Senators aim to save Medicaid money through PBM price regulations

Federal lawmakers hope to save money for Medicaid by reining in “abusive pricing practices” of pharmacy benefit managers (PBMs).

Sen. Roger "Doc" Marshall, MD

Sen. Roger "Doc" Marshall, MD (R-Kansas), and Sen. Peter Welch (D-Vermont) have introduced the Drug Price Transparency in Medicaid Act of 2023. The legislation would save an estimated $1 billion a year by cutting “spread pricing” that PBMs use by charging Medicaid more than they pay pharmacies for a drug, according to a news release from the senators.

It’s a method the PBMs use to increase profits while pushing up costs for Medicaid and independent pharmacies struggling to stay in business, according to the lawmakers.

“Pharmaceutical industry middlemen use a variety of tricks to line their own pockets at the expense of small, independent pharmacies and senior citizens,” Marshall said in the news release. “Prohibiting PBM spread pricing will cut costs for prescription drugs relied upon by Medicaid enrollees, while simultaneously preserving access to local pharmacies that have financially struggled in recent years due to PBMs cutting them out of their share of payments.”

Marshall called Welch a partner on legislation that is pro-consumer, pro-small-business, and pro-taxpayer. The independent pharmacies supply social connections and health care, especially in rural communities, Welch said.

Sen. Peter Welch

“But PBM spread pricing is making it harder than ever for independent pharmacies to stay in business,” Welch said in the news release. “With this bill, Senator Marshall and I are taking an important step to limit abusive pricing practices, protect our independent pharmacies, and support our rural communities. I’m grateful for his partnership to advance this bipartisan legislation, and I will continue to fight to protect the health, wellbeing, and economic opportunity of Vermont’s rural communities.”

The law would require Medicaid’s payments to PBMs to be passed directly to pharmacies, excluding administrative fees. All pharmacies participating in state Medicaid programs would be required to report National Average Drug Acquisition Costs (NADAC) to increase transparency in drug pricing and ensure reimbursements to pharmacies reflect the true costs of prescription drugs, according to the senators.

In the U.S. House of Representatives, companion legislation was introduced Rep. Buddy Carter (R-Georgia) and Vincente Gonzalez (D-Texas). Along with additional sponsors in the House, the bill is endorsed by the National Community Pharmacist Association, the National Association of Specialty Pharmacy, the National Association of Chain Drug Stores, the National Grocers Association, the American Pharmacists Association, and more.

The proposed bills are the latest example of PBMs in the crosshairs of lawmakers and regulators. Earlier this year the Senate Committee on Commerce, Science and Transportation held a hearing on another act that would regulate PBMs. The House of Representatives is examining PBM business practices, and government and industry observers are awaiting possible action by the Federal Trade Commission on PBMs.

Meanwhile, the Pharmaceutical Care Management Association, a trade group for PBMs, countered that the proposed Pharmacy Benefit Manager Transparency Act of 2023 would raise prices for consumers by hurting market competition. That group this year launched an ad campaign to explain how PBMs benefit consumers.