The high cost of pharmaceuticals and the practices of Pharmacy Benefit Managers (PBMs) continue to attract attention. Congress, federal agencies, and elected officials in state legislatures are exploring actions to reduce drug costs for patients and overall pharmacy spending in the United States. PBMS say their buying power is used to combat high prices set by drug manufacturers and that the rebates and discounts they receive are returned to plan sponsors and ultimately translate into lower premiums. Their critics claim that in addition to being too large, their practices are anticompetitive. The top three PBMs now control 80 percent of the U.S. pharmacy benefit market.

The Federal Trade Commission’s Chair, Lina Khan, announced in June 2022 that the FTC would investigate the practices of the six largest PBMs, under a Section of the FTC Act, which authorizes it to conduct studies without a specific law enforcement purpose. Their investigation will evaluate the impact of PBM practices on competing pharmacies, payers, doctors, and patients. PBMs have been accused of harming patients by extracting rebates, ultimately raising the price that consumers pay for medicines. The more recent vertical integration with the nation’s largest health plans and their wholly owned mail order and specialty pharmacies has attracted the FTC’s attention. Last month the FTC issued additional orders to rebate aggregators, Zinc Health Services, owned by CVS; Ascent Health Services, LLC, owned by Express Scripts; Prime Therapeutics; and other PBMs to provide information. 

Ms. Khan made an interesting observation, highlighting that policy choices have shaped the state of the current PBM industry, allowing for mergers leading to market concentration and vertical integration with insurance companies. Similarly, policy choices have facilitated the acquisition of physician practices by insurance, hospital, and private equity firms. Moreover, it was policy choices that have resulted in Americans paying substantial amounts for prescription drugs whose research were initially funded by taxpayers. It is critical to recognize that these questions of commerce are democratic choices with far-reaching implications. While the FTC plays a significant role, other public entities also have the power to effect change. Advocacy and public engagement are essential to ensure public voices are heard and to uphold accountability.

Congress is weighing in. A May 10th hearing of the U.S. Senate Subcommittee on Health, Education, Labor and Pensions, chaired by Senator Bernie Sanders, brought together the CEOs of four major insulin manufacturers and the three largest PBMs. I appreciated how well-informed our Senate leaders were, the ease with which they called out the wide differences between insulin and other drug prices in the U.S. and the rest of the industrialized world, and doggedly attempted to clarify the flow of money through the PBMs. The high cost of prescription drugs for patients, particularly, the cost before having met their health plan deductible, was a primary concern of Senate leaders who have authored legislation for consideration. 

In the 2020 U.S. Supreme Court (SCOTUS) decision, Rutledge v Pharmaceutical Care Management Association, the court upheld an Arkansas law that required PBMs to pay pharmacies no less than their acquisition costs for prescription drugs. The SCOTUS opinion was that the Arkansas law was not preempted by Employee Retirement Income Security Act (ERISA), a federal law that sets standards for retirement and health benefits, because it regulates PBM payments to retail pharmacies and not employer benefit plan design. 

State legislatures, noting the SCOTUS decision, have not waited to see what actions their federal colleagues might take. A quick look at the National Academy for State Health Policy’s legislative tracker counts 137 PBM regulation bills having been introduced in 43 states. While some states such as Oklahoma and Florida have passed bills that have been into law, it’s a little too soon to fully understand the outcome of the 2023 state assemblies on employer pharmacy benefit offerings. 

The National Community Pharmacy Association, representing independent pharmacies assert that PBMs leverage their size to extract unfair contract terms and have too much influence on their business practices. They have organized an effective campaign to bring their advocacy agenda to the attention of policy makers and the public. Number one on their list is to repeal all exemptions for ERISA plans to make all PBM regulations applicable to all commercial and Medicaid managed care plans. 

ERISA is of critical importance to multi-state employers. Adherence to varying laws in every state where they have employees is an expensive and administrative nightmare. It also greatly impairs their ability to craft plan designs that best meet the needs of their workforce and enable them to manage costs. 

Join the BHC to Expand Your Knowledge
To learn more about this evolving issue, please join the BHC at our June 22nd member meeting as we examine the health policy landscape and its influence on pharmacy benefit plans for multi-state employers. Click here to register for the meeting.

James Klein President American Benefits Council	Jonalan Smith Senior Vice President Lockton Companies

Warm regards,

Louise Y. Probst,
BHC Executive Director