Pharma manufacturers may be breathing a sigh of relief as PBMs appear now to be the main focus of lawmakers’ actions on prescription drug pricing. January saw the reintroduction of two pieces of bipartisan Senate legislation, while February brought a Senate hearing focused on PBMs’ transparency and accountability. And in March, Rep. James Comer (R-Ky.), chairman of the House Committee on Oversight and Reform, revealed that he is launching an investigation into those practices. The moves continue to keep pressure on the entities over some of their practices and lack of transparency amid concerns around drug prices.
Comer’s move comes more than a year after that committee held a forum titled Reviewing the Role of Pharmacy Benefit Managers in Pharmaceutical Markets. Held Nov. 17, 2021, that event featured a variety of stakeholders within the health care system who spoke about an array of issues, including PBM consolidation, “anticompetitive tactics,” rebates, the need for transparency and PBMs’ role in drug costs. That December, the committee published a report conducted by its staffers on these practices and other issues titled A View from Congress: The Role of Pharmacy Benefit Managers in Pharmaceutical Markets.
“Americans spend more on prescription drugs than any other country and they pay more out-of-pocket for prescription drugs than hospital care or health insurance. The cost of prescription drugs is still rising as it has consistently over the past decade, placing an ever-increasing financial strain on many Americans,” concluded the report. “Yet, instead of taking a holistic approach to investigating the causes of this continual rise, House Democrats have chosen to attack pharmaceutical companies that have brought innovative and life-saving medications to market, including three incredibly successful COVID-19 vaccines.”
The forum, the authors said, found that “PBMs’ anticompetitive tactics are driving up prescription drug costs and harming patients. These ongoing tactics warrant greater transparency into this industry and congressional action to provide meaningful reform to drive down prescription drug costs. While Democrats are unwilling to take action to address these concerns, there are several Republican proposals in the House and Senate that could provide real relief to millions of Americans struggling with the costs of their prescription drugs.”
On March 1, 2023, Comer sent letters to senior officials at the Office of Personnel Management (OPM), Defense Health Agency (DHA) and CMS, as well as to the three largest PBMs — Cigna Corp.’s Express Scripts, CVS Health Corp.’s Caremark and UnitedHealth Group’s Optum Rx — requesting a trove of documents and communications.
PBMs’ “anticompetitive tactics are driving up health care costs for Americans and harming patient care,” said Comer in a statement about the investigation. “Federal agencies administering health care programs for seniors, active-duty military, and federal employees rely on PBMs as middlemen to set drug prices, which opens the door to government waste at the expense of American taxpayers. Greater transparency in the PBM industry is vital to determine the impact that their tactics are having on patients, the pharmaceutical market, and health care programs administered by the federal government.”
The letters requested the information by March 15 and cc’d Rep. Jamie Raskin (D-Md.), a ranking member of the committee. All of them noted that the committee is “the principal oversight committee of the U.S. House of Representatives and has broad authority to investigate ‘any matter’ at ‘any time’ under House Rule X.”
“We refuse to ignore the harmful role that PBMs are playing in the pharmaceutical marketplace,” stated the letters to the agencies, which offered myriad examples of PBMs’ “self-benefiting practices.” “Greater transparency in the PBM industry is vital to determine the impact PBM tactics are having on patients and the pharmaceutical market.”
The letters to the agencies requested “all documents and communications” between them and the PBMs, including contracts and information on rebates, fees and recoupment of “payments made improperly to PBMs or related entities.”
The OPM letter also requested information specific to the Federal Employee Health Benefits program, the DHA letter asked for information about TRICARE, and the CMS letter asked for information about Medicare and Medicaid.
The PBM letters also contain general examples of PBMs’ “self-benefiting practices” such as direct and indirect remuneration (DIR) fees, fail-first policies and prior authorization delays. “The focus of the pharmaceutical marketplace should be on the patient,” each letter says. “Greater transparency is needed to determine the impact PBM tactics are having on patients and the pharmaceutical market.”
The three PBMs control about 80% of the market.
The letters request “all documents and communications” with respect to “formulary design and management,” pricing differences between commercial plans and government programs, rebates, specific contracts, DIR and other fees, specialty drug payment and distribution, among other things.
The letters also ask for “all documents and communications” about the PBMs’ group purchasing organizations (GPOs), including about the relationship between the entities and any conflicts of interest between them. Specifically, the Express Scripts letter seeks information concerning Ascent Health Solutions, Optum Rx’s letter requests information about Emisar Pharma Services, and the Caremark letter asks for information on Zinc Health Services.
“Pharmacy benefit companies have a proven track record of reducing prescription drug costs in federal programs, ultimately for patients and taxpayers,” said J.C. Scott, CEO of the Pharmaceutical Care Management Association (PCMA), in a statement. “While we appreciate — and share — the Committee’s concern around drug pricing and existing gaps in affordability, we strongly urge members of the committee and Congress to stay focused on real solutions that are proven to reduce prescription drug costs.”
“Increasing competition in the prescription drug market is the most effective way to lower costs — and is achievable if lawmakers hold big drug companies accountable for common and egregious abuses of the drug patent system, which block competition and keep drug prices high, and of their pricing power, which is the root cause of high drug prices,” he added.
Government Scrutiny of PBMs Is Growing
The letters come amid growing government scrutiny on PBMs from various entities. For example, on June 7, 2022, the Federal Trade Commission (FTC) revealed that it was launching an investigation of the business practices of the six largest PBMs. Then on June 16, the FTC issued a policy statement with the goal of clarifying its enforcement policy on rebates and fees that manufacturers pay to PBMs and “are not always shared with patients.” The agency — which voted 5-0 to issue the statement — said it had received complaints about the practice for many years. “These rebates and fees may shift costs and misalign incentives in a way that ultimately increases patients’ costs and stifles competition from lower-cost drugs, especially when generics and biosimilars are excluded or disfavored on formularies.”
“The investigation signals that PBMs are now in the regulatory sights of federal lawmakers and that the call for transparency in PBM practices has hit a crescendo,” Julie Lappas, an attorney with Hall, Render, Killian, Heath & Lyman, P.C., told AIS Health, a division of MMIT, at the time. “Because health plans, manufacturers and pharmacies all contract with PBMs at various points in the pharmaceutical supply chain, these stakeholders should also monitor the FTC’s actions related to PBMs, as well as the recent wave of state legislation directed at PBMs. In particular, practices related to rebate payments, pharmacy audits and clawbacks from pharmacies are now being closely scrutinized at the federal level.”
In an Oct. 21, 2022, research note, Tobin Marcus, a senior U.S. policy and politics strategist at Evercore ISI, anticipated “renewed focus on extracting savings from PBMs next year as a way to pay for other priorities. This has long been discussed in DC with little action, but we believe risks to the sector are rising into next year.”
One of those materialized on Jan. 26, when Sens. Maria Cantwell (D-Wash.) and Chuck Grassley (R-Iowa) reintroduced the bipartisan Pharmacy Benefit Manager Transparency Act of 2023 (S. 127). The bill “bans deceptive unfair pricing schemes, prohibits arbitrary claw backs of payments made to pharmacies and requires PBMs to report to the FTC how much money they make through spread pricing and pharmacy fees,” according to a committee press release.
That same day, Cantwell and Grassley also reintroduced the Prescription Pricing for the People Act of 2023 (S. 113). That legislation would require the FTC to issue a report within one year that focuses on various PBM practices and includes “policy or legislative recommendations to Congress on improving transparency, preventing anticompetitive behavior, and ensuring consumers benefit from any cost savings.”
Cantwell, who is the chair of the Senate Committee on Commerce, Science and Transportation, convened a hearing on Feb. 16 titled “Bringing Transparency and Accountability to Pharmacy Benefit Managers.” The meeting was called to address how the Pharmacy Benefit Manager Transparency Act “will bring transparency into PBM business practices and prohibit unfair or deceptive PBM conduct that drives up costs for consumers,” according to a summary of the bill.
Ryan Urgo, managing director of health policy at Avalere Health, told AIS Health at the time that the hearing and the bill on which it’s focused are part of “a broader effort by lawmakers right now to apply more scrutiny to the PBM business model and certain PBM business practices that lawmakers feel are either anticompetitive or contribute to the broader growth of drug prices.”
And those efforts are just at the federal level. According to the National Academy for State Health Policy, 135 bills focused on PBMs were proposed in 34 state legislatures across the U.S. in 2022. As of March 3, 65 bills in 28 states have been introduced in 2023.
What Will PBMs’ Responses Be?
How the PBMs respond to Comer’s request for information remains to be seen, as does whether they can respond within the 15-day window provided, which ended as this article went to press.
The request for “‘all documents and communications related to formulary design and management’ for every payer type the company serves is quite a big and expansive ask,” maintains Elan Rubinstein, Pharm. D., principal at EB Rubinstein Associates. For pharmacy benefit-covered lives in the PBMs’ commercial channels alone, MMIT Analytics data show that as of first-quarter 2023, Caremark has 41 formularies, Express Scripts has 43, and Optum Rx has 59.
And the other “requests also involve a complex response,” he tells AIS Health. “I doubt that the PBMs will be able to comply within this timeline for the all-documents response to the committee’s expansive ask. One or all may first challenge the committee’s right to this proprietary information, which will delay the responses and the committee’s work. I wonder why the committee believes it necessary to give a two-week deadline for each PBM’s response.”
Dae Lee, Pharm.D., CPBS, senior counsel and pharmacist attorney in law firm Frier Levitt’s life sciences department who co-chairs the firm’s plan sponsor practice group, says the PBMs “possibly” may challenge the committee’s right to the information, “but [it’s] not certain, as PBMs have been getting scrutinized in the recent past, and, therefore, they could be cautious when it comes to challenging the committee.”
GPOs Emisar and Ascent are based overseas, in Ireland and Switzerland, respectively. Lee tells AIS Health that these locations are “likely” to bar the committee’s access to information about them. “While I haven’t fully evaluated the legality, it is unlikely that U.S. law would apply to foreign entities. Keep in mind that those foreign rebate aggregators also have domestic entities formed in the U.S.”
One of the committee asks is for “the filing or communication of the intent to file any legal action” against the PBM or its related entities. But “PBMs often mandate an ‘arbitration’ provision in their contracts with plans and providers, and arbitration is confidential,” notes Lee.
However, as far as the request for “the filing or communication of the intent to file an application in any state or federal court to confirm any arbitration award rendered against” the PBM or its related entities, the “committee can access application to confirm arbitration as long as they are filed in courts (assuming not under seal),” he explains.
The letters ask for all rebates or fees that manufacturers and wholesalers have paid the PBMs. But Rubinstein says that “if PBMs aggregate rebates and fees across all drugs and all payer customers, for manufacturers and wholesalers, the aggregate data will tell the committee nothing useful in the absence of other data.” The way the request “is phrased does not preclude PBMs from responding in this way.”
Likewise, requested information about policies and procedures may not be very useful. “Some policy and procedure documents are public,” he points out. “If responded to at a high level, the PBMs could likely comply with this ask while disclosing very little that isn’t already public.”
According to Rubinstein, “The key outcome of this investigation would be to shed light on hidden PBM practices. Publication of findings (if not of the proprietary information provided by PBMs to the committee) would certainly keep the spotlight on PBM business practices and could underlie further regulatory or legal action. At the same time, the continued publicity may spur these PBMs to make changes to lessen the chance of regulatory or legal action. Frankly, action to avoid government action is what Lilly did yesterday [March 1] in capping insulin price to patients at $35 per month — after intense visibility of this issue, including recent government action to limit Medicare beneficiary monthly insulin out-of-pocket cost.”
“Now that the IRA [i.e., Inflation Reduction Act] has taken a pound of flesh from drugmakers, PBMs are a natural next target,” wrote Evercore’s Marcus in a March 8 research note.
Congress has focused on PBMs’ business practices for a while now but not taken action. So is there a reason to believe that this time will be different?
“In the recent past, there have been a number of PBM regulations that have been enacted by different states, as well as the Consolidated Appropriations Act, 2021,” says Lee. “I think the Congress is pushing the momentum to bring ‘transparency’ in the pharmacy benefits industry.”
“There seems to be increasing visibility to problematic PBM business methods, associated with higher drug prices to consumers, with preference for drugs with higher rebates rather than with lower net prices, and with a variety of other problems” as detailed in the letters, Rubinstein says. “This increasing visibility and pressure is going to increase, perhaps more quickly due to the committee’s actions but regardless of them. These problems are not going away until either the PBM industry fixes the more glaring of them voluntarily or until the government comes down with a heavy-handed regulatory and/or legislative fix.”
Vertical integration of the PBMs with health plans could come into play as well. “The big PBMs are part of large insurers, an industry that likely has significant lobbyist muscle,” explains Rubinstein. “Perhaps it will play out as the matter of pharmaceutical pricing has: building pressure over time with regard to drug prices and patient cost share, and pushback and delays, and more delays, then passage of the Inflation Reduction Act’s price ‘negotiation.’”
Ultimately, wrote Marcus in the March note, “despite the genuine bipartisan interest in doing something about PBMs, this has been a tough nut to crack, with a lot of headlines but not much action over the past several years. The House investigation itself doesn’t do much to move the ball forward, in our view, because the likeliest avenue for actual legislative action is a set of bipartisan proposals in the Senate, and we doubt the relevant leaders on either side of the aisle in the Senate care much what House Republicans think here. If the House actually passes some meaningful bills in this space, it could kick off bicameral conversations about a legislative compromise, but that’s a long way down the road from the initiation of this investigation.”
According to Marcus, “consensus on the Hill” is that the Pharmacy Benefit Manager Transparency Act is the “likeliest bill to move forward.” That said, “we don’t get the sense that there is much bipartisan interest in moving that bill right now, at least until the FTC investigation is complete.”
Based on conversations with his contacts on the Hill, he advised watching for a “narrower bill focused on Medicare Part D rather than the commercial market” that “could be more likely to move quickly,” although he clarified that this is “still speculative at the moment.”
“We view this all as mostly headline risk for now, but that headline risk certainly shows no sign of abating,” said Marcus. “One additional caution for investors—it is much easier for us to envision action on PBMs in a situation where Congress needs to generate some savings to pay for other health priorities, rather than just because they think it’s the right policy. So we think the risk of action could rise around an EOY [i.e., end-of-year] government funding bill, if whacking PBMs would enable the inclusion of some healthcare spending, either to fix funding cliffs or expand programs.”