Proposed Senate Act Would Restrict Pharmacy Benefit Managers

July 29, 2019 - The Senate Finance Committee has passed the Prescription Drug Pricing Reduction Act (PDPRA), a bipartisan piece of legislation that checks pharmacy benefit managers’ practices of overpayment and price spreading.

The bill, which would save Medicare about $100 billion over the next decade, is unusual in its strong bipartisan support.

“Pharmaceutical companies play a vital role in creating new and innovative medicines that save and improve the quality of millions of American lives, but that doesn’t help Americans who can’t afford them,” Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR) said in a press release. “Similarly, pharmacy benefit managers and insurance companies have the opportunity to negotiate lower prices, but the American people don’t know how much these middlemen pocket for themselves. This legislation shows that no industry is above accountability.”

One key feature of the bill is its increased oversight for pharmacy benefits managers (PBMs), particularly regarding their controversial claw backs and price spreading practices.

Claw backs, which occur when “a commercially insured patients’ copayments exceed the total cost of the drug to their insurer or pharmacy benefit manager,” cost Americans $135 million in 2013. Nearly a quarter of all prescriptions in 2013 were subject to an overpayment of more than $2, costing on average $7.69. Researchers called the sum a “non-negligible share of overall drug spending and patient out-of-pocket costs.”

READ MORE: How Pharmacy Benefit Managers Lower Prescription Drug Prices

In price spreading, a PBM retains savings from drug price negotiations with a plan, instead of passing the savings along to pharmacies.

The new stipulations would crackdown on PBMs, requiring them to publicly publish their yearly reports on any rebates, discounts, or price concessions that the PBM negotiates for payers and to state how much of these savings were passed on to payers. This would take effect on July 1, 2022.

Part D payers would be required to audit their PBM contracts. These audits would be confidential and would cover contract terms, including the net price of Part D drugs. Non-compliant PBMs would face serious fines. This requirement would go into effect on January 1, 2022.

Part D payers would also report to pharmacies any price concessions or incentive payments made after the sale by PBMs or the insurer. In an annual report to the HHS Secretary, a Part D insurer would state any conflicts of interest that the insurer’s pharmacy and therapeutics committee may have.

In their Part D coverage bids, payers would also report direct and indirect remuneration, both actual and projected.

READ MORE: Federal Judge Strikes Down New Drug Price Transparency Rule

Together, these new regulations aim to decrease drug pricing by controlling the PBMs.

“Pharmacy middle-men shouldn’t be pocketing secret kickbacks instead of passing discounts onto customers. Requiring more transparency is an important first step toward holding the industry accountable to Ohio taxpayers and patients, and supporting local Ohio pharmacies,” said Senator Sherrod Brown (D-OH), a proponent of the anti-PBM sections of the bill.

This is not the first proposed regulation this year to pursue action against PBMs. In February, HHS proposed eliminating PBM’s drug rebates and was ultimately unsuccessful.

The payer response to the bill has been positive.

“These common-sense solutions will keep billions of dollars in seniors’ and taxpayers’ pockets, rather than going toward Big Pharma’s bottom line,” Matt Eyles, president and chief executive officer of America’s Health Insurance Plans (AHIP) said in a written statement. “We urge the Senate to support these solutions, and to reject efforts to raise premiums and costs for seniors and taxpayers – such as weakening the ability to negotiate lower prices from drug companies on behalf of patients or reducing drug maker accountability for high prices and costs.”

READ MORE: CMS Addresses Prescription Drug Price Spreading Issues

Payer industry approval, however, centralizes on the proposed legislation’s actions against drug manufacturers, not on its response to PBMs with whom many payers maintain a complex relationship.

In a letter sent on July 24 before the bill passed, AHIP defended the bill saying it holds drug makers accountable by forcing them to have “more skin in the game.” The legislation would reform the loopholes by which drugmakers can justify their high prices, AHIP said.

The organization lauded the bill’s efforts to disincentivize drug makers from shifting Part D beneficiaries into the catastrophic phase. The bill accomplishes this by imposing a manufacturer's catastrophic phase discount.

The discount would cover Part D beneficiaries who are not on a retiree prescription drug plan and whose costs equal or exceed the out-of-pocket threshold. The discounts would be applied at point-of-sale at the pharmacy or mail-order service.

AHIP also urged the senators to consider increasing drug manufacturers’ accountability to beyond 20 percent, in order to decrease costs for Part D premiums even further. Under the new provisions, Part D manufacturers would have to offer a 20 percent discount on negotiated prices for catastrophic coverage.

The bill’s authors did not end up changing these provisions.

The payer organization also pushed for the maximum out-of-pocket limit for Part D beneficiaries, which the committee retained in the present version. The threshold would be set at $3,100, indexed to Part D spending growth, to start in 2022.

Lastly, AHIP asked the committee to reject amendments that require Part D drug rebates at the point-of-sale, to which the committee acceded.

“The Prescription Drug Pricing Reduction Act will deliver real improvements in our prescription drug and care delivery system by helping those beneficiaries who need it the most and providing true peace of mind to all Part D enrollees through an out of pocket limit,” the letter stated.

The bill will likely undergo further alterations before being presented to the full Senate. The nine Republican votes in opposition to the legislation in the Senate Finance Committee signals what may lie ahead in the Republican-controlled full Senate.