Understanding Pharmacy Benefit Managers (PBMs) and Their Growing Controversy

Pharmacy Benefit Managers (PBMs) are companies that work as third parties between insurers and pharmacies. Their primary roles include negotiating drug prices, managing formularies (lists of covered medications), and processing prescription drug claims. While PBMs assert that they help reduce drug costs and improve patient access to medications, their practices have come under intense scrutiny at both federal and state levels. 

The Role of PBMs

PBMs play a key role in managing drug costs, ensuring public access to medications, and determining the reimbursement rates for pharmacies. They also help coordinate which drugs are covered by insurance plans and at what level, influencing the medications that patients can access. However, according to the National Association of Insurance Commissioners, PBMs are not directly involved in distributing prescription medications, unless they own a mail order pharmacy.  

Regardless, there are growing concerns that PBMs contribute to inflated drug costs and are contributing to the opioid epidemic. Critics argue that PBMs often keep a significant portion of the rebates and discounts they negotiate, leading to higher out-of-pocket costs for patients and some pharmacies claim PBMs reimbursement rates do not cover the cost of acquiring prescription drugs, causing financial strain. Since PBMs operate with a high level of secrecy, there has been a call for greater transparency into their actions from the greater public.  

Federal Legislation and Oversight 

The practices and secrecy of PBMs have sparked significant legislative activity aimed at increasing transparency and fairness in the pharmaceutical industry. Here are some key federal legislative efforts: 

• Patients Before Monopolies (PBM) Act (H.R. 10362): Introduced by Representative Diana Harshbarger (R-TN), this bill seeks to eliminate conflicts of interest by banning the common ownership of PBMs and pharmacies. Companies in violation would be required to divest their pharmacy businesses within three years. 

• Pharmacist Audit and Compensation Transparency Act (PhACT) (H.R. 10050): Sponsored by Representatives Celeste Maloy (R-UT), Raja Krishnamoorthi (D-IL), and Diana Harshbarger (R-TN), this bill directs the Secretary of Health and Human Services to investigate PBM auditing practices and recommend measures for greater transparency and fairness. 

• Pharmacists Fight Back Act (H.R. 9096): Introduced by Representatives Jake Auchincloss (D) and Diana Harshbarger (R), this legislation aims to reform PBM practices to enhance transparency and fairness in drug pricing, benefiting patients, community pharmacies, and taxpayers. 

• Pharmacy Benefit Manager Transparency Act of 2023 (S. 127): Currently under review by the Senate, this bill aims to prohibit PBMs from clawing back reimbursement payments, increasing fees, or lowering reimbursements to pharmacies in response to changes in federally funded health plans. 

• House Committee on Oversight and Accountability Investigation: On August 28, 2024, the committee sent a letter to executives of major PBMs—CVS Caremark, Express Scripts, and Optum RX—accusing them of lying under oath during Congressional testimony. The letters detailed false statements and highlighted the legal consequences for perjury, including fines and imprisonment. 
• DOJ Investigation into PBMs and the Opioid Crisis: The House of Representatives has requested the Department of Justice to investigate the role of PBMs in the opioid crisis. Representatives Earl L. “Buddy” Carter (R-GA), Raja Krishnamoorthi (D-IL), Deborah K. Ross (D-NC), and Cliff Bentz (R-OR) sent a letter to Attorney General Merrick Garland, citing reports that PBMs colluded to funnel patients toward OxyContin prescriptions in exchange for substantial rebates from pharmaceutical companies. 

State-Level Legislation 

States are also taking action to regulate PBMs and ensure fair practices: 

• New Jersey’s Patient and Provider Protection Act (S. 3842): Introduced by State Senator John McKeon (D), this bill aims to regulate PBM practices to ensure greater transparency and fairness. It requires PBMs to reimburse pharmacies at rates that cover the cost of acquiring prescription drugs and prohibits the use of misleading information to influence patients’ choice of pharmacy. 

• Alaska’s HB 226: Introduced by State Representatives Andy Josephson (D), Matt Claman (D), Zack Fields (D), Jonathan Kreiss-Tomkins (D), Ivy Spohnholz (D), Calvin Schrage (I), and Harriet Drummond (D), HB 226 aims to enhance state regulations on PBMs. Now enacted into law, this bill promotes greater transparency and benefits consumers and local pharmacies. It specifically addresses the fiduciary responsibilities of PBMs and includes provisions related to dispensing fees. 
• Since this debate has grown in popularity, 15 states have specific transparency or reporting requirements for PBMs according to the National Academy for State Health Policy (NASHP). These requirements are either as part of a broader prescription drug pricing oversight or targeting PBMs directly.  

Other Developments 

While legislation is being introduced at both federal and state levels, various agencies and organizations are also contributing to the ongoing debate: 

• American Medical Association (AMA) Report: The AMA released a new report examining the market share of PBMs. The study analyzed 2022 data from both commercial and government insurance plans. According to the report, CVS Caremark is the largest PBM in the nation, controlling 21.3% of the market, followed by Optum RX with 20.8%. The data indicates low competition among PBMs within the pharmaceutical supply chain. 

• MyMatrixx Report: MyMatrixx by Evernorth released the “Helping Heroes Fight Cancer: The Importance of Monitoring Cancer Presumptions and Managing Treatment Costs” report. This report explains how PBMs play a role in monitoring the growing trends of cancer presumptions and their impact. 
• Federal Trade Commission (FTC) Investigation: The FTC is planning to sue PBMs at UnitedHealth Group’s Optum Rx, CVS Health’s Caremark, and Cigna’s Express Scripts. According to a CNBC article, the agency argues that PBM tactics have contributed to inflated drug prices. 

Conclusion 

The role of PBMs is becoming a hot topic due to their significant influence on drug pricing, access, and perceived secrecy. Legislative efforts at both federal and state levels, along with investigations by various agencies and organizations, reflect growing nationwide concerns. These efforts aim to ensure that PBMs operate with greater transparency and fairness for both consumers and pharmacies.