The rebates that PBMs require from manufacturers then forces manufacturers to increase the cost of medications to offset those rebates.

On February 20, 2024, a coalition of 39 state attorneys general issued a letter to congressional leaders urging the passage of several pending bills aimed at increasing the transparency of pharmacy benefit managers’ (PBMs) role in increasing costs of medications and eliminating competition that independent pharmacies pose to PBM-affiliated pharmacies.

Noting that a “small number of PBMs hold significant market power and are reaping abundant profits at the expense of the patients, employers and government payors the PBMs are supposed to help,” the attorneys general coalition levies blame on PBMs for dramatic increases in drug costs. The coalition asserts that because a PBM ultimately decides which drugs are covered in connection with insurance plans, PBMs can require rebates from drug manufacturers in exchange for agreeing to allow the manufacturer’s medications to be on the PBM’s list of covered drugs (i.e., PBM “formularies”). The rebates that PBMs require from manufacturers then forces manufacturers to increase the cost of medications to offset those rebates.

The letter also notes that all buyers of medications (pharmacies and consumers) and the sellers of medications (drug manufacturers) are also harmed by PBMs’ requirements that manufacturers provide rebates for their medications to be covered by insurance, allowing PBMs “to extract both monopoly profits from individuals and monopsony profits from the market.”

As a result of conduct by PBMs as described by the attorneys general in the market, the attorneys general coalition expresses serious concern “about actions taken by PBMs that have unduly raised drug prices for consumers, and we are engaged on the issue on a number of fronts, including investigation, litigation, and advocating for legislative policy reforms.”

The attorneys general coalition notes that while states can require PBMs to conform to state laws regulating PBMs, they often face arguments by PBMs that the states’ enforcement powers are limited by federal jurisdiction and preempted by federal laws that trump state laws to regulate aspects of PBMs’ conduct.

Accordingly, the attorneys general coalition implores Congress to act “to ensure fulsome regulation of PBMs nationwide.” The letter urges that Congress require transparency by PBMs, such as producing pricing data to health plans and federal and state regulators in a standardized format. The letter asserts that such legislation will enable health plans to better negotiate with PBMs, leading to lower drug costs, which will in turn allow regulators to better hold PBMs accountable.

The letter urges Congress to pass three pending pieces of legislation:

1. The Delinking Revenue from Unfair Gouging (DRUG) Act (S1542/HR6283). The DRUG Act seeks to delink PBM compensation from drug costs in the commercial market so that PBMs are no longer benefiting from increasing drug list prices and rebates from drug manufacturers. It would disincentivize PBMs to steer consumers toward higher priced medications and restrict access to less expensive generic drugs.
2. Protecting Patients Against PBM Abuses Act (HR2880). This act aims to protect patients, taxpayers and pharmacies from harmful PBM practices that make high-quality healthcare inaccessible and unaffordable. Among other provisions, the act would prohibit a PBM from reimbursing independent pharmacies at lower rates than pharmacies owned by the PBMs, which increases costs to consumers, and prohibits spread pricing in which a PBM charges the Medicare Part D program more than the PBM pays to the pharmacy for dispensing the medication and the PBM retains the difference.
3. Lower Costs, More Transparency Act (HR5378). The purpose of this act is to require hospitals and insurance companies to spell out more clearly their costs to consumers. With better information on costs before procedures and prescription drugs, patients could make better decisions and potentially save on their healthcare needs.

Over the past few years, PBMs have been the focus of multiple state and federal agencies due in large part to multiple complaints by independent pharmacies about their ability to participate in networks of insured individuals and receive adequate reimbursement rates, which are often far below the pharmacies’ wholesale costs to purchase medications.

The attorneys general coalition letter adds to the present list of PBM scrutiny by government agencies further pressuring state and federal legislators to pass laws to regulate PBMs and hold them accountable for unfair and unreasonable trade practices.

For More Information

For more information on this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, any of the attorneys in our Pharmacy Litigation Group or the attorney in the firm with whom you are regularly in contact.

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