Congress is taking aim at pharmacy benefit managers as lawmakers from both parties blame these drug industry middlemen for driving up Americans’ prescription costs, but competing financial interests may complicate meaningful reform.
Quick Takes
- Both Republicans and Democrats agree that pharmacy benefit managers (PBMs) need stricter regulation to lower prescription drug prices
- PBMs are accused of inflating drug costs through complex pricing schemes, limiting patient options, and harming small pharmacies
- States that eliminated “spread pricing” have saved millions in Medicaid costs
- Pharmaceutical companies and PBMs have donated significant amounts to key lawmakers investigating drug pricing
- Bipartisan legislation aims to increase transparency and prevent anti-competitive practices in the PBM industry
Bipartisan Concern Over Prescription Drug “Middlemen”
A rare sight emerged in Washington as House lawmakers from both sides of the aisle united during a recent congressional hearing to scrutinize pharmacy benefit managers (PBMs), the powerful intermediaries that negotiate drug prices between manufacturers and insurers. The House Energy and Commerce Committee examination highlighted growing concerns that these entities, rather than helping to lower costs, are actually contributing to America’s prescription drug pricing crisis through opaque business practices and industry consolidation that limits competition.
“PBMs are the pharmaceutical supply chains hidden middlemen that are driving up costs for prescription medications, delaying access to necessary treatments, adding hoops for patients to jump through, and robbing hope from patients.” – Chairman Buddy Carter (R-Ga.)
The bipartisan consensus was further emphasized by the committee’s ranking Democrat. “Republicans and Democrats agree we must rein in PBM abuses. We know how PBMs play games to pad their bottom lines at the expense of consumers,” said Representative Diana DeGette (D-Colo.). The hearing comes as multiple legislative efforts to reform the system are gaining momentum, including two bills reintroduced by Senators Chuck Grassley (R-Iowa) and Maria Cantwell (D-Wash.) specifically targeting PBM practices.
How PBMs Drive Up Drug Costs
Critics argue that PBMs employ several tactics that ultimately increase what Americans pay at the pharmacy counter. These include “spread pricing,” where PBMs charge insurance plans more than they pay pharmacies and pocket the difference; complex rebate arrangements with manufacturers that incentivize higher list prices; and steering patients toward their own affiliated pharmacies. The lack of transparency in these operations has made it difficult for employers, government programs, and consumers to understand the true costs of medications.
States that have taken action against these practices have seen substantial savings. West Virginia and North Dakota both eliminated spread pricing in their Medicaid programs and reportedly saved millions of dollars annually. Meanwhile, PBMs have consolidated into a market where just three companies – CVS Caremark, Express Scripts, and OptumRx – control approximately 80% of the prescription drug market, raising additional concerns about their outsized influence.
Follow the Money: Industry Influence on Reform Efforts
While lawmakers express outrage over high drug prices, the financial connections between Congress and the pharmaceutical industry raise questions about the potential for meaningful reform. According to reports, key committee members have received substantial campaign contributions from both PBMs and pharmaceutical manufacturers. This creates a complex political dynamic as these competing industry segments blame each other for high prescription costs while working to protect their own interests.
“The problem with PBMs begins and ends in Congress.” – Michael Cannon
Some health policy experts warn that focusing exclusively on PBM reform might divert attention from the role pharmaceutical companies play in setting high initial prices. “Drug companies seek to shift the scrutiny and blame but ultimately they are the ones who take advantage of our system to set high initial prices and then routinely increase them far faster than inflation,” noted Anthony Wright, a consumer advocate. This blame-shifting has complicated previous reform efforts, including a recent PBM reform initiative that was ultimately abandoned in Congress.
Bipartisan Legislation Taking Shape
Despite these challenges, legislation aimed at addressing PBM practices continues to advance. The Prescription Pricing for the People Act would require the Federal Trade Commission to study consolidation in the PBM industry and provide policy recommendations to Congress. Meanwhile, the PBM Transparency Act would ban deceptive pricing schemes and require PBMs to report earnings from spread pricing and pharmacy fees to federal regulators, bringing much-needed sunshine to an industry that has operated largely in the shadows.
“Iowans are fed up with the skyrocketing cost of prescription drugs and eager for Congress to act to put a stop to pharmacy benefit managers’ shady practices. These bipartisan legislative solutions will bring much-needed transparency to prescription drug pricing and ensure the federal government can effectively target the abusive practices that unfairly drive up drug costs.” – Grassley https://www.grassley.senate.gov/news/news-releases/grassley-cantwell-reintroduce-bills-to-lower-prescription-drug-prices-drive-pbm-accountability
Senator Cantwell emphasized that the legislation aims to end the era of secrecy that has allowed PBMs to manipulate prices: “For too long, Americans have been left in the dark while PBMs – the mysterious middlemen – manipulate prescription drug prices. We need to hold PBMs accountable for skyrocketing drug costs.” The potential impact is significant, with some analysts estimating that effective reforms could reduce PBM revenues by approximately $900 million annually.
