In November of 2022, we predicted a fertile post-election congressional landscape for Pharmacy Benefit Manager (PBM) practice reform. Six months into the 118th Congress, we can confirm that PBM reform has, as expected, risen to the top of the list of topics in the conversation about reducing runaway drug prices.

We noted that the Inflation Reduction Act’s (IRA) focus on pharmaceutical manufacturers ignored a key player in the pharmaceutical supply chain — the Pharmacy Benefit Manager. With lower drug prices well beyond the horizon, policymakers have shifted their attention from manufacturers to middlemen and have initiated intensive investigations, a robust hearing schedule, and heaps of legislative text.

In this alert we will highlight the major topics of the debate in Congress and provide a summary of committee efforts. We will also address recent agency action and offer our predictions for the remainder of this Congress.

Coming soon: A follow-up alert which will provide more information about pending legislation and will highlight bills worth watching.

Sustained Congressional Interest and Increased Activity

Multiple Issues of Concern

PBMs play a role in negotiating drug prices and managing prescription drug benefits on behalf of health insurance plans, employers, and government programs. This unique middleman role, combined with hefty leverage in negotiations among the players, has attracted an increasing amount of congressional scrutiny since the 116th Congress. Lately Congress has begun to home in on the nuances of the system — what some members have described as a set of “misaligned incentives.” The “incentives” could also be described as profit-making opportunities the largest PBMs have exploited as a result of their unique position in and control over the complex drug distribution system.

At the start of the 118th Congress, there was broad consensus on one area of concern — the lack of transparency into PBM business practices. Since then, policymakers on both sides of the aisle have been calling for oversight or reform in a number of other areas as well, including but not limited to vertical integration between insurers and PBMs, rebate structures, rebate aggregators, spread pricing, and patient steering.

Legislative committees in the House and Senate have already held a combined total of six evidentiary hearings featuring witnesses from across the academic, supply chain, and pharmaceutical worlds to share insights from a variety of perspectives on the problem (or problems) with the American drug pricing system. Candidly, most of the testimony — and most of the comments from members — has not been friendly to PBMs.

House Action

The House Oversight committee was first in that Chamber to assert its authority over PBMs, announcing an investigation into “PBM’s role in rising healthcare costs” on March 1. It’s important to note that House Oversight committee work runs parallel to other committees’ work, as Oversight’s role is one of fact-finding and sharing, not drafting legislation. Once its work is complete, House Oversight is expected to share the results of its investigation with the rest of the Congress, at which time its findings could form the basis for legislative proposals.

In advancing legislation aimed at reforming PBM practices, the Energy and Commerce (E&C) committee has taken the lead on the House side of the Hill.[1] Not coincidentally, two of the members who are most vocal about PBM reform sit on E&C: Reps. Buddy Carter (R-GA) and Diana Harshbarger (R-TN). Rep. Anna Eshoo (D-CA), Ranking Member of the E&C Health Subcommittee, is a leading voice in the minority. Rep. Eshoo included PBM reform language in a notable piece of mental health legislation in the 117th Congress and has continued her efforts in the 118th.

On May 17, the E&C Health Subcommittee reviewed three PBM-related bills among 17 total, unanimously advancing one, the “Providers and Payers COMPETE Act” (H.R. 3284). On May 24, the full E&C Committee held a markup session during which they considered H.R. 3284 and a compilation of provisions from 3 PBM reform bills named the “PATIENT Act of 2023” (H.R. 3561). By unanimous vote, the full E&C Committee reported both bills favorably to the full House, where they await Floor consideration.

House Committee Hearings and Markups on PBM Policy in the First Six Months of 2023:

• March 28 – E&C Health Subcommittee Hearing: “Lowering Unaffordable Costs: Examining Transparency and Competition in Health Care”

• April 26 – E&C Health Subcommittee Hearing “Lowering Unaffordable Costs: Legislative Solutions to Increase Transparency and Competition in Health Care”

• May 17 – E&C Health Subcommittee Markup

• May 23 – Oversight Committee Hearing “The Role of Pharmacy Benefit Managers in Prescription Drug Markets Part I: Self-Interest or Health Care?”

• May 24 – E&C Full Committee Markup

Senate Action

Three Senate committees have asserted jurisdiction over PBM reform and have conducted hearings: the Commerce Committee, Finance Committee, and the Health, Education, Labor, and Pensions Committee (HELP).

Commerce Chair Maria Cantwell (D-WA) and Sen. Charles Grassley (R-IA) have sponsored two PBM reform bills which are focused on but not limited to transparency. Having successfully advanced the same legislation in the last Congress, early this year they again advanced their “Prescription Pricing for the People Act of 2023” (S. 113) through the Commerce Committee.

Under the new leadership tandem of Chair Bernie Sanders (I-VT) and Ranking Member Bill Cassidy (R-LA), Senate HELP has seized a major share of the spotlight despite a delayed start, by approving a multi-pronged PBM reform package at a May 11 markup. The “Pharmacy Benefit Manager Reform Act” (S. 1339) includes limits on spread pricing, full rebate pass-throughs, and broad reporting requirements for PBMs and their affiliates.

Not to be left out, Senate Finance Committee leadership has expressed commitment to broad PBM reform, and in April they released a proposed framework which acknowledges the negative impact of PBMs on drug pricing and outlines four key challenges: misaligned incentives, lack of transparency, limited pharmacy access, and anti-competitive practices. Potential policy solutions floated from the Committee include aligning PBM compensation with lower costs, enhancing PBM accountability, ensuring meaningful savings for seniors, addressing unfair pricing practices, modernizing Medicare requirements, and increasing transparency across the drug supply chain.

On June 14, Senate Finance Chair Ron Wyden (D-OR), Ranking Member Mike Crapo (R-ID) and Senators Bob Menendez (D-NJ), Marsha Blackburn (R-TN), Jon Tester (D-MT), and Roger Marshall (R-KS) introduced a narrowly-scoped bill focused on PBM compensation in Medicare Part D called the “Patients Before Middlemen (PBM) Act,” but based on the breadth of the April framework, we expect to see additional legislation on PBM reform from Senate Finance.

Even more recently, on June 20, Senator Jon Tester (D-MT), with Senators Shelley Moore-Capito (R-WV), Sherrod Brown (D-OH), and James Lankford (R-OK) introduced the “Protect Patient Access to Pharmacies Act” (S. 2052). Their bill seeks to rein in direct and indirect remuneration fees (DIR fees) PBMs collect in Medicare Part D plans and to address tactics that prevent some community pharmacies from participating in provider networks.

Senate PBM-Related Committee Hearings & Markups This Year:

• February 16 – Commerce Committee Hearing “Bringing Transparency and Accountability to Pharmacy Benefit Managers”

• March 22 – Commerce Committee Executive Session/Markup

• March 30 – Finance Committee Hearing “Pharmacy Benefit Managers and the Prescription Drug Supply Chain: Impact on Patients and Taxpayers”

• May 10 – HELP Committee Hearing “The Need to Make Insulin Affordable for All Americans”

• May 11 – HELP Committee Executive Session/Markup

Agency Inquiry Expands

In June of 2022, in response to numerous complaints from patients and healthcare professionals, the Federal Trade Commission (FTC) began conducting its own oversight investigation of PBMs, which could lead to regulatory reform. Pursuant to the authority provided by Section 6(b) of the FTC Act, the agency announced an investigation to “scrutinize the impact of vertically integrated pharmacy benefit managers on the access and affordability of prescription drugs.” As part of its inquiry, the FTC sent compulsory process orders to CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc.

In May of this year, the agency expanded its inquiry to include two “affiliates” of major PBMs, Zinc Health Services and Ascent Health Services, and in June, the FTC brought in a third affiliate, Emisar Pharma Services. These affiliates, colloquially known as “rebate aggregators,” are Group Purchasing Organizations (GPOs), formed in recent years by PBMs in response to the Trump rebate rule. Their stated purpose is to increase cost efficiencies in rebate-gathering, but they also help further obfuscate rebate collection and pass-through data. Moreover, the fact that some of these rebate aggregators were formed as foreign corporations has drawn the attention of the FTC investigatory team, as well as several Members of Congress.

The FTC has not provided any information about when it expects to wrap up its investigation, nor has it foreshadowed any findings at this point.

Forecast

It’s still early to be making predictions on which specific provisions will become law, but it is likely that some legislation impacting PBM practices could make its way to the President’s desk before the end of this Congress. Senate Majority Leader Chuck Schumer (D-NY) reportedly wants to bring a PBM bill to the Senate Floor this year, and Senator Sanders expects that to be a “merger of a number of bills.” For his part, Rep. Brett Guthrie (R-KY), Chair of the E&C Health Subcommittee, said he wants it all: “I think there are a lot of policies we’re going to pursue, and we really hope to see a majority of this or all of it signed into law.”

An important question remains, however: whether legislative reforms can anticipate and outpace PBMs’ ever-morphing practices. Regulators are faced with the same challenge. For example, a federal rule scheduled to take effect in 2024 aimed at curtailing PBM “clawbacks” from independent pharmacies was, in recent weeks, neutered by a new payment arrangement dictated by PBMs via letter, rendering the protections toothless.[2] Putting guardrails in place to cover a large industry with proprietary and complex processes is difficult, but the level of attention is too high for regulators or legislators to turn back now.

Daniel Sjostedt contributed to this report.

[1] The Ways and Means committee has, at this point, not exercised its jurisdiction over the issue, though that committee does have authority over Medicare and Medicaid.

[2] “PBM contracts sent out to pharmacies in recent weeks get around that by lowering reimbursement fees and putting a percentage of their payments to pharmacies into a kind of escrow” said Douglas Hoey, CEO of the National Community Pharmacists Association (NCPA)