Divisiveness characterizes our current era in American politics. In this context, it can be hard to get lawmakers on both sides of the aisle to agree on anything. However, lowering prescription drug costs seems to be a rare uniting issue. Listen to a political rally on the left or the right, and you’re likely to hear a shared desire to lower prescription drug costs.
Identifying a problem doesn’t necessarily lead to consensus on a solution. Regardless, bipartisan attention on prescription drug costs has shifted focus toward the drug supply chain over the past decade.
Recently, many states have introduced proposals to reign in prescription drug prices. These proposals have included:
- Establishing prescription drug affordability boards
- Allowing for the import of drugs from Canada
- Requiring greater transparency from drug manufacturers
At the federal level, the Biden Administration has also taken action. President Biden has enacted laws that:
- Allow Medicare to negotiate pricing on a limited number of prescription drugs
- Require drug companies to pay rebates when they increase prices on certain drugs too quickly
Amidst varying proposals and laws, common themes emerge. One common area of focus is the role of Pharmacy Benefit Managers (PBMs) in the drug supply chain. PBMs have become a key subject of debate in both state houses and Congress. Below, we dive into what PBMs do and how legislators are seeking to regulate their behavior.
What is a Pharmacy Benefit Manager?
If you have never heard of PBMs or don’t know what they do, you are not alone. PBMs work largely behind the scenes with health plans, drug manufacturers, and pharmacies. A PBM is a company that negotiates with drug manufacturers, generally on behalf of health insurers. They interact with each party in the process of buying and provisioning prescription drugs.
Because of their behind-the-scenes role, the part PBMs play in determining how much patients pay for drugs and what drugs they’re able to access isn’t always obvious. Despite this, PBMs have a massive impact on the availability and affordability of drugs.
PBMs provide value to pharmacies, insurers, and drug manufacturers. They take responsibility for the logistical morass that determines:
- What drugs are available to patients
- How they access them
- At what cost (to the patient, the plan, the pharmacy, and the manufacturer) said drugs can be accessed
In solving this puzzle, PBMs end up with significant leverage to negotiate with drug manufacturers. In theory, this leverage would allow them to lower costs for insurers and patients alike.
But PBMs are also for-profit entities, and often very successful ones. PBMs make money by:
- Receiving rebates from drug manufacturers
- Receiving payments from insurers for drugs that are higher than what the PBM pays the pharmacy to dispense that drug. This is commonly called “spread pricing”
- Charging administrative fees to the insurers they work for.
How are Lawmakers Attempting to Regulate Pharmacy Benefit Managers?
It’s clear that PBMs have a massive influence on drug distribution and affordability. Given this, it seems obvious that they would be a focus of legislative attempts to lower prescription drug costs. Hundreds of bills have been filed over the past two years with this intent. Proposals have primarily been aimed at increasing transparency into how PBMs make money. In April of 2024, two such proposals have passed. Learn more below.
Oregon HB 4149
Oregon HB 4149 became law on April 10, 2024. The new law requires PBMs to be licensed by the state. PBMs will also be subject to increased reporting requirements. The new law will also likely give state officials more latitude to investigate and penalize PBMs that violate the law.
Idaho H 596
Idaho H 596 became law on April 1, 2024. The new law ensures PBMs pass on rebates. It will also limit the use of “spread pricing” and require additional transparency from PBMs.
Many other state-level proposals have followed similar themes. Other bills seek to ban “spread pricing” or require that rebates are passed along to insurers and patients. On the federal level, legislative efforts have proposed similar reforms. Though they’ve received some bipartisan report, bills have not yet been moved forward by leadership.
The PBM industry has pushed back against these legislative proposals. They argue that rising drug prices are largely the fault of drug manufacturers.
Looking Ahead: Efforts to Regulate Pharmacy Benefit Managers
Robust action on PBMs at the federal level is not imminent. Regardless, recent reforms by the Biden Administration show that prescription drug pricing is a policy area where coalition-building and legislative success are possible. Given this, it wouldn’t be surprising to see PBM reforms included in negotiations over “must pass” defense or budget legislation.
At the state level, states that have passed PBM legislation will serve as a model for future bills. Because the PBM industry is so nationalized, legislation passed in one state could have ramifications on others.
In a time when most policy areas are unlikely to be acted on due to political polarization, prescription drug policy represents a uniquely active space. You can discover, track, and influence the development and progress of this legislation using Plural today. Create an account or book a demo!
