The Role of Pharmacy Benefit Managers

This hearing aims to examine the role of Pharmacy Benefit Managers (PBMs) in the pharmaceutical supply chain.

By Virginia Piva September 12, 2024

SUBJECT: The Role of Pharmacy Benefit Managers

DATE: September 11, 2024

OVERVIEW:

The Subcommittee on the Administrative State, Regulatory Reform, and Antitrust convened to examine the role of Pharmacy Benefit Managers (PBMs) in the pharmaceutical supply chain, focusing on their impact on drug pricing, market competition, and consumer access. The hearing highlighted PBMs' role as intermediaries and raised concerns about vertical integration, lack of transparency, and their potential influence on pricing practices.

HEARING RECORDING LINK: https://judiciary.house.gov

 


 

Witnesses:

  • Dr. Anthony T. LoSasso, Professor and Chair, Department of Economics, DePaul University.

  • Dr. T. Joseph Mattingly II, Associate Professor and Vice Chair of Research, College of Pharmacy, University of Utah.

  • Dr. Richard G. Frank, Director, Health Program, Brookings Institution.

  • Dr. Karen Van Nuys, Executive Director, Value of Life Sciences Innovation, USC Schaeffer Center.

 


 

Key Themes & Highlights

Republican Concerns:

  1. Vertical Integration:
    Republicans criticized the concentration of PBMs, noting that the top three companies—CVS Caremark, Express Scripts, and OptumRx—control nearly 80% of the market. This vertical integration allows them to steer patients to their own pharmacies and influence pricing in ways that harm independent pharmacies and limit patient choice.

  2. Lack of Transparency:
    Highlighted opaque pricing practices such as spread pricing, where PBMs charge payers more than they reimburse pharmacies, and rebate retention, where savings negotiated with manufacturers are not passed to consumers. Republicans argued that these practices inflate drug prices while enriching PBMs.

  3. Impact on Independent Pharmacies:
    Republicans raised concerns that PBMs’ contracts impose reimbursement rates so low they drive independent pharmacies out of business. This reduces consumer access, particularly in rural and underserved communities.

Democratic Concerns:

  1. Consumer Protections:
    Democrats focused on the need to protect patients from PBM practices that prioritize profit over access to affordable medications. They criticized PBMs for limiting access to lower-cost generics and steering patients toward higher-priced brand-name drugs to maximize rebates.

  2. Market Competition:
    Democrats expressed concern about PBMs' monopolistic behavior, arguing that their dominance stifles competition and perpetuates high drug prices. They emphasized the need for federal intervention to address anticompetitive practices.

  3. Regulatory Oversight:
    Advocated for increased government oversight to ensure PBMs are not exploiting their market position. Democrats, however, warned against overregulation that could unintentionally increase costs for consumers.

 


 

Witness Testimonies:

  • Dr. Anthony T. LoSasso: Defended PBMs as necessary intermediaries that negotiate lower prices on behalf of insurers and employers. However, he cautioned against overregulation, warning that such efforts could unintentionally increase costs by strengthening pharmaceutical manufacturers' pricing power.

  • Dr. T. Joseph Mattingly II: Highlighted the complexity of PBMs’ roles in negotiating rebates and managing formularies. He called for more transparency in how PBMs align their practices with the interests of patients and payers.

  • Dr. Richard G. Frank: Emphasized that while PBMs initially introduced competition into the pharmaceutical supply chain, their consolidation has resulted in inefficiencies and potential anticompetitive behavior. He recommended reforms to promote competition among PBMs.

  • Dr. Karen Van Nuys: Criticized PBMs for practices that inflate drug prices and restrict access to medications. She called for increased transparency in rebate structures and greater scrutiny of vertical integration to protect consumer interests.

 


 

Contentious Points:

  • Republicans:

    • Argued that PBMs are leveraging their dominance to disadvantage smaller, independent pharmacies by imposing unsustainable reimbursement rates.

    • Emphasized that opaque pricing practices like spread pricing harm both pharmacies and consumers.

    • Called for policies that break up or limit vertical integration among PBMs to restore competition and ensure transparency.

  • Democrats:

    • Warned that efforts to overregulate PBMs could lead to unintended consequences, such as higher costs for consumers or disruptions to the supply chain.

    • Criticized PBMs for steering patients toward higher-cost medications to maximize rebates, disproportionately harming patients with chronic conditions.

    • Pushed for federal oversight to prioritize patient access and affordability, arguing that unchecked market consolidation undermines fairness in the pharmaceutical market.

 


 

Key Discussions:

  1. Rebate Practices:
    Witnesses and members debated whether PBMs’ rebate retention practices drive up drug prices by incentivizing the selection of higher-cost medications. Democrats questioned whether these rebates benefit patients or primarily enrich PBMs.

  2. Market Consolidation:
    Republicans and Democrats agreed that PBM consolidation raises antitrust concerns but disagreed on how best to address the issue. Republicans favored market-driven solutions, while Democrats called for stricter federal intervention.

  3. Transparency Mandates:
    Discussions explored the potential for legislation requiring PBMs to disclose their pricing and rebate practices. Witnesses supported transparency but warned against unintended consequences, such as pharmaceutical companies using disclosed data to justify price increases.

 


 

In-Depth Points

Statements and Interactions from Congressional Officials:

  • Chairman Thomas Massie (R-KY):
    Criticized PBMs for monopolistic practices that harm independent pharmacies and inflate drug prices. He called for urgent reforms to increase transparency and accountability in PBM operations.

  • Ranking Member J. Luis Correa (D-CA):
    Stressed the importance of balancing oversight with market stability. He highlighted the need to protect patients from predatory practices while avoiding regulatory overreach.

  • Representative Harriet Hageman (R-WY):
    Focused on the disproportionate impact of PBMs’ practices on rural and independent pharmacies, advocating for stronger protections to preserve access in underserved areas.

  • Representative Jerrold Nadler (D-NY):
    Warned that market consolidation among PBMs is part of a broader trend in the healthcare industry that threatens patient access and affordability.