Efforts to change how PBMs conduct their activities span not only federal and state bodies but also the legislative, executive, and judicial branches. The result has been many proposals that are not necessarily well coordinated or workable.

Various PBM reform bills have been proposed in the US Congress, and it is anticipated that the House and Senate may advance bipartisan PBM reform legislation before the end of 2024. Although the specifics of a final bill are not yet known, the tone of the process has been highly critical of PBM business practices. For example, in July 2024, the House Committee on Oversight and Accountability convened a hearing for testimony from 3 top executives across the PBM community.¹ The health care leaders from Express Scripts, CVS Caremark, and Optum Rx, representing nearly 80% of the prescription market, faced sharp questions that blamed PBMs for higher prices and less patient choice. A highly negative committee report that preceded the hearing presaged the line and tenor of questioning.² On September 11, 2024, the House Judiciary Subcommittee on the Administrative State, Regulatory Reform, and Antitrust held a more balanced, fact-finding hearing with witnesses from academic and health policy organizations who had published on PBM practices and other areas of health care delivery in the scientific, peer-reviewed literature.³ The hearing probed such areas as the PBM industry’s influence on access to prescription medications and pharmaceutical pricing, and the impact of vertical integration on patients. On the state level, 26 states have passed legislation focusing on PBMs that would either prohibit or restrict the use of many utilization management tools.⁴ For example, the Illinois Health Care Protection Act of 2024 bans step therapy and regulates prior authorization for mental health treatments in fully insured health plans.⁵ A bill passed in Texas requires plans to waive prior authorization requirements for providers with a history of successful prior authorization requests, referred to as “gold carding.”⁶ A 2024 law passed in California would require PBMs to apply for a license by 2027 and would mandate that PBMs pass through all manufacturers’ rebates to health plans or insurers.⁷ This law would also restrict PBMs from steering patients to pharmacies they own, which includes the major mail-order pharmacies.⁸ Governor Gavin Newsom vetoed the law, stating that he was not certain it would have the desired effect of lowering drug prices and increasing transparency. Many state laws include licensure and reporting requirements for PBMs, requiring PBMs to report information such as aggregate rebate data, health plan clients for which they perform services, and revenue information. Overall, although several legislative efforts are well intentioned, they could ultimately raise overall plan costs by removing or limiting key tools at PBMs’ disposal to negotiate with manufacturers and encourage the use of cost-effective treatments.

State PBM laws have been challenged in the federal court system. The Pharmaceutical Care Management Association (PCMA) challenged a 2015 Arkansas law, Arkansas Act 900, that required PBMs to update their maximum allowable cost lists when drug wholesale prices increase and to provide pharmacies an administrative appeal procedure to challenge maximum allowable cost reimbursement rates, and permitted Arkansas pharmacies to refuse to sell a drug when the reimbursement rate is lower than the pharmacy’s acquisition cost.⁹ PCMA argued that the Employee Retirement Income Security Act (ERISA) preempted the state law. The case was ultimately appealed to the US Supreme Court. Concerned about the negative impact the Arkansas law could have on managed care plans’ ability to employ utilization management and other strategies, AMCP filed an amicus brief to the Supreme Court.¹⁰ The Court ruled the Arkansas law was not preempted by ERISA.¹¹ In a similar case, PCMA v. Mulready, the Tenth Circuit Court of Appeals ruled that ERISA and Medicare Part D preempted provisions of Oklahoma’s Patient’s Right to Pharmacy Choice Act.¹²

The policy atmosphere within the federal executive branch likewise appears disposed against PBMs. In July, the Federal Trade Commission (FTC) issued an interim report entitled “Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies.”¹³ As the title suggests, the tone and findings were highly critical of the industry. The FTC voted 4-1 to issue the interim report, adding to the chorus of anti-PBM voices this year. The one dissenting commissioner, however, argued that the staff’s analysis underpinning the report was premature and incomplete, raising questions about its methodology.¹⁴

But the battle is not simply going in one direction. On September 17, 2024, Cigna filed suit in the US District Court for the Eastern District of Missouri against the FTC,¹⁵ alleging that its July report incorrectly concludes that PBMs inflate drug costs and harm independent pharmacies and ignores the evidence the PBMs provided to the agency that demonstrates otherwise. The complaint described the FTC’s report as “unfair, biased, erroneous, and defamatory” and claimed the report harmed the business and reputation of Cigna’s PBM Express Scripts. The suit requested that the court vacate the report and require that FTC Commissioner Lina Khan be recused from any agency dealings with the company.¹⁶

The PBM industry emerged and grew out of the need to help facilitate patient access to medication at an affordable cost. Early PBMs arose from a need to adjudicate claims, a service still provided by the PBM industry. However, the industry has evolved significantly since its founding, with PBMs now providing a variety of clinical, financial, and operational services.

PBMs employ a series of tools and perform various services toward that larger effort. These include formulary design, utilization management, analytics, price negotiation, clinical programs, and other services.¹⁷ PBMs use Pharmacy and Therapeutics Committees, comprising physicians, pharmacists, and other health professionals, to conduct rigorous clinical and scientific reviews of products. Often omitted from the criticism of PBMs is mention of the clinical services provided by managed care pharmacy professionals working in PBMs. These include services aimed at improving patient adherence; managing chronic conditions, such as diabetes, osteoporosis, obesity, and others; and improving health equity.¹⁸ Ensuring the quality of these clinical services is integral to how PBMs function.

PBMs do not set list prices for pharmaceuticals; this is the purview of pharmaceutical manufacturers. PBMs work to lower the price health plans pay for prescription drugs by negotiating rebates with drug manufacturers; their collective purchasing power is key when compared with single health plans. PBMs then pass through the rebates to the plan sponsors. In some cases, depending on contractual terms, PBMs may retain a portion of the rebates as a part of their compensation. Although this is where much of the “middleman” criticism comes from, limiting or eliminating this compensation would likely have an adverse effect, disincentivizing PBMs from negotiating the largest possible discounts on drug prices.¹⁹

Similarly, efforts to prohibit “spread pricing,” used by some payers, could similarly reduce the ability of PBMs to help contain rising drug costs. This optional payment model occurs when a payer reimburses a PBM for a drug in an amount greater than the PBM’s reimbursement of the pharmacy for that drug. The PBM retains this difference or “spread” to cover its administrative costs and provide a profit or, in some cases, even loses money when there is a “negative spread.” A similar dynamic applies to potential regulation here; constraining spread pricing could limit flexibility for payers to pay for services within their pharmacy benefits.²⁰

Overall, attempts to curtail these price negotiation tools often backfire, restricting options when health care entities need them the most.

The health care system in the United States is deeply complex with many players involved in the delivery chain. As such, we should be inherently skeptical of claims that one single cause is predominantly to blame for rising drug prices. In fact, given there are so many players in the industry, it is difficult to align the interests of said players, an inefficiency that contributes to higher costs.

In addition, when looking at the causes of high drug prices, a lack of competition can be a contributing factor. This factor in the PBM debate carries more legitimate weight than other criticisms, given the evident consolidation within the industry.

Concerns have been raised about the underlying evidence and methodologies cited when placing blame on PBMs.^21,22 For example, PCMA, the trade association that represents PBMs, raised concerns about studies referenced in articles criticizing PBMs. Although PCMA has a clear perspective on the positive role of PBMs, any potential bias does not undercut the underlying issues with both the findings and the organization that conducted the study. In particular, the dataset was apparently limited, in turn casting doubt on the generalizations drawn from the research.

Ultimately, if we are going to identify and refine best practices for PBMs, any successful proposals must consider the complex map of stakeholders and be grounded in sober scientific evidence. Both are essential to attaining constructive nuance.

As mentioned earlier, many of the legislative “fixes” targeting PBMs also focus on their utilization management tools. These techniques entail a range of “common practices including prior authorization, step therapy requirements, supply limits (on dosage or number of days), and various financial incentives.”¹⁹ When wielded effectively and carefully, these tools help ensure patient safety and quality and manage costs, a necessary balance in our health care system. If policymakers on the federal or state level limit them in overly broad ways, there are likely to be negative impacts on quality, costs, or both.²⁰

AMCP is not critical of efforts to shape PBM practice and behavior, only those attempts that overcorrect. Take calls for greater disclosure of data by PBMs as an example. AMCP is on record as supporting efforts to bring greater transparency to the marketplace and believes that straightforward, consistent requirements would help demonstrate that PBMs are part of the solution to rising drug costs. PBMs should provide patients with information on cost-sharing and utilization management strategies they employ. Likewise, AMCP supports reasonable reporting requirements for PBMs that may include reporting of information to the relevant regulatory agency about aggregate rebates and other aggregate, nonproprietary pricing information. However, requiring PBMs to disclose proprietary information or information on specific price concessions could undermine their ability to negotiate discounts on behalf of plan sponsors.²⁰

As for the issue of market concentration of PBMs and its implications, there are nuanced ways to regulate. However, as T. Joseph Mattingly and colleagues concluded in JAMA Health Forum, “when regulating, it is important to distinguish between market failure problems that require regulatory intervention vs initiatives that are designed to serve the financial interests of other market participants.”¹⁹ Such action requires sober discussion and a commitment to rigorous studies.

The health care system and those entities focused on prescription medications are too complex for a panacea or quick fix. If experience is any guide, resolving the issue of high drug costs will take painstaking study, patience, and compromise.

The current discourse about PBMs, although provocative and headline-worthy, is not conducive to a solution. To the stakeholders in this process, it’s time for a more nuanced discussion—one that lowers the temperature and puts patients first.

Managed care pharmacy, the focus of AMCP and our membership, is an industry that prides itself on scientific rigor. Formularies and other key tools of managed care pharmacy rely on scientific evidence and calculations rather than emotion and argumentation. AMCP counts many PBM employees among our diverse membership. These managed care pharmacy professionals are focused on ensuring the access to and affordability of prescription medicines for the patients they serve. As such, let’s keep these considerations in mind, especially as we wade into this hotly contested conversation.