On April 25, 2023, the Senate Health, Education, Labor, and Pensions Committee Chairman Bernie Sanders and Ranking Member Bill Cassidy introduced a package of legislation aimed at lowering prescription drug prices. The package includes four bills, each proposing changes that would address a different piece of the pharmaceutical supply chain. This post focuses on the Pharmacy Benefit Manager Reform Act (PBM Reform Act), which proposes to increase oversight of entities providing pharmacy benefit manager (PBM) services to group health plans and health insurance issuers (i.e., employer-based health insurance coverage).

To date, most drug pricing-related legislation that has been enacted impacts federal program beneficiaries. However, given that about 50% of Americans receive health insurance coverage through their employers and drug pricing remains top of mind for voters, Senators are turning their attention to this sector of the commercial market.

At a very high level, the PBM Reform Act proposes to (1) limit pharmacy spread pricing, (2) require pass-through of all rebates to plan sponsors, (3) require health issuers and/or PBMs to submit lengthy and detailed annual and semi-annual reports, and (4) commission a pair of studies intended to analyze PBM activities and their impact on the pharmacy supply chain as well as the impact of potential regulatory interventions. What follows is a brief run-down of this dense legislative proposal.  The committee will be marking up the bill on May 2, 2023. We expect there will be changes to these proposals as the legislative process moves forward.

Limitations on Pharmacy Spread Pricing

The PBM Reform Act seeks to ensure that the entity providing PBM services, whether it is the plan, issuer, or a PBM, does not charge the plan or its participants and beneficiaries a price for a prescription drug that is greater than the price paid by the PBM to the pharmacy.  Specifically, for plan years beginning January 1, 2025, the proposed law prohibits a group health plan or health insurance issuer offering group or individual health insurance from charging participants and beneficiaries, and a PBM providing services under such plan or coverage from charging the plan, issuer, or participants and beneficiaries, a price for a prescription drug that exceeds the price paid to the pharmacy for such drug, excluding penalties paid by the pharmacy.

Full Rebate Pass-Through to Plan

The PBM Reform Act would require that all remuneration received by a PBM from manufacturers, distributors, wholesalers, rebate aggregators, GPOs, or an associated third party or affiliate be passed-through to the plan. Specifically, for plan years beginning January 1, 2025, third-party administrators of a group health plan, an issuer offering group health insurance coverage, and/or their PBMs would be required to:

• Remit 100% of rebates, fees, alternative discounts, and other remuneration received from any applicable entity that are related to utilization of drugs under such health plan or health insurance coverage, to the group health plan; and

• Ensure that any contract entered into by such third-party administrator, health insurance issuer, or PBM with an applicable entity remit 100% of rebates, fees, alternative discounts, and other remuneration received to the third-party administrator, health insurance issuer, or PBM.

The bill would require the pass-through of any such remuneration to be timely, fully disclosed, and available for audit by the plan sponsor. The bill also would establish a statutory requirement that rebate contracts be made available for audit. However, the bill makes it clear that it does not prohibit PBMs from receiving bona fide service fees “using a fee structure not contemplated” by the bill, provided that such fees are transparent to the plans and issuers.

Annual Reports

To give you a flavor of the annual reports contemplated by the proposed bill, beginning January 1, 2025, at least annually, PBMs providing services on behalf of a covered group health plan would be required to provide a report to plan sponsors that includes:

• information collected from drug manufacturers by such entity on the total amount of copayment assistance dollars paid, or copayment cards applied that were funded by the drug manufacturer with respect to the participants and beneficiaries in such plan;

• a list of each drug covered by the plan or PBM that was billed during the reporting period, including, among other items, details regarding the number of beneficiaries for whom the drug was billed, the number of claims, the dosage prescribed and the type of dispensing channel, the wholesale acquisition cost, the total out-of-pocket spending by beneficiaries, and from drugs for which gross spending by the plan (1) exceeded $10,000 and (2) is one of the 50 prescription drugs the plan spent the most on during the reporting period, a list of other drugs in the therapeutic class, including brands, biologics, generics, and biosimilar, and if applicable, the rationale for preferred formulary placement of such drug in that therapeutic class;

• a list of each therapeutic class of drugs dispensed under the health plan during the reporting period, including total gross spending before rebates, fees, alternative discounts or other remuneration, the number of beneficiaries who filled a prescription for a drug in that class, if applicable, a description of formulary tiers and utilization management mechanisms, the total out-of-pocket spending of beneficiaries, including through copayments, coinsurance, and deductibles, and for each therapeutic class under which 3 or more drugs are included on the formulary, details regarding the amount received or expected in rebates, fees, alternative discounts or other remuneration. The total net spending on that class of drugs, and the net price per typical 30-day supply;

• total gross spending on prescription drugs by the health plan during the reporting period before rebates, fees, alternative discounts, or other remuneration;

• total amount received, or expected to be received, by the health plan, from an applicable entity, in rebates, fees, alternative discounts, and other remuneration received from any such entities, related to utilization of drug or drug spending under that health plan during the reporting period;

• total net spending on prescription drugs by the health plan during the reporting period.

• amounts paid directly or indirectly in rebates, fees, or any other type of compensation to brokers, consultants, advisors, or any other individual or firm who referred the group health plan’s business to the PBM; and

• a summary document that includes the information described above, as the Health and Human Services (HHS) Secretary determines useful for plan sponsors to choose a PBM.

A similar though slightly tailored list of information would be required of PBMs providing services to group health plans offered by small employers, and may be required of PBMs providing services to support group health insurance coverage.

Supplementary Reporting for Intracompany Prescription Drug Transactions

In addition to the annual report described above, issuers offering and/or PBMs providing services to a covered group health plan or group health insurance coverage, would be required to provide a supplementary report every 6 months to the plan sponsor that includes:

• an explanation of any benefit design parameters that encourage or require participants and beneficiaries in the plan or coverage to fill prescriptions at mail order, specialty, or retail pharmacies that are wholly or partially-owned by that issuer or PBM under such plan or coverage, including mandatory mail and specialty home delivery programs, retail and mail auto-refill programs, and copayment incentives funded by a PBM;

• the percentage of total prescriptions charged to the plan, coverage, or participants and beneficiaries in the plan or coverage, that were dispensed by mail order, specialty, or retail pharmacies that are wholly or partially-owned by the issuer or PBM; and

• a list of all drugs dispensed by such wholly or partially-owned pharmacy and charged to the plan or coverage, or participants and beneficiaries of the plan or coverage, during the applicable quarter, which such list shall include information related to amounts charged and costs of such drugs as further detailed in the bill.

This same supplementary report would be required for issuers offering plans and coverage offered by small employers and/or PBMs providing services to such plans that conduct transactions with wholly or partially-owned pharmacies.

Note that the proposed bill sets forth several parameters regarding the use and disclosure of the reports and contemplates “reasonable restrictions” on the public disclosure of the information contained in them. However, PBMs may not restrict disclosures to the Departments of Health & Human Services (HHS), Labor, Treasury, Government Accountability Office (GAO), or any other federal agency responsible for enforcement activities under the proposed law.

Report to GAO and Study by the Comptroller General of the United States

A subset of the annual reports listed above would also need to be submitted, along with any other reports requested, to the GAO, so that the Comptroller General can carry out a study and report to Congress, by January 1, 2029, a variety of information. This report would include, but not be limited to, information on pharmacy networks of group health plans, health insurance issuers, and entities providing PBM services under such group health plan or group or individual health insurance coverage, including networks that have pharmacies that are under common ownership (in whole or part) with group health plans, health insurance issuers, or entities providing PBM services or pharmacy benefit administrative services under group health plan or group  or individual health insurance coverage. Such information reported by GAO would not be permitted to include information that would allow identification of a specific individual or entity.

ASPE Study

Within one year of the enactment of the PBM Reform Act, the Assistant Secretary for Planning and Evaluation of HHS would be required to conduct a study and report to Congress on the impact on the U.S. health care market of potential regulatory changes disallowing manufacturer rebates, with a focus on the commercial market. This study will also consider the impact of making no changes.