PBM Legislation: Navigating Congressional Delays and Encouraging Progress
The current status of federal pharmacy benefit manager (PBM) legislation, the potential implementation timelines and regulatory implications, and the impact of PBM reform on various stakeholders are all explored in an AMCP 2024 session hosted by Ross Margulies, JD, MPH, Partner and Co-Chair Healthcare and Life Sciences Coverage & Reimbursement Practice at Foley Hoag LLP.
Mr Margulies identified 5 key terms necessary to understand PBM legislation:
Spread pricing; • Rebate pass-through; • Delinking; • Anti-steering; and • PBM administrative fees.
Spread pricing involves a payment arrangement between a payer and a PBM in which a set reimbursement is paid for each drug, regardless of the pharmacy used. The PBM keeps any amount charged by the pharmacy to the PBM that exceeds the agreed-upon rate as profit.
Rebate pass-through is a payment structure in which all manufacturer rebates obtained by a PBM are given directly to a client/plan sponsor or as a payment structure in which all rebates are passed directly to the consumer when they make a purchase.
Delinking is the practice of severing the link between a PBM’s compensation and the cost of a drug, such as by eliminating rebates based on price. Legislation prohibiting PBMs from paying network pharmacies less than affiliated pharmacies is known as anti-steering legislation. Finally, PBM administrative fees may come either from a manufacturer, such as REMS administration, or a client or plan, such as adherence programs.
Under the current model, PBMs may receive compensation from rebates received, spread pricing, and administrative fees based on drug prices. In a post-delinking model, PBMs may only receive compensation from bona fide service fees that are flat, at fair market value, and not contingent on the price of a drug. Mr Margulies noted that anti-steering legislation refers to proposals prohibiting a PBM from compensating a network pharmacy less than affiliated pharmacies.
PBM administrative fees are split into 2 categories: fees paid by manufacturers and fees paid by plan sponsors.
Fees paid by manufacturers can encompass negotiating and administering data use agreements, adherence and patient clinical support programs, REMS administration, operating patient hubs and call centers, medical education programs, and clinical and observational studies. On the other hand, fees paid by plan sponsors are relevant to formulary management, pharmacy network management, disease management programs, adherence programs, drug utilization reviews, claims administration, and enrollee support services.
To understand the current state of play in Congress, the speaker explained that most PB reform falls into two buckets: transparency provisions and regulation of PBM practices.
“There are a lot of bills floating around,” said Mr Margulies. “I really want to focus on 4 that I think are most likely to move. But, I don't want you to think that [these bills] are the only PBM reform bills that Congress is considering.”
Margulies outlined the 4 bills centering PBM reform currently out in federal legislation. The Lower Costs, More Transparency Act (HR 5378) was passed with a House vote of 32 to 71 in December 2023 and is a key piece of a major health care legislative package. Another key act, the Protecting Patients Against PBM Abuses Act (HR 2880), was advanced with a unanimous vote of 46 to 0 in December 2023. The Modernizing and Ensuring PBM Accountability (MEPA) Act (S 2973) won Senate finance approval with a vote of 26 to 0 in December 2023. The Pharmacy Benefit Manager Reform Act (S 1339) was approved without objection by the Senate in May 2023.
“What makes this very unique is that most of the proposals are relatively bipartisan,” said Mr Margulies. “We’re also in an election year, which means an unprecedented number of upcoming retirements in Congress. Personalities matter in Congress, and each of these bills has champions. This all creates a bubble of interesting, hard-to-predict politics. There is rarely bipartisan legislation introduced into Congress, rare that legislation gets introduced over and over again, and many of these proposals have been around for at least 5 years.”
Increased PBM reporting to plan sponsors and the Federal government is a common proposal in Federal PBM legislation. Proposals also often push PBMs not to charge a price for a drug’s ingredient cost or dispensing fee different from the amount reimbursed. Proposals show interest in preventing PBMs from passing on 100% of rebates, fees, alternative discounts, and other remuneration to plan sponsors. When it comes to delinking, PBMs could be limited to charging administrative fees that are flat and fee-based, determined to be “reasonable” or delinked from the cost of a drug. A final common proposal shared is that PBMs would be prohibited from compensating a network pharmacy less than affiliated pharmacies. “Now, what does all of this mean?” asked Mr Margulies. “How will it actually impact the industry?”
The PBM legislation may significantly affect various industries, such as PBMs, plans, manufacturers, and pharmacies. Delinking across all markets is the most concerning issue for PBMs, while policies like reducing the spread of Medicaid and increasing sponsor reporting may be more acceptable. Plans could face higher administrative fees due to eliminating certain PBM offerings, leading to fewer choices. Increased transparency could result in more informed consumers and demand different PBM options.
Enhancing bargaining power for manufacturers and dismantling ties could diminish the influence of heavily discounted drugs. This could benefit biosimilar manufacturers, and the redistribution of rebates could change current formulary negotiation tactics. Removing price differentials might boost pharmacy reimbursements, and an emphasis on associated pharmacies could disrupt current negotiations within pharmacy networks.
Stakeholders predicted that 2023 would end with HR 5378, HR 2880, S 2973, and S 1139 becoming an “end-of-year” health care transparency and PBM reform package. However, Congress failed to include Health Package FY24 spending due to disagreements among 10 committee members over details of the emerging health care package. Contributing to this failure was leadership’s desire to avoid an “omnibus package,” which is a combined package that could include multiple spending bills and policy provisions.
Congress may take action during “lame duck,” which is a congressional session that takes place after the presidential election. It is the furthest point from the next election, with many members retiring. During this time, votes are not as “hard” and consensus is easier to attain as Congress ties up loose ends, said the speaker.
The chances of Congress passing a PBM reform package are positive during the spring and summer periods. As a highly bipartisan package, it could help members on both sides and protect vulnerable members. Vulnerable democrats in the Senate could use the wins and republicans poised to re-take the chamber may wait until after the election.
A few recent developments could be important to the larger picture of PBM legislative reforms. On March 13, 2024, the Congressional Budget Office estimated HR 2880 would save the government a “modest” $226 million over 10 years. On March 14, 2024, Senators Wyden and Crapo sent a letter to Senate leadership “reaffirm[ing] our commitment to enact meaningful PBM reforms this Congress.” On March 15, 2024, 21 bipartisan senators sent a letter to leadership regarding an immediate need to enact PBM reforms.
On March 22, 2024, the Congressional Budget Office (CBO) estimated that addressing PBMs’ “ability to charge Medicaid more than they paid pharmacies for medications and addressing lack of transparency of drug costs” would produce $1.1 billion in savings over the next decade. This would affect cities banning spread pricing in Medicaid and requiring retail pharmacy participation in the NADAC survey.
“Very interestingly, the term PBM is not defined in federal legislation today,” said Mr Margulies.
There are nearly a dozen definitions of PBMs across PBM-related bills under consideration. On a federal level, neither the Medicare statute nor regulations currently contain a definition of a PBM or PBM services. Even the ACA PBM reporting requirements exclude a definition of PBM. On a state level, recent state efforts to adopt PBM reforms have led to several competing, and often conflicting, definitions.
“To regulate PBMs at the federal level, we also need to talk about what [a PBM is],” said Mr Margulies. “The bills we've talked about attempt to define the term PBM in legislation for the first time, which is a really interesting topic with potentially broad-reaching implications.”
Reference
Margulies R. Health care reform and the impact of PBM legislation. Presented at: AMCP 2024; April 16, 2024; New Orleans, LA.