Experts: It Will Take More Than Government Regulation of Pharmacy Benefit Managers to Lower Drug Costs

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This year has seen a renewed push by Congress on efforts aimed at regulating the practices of pharmacy benefit managers (PBMs). Currently proposed legislation addresses issues such as the impact of PBMs on patient costs, perverse incentives favoring high-priced drugs, and a greater need for transparency. Currently, PBMs act as intermediaries, managing prescription drug claims and establishing formularies on behalf of insurers, contracting with networks of pharmacies, and negotiating rebates from drug manufacturers.¹

As the authors of a commentary recently published by The New England Journal of Medicine (NEJM) note, PBMs have a significant impact on patient premiums and out-of-pocket costs for prescription medications.

“PBMs help control costs by designing formularies that steer patients toward using lower-priced medications and by negotiating lower costs with drug manufacturers in exchange for offering preferred formulary positions for their products,” the authors wrote.1 “Rather than negotiating prices directly, PBMs typically arrange confidential rebates that are provided by manufacturers after patients fill prescriptions.”

Many drug manufacturers complain that the growing rebates they pay to PBMs are forcing them to raise list prices for their products, with a 2016 report indicating that manufacturer rebates to PBMs increased from $39.7 billion in 2012 to $89.5 billion in 2016, partially offsetting list price increases.2 On occasion, PBMs retain portions of rebates or charge fees based on drug prices, creating incentives to favor high-priced drugs.¹

“Eliminating rebates altogether might be costly if drug manufacturers didn’t lower prices enough to fully offset rebate amounts,” the commentary authors wrote in NEJM. “For example, former President Donald Trump proposed a rule that would have effectively eliminated Medicare Part D rebates, but this policy was abandoned after government economists estimated that over 10 years it would cost the federal government $196 billion, reduce out-of-pocket costs for patients by only $93 billion, and increase Part D premiums by $50 billion.”

Despite bipartisan efforts on creating a comprehensive law, some believe that reforms may only have a modest effect as a best-case scenario.

“While some PBM reforms currently being considered are worthwhile, achieving large reductions in prescription drug costs will require approaches that look beyond PBMs per se,” state the authors of a study recently published by Brookings, titled. Their suggestions include:^3,4

• Restricting PBM retention of rebates paid by drug manufacturers and use of spread pricing.
• Introducing more competition to lower profits. Currently, the market for PBM services is highly concentrated, with three firms controlling 79% of the market.
• Addressing other areas in which that causes patients challenges, such as cost-sharing and market or regulatory failures.⁴

The proposed legislation will attempt to address perverse incentives by mandating that PBMs pass along 100% of negotiated rebates to health insurance plans, potentially reducing premiums. However, the impact on manufacturer prices remains uncertain. Efforts will also focus on reporting requirements to improve transparency, requiring PBMs to submit reports on fees, formulary changes, and net reimbursement to various stakeholders.¹

Regardless of bipartisan support, the authors of the commentary in NEJM suggest that regulations may not substantially reduce patient or government spending on prescription drugs, emphasizing the need for comprehensive reforms, acknowledging challenges, and uncertainties in achieving substantial cost reductions.¹

“We believe these policies have limitations, however, and their effects would depend on how PBMs respond to their implementation,” they concluded.

References

1. Reforming Pharmacy Benefit Managers — A Review of Bipartisan Legislation. The New England Journal of Medicine. Accessed November 9, 2023.

2. Pharmacy Benefit Managers and Their Role in Drug Spending. The Commonwealth Fund. April 22, 2019. Accessed November 13, 2023. https://www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-spending

3. High drug costs: PBM reforms in Congress may have only ‘modest’ effect at best. ALM Benefits Pro. September 18, 2023. Accessed November 13, 2023. https://www.benefitspro.com/2023/09/18/high-drug-costs-pbm-reforms-in-congress-may-have-only-modest-effect-at-best/?slreturn=20231013102233

4. A brief look at current debates about pharmacy benefit managers. Brookings. September 7, 2023. Accessed November 13, 2023. https://www.brookings.edu/articles/a-brief-look-at-current-debates-about-pharmacy-benefit-managers/