Recently, several news stories reported on federal efforts to reform pharmacy benefit managers (PBMs) as the Senate Committee on Health, Education, Labor and Pensions schedules hearings on numerous reform bills. The National Community Pharmacists Association (NCPA) members weighed in on these bills during their 2023 Congressional Pharmacy Fly-In in April. During that event, the NCPA released the results of a poll showing voters strongly supporting PBM reform (more on this later).
That news did not surprise me, having worked on PBM reform in Minnesota while I served as interim executive director of the Minnesota Pharmacists Association (MPhA). At that time, five short years ago, there were a handful of states that had successfully passed PBM reform. Today, all 50 states have some type of PBM reform. PBM reform is well past the “tipping point” — the point at which a series of small changes or incidents becomes significant enough to cause a larger, more important change.
Data from the National Conference of State Legislatures (NCSL) Prescription Drug State Bill Tracking Database reflect this tipping point. I researched how many bills were related to “pharmacy benefit managers” in all states by year, and you can see the results in the table below.
Adam Fein, Ph.D., of Drug Channels noted in his Feb. 28, 2023, blog (see post here) that while Congress is holding hearings, it is the states that have taken control of PBM reform: “From 2017 through 2022, forty-six states have passed 133 laws focused fully or partially on PBMs.” The ramp-up in PBM reform efforts parallels continued consolidation in the PBM industry. The top three PBMs now control about 80% of the market, according to Fein.
Harmful PBM Practices
The PBM industry has long operated with little transparency or regulation. As PBMs evolved from needed prescription processors to much more, their practices that harm patients, pharmacies, and manufacturers have grown too. A good issue brief that outlines how PBM practices have evolved was done in 2015 by Applied Policy and can be accessed through the NCPA (see more here).
The NCPA groups harmful practices into these buckets:
1. Network issues
2. Patient issues
3. Pharmacy anticompetitiveness
4. Reimbursement issues
5. Coercive contracting
6. Fraud, waste, and abuse
7. Recent and pending litigation
Many PBMs have preferred or restrictive networks that require their beneficiaries to use the pharmacy of the PBM’s choice versus the pharmacy the patient would like to use. Even when pharmacies excluded from these networks are willing to accept the same terms and conditions of those within the network, they are still prohibited from participating in the network. PBMs often mandate patients’ use of PBM-owned or -affiliated pharmacies. They may still require patients to fill certain prescriptions at their own retail, mail order, or specialty pharmacy.
PBMs directly harm patients with stringent step-therapy protocols, extensive prior authorizations, pharmacy gag orders, and retroactive claim adjustments that inflate copays. Anticompetitive practices contribute to pharmacy closures, indirectly impacting patients and their care. Industry consolidation has contributed to these anticompetitive practices, which include low reimbursement (underwater, nontransparent, and outdated maximum allowable costs), DIR (direct and indirect remuneration) fees and other clawbacks, use of patient data for steering, onerous audits, and restricting where patients receive pharmacy services. Pharmacies have little to no bargaining power with the PBMs, which can lead to coercive “take it or leave it” contracting.
States Address PBM Pricing
Many states have changed how they contract with PBMs because of fraud, waste, and abuse. A good resource to understand spread pricing was created by the NCPA. The Congressional Budget Office estimates that more than $1 billion would be saved over 10 years by eliminating spread pricing in state Medicaid managed care programs. States are also instituting reverse auctions to address PBM pricing.
Looking at the “gross to net” spread overall, IQVIA’s just-released report, “The Use of Medicines in the U.S. 2023,” shows that the difference between list price (wholesaler acquisition cost, or WAC) spending and payer net spending reached $255 billion in 2022, up from $139 billion in 2017 — a nearly double increase in five years.
Finally, PBMs attempted to stall the tipping point by filing numerous lawsuits in states where early PBM reform laws were passed. Eventually the Supreme Court heard Rutledge v. Pharmaceutical Care Management Association, issuing a favorable opinion on Dec. 10, 2020, holding that federal ERISA (Employer Retirement Income Security Act) laws do not preempt states from enacting laws to address abusive practices by PBMs. This decision opened the door for further state legislative efforts to regulate PBM practices.
Poll Finds Voters Concerned
The recent NCPA poll mentioned earlier was conducted among a sample of nearly 2,000 registered voters weighted to a target sample by a number of demographics. Eighty percent of the voters surveyed were concerned that PBMs steer patients to pharmacies they own or control to maximize profit, with 78% concerned that PBMs require use of their mail-order pharmacies. Eighty percent were also concerned that PBMs keep negotiated drug discounts instead of passing them along to consumers. They also did not like the fact that PBMs have reimbursements less than the cost for pharmacies to acquire medications, and that they overcharge employer and taxpayer funded programs for medications and keep the spread.
Seventy-six percent of those surveyed said they support restrictions on patient steering, 75% say Congress should ban PBMs from penalizing patients for using pharmacies of their choice, and the same percent say Congress should require PBMs to reimburse pharmacies for at least what it costs them to purchase and dispense medications. Passing along negotiated discounts to patients is supported by 78% of voters.
Importantly, the poll shows that voters support more aggressive reforms over narrower options. As the press release for the poll states, “voters were asked to consider two plans: the first would ban patient steering; ban PBMs from excluding cheaper generic drugs in favor of more expensive brand-names; require PBMs to share rebates with patients; and require broad transparency in PBM practices. The second plan would ban spread pricing; force PBMs to share discounts with health insurance companies instead of patients; and tell government agencies how much they’re getting in discounts from drug manufacturers. Seventy-five percent of voters chose the first plan, a strong signal that Congress should focus on comprehensive reform that benefits patients directly.”
Three-fourths of the voters also favored a rule requiring PBMs to report key financial information with government regulators versus one that would require them to simply share certain information with health insurance companies and employers.
NCPA CEO Doug Hoey noted, “Voters want real transparency, public accountability, and a non-coerced choice as to where they get their prescriptions.” I agree. Finally, I was pleased at the news that in my state, Minnesota, the Department of Commerce has levied a $500,000 penalty against CVS Caremark after alleging that Caremark violated a state law prohibiting the steering of patients to pharmacies or mail-order prescription services in which Caremark had an ownership interest. It’s a great win for Minnesota patients and pharmacies. I look forward to seeing how other state and federal efforts evolve and look forward to more wins in the near future. CT
Marsha K. Millonig, B.Pharm., M.B.A., is president and CEO of Catalyst Enterprises, LLC, and an associate fellow at the University of Minnesota College of Pharmacy Center for Leading Healthcare Change. The author can be reached at mmillonig@catalystenterprises.net.