug plans and shifted the payment model to flat fees.

The agreement would also have required the industry to pass along all rebates to health plan sponsors, which include insurers and employers, in the commercial insurance market. It would have effectively eliminated so-called spread pricing — in which the PBMs withhold part of the payment they receive for drugs from pharmacies — in Medicaid.

The effort aimed to increase transparency and change the industry’s compensation structure, said Ross Margulies, partner at Manatt, Phelps & Phillips, a law firm specializing in health care. The concern has been that PBMs may be incentivized to prefer higher-cost drugs since they can negotiate larger rebates on them.

The PBM trade group argued the legislation would have weakened their ability to lower drug costs and could have resulted in higher premiums for senior citizens.

“This bill does nothing to lower costs, nothing to improve pharmacy access, nothing to benefit patients,” the Pharmaceutical Care Management Association said in a statement earlier this week.

But opponents of the industry said they were left disappointed by the removal of the provisions.

“PBM reform would rein in the big health insurance lobby, save taxpayers $5 billion, and throw a lifeline to the thousands of small, family-owned pharmacies that are on the brink of closure,” B. Douglas Hoey, CEO of the National Community Pharmacists Association, said in a statement Friday.

Federal Trade Commission lawsuit

Congress is not alone in trying to curb PBMs’ practices.

The Federal Trade Commission in September sued the largest PBMs — CVS Health’s Caremark Rx, Cigna’s Express Scripts and UnitedHealth Group’s Optum Rx — for allegedly inflating insulin prices. These three companies administer about 80% of all prescriptions in the US, according to the FTC.

“Millions of Americans with diabetes need insulin to survive, yet for many of these vulnerable patients, their insulin drug costs have skyrocketed over the past decade thanks in part to powerful PBMs and their greed,” Rahul Rao, deputy director of the FTC’s Bureau of Competition, said in a statement at the time, adding the agency’s action “marks an important step in fixing a broken system — a fix that could ripple beyond the insulin market and restore healthy competition to drive down drug prices for consumers.”

The industry’s trade group argued PBMs are reducing insulin costs by leveraging greater competition.

“The FTC’s action ignores significant progress PBMs have made lowering costs in the insulin market and is yet another example that the agency is running a biased investigation with predetermined anti-industry outcomes,” the association said in a statement.

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