PBM reform. It has finally happened

The funding legislation the House passed today that President Trump is expected to sign into law includes expansive changes to how pharmacy benefit managers (PBMs) are regulated that could usher in a whole new chapter for one of the most contentious areas of U.S. healthcare.

The PBM reform provisions of the spending bill will reach into the group purchasing organizations (GPOs), rebate aggregators and fees that critics of the sector say have obscured PBM profit-taking from the health plans and payers that hire the PBMs to manage increasingly expensive drug benefits. The PBM provisions also include new rules designed to protect the interests of independent and health-system pharmacies that are not affiliated with PBMs

The giant spending measure passed today on a 217-214 vote, and President Donald Trump signed the bill into law late this afternoon. Although the PBM reform provisions were of keen interest to a relatively small group of healthcare insiders, most of the debate about the spending package centered on the Department of Homeland Security and immigration enforcement. The bill that the PBM provisions only passed after that department’s funding was split out and extended for just two weeks.

Congress has been discussing, debating, and holding hearings about PBM reform for years. Under the Biden administration, the Federal Trade Commission launched an investigation of the industry. And President Donald Trump has taken several verbal swipes at the industry. Meanwhile, state legislatures and governors have moved ahead with PBM rules and regulations at the state level. Today’s vote and presidential signing break the yearslong logjam on federal PBM reforms, setting loose a wave of new reporting requirements, rules and oversight that many believe could fundamentally transform how prescription drugs are priced and distributed.

Reaction predictable

Reaction to the House vote and PBM reform followed the deep fault lines that have developed during the many years of elbows-out debate and scorching back-and-forth about PBMs.

“Fundamentally, we think it is a game changer,” said Joe Shields, CEO of Transparency-Rx, the trade group for smaller PBMs that have positioned themselves as being more transparent than the “big 3” — CVS Caremark, Optum Rx and Express Scripts.

The Pharmaceutical Care Management Association, the trade group for the large PBMs, shared a memo from its new communications officer, Brendan Buck, in which Buck said archly that the “pharmaceutical industry deserves serious credit for this campaign, which managed to persuade people that discounts are in fact bad, and PBM transparency, somehow, is the roadblock to falling drug prices. It’s absurd on its face. But it worked. So good for them.” Buck called on Congress to look into the ways the pharmaceutical industry blocks competition and keeps prices high: “Patent abuse, shadow pricing, direct-to-consumer advertisements, pay for delay, switching… the tactics are many.”

Tom Kraus, vice president of government relations for the American Society of Health-System Pharmacists, described the bill as “an important step in addressing abusive PBM practices that have undermined pharmacists’ abilities to deliver safe, effective care to health-system patients.

Douglas Hoey, CEO of the National Community Pharmacists Association and among the most consistent and vociferous critics of the large PBMs, thanked Congress and Trump for getting the provisions passed. “The pharmacy payment model is changing, and we’ll keep fighting to secure the best possible outcomes for independent community and long-term care pharmacies and their patients,” Hoey said in a prepared statement.

Shields said the provisions that passed today tackle the whole ecosystem that PBMs are part of and are broader than what had been included in some legislation. The change, he said, was reflective of growing criticism of vertical integration in U.S. healthcare, which was on display during aggressive questioning of healthcare CEOs at two House hearings on Jan. 22.

“The gig is up,” said Shields, in reference to vertical integration.

In addition to encompassing GPOs and rebate aggregators as entities that provide PBM services, the PBM provisions in the spending bill call for new rules governing service fees so they are bona fide service fees, Shields said. PBMs have been accused of promising to pass on rebates from manufacturers to their health plan and employer customers but effectively pulling the money back by raising fees.

In addition, the law establishes new liability for PBMs that block payers from gaining access to payment data that they are entitled to, according to Shields.

The law does not contain any bans on spreading price; an earlier version had a ban on spread pricing in the state-run Medicaid programs. Shields said disclosure requirements will counteract the lack of the ban. “They will just have to own their business model.”

In an interview today with Managed Healthcare Executive, Graus said the two most important aspects of the PBM provisions were the “delinking” provisions and rules that keep PBMs from favoring their pharmacies over unaffiliated community and health-system pharmacies. The delinking provisions will prohibit PBM compensation from being based on drug prices, which Graus says has the effect of pushing up list prices because PBMs have an incentive to negotiate large discounts and rebates, a share of which they collect as revenue. Community and some health-system pharmacies have argued that they have been deeply disadvantaged by PBM practices, such as charging them higher dispensing fees. Graus said the PBM provisions in the spending bill have language about “reasonable terms” designed to stave off some of the PBM practices. Graus said there are also provisions that require the PBMs to file reports to CMS that will reveal differences in fees and other practices between their affiliated and unaffiliated PBMs.