Senate Finance Committee votes to impose drug pricing standards on PBMs

In a largely harmonious Senate Committee on Finance markup hearing, members supported bipartisan efforts to rein in pharmacy benefit managers (PBMs) that they say operate without transparency to drive up prescription drug prices for patients.

The committee approved the Modernizing and Ensuring PBM Accountability (MEPA) Act by a vote of 26-1.

Under the plan, PBMs could not receive payment for Medicare Part D covered drugs based on a manufacturer’s price, as it must be in the form of bona fide service fees that reflect a fair market value based on an audit from the U.S. Health and Human Services Office of Inspector General (HHS OIG).

Spread pricing, when a PBM reimburses a pharmacy at a lower amount than charged to the PBM’s health plan client, would be banned in favor of a pass-through pricing model that would be created for covered outpatient drugs under Medicaid. PBMs would only receive payment for services limited to the ingredient cost and a professional dispensing fee but offers an exception for drugs purchased by 340B entities.

PBMs negotiate prescription drug prices with manufacturers on behalf of insurers and are facing increasing scrutiny from lawmakers and regulators. The PBM space is dominated by three large firms, all of which are vertically integrated with major health plans: CVS Caremark, a sister company to Aetna; Optum Rx, which is owned by UnitedHealth Group; and Express Scripts, which is owned by Cigna.

Also on Wednesday, the House Ways and Means Committee voted 25-16 to pass the Health Care Price Transparency Act of 2023, a package that includes PBM transparency measures.

“Pharmacy benefit managers are the middlemen between your health insurance and drug makers that virtually seize every prescription handed from a doctor to a patient,” said Senator Ron Wyden (D-OR), chairman of the Senate Finance Committee. “Decades ago, PBMs served a role to assemble mountains of claims data and use bargaining power on behalf of insurance companies to negotiate with drug makers for lower prices. But in recent years, these businesses have consolidated into mega-corporations that dominate the market. This consolidation has allowed PBMs to adopt tactics and play games with their data that result in higher profits for themselves and higher costs for everyone else.”

“I’m not opposed to free markets,” said Senator James Lankford (R-OK). “I’m opposed to PBMs running my rural pharmacies out of business. Over and over again when I talk to rural pharmacies, they tell me their frustration with PBMs changing the rules mid-month, charging them more for their DIR fees than the actual drug they actually received.”

DIR fees, or direct and indirect remuneration fees, are when payers take back money paid to pharmacies due to a pharmacy’s quality measure, but these quality measures can be unpredictable, says the National Association of Chain Drug Stores.

“The Inflation Reduction Act we enacted last year finally gave Medicare the power to negotiate prices for some of the most expensive prescription drugs for seniors on Medicare, but Congress needs to do more to lower the price of medicines, including through reforms to PBMs,” said Senator Mark Warner (D-VA) and co-author of the legislation following the vote. “I’m proud of our work today in the Finance Committee and am hopeful that we can bring a bill to the Senate floor and get it to the President’s desk soon.”

The plan would also subject PBMs to drug pricing transparency standards, cost performance and data reporting requirements. Under the bill, PBMs would be required to report drug prices and related information to HHS.

Wyden made clear in his opening statement, as did many other members of the committee, that he wants to see new opportunities to open small pharmacies in rural communities and provide the opportunity for those that exist already to survive.

“Independent pharmacies are forced to close or consolidate due to PBM practices that steer patients away from their community pharmacy or set payment below the pharmacy’s actual cost of dispensing prescription drugs,” he said.

“The legislation would delink PBM fees from the drug prices under Medicare Part D,” said Senator Mike Crapo (R-ID). “This will help curb preferences for higher-priced medications. I look forward to working with the chairman in the coming weeks to build on this foundation by preventing prescription drug plans from charging patients based on sticker prices for certain medications, even as the same plans take in deep discounts. For chronic diseases, this distorted and hidden system of post-sale rebates deprives seniors of direct out-of-pocket savings.”

Another provision of The Modernizing and Ensuring PBM Accountability Act would provide $20 million in funding to the Centers for Medicare & Medicaid Services for fiscal year 2026. Approximately $1.726 billion in savings to the Medicare Improvement Fund would be set aside, where $180 million is already set aside for services during and after fiscal year 2022.

Starting in 2025, the HHS Secretary would be required to begin Part D measures for assessing network pharmacy performance, so sponsors that want to institute fees or incentive payments would only be able to do so if the PBM uses performance measures.

While voting in favor of the plan, Senator Sheldon Whitehouse (D-RI) hoped the plan would bring down drug prices but didn’t want the committee to do the pharmaceutical industry’s bidding, pointing to the idea that PBMs serve as “the most powerful institutional counterweight” to the industry.

“The pharmaceutical industry has done marvelous political jiu-jitsu to turn concern about its pricing into critiques of PBMs who are perhaps their greatest institutional adversary and one of the most powerful forces for pushing their prices down,” he said. “I, for one, want to make darn sure that this committee has not turned into the tool of the pharmaceutical industry.”

In addition to studies and reports analyzing the bill’s effect, one provision allows the HHS Secretary to survey community pharmacy drug prices around the country to “determine national average drug acquisition cost,” according to the markup.

Vertical integration between Part D plans, PBMs and pharmacies would be studied by the Inspector General to see how acquisitions affect negotiated prices.

A series of amendments will now be approved, changed, or rejected by the chamber.