Members of the Senate Finance Committee want to modernize the rules around PBM business practices to lower out-of-pocket costs and increase competition.
Senators and witnesses at today's Senate Finance Committee on PBMs took aim at PBMs for their role in what they say keeps drug prices high for consumers and for the Medicare program. Committee members want to modernize the rules around PBMs business practices to ensure that patients and taxpayers have access to affordable drugs. During a more than two-and-a-hour hearing, witnesses in their opening statements and through questions from senators from both parties addressed the role of PBMs in the drug supply chain, transparency, drug rebates, access and affordability, spread pricing, fees charged to pharmacies, and formulary placement.
This is the second committee hearing in two months to discuss PBM business practices and how to address what many say are anticompetitive practices. In February, the Senate Committee on Commerce focused on the Pharmacy Benefit Manager Transparency Act of 2023 (S.127), which is co-sponsored by Sens. Maria Cantwell (D-Wash.), chair of the Senate Committee on Commerce, Science and Transportation and Chuck Grassley (R-Iowa), ranking member of the Judiciary Committee.
Related: PBMs in the Spotlight at Senate Hearing
“It’s increasingly apparent that PBMs are using their data, their market power and their know how to keep prices high and pad the profits instead of sharing the benefits of prices, and negotiate with consumers in the Medicare program,” Finance Committee Chair Ron Wyden (D-Ore.) said at the beginning of today’s hearing. “I believe this is an industry that is going in the wrong direction. That’s having a big impact on the prices that Americans pay pharmacy counters from one end of the country to another.”
Senator Mike Crapo (R - ID) said the goal of the hearing was to identify avenues for lowering out-of-pocket costs, increasing competition, and promoting access to life-saving innovation in a fiscally responsible manner. “We have an obligation to both build on the aspects of Medicare Part D that work well, and to address access and affordability gaps where we find them. In weighing and developing policy solutions, my priority is always the patient,” he said.
In her opening statement, Robin Feldman, director of the Center for Innovation at the University of California College of the Law, said that PBMs are able to exploit their role at the center of the pharmaceutical supply chain to extract dollars and channel the system into higher priced drugs. “PBMs help decide if patients will be reimbursed and how much they will be reimbursed,” she said. “When dealing with drug companies, PBMs can offer to exclude drug companies’ competitors, or to make it more difficult for patients to get the competitors’ medicine. So as a result, patients are channeled into higher priced drugs.”
CivicaScript, a nonprofit generic drug company, submitted a letter to the Committee showing one example of how PBMs raise prices. In 2022, CivicaScript launched abiraterone 250mg, a generic oral drug used in combination to treat patients with prostate cancer, with a price of $160, with a recommended maximum price to the consumer, allowing for a pharmacy dispensing fee, is $171. The average cost of a month’s supply of abiraterone 25 0mg to Medicare Part D in 2021 was more $3,000.
CivicaScript and its health plan partners — 18 Blue Cross and Blue Shield plans and the BCBS Association plus Anthem and HCSC and two PBMs, Navitus and Emsana Rx — have attempted to work with all the major PBMs, most have not been willing to, according to the company’s letter.
The Pharmaceutical Care Management Association (PCMA), which represents PBMs, told Formulary Watch that the testimony heard today in the Senate Finance Committee largely ignored the reality that drug companies set the prices of the products they make and sell. “Members of the committee should not be derailed by drug companies actively trying to shift attention away from the prices of drugs and the solutions on the table to reign in abuses of pricing power and patents,” the organization said. “Instead, Congress should focus on solutions that actually will result in reduced costs for patients and employers, such as legislation passed by the Senate Judiciary Committee that holds big drug companies accountable for common and egregious abuses of the drug patent system, which block competition and keep drug prices high."
While PBMs provide important and much-needed services to drug companies, insurers, employers and patients, they sit in the middle of nearly every financial transaction, said Karen Van Nuys, Ph.D., executive director, Value of Life Sciences Innovation, Leonard D. Schaeffer Center for Health Policy & Economics at the University of Southern California. “This position provides them with extraordinary information access and leverage,” she said in her opening remarks. “While their size may allow them to negotiate lower drug prices, it also positions them to suppress competition and raise drug costs.”
Research at the Leonard D. Schaeffer Center for Health Policy & Economics, she said, has begun to shine a light on PBM practices. In one study, Van Nuys and her colleagues compared what Medicare paid for the most common generic drugs with what those same prescriptions would have cost cash paying members at Costco. They found that Medicare could have saved $2.6 billion in 2018 on just 184 drugs if they had been purchased without insurance at Costco.
Other research done by the Schaeffer Center found that when PBMs negotiate savings for manufacturers, they don’t always pass those along to patients and taxpayers. Van Nuys and her colleagues studied how the money flows from U.S. insulin sales between 2014 and 2018. While PBMs negotiations led to a 31% reduction in net payments to manufacturers, the total amount spent per unit of insulin barely budged. Instead, intermediaries including PBMs, were capturing those savings. In 2014, intermediaries were taking $31 out of every $100 spent on insulin. Five years later, they found that PBMs were claiming $53.
“PBMs use commercial tactics like copays, clawbacks, spread pricing and strategic formulary placement to do this,” she said. “This leads to perverse outcomes, including patient copays exceeding the cost of the drug on one in four prescriptions and plans paying on average 31% markups for generic scripts.”
Additionally, she said that PBMs motivate manufacturers to compete for formulary placement through rebates. PBMs, she said, often keep a share of the rebates, which leads them to prefer drugs with higher rebates, and manufacturers arise list prices as a result. “This form of competition pushes prices up rather than down, and formularies can end up favoring the highest not lowest cost drug.”
Van Nuys said high list prices have real consequences for patients. “Those without insurance may pay list prices directly and those with insurance may still be exposed in the deductible phase or through coinsurance payments.”
But she also said that passing rebates through to health plans creates its own problems for patients because it transfers resources from sick patients to healthy beneficiaries.
Jonathan E. Levitt, founding partner of Frier Levitt Attorneys and a frequent critic of PBMs, said the growing gap between the list price of drugs and the actual net price is due to rebates that PBMs extract from manufacturers for preferential formulary placement and tiering treatment.
But Lawton Robert Burns, Ph.D., co-director of The Roy & Diana Vagelos Program in Life Sciences & Management, Wharton School, at the University of Pennsylvania, said the industry is changing and PBMs don’t rely on rebates as much as they used.
“PBMs serve the interests of health plans and the ERISA plan sponsors who use them,” he said. “The PBMs are agents; they’re not rogue actors in the healthcare system. They exert leverage over manufacturers in terms of both the volume trading off higher volumes for lower unit cost.”
In a separate written testimony, the Employers’ Prescription for Affordable Drugs (EmployersRx), a coalition of several employer groups including the Purchaser Business Group on Health, said the system isn’t functioning as it should and regulatory oversight of the PBM industry is needed. They recommend several actions Congress should take, including increasing transparency of fees, rebates schedules, and on PBM-owned pharmacies; prohibition or limits on spread pricing; 100% pass through of rebates; and prohibition on what they call workarounds such as the creation of PBM group purchasing organization or rebate aggregators.
Levitt also discussed the use of direct and indirect renumeration (DIR) fees that pharmacies pay, which amounted to $12.6 billion in 2021. He said these are supposed to be performance fees based on adherence metrics that measure how well a pharmacy has kept a patient on the physicians prescribed drug regimen. “However, especially in the case of specialty pharmacies, PBM adherence methodologies are designed to cheat pharmacies and are shrouded in secrecy,” said. “Pharmacies are unable to audit the DIR fee calculations. PBMs provide no adherence data, and pharmacies are unable to challenge PBM out of fear of retaliation.”
And while Medicare will eliminate the DIR fees in 2024, Levitt suggested PBMs will find another way to extract more money from pharmacies, including lowering reimbursement rates.