Senators want more insight into PBM practices and the role they play in the healthcare ecosystem.
PBMs took center stage at a hearing on Thursday Feb. 16, 2023, where witnesses and members of the Senate Committee on Commerce discussed the role of PBMs in the healthcare ecosystem and whether they should be regulated and how. The hearing focused on the Pharmacy Benefit Manager Transparency Act of 2023 (S.127), which Sens. Maria Cantwell (D-Wash.), chair of the Senate Committee on Commerce, Science and Transportation, Chuck Grassley (R-Iowa), ranking member of the Judiciary Committee, resubmitted last month.
The bill includes several features focused on the pharmacy reimbursements, the use of rebates, and formulary design. It would require PBMs to file reports to the Federal Trade Commission (FTC) on the fees and charges to pharmacies, rebates and copay/reinsurance rates. The bill also directs the General Accounting Office to report on the role that PBMs play in the pharmaceutical supply chain, the state of competition, the use of rebates and the amount passed on to patients and payers, how PBMs structure their formularies and the use of prior authorization and step therapy.
In a statement, Pharmaceutical Care Management Association (PCMA) President and CEO JC Scott, said the bill does nothing to address high drug prices. “S. 127 fundamentally misconstrues the role of pharmacy benefit companies and unfairly proposes to take away employers’ choice and flexibility in how they construct their pharmacy benefits to best fit the needs of their patient populations,” he said.
But witness Erin Trish, Ph.D., co-director and associate professor of Pharmaceutical and Health Economics at the Schaeffer Center at the University of Southern California, said reforms are needed to improve the functioning of the pharmaceutical distribution system and ensure that this system benefits patients and drives value.
“Historically, PBMs were independent from health plans and added value by reducing prices, encouraging uptake of generics and expanding the use of mail or services” she said. “However, a wave of consolidation and other activities in the last few years have distorted behavior. Unfortunately, evidence indicates that PBMs are now leveraging their position to extract profits in ways that are detrimental to patients, payers and the drug innovation ecosystem more broadly. Perhaps one of the most well-studied issues has been the use of rebates. Rebates drive a wedge between drugs list price and its net price or the amount the manufacturer actually receives.”
And while PCMA has said payers and patients save an average of $1,040 per person per year through the efforts of PBMs, Trish said Schaeffer Center Research has shown that for every $1 increase in estimated rebates, list prices increased $1.17 between 2015 and 2018. “These rebates have grown considerably over the last decade distorting the market and raising costs for many patients at the pharmacy counter,” she said.
She cited insulin as an example, which has had a bit more transparency because of efforts in the states. “What we have seen is that over time, PBMs have, in fact, been effective at lowering the net costs that those insulin manufacturers are receiving,“ she said. “But the research that we've done showed the price patients actually pay has roughly been flat over time. What's happening is that the share of those dollars that are going to the supply chain have increased rather than going to manufacturers … the consumers themselves aren't benefiting.”
Vertical integration, Trish said, raises questions about incentives. “If you own the pharmacy, or set of pharmacies, and you want to have more favorable reimbursement terms to the pharmacies that you own, or steer the business there. That can harm the independent pharmacies that are not affiliated. And that's exactly the type of contract structure that we need more insight into to understand how this is playing out in the market.”
Trish said what’s needed is increased transparency, prohibiting tactics that feed off the current complexity, and further investigation to better understand the myriad ways the current system harms consumers and reduces innovation.
Debra Patt, M.D., Ph.D., oncologist and executive vice president of Texas Oncology, indicated that the Pharmacy Benefit Manager Transparency Act would be a good first step to bring light to some of the issues that providers and pharmacies face. “There are a lot of issues — copay accumulators, gag clauses, fail first step therapy — and transparency would be a comprehensive way forward to bring meaningful change.”
Witness Ryan Oftebro, Pharm.D., chief executive officer of Seattle-based independent pharmacy Kelley-Ross Pharmacy Group testified about the impact of the clawback programs — performance network programs, direct and indirect remuneration (DIR) fees — have on smaller pharmacies. “DIR fees are causing real harm. These fees are totally unpredictable, and make it completely impossible to run a sustainable business. We want to see PBMs regulated in the same way that everybody else in the healthcare industry is regulated.”
Casey B. Mulligan, Ph.D., professor in Economics, at the University of Chicago, at the hearing that the proposed bill could hurt smaller PBMs and eventually drive up costs for patients. He suggests the bill include an exemption for smaller businesses.
Mulligan predicts the bill as it stands would add $10 billion in aggregate to the federal deficit. “We have pharmacy companies and manufacturers who have market power,” he said. “The best way consumers are able to deal with that is to join these buyers’ clubs like they do with Costco. And now [with this bill] you’re going to undermine the one tool they’ve had to try to create some competition in that space by burdening the very companies whose job it is and who have successfully gotten lower prices for the consumers.”