The Cost of PBMs
Last week, Senator Elizabeth Warren (D-Massachusetts) and Josh Hawley (R-Missouri) introduced a bill requiring healthcare companies that own health insurers or pharmacy benefit managers (PBMs) to sell pharmacy assets within three years. If this legislation were to pass, it would significantly impact the pharmaceutical supply chain and perhaps help to control rising medication costs.
The bill, titled the Patients Before Monopolies (PBM) Act, seeks to address a variety of objectives focused on lowering costs for patients and allowing independent pharmacies a more favorable market environment. Advocates of the bill claim pharmacy benefit managers (PBMs), or the middlemen between pharmacies and insurance companies, have become “conglomerates” that profit at the expense of consumers and smaller pharmacies.
The New York Times recently published an article highlighting the impact of PBMs on consumers and smaller pharmacies alike. Yough Valley Pharmacy, which had served residents of the rural community of Confluence, Pennsylvania for decades as its only healthcare provider, was recently forced to close its doors as a result of the actions of PBMs. According to the article, “PBMs frequently pay (smaller independent) pharmacies at rates that do not cover the costs of the drugs, according to more than 100 pharmacists around the country and dozens of examples of insurance paperwork and legal documents.” Situations like Yough Valley Pharmacy are unfortunately not uncommon.
Objectives of the PBM Act
The PBM Act would place a ban on spread pricing, which is when PBMs pay a lower amount for dispensing a pharmacy and raise the price when they sell it to a health plan (i.e. an insurance company). These PBMs then keep the “spread” as profit. Additionally, the new law would delink PBM fees from the list price; proponents of the bill argue PBMs have pushed higher-priced medicines that earn them higher commissions, as opposed to lower-cost alternatives that save their patients and employers money.
Other components of the bill include (per the Elizabeth Warren Senate Website):
- Prohibiting a parent company of a PBM or an insurer from owning a pharmacy business;
- Requiring that a parent company in violation of the PBM Act divest its pharmacy business within three years;
- Enabling the FTC, Department of Health and Human Services, Antitrust Division of the Department of Justice, and state attorneys general to issue orders requiring violators of the PBM Act to divest its pharmacy business and disgorge any revenue received during the period of such violation;
- Directing the FTC to distribute any disgorged revenue to harmed communities, including consumers overcharged at vertically integrated pharmacies.
- Mandating reporting of all divestitures to the FTC, and allowing the FTC to review all divestitures and subsequent acquisitions to protect competition, financial viability, and the public interest.
PBMs and the Pharmaceutical Supply Chain
With sources indicating this bill could likely pass within the next few days, it’s important to discuss how the PBM could affect the pharmaceutical supply chain:
- Transparency and pricing reforms; the will may introduce stricter transparency requirements for PBM’s, such as mandating pricing methodologies, rebates, and fees. This could lead to improved negotiation dynamics between different trading partners throughout the supply chain.
- DSCSA compliance: enhanced transparency could streamline the implementation of interoperable electronic systems from product-level drug tracking.
- Supply chain optimization: improved coordination among PBMs, manufacturers, and wholesalers may help streamline distribution processes.
- Risk of increased complexity: If the PBM Act requires additional reporting or operational requirements, trading partners may have trouble implementing these requirements with existing DSCSA protocols.
What do you think about the Patients Before Monopolies (PBM) Act? What impact could its passing have on the pharmaceutical supply chain?
