Alyssa (Lee) Kennedy, JD Anticipated May 2024, Law and Public Policy Scholar
Pharmaceutical Benefit Managers (PBMs) are companies that negotiate agreements with drug manufacturers to lower the price health insurers pay for prescriptions. They also negotiate with pharmacies to create low-cost reimbursement fees that insurers pay pharmacies for dispending prescription drugs at a certain price. By having the ability to negotiate drug prices and set reimbursement fees, PBMs wield tremendous power by acting as “middlemen” who control all the access to both health insurers and the prescription drug distribution market. Additionally, vertical integration between PBMs and other healthcare system entities, including health insurance companies and pharmacies, has allowed PBMs to be the final determiner of the drugs, their cost, and the pharmacies available to patients under a particular health plan. As such, the “middleman” business practices of PBMs have left many patients unable to afford their prescriptions, hampered medical providers’ decision-making, and caused local pharmacies to experience unfair prescription drug reimbursement rates and an inconsistent patient base. While these practices disrupt prescription accessibility and affordability in the United States (U.S.) and create poor health outcomes for patients, PBMs continue to generate tremendous profits, earning more than $315 billion a year in revenue.
PBMs’ business practices continue to remain elusive, which has allowed the industry to be lightly regulated. However, Congress is aware of this “middleman” issue and is taking legislative action to address PBMs’ anticompetitive business schemes. Currently, there is support to study these business practices to give lawmakers more information on how to effectively temper PBMs’ uncontrolled power in the healthcare system.
Senators Chuck Grassley (R-IA) and Maria Cantwell (D-WA), in a bipartisan effort to reform the PBM industry at the federal level, introduced The Prescription Pricing for the People Act (the Prescription Pricing Act), which was unanimously approved by the Judiciary Committee on July 29, 2021. One of the Act’s main provisions directs the Federal Trade Commission (FTC) to study the role of PBMs in the healthcare industry and make assessments about their anticompetitive behavior. The purpose of this study is to collect data that would inform Congress about how pharmacies and patients are impacted by PBMs’ practices and prompt further federal legislative action to regulate PBMs. Additionally, the Senators introduced the Pharmacy Benefit Manager Transparency Act of 2022 (the PBM Transparency Act), which passed the Commerce Committee in June. The PBM Transparency Act, building off the Prescription Pricing Act, enhances the FTC’s enforcement by authorizing the FTC and state attorneys general to hold PBMs accountable for their unfair and misleading practices. It also directs the FTC to report to Congress whether PBMs engage in anticompetitive formulary design or placement.
In response to both bills receiving favorable votes in their respective Senate Committees and requests from U.S. Senators to commence a study on PBMs’ business practices, the FTC unanimously voted on June 7, 2022 to issue an order under Section 6(b) of the Federal Trade Commission Act to officially investigate the business practices of PBMs. The FTC stated that it will assess the impact that vertically integrated PBMs have on both access to and affordability of prescription drugs in the U.S. The FTC will also assess specific PBM-business practices in their inquiry, including charging high fees to unaffiliated pharmacies; steering patients to using pharmacies only owned by PBMs; providing small financial reimbursements to affiliated pharmacies; and employing prior authorizations and other administrative restrictions to prevent or limit prescription drug access. Additionally, the study will evaluate the impact rebates and fees from drug manufacturers have on PBMs’ formulary design and costs of prescription drugs to health insurers and patients. Shortly after authorizing the study via the Section 6(b) order, the FTC stated that it would send “compulsory orders” to six of the largest PBMs in the U.S.—CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana, Inc.; Prime Therapeutics, LLC; and MedImpact Healthcare Systems, Inc.—to provide the FTC with information and records of their business practices.
Congress is keen to use the FTC’s report to create tailored legislation that would further regulate PBMs’ practices and provide Americans with some financial relief regarding their prescription drug purchases. Unfortunately, the FTC has yet to publish any initial findings or provide any updates on the investigation’s progress. Further, the FTC has not announced when the Commission plans to complete their inquiry into PBMs’ business practices and publish a final report.
Perturbed by the FTC’s unwillingness to commit to a deadline, Senators Grassley (R-IA 3d) and Cantwell (D-WA) , along with five other U.S. Senate colleagues, issued a letter to the FTC on October 6. 2022. The letter requests the FTC to commit to both completing the investigation and producing a final report “no later than one year from the issuance of the Section 6(b) order,” making the final deadline June 7, 2023.
So far, the FTC has not yet responded publicly to the Senators’ letter. Hopefully, the FTC will soon commit to this proposed deadline. The impetus to have the investigation and report completed in a timely manner is to stop PBMs from further increasing prescription drug costs and making medications inaccessible. The Senators specifically stated that American “consumers and taxpayers cannot afford any delay.”
It is true that Americans cannot wait much longer for prescription drug reform—prescription drug costs are already outpacing inflation. Unaffordability and inaccessibility of medication regimens has caused patients to take drastic cost-saving measures, including skipping doses, altering their dosage, or completely forgoing medication treatment. Medication non-adherence is a tremendous burden on our healthcare system—it not only negatively impacts patients’ health care outcomes, but it is also a serious financial burden, costing the U.S. healthcare system $528.4 billion a year.
For Congress to regulate PBMs’ anticompetitive business practices, it is crucial that the FTC produce a timely report to provide legislators with concrete information regarding the impact PBMs and their business practices have on the U.S. healthcare system and prescription drug inaccessibility and unaffordability. Hopefully, this bipartisan letter will push the FTC to complete their investigation and a report by June 7, 2023.