The legislation arises out of substantial concerns about the anti-competitive and predatory tactics that PBMs have reportedly engaged in throughout the past decade to erode the prevalence of independent pharmacies across the country.

On March 22, 2023, the Senate Committee on Commerce, Science and Transportation voted 18-9 to approve sending the bipartisan Pharmacy Benefit Manager (PBM) Transparency Act to the full Senate. The bill―introduced by Democrat Commerce Committee Chair Senator Maria Cantwell of Washington and Republican Budget Committee Ranking Member Senator Chuck Grassley of Iowa in January 2023―aims to make prescription drug pricing more transparent.

The Congressional Budget Office’s preliminary estimates suggest that the PBM Transparency Act would save $740 million to taxpayers over the next 10 years.

The act would help lower costs and increase transparency for consumers by:

• Making “spread pricing” illegal – meaning that health plans and payers cannot be charged more for prescription drugs than what they reimburse to the pharmacy;
• Prohibiting clawback payments to PBMs;
• Prohibiting increased fees and lower pharmacy reimbursements, which PBMs use to offset their reimbursements from federally funded health plans;
• Requiring PBMs to disclose the cost and reimbursement of drugs to the health plan, including any fees and discounts; and
• Requiring PBMs to pass 100 percent of rebates on to the plan or payer.

The legislation arises out of substantial concerns about the anti-competitive and predatory tactics that PBMs have reportedly engaged in throughout the past decade to erode the prevalence of independent pharmacies across the country. These include charging retroactive, arbitrary fees to pharmacies, charging hidden costs to the consumer that increase the cost of prescription drugs, and having been emboldened to engage in such conduct by an overarching lack of government regulation.

The PBM Transparency Act follows on the heels of significant scrutiny launched across the federal government. For example, in May 2022, the Centers for Medicare and Medicaid Services issued final rulemaking prohibiting PBMs from retroactively clawing back reimbursements paid to pharmacies not notified at the point of sale. The following month, the Federal Trade Commission launched a 6(b) study into the anti-competitive and predatory practices of PBMs, seeking significant information and documentation from the major PBMs. And earlier this month, the House Oversight and Accountability Committee announced an investigation into the “dubious” practices of PBMs and the effect of these practices on federal healthcare plans.

Senator Cantwell, who noted that “three PBMs control 80 percent of the prescription drug market,” believes this legislation is necessary to incentivize transparency, discourage self-serving policies and level the playing field to allow independent pharmacies to survive. She noted that the committee had heard testimony “showing how PBMs’ substantial market power and opaque practices impact patients, providers and pharmacies, including a Seattle pharmacist who had to close a pharmacy serving retirees because the PBM had clawed back over $538,000 in just a single year.”

Under the significant scrutiny now asserted against the PBM industry by the federal government, the bill is a real-time example of numerous laws that are likely to be passed by both states and the U.S. Congress that will more appropriately protect independent pharmacies and the consumers they serve.

Duane Morris attorneys will continue to monitor developments in this area and other related issues and report on the key details for the industry in subsequent Alerts.

For More Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, Eliese R. Herzl-Betz, any of the attorneys in our Pharmacy Litigation Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.