May 11, 2023

PBM Reform Act a Critical First Step in Ending PBM Abuses, Key Fiduciary Requirement Missing

The bipartisan Pharmacy Benefit Manager (PBM) Reform Act advanced out of a key congressional committee this week, paving the way for eventual floor debate of the landmark legislation. The bill has major implications for large employers’ ability to control rising drug costs and preserve employer-sponsored health benefits, a vital lifeline for nearly half of all Americans.

The marked-up bill, which was passed by the Senate Health, Education, Labor and Pensions (HELP) Committee, contains three broad provisions that employers believe are critical to PBM reform. These include:

  • Comprehensive transparency requirements that will enable employers to finally understand how PBMs are spending employer-and-employee dollars
  • Key limitations on spread pricing that will prevent PBMs from charging patients more for a drug than the PBM paid a pharmacy for the same medication
  • A mandate that PBMs pass-through 100% of manufacturer rebates, discounts and fees to employers and employees

Employers have broadly supported these reforms and view them as a critical baseline for fixing the dysfunctional prescription drug market and ensuring employee access to affordable medications.

However, a fourth requirement that is arguably the most essential for compelling changes in PBM behavior – that PBMs be held accountable as fiduciaries – was not included in the legislation. Without being legally held to the same standard as employers to act in the best interest of employees and ensure only reasonable fees are expended, PBMs will be free to continue exploiting their market power to maximize profits and drive up drug costs.

Employers and reform advocates committed to lowering prescription drug prices and increasing PBM accountability will therefore continue to demand that the fiduciary standard be included in any final legislation.

The importance of a PBM fiduciary requirement

Due to new pricing transparency laws and regulations, employers now have enhanced fiduciary obligations and more data available to help them serve as good stewards of their health care benefits and act in employees’ best interests by minimizing costs. To fulfill this obligation, employers believe the ultimate backstop to end present and future PBM industry abusive practices is to hold PBMs to the exact standard that employers face.

Without requiring PBMs to function as fiduciaries, the large companies that control much of the prescription drug market will likely continue to develop revenue-driven strategies that enable them to thwart the spirit and letter of the law.

One only needs to look at PBMs’ past behavior in drawing this conclusion. In the face of growing pressure to pass through drug rebates, PBM business models have evolved in recent years to significantly boost revenue from other sources. Chief among these are new and higher fees paid by drug manufacturers (over and above rebates), pharmacies and other supply chain entities.

PBMs also have created new middlemen – quasi-independent rebate aggregators or group purchasing organizations (GPOs) – that help enhance the opacity surrounding rebates and fee structures. This makes it more difficult for employers and manufacturers to monitor performance. Significantly, two of the three GPOs controlled by the three largest PBMs were established outside the U.S., a fact which will likely make regulatory and employer oversight even more challenging.

For too long, employers, employees and even drug manufacturers have been in the untenable position of essentially operating in the dark when it comes to drug pricing.  Strong bipartisan support exists in Congress to shine a bright light on PBM behavior and end the tricks that have allowed PBMs to enrich themselves at the expense of all other stakeholders.

PBMs must not be allowed to escape fiduciary responsibility in order to continue leveraging their market dominance to perpetuate inflated drug costs.  That’s why it is essential that Congress codify PBM’s fiduciary role.

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