Congress Takes Aim at PBM Business Practices 

Bipartisan legislation requiring pharmacy benefit managers (PBMs) to provide extensive reports to employers and the government on their business practices and to ban certain business practices are advancing in Congress. The outlook for these reforms is uncertain, but they could be included in a larger mental health package that both parties hope to send to President Biden this year. 

PBMs have become a target for both Democrats and Republicans in recent years as both parties seek to drive down rising drug costs. The PBM industry argues that their role is to save money for health plans, while critics contend that they drive up the list prices of prescription drugs by demanding larger rebates or discounts from drug companies, leading in turn to higher prices for plan participants.

A broad bipartisan mental health bill overwhelmingly approved by the House on June 22 (the Restoring Hope for Mental Health and Well-Being Act of 2022) includes language requiring PBMs to provide group health plans – as well as federal and state regulators – detailed reports at least every six months about copayments, rebates, discounts, net payments, costs, drugs covered and troves of other data. The PBM reforms are projected by the Congressional Budget Office (CBO) to raise slightly more than $200 million over ten years, helping to pay for a broad range of public mental health and substance use programs and to help states enforce their mental health parity laws.

CBO estimates that the PBM reporting requirements would (at least temporarily) lower private health insurance premiums, thereby reducing federal subsidies for insurance purchased through the ACA marketplaces, and shift employees’ compensation somewhat from tax-favored health coverage to taxable wages. That last change would increase federal revenues from income and payroll taxes.

Plan sponsor groups including The ERISA Industry Committee (ERIC) have backed the legislation and urged lawmakers to support the bill ahead of the House vote. In a letter to House Members, ERIC applauded the PBM provisions as providing “desperately needed transparency for employers into the costs of the prescription drugs they buy and the out-of-pocket costs experienced by their employees.”

The House package faces a must-pass deadline at the end of the fiscal year, which may motivate the other committees of jurisdiction to include the PBM changes and other parts of the legislation in their own efforts. At least four committees of jurisdiction have been working since last year on assembling sweeping legislation to address the nation’s mental health and substance abuse crises.

Also on June 22, the Senate Committee on Commerce, Science and Transportation passed bipartisan legislation (the Pharmacy Benefit Manager Transparency Act of 2022) that would prohibit certain PBM business practices, including “spread pricing,” a practice in which PBMs charge a health plan or payer more for a prescription drug than what they charged the pharmacy, creating a profit for the PBM. Some states have banned the practice. The bill also bars PBMs from reducing or rescinding reimbursements to pharmacies through fees or “claw backs,” and PBMs would be required to file reports to the Federal Trade Commission about their business practices.

A federal ban on spread pricing would have a major effect on the commercial prescription drug market, as the practice is currently used in about 90% of dispensed prescriptions. A ban could have unintended consequences, however. PBMs might try to make up any lost revenue through higher transaction fees or other contract changes.

Next steps for federal PBM legislation aren’t clear. The Senate Finance Committee and the Senate Health, Education, Labor and Pensions Committee are drafting their own mental health legislation, but whether those measures include PBM reforms like those in the Commerce Committee bill remain to be seen.

Meanwhile, the Federal Trade Commission is probing large PBMs over what effect their business models have on the accessibility and affordability of prescription drugs.