Healthcare legislation being hashed out on the Hill is taking aim at pharmacy benefit managers, but the policies — while potentially worthwhile — are unlikely to have more than modest effects on the cost of prescription drugs in the U.S., experts say.
Eliminating all PBM profits would only reduce total drug-related spending by “several percentage points,” since operating margins for the three biggest PBMs averaged roughly 4% of revenues last year, according to a new report from the Brookings Schaeffer Initiative on Health Policy.
Lowering spending further would require “fundamental market changes” like changing drug patent protections or the way drug prices are regulated, the report says — measures sure to face heavy opposition from pharmaceutical companies.
As the U.S. grapples with soaring drug costs, PBMs — pharmacy middlemen that administer prescription drug benefits for payers and negotiate drug prices with manufacturers — have found themselves in the crosshairs of regulatory and legislative efforts to reform the pharmacy supply chain.
Multiple congressional committees are holding hearings and considering legislation related to PBMs.
On Friday, the Republican-led House Energy and Commerce, Ways and Means and Education and the Workforce committees officially released healthcare transparency legislation also backed by some Democrat legislators.
The bill would require PBMs to give employers detailed data on prescription drug spending, including drug acquisition costs and rebate information.
Greater transparency through additional disclosures could encourage PBMs to compete more aggressively against each other, potentially reducing excessive profits, according to the Brookings report.
The Pharmaceutical Care Management Association, a lobby representing the PBM industry, argues the legislation introduced in the House on Friday would “severely undermine” PBMs’ ability to negotiate lower drug prices by publicly disclosing price concessions, “inviting drug companies to collude with their competitors to discount less deeply.”
Other PBM reforms being considered in Congress include banning the practice of spread pricing, when PBMs charge payers more than it costs a pharmacy to fill a prescription and retain the difference as profit. Additional proposals are focused on how PBMs retain a percentage of rebates paid to them by pharmaceutical companies in return for placing their drugs on the PBM’s formulary.
But restricting those practices is unlikely to save much money for payers since PBMs could move to extract revenue from them in other ways, like demanding higher administrative fees, Brookings said.
It “might even backfire by weakening PBMs’ incentives to aggressively negotiate prices,” authors and Brookings fellows Matthew Fiedler, Loren Adler and Richard Frank wrote.
Past legislation to repeal rebates would add an estimated $180 billion in costs over a decade, according to government estimates.
Despite uncertainty on whether PBM reform will lower drug costs, their clients are increasingly unhappy about a lack of transparency in contracts.
Almost three-fourths of employers surveyed by the Business Group on Health earlier this summer said they’re prioritizing requirements for more transparency in PBM pricing and contracting.
Some employers said they plan to assess the market for more transparent PBM alternatives in the next few years. Some payers have already taken steps in this direction. Earlier this month, nonprofit payer Blue Shield of California announced it was eschewing CVS Caremark in favor of a nontraditional pharmacy benefits arrangement with multiple vendors.
Physicians and watchdogs have also urged regulators to look into the vertical consolidation of PBMs with health insurers, arguing it’s an antitrust concern.
The three biggest PBMs — CVS Caremark, Express Scripts and OptumRx — control nearly 80% of the prescription drug market, and are owned by CVS, Cigna and UnitedHealth, respectively.
“The effects of less competition and more vertical integration in the PBM industry deserve regulatory scrutiny as a check against anticompetitive business practices that harm patients,” Jesse Ehrenfeld, president of the American Medical Association, said in a statement Tuesday.