Second Senate Committee Hearing Heaps Criticism on PBMs

Drug Topics JournalDrug Topics May 2023
Volume 167
Issue 05

Members of the United States Senate Committee on Finance want to modernize the rules around PBM business practices to lower out-of-pocket costs and increase competition.

Senators and witnesses at the March 30, 2023, United States Senate Committee on Finance hearing on pharmacy benefit managers (PBMs) took aim at PBMs for their role in what was described as keeping drug prices high for patients and for the Medicare program. Committee members want to modernize the rules around PBM business practices to ensure that patients and taxpayers have access to affordable drugs. During a hearing that lasted well over 2 hours, witnesses 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.

“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 negotiating with consumers in the Medicare program,” Sen Ron Wyden (D, Oregon), chair of the Committee on Finance, said at the beginning of the 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 [at] pharmacy counters from one end of the country to another.”

Sen Mike Crapo (R, Idaho) said the goal of the hearing was to identify avenues for lowering out-of-pocket costs, increasing competition, and promoting access to lifesaving 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 University of California College of the Law, San Francisco, said PBMs are able to exploit their role at the center of the pharmaceutical sup-ply 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 off er 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.”

The Pharmaceutical Care Management Association, which represents PBMs, told Formulary Watch® that the testimony 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.”

Although 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, PhD, executive director of the Value of Life Sciences Innovation program at the Leonard D. Schaeffer Center for Health Policy & Economics at the University of South-ern California in Los Angeles. “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.”

Researchers at the Schaeffer Center have begun to shine a light on PBM practices. In one study,1 Van Nuys and colleagues compared what Medicare paid for 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 research2 by Schaeffer Center faculty found that when PBMs negotiate savings for manufacturers, they do not always pass that along to patients and taxpayers. Van Nuys and colleagues studied how money from insulin sales in the United States fl owed between 2014 and 2018. Although PBM 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 $31.29 out of every $100 spent on insulin. Five years later, the researchers found, PBMs were claiming $53.27.3

“PBMs use commercial tactics like co-pays, clawbacks, spread pricing, and strategic formulary placement to do this,” Van Nuys said. “This leads to perverse outcomes, including patient co-pays exceeding the cost of the drug on 1 in 4 prescriptions and plans paying on average 31% markups for generic scripts.”

Additionally, PBMs motivate manufacturers to compete for formulary placement through rebates. PBMs, Van Nuys explained, often keep a share of the rebates, which causes them to prefer drugs with higher rebates, and manufacturers increase 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 added, passing rebates through to health plans essentially shifts resources from sick patients to healthy beneficiaries, which ends up causing problems for patients.

Jonathan E. Levitt, founding partner of Frier Levitt Attorneys at Law 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. Levitt also discussed the use of direct and indirect remuneration (DIR) fees that pharmacies pay, which amounted to $12.6 billion in 2021. According to Levitt, these are supposed to be performance fees based on adherence metrics that measure how well a pharmacy has kept a patient on the physician’s prescribed drug regimen.

“However, especially in the case of specialty pharmacies, PBM adherence methodologies are designed to cheat pharmacies and are shrouded in secrecy,” Levitt said. “Pharmacies are unable to audit the DIR fee calculations. PBMs provide no adherence data, and pharmacies are unable to challenge PBMs out of fear of retaliation.” And although Medicare will eliminate DIR fees in 2024, Levitt suggested PBMs will find another way to extract more money from pharmacies, including lowering reimbursement rates.

Lawton Robert Burns, PhD, codirector of the Roy and Diana Vagelos Program in Life Sciences and Management at the University of Pennsylvania in Philadelphia, said the industry is changing and PBMs no longer rely as much on rebates. “PBMs serve the interests of health plans and the ERISA [Employee Retirement Income Security Act of 1974] plan sponsors who use them,” Burns said. “The PBMs are agents; they’re not rogue actors in the health care system. They exert leverage over manufacturers in terms of both the volume trading offhigher volumes for lower unit cost.”

In 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 is not functioning as it should and regulatory oversight of the PBM industry is needed. They recommend several actions for Congress to take, including increasing transparency of fees and rebate schedules, prohibition or limits on spread pricing, 100% pass-through of rebates; and prohibition on what they call work-arounds such as the creation of PBM group purchasing organization or rebate aggregators.

This article originally appeared on and has been lightly edited.

  1. CivicaScript announces launch of its first product, creating significant patient savings. News release. CivicaScript. August 2, 2022. Accessed April 5, 2023.
  2. Trish E, Gascue L, Ribero R, Van Nuys K, Joyce G. Comparison of spending on common generic drugs by Medicare vs Costco members. JAMA Intern Med. 2021;181(10):1414-1416. doi:10.1001/jamainternmed.2021.3366
  3. Van Nuys K. Testimony on pharmacy benefit managers and the prescription drug supply chain. USC Leonard D. Schaeffer Center for Health Policy and Economics. March 30, 2023. Accessed April 5, 2023.
  4. Van Nuys K, Ribero R, Ryan M, Sood N. Estimation of the share of net expenditures on insulin captured by US manufacturers, wholesalers, pharmacy benefit managers, pharmacies, and health plans from 2014 to 2018. JAMA Health Forum. 2021;2(11):e213409. doi:10.1001/jamahealthforum.2021.3409
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