New legislation would outlaw deceptive practices driving up the cost of drugs and require more transparency from middlemen in the pharmaceutical industry
WASHINGTON, D.C. – U.S. Senator Maria Cantwell (D-WA) introduced bipartisan legislation today that would empower the Federal Trade Commission (FTC) to increase drug pricing transparency and hold pharmacy benefit managers (PBMs) accountable for unfair and deceptive practices that drive up the costs of prescription drugs at the expense of Washingtonians and consumers nationwide.
The Pharmacy Benefit Manager Transparency Act of 2022 would ban unfair pricing schemes, prohibit arbitrary “clawbacks” of payments made to pharmacies, and require PBMs to report to the FTC how much money they make through spread pricing and pharmacy fees. Sen. Cantwell introduced the bill alongside U.S. Senator Chuck Grassley (R-IA).
“The increasing cost of prescription drugs has a devastating effect on the pocketbooks of American consumers,” Sen. Cantwell said. “PBMs are the middlemen in the prescription drug supply chain and it’s time for Congress to give the FTC the ability to shine a brighter light on any deceptive and abusive practices.”
PBMs were initially formed in the 1960’s to process claims and negotiate lower drug prices with manufacturers. Now, PBMs administer prescription drug plans for hundreds of millions of Americans.
Today, three PBMs control nearly 80% of the prescription drug market. They serve as middlemen, managing every aspect of the prescription drug benefits process for health insurance companies, self-insured employers, unions and government programs. They operate out of the view of regulators and consumers—setting prescription costs, deciding what drugs are covered by insurance plans and how they’re dispensed— and pocket unknown sums that might otherwise be passed along as savings to consumers and undercutting local independent pharmacies. This lack of transparency makes it impossible to fully understand if and how PBMs might be manipulating the prescription drug market to increase profits and drive up drug costs for consumers.
In Washington state, a study from the Office of the Insurance Commissioner found that six PBMs provide pharmaceutical management services to 98% of the enrollees in the state’s fully insured commercial market.
“Small pharmacies are losing money to deceptive, opaque PBM practices. Here in the San Juan Islands, all three of the pharmacies that serve the community are independent. In order to qualify for rebates, these PBM companies force us to purchase the brand-name versions of vital medications like epinephrine pens and inhalers that often cost up to three times more than the generic versions – without explanation or recourse,” said Dr. Holly Whitcomb Henry, a pharmacist at Friday Harbor Drug and the former president of both the Washington State Pharmacy Association and the National Community Pharmacists Association.
“This bill is going to shed much-needed daylight on the PBM practices that have for decades caused irreparable harm. It will help Washington’s small business pharmacies, and more importantly, our customers who deserve access to affordable medication.”
Some PBMs have been known to engage in “spread pricing,” in which a PBM charges a health insurance plan more to process a prescription than it reimburses the pharmacy and pockets the difference – the spread. For example, when a pharmacist fills a prescription, a PBM handles the process, informing the pharmacy it will be reimbursed $90. The PBM then charges the health insurance plan $100 for processing the same prescription and keeps the $10 spread. According to a recent CBO report, eliminating spread pricing in just the Medicaid program would result in approximately $900 million in savings over 10 years.
In some cases, PBMs reimburse pharmacies for less than a drug actually costs. This practice drives independent pharmacies out of business and creates pharmacy deserts, increasing costs for health plans that can result in higher premiums. PBMs can also practice unfair “clawbacks,” or retroactively rescinding reimbursement payments made to pharmacies based on arbitrary guidelines and evaluations.
The Pharmacy Benefit Manager Transparency Act of 2022 will:
- Prohibit unfair or deceptive practices.
- Block PBMs from engaging in spread pricing, unfairly reducing or clawing back drug reimbursement payments to pharmacies, and unfairly charging pharmacies more to offset federal reimbursement changes.
- Incentivize fair and transparent PBM practices.
- Provide exceptions to liability for PBMs that pass along 100% of rebates to health plans or payers and fully disclose prescription drug rebates, costs, prices, reimbursements, fees, and other information to health plans, payers, pharmacies, and federal agencies.
- Improve transparency and competition by requiring PBMs to report:
- The amount of money they obtain from spread pricing, pharmacy fees, and clawbacks.
- Any differences in the PBMs’ reimbursement rates or fees PBMs charge affiliated pharmacies and non-affiliated pharmacies.
- Whether and why they move drugs in formulary tiers to increase costs.
- Direct the FTC to report to Congress its enforcement activities and whether PBMs engage in unfair or deceptive formulary design or placement.
- Authorize the FTC and state attorneys general to enforce the bill.
- Protect whistleblowers from being fired or reprimanded for bringing violations to light.
“PBM-insurers have manipulated our complex health care system so they can set their competitors’ prices, dictate their competitors’ reimbursements, use competitors’ data to steer patients to PBM-affiliated retail, specialty and mail-order pharmacies, and limit where and what consumers can buy,” said National Community Pharmacists Association CEO B. Douglas Hoey, pharmacist, MBA. “There are plenty of PBM actions for policymakers and regulators to address in order to ease the havoc they have wreaked on patients and small business independent pharmacies. NCPA is grateful to Sens. Cantwell and Grassley for their ongoing support of PBM reform. We’re proud to endorse their latest effort, the Pharmacy Benefit Manager Transparency Act, and will work to help it advance.”
“Senator Cantwell and Senator Grassley’s critical legislation will help stop PBM abuses and bring much-needed transparency to the shroud of secrecy they operate in,” said Ted Okon, executive director of the Community Oncology Alliance. “The top PBMs use their inordinate market leverage to delay and even deny patients their cancer medications, lowball payments to pharmacists resulting in pharmacy closures, and fuel drug health care costs for all Americans. The Senators’ leadership is so critical and appreciated.”
As chair of the Senate Committee on Commerce, Science, and Transportation, Sen. Cantwell has been working to lower drug prices for American consumers. Last year, she partnered with Sen. Grassley to reintroduce legislation requiring the FTC to study the merger activity of PBMs, including possible anticompetitive behavior. Earlier this month, Sen. Cantwell spoke at a subcommittee hearing in the Commerce Committee about the need to increase transparency of PBM drug pricing practices. That video can be viewed HERE. The full text of the Pharmacy Benefit Manager Transparency Act of 2022 can be viewed HERE.