Congress is considering a bill to protect patients and pharmacies from pharmacy benefit managers (PBMs), middlemen who administer drug plans and negotiate prices between pharmacies and insurance providers.
Eleven members introduced the bipartisan “PMB Reform Act” on July 10. The bill is now in the hands of the House Committee on Energy and Commerce.
PBMs have bred resentment as patients, physicians, pharmacists, and elected officials struggle with rising medical costs.
“It’s time to bust up the PBM monopoly, which has been stealing hope and health from patients for decades,” said Rep. Earl “Buddy” Carter (R-GA), in a news release. “As a pharmacist, I’ve seen how PBMs abuse patients firsthand, and believe the cure to this infectious disease is transparency, competition, and accountability, which is exactly what our bipartisan package provides.”
“For too long, pharmacy benefit managers have been allowed to operate unchecked, raising prices and preventing patients from getting the medications they depend on,” said Rep. Debbie Dingell (D-MI) in a statement. “Their harmful, aggressive tactics are only getting worse, and we must take action now to protect pharmacies and lower patient costs.”
Ban on ‘Spread Pricing’
The bill would ban ‘spread pricing’ in Medicaid by mandating a transparent system that allows pharmacies to review Medicaid reimbursements. New requirements under Medicare Part D would “delink PBM compensation from the cost of medications and increase transparency,” the release states.
The Centers for Medicare and Medicaid Services would have to “define and enforce ‘reasonable and relevant’ contract terms in Medicare Part D pharmacy contracts and enforce oversight on reported violations,” the release states.
For employer health plans, the bill requires more transparent and semiannual reporting on drug spending, rebates, and formulary determinations.
Provisions addressing PBMs were included in the 2024 federal budget package and versions of the One Big Beautiful Bill but were ultimately dropped from both pieces of legislation.
Cozy Relationships
Conflicts of interest and lack of transparency are at the heart of the PBM issue, says Jeff Stier, a senior fellow at the Consumer Choice Center.
“For nearly a decade, the debate around PBMs centered on whether, as the companies claim, they actually negotiate on behalf of insurance companies to contain medical costs for patients, or instead, because of their inherent conflict of interest by being almost entirely owned by insurance companies themselves, whether they use the power given to them by their parent insurance companies to steer patients to higher-cost drugs to earn higher rebates that go to the company,” said Stier.
“To this day, we don’t have a clear answer,” said Stier. “To know, we’ll need more transparency throughout the entire supply chain. Although there’s no magic bullet that would make prescription drug prices significantly more affordable for patients, increased transparency, followed by scrutiny, is a necessary step to shine a light on the all-too-shrouded world of drug pricing.”
Reforms vs. Price Controls
Although PBM reform has merit, lawmakers should not try to control prices, says William S. Smith, Ph.D., a senior fellow at the Boston-based Pioneer Institute.
“Without significant PBM reform that eliminates rebate contracting, the Biden and Trump price controls will cause seniors to pay more for their drugs out-of-pocket,” said Smith.
Micromanaging the Managers
Congress should not micromanage PBMs, says Jeremy Nighohosian of the Competitive Enterprise Institute (CEI). Spread pricing, for example, “is essentially just a markup: the difference between what a consumer pays and the price the seller paid,” Nighohosian wrote in a blog post for CEI.
Banning ‘spread pricing’ would be a relatively minor reform in dollar terms, says Nighohosian.
“CBO estimates that banning spread pricing in Medicaid would save less than $250 million over ten years, while Medicaid is expected to grow by more than a trillion dollars over the same period,” wrote Nighohosian. “This provision would save 0.02 percent from Medicaid’s expected growth.”
Government should leave free markets alone, says Nighohosian.
“Congress shouldn’t insert itself into complex and functioning markets,” wrote Nighohosian. “The existence of a profit margin is not evidence that a market is not working. Most would scoff at the idea that Congress should ban markups in electronics or groceries, and that rationale should also apply to pharmaceuticals as well.”
Dozens of State Reforms
While Congress continues to grapple with PBMs, Iowa and Louisiana recently joined 30 other states that had already enacted PBM legislation.
In Louisiana, House Bill 358, which would have banned ownership of a pharmacy and a PBM by the same company, failed in the Senate. Gov. Jeff Landry signed a less-ambitious measure regulating PBM transparency and competition practices, HB 264, on June 20.
Iowa Gov. Kim Reynolds signed a bill into law in June requiring PBMs to reimburse pharmacies based on average state or national drug prices instead of negotiated rates and prohibiting PBMs from favoring a specific pharmacy for filling a prescription.
“In enacting this bill into law, Iowa joins Texas, Georgia, Indiana, and Montana that this year passed similar legislation to address this important issue, along with several other states that have done this previously, bringing the total to 32 states,” Reynolds said in a statement.
Bonner Russell Cohen, Ph.D, ([email protected]) is a senior policy analyst with the Committee for a Constructive Tomorrow.
