On February 16, 2023, the Senate Commerce Committee held a full committee hearing titled “Bringing Transparency and Accountability to Pharmacy Benefit Managers.” The purpose of the hearing was to hear from industry actors as the Committee considers its vote on the bipartisan bill introduced by Senators Maria Cantwell (D-Wash) and Chuck Grassley (R-Iowa), the Pharmacy Benefit Manager Transparency Act of 2023. The bill was reintroduced this year after being voted out of Committee last year, but not ultimately being voted on by the Senate.
The Pharmacy Benefit Manager Transparency Act of 2023
The bill would make it illegal for PBMs to engage in “spread pricing,” in which Pharmacy Benefit Managers (“PBMs”) charge health plans and payers more for a prescription drug than what they reimburse to the pharmacy, and then pocket the difference—the “spread”—as profit. Pharmacies know this practice, among others, often results in reimbursement below acquisition costs for the pharmacy. The bill would also prohibit PBMs from arbitrarily, unfairly, or deceptively clawing back payments made to pharmacies, or increasing fees or lowering reimbursements to offset reimbursement changes in federally funded health plans. These provisions target clawbacks like DIR Fees and Generic Effective Rates (“GER”) that PBMs use to extract profits from pharmacies by prohibiting them unless the PBM demonstrates full transparency in how they are implemented.
The “transparency” portion of the bill mandates an annual report to the Federal Trade Commission (FTC), requiring PBMs to disclose:
- The aggregate amount of the difference between how much each health plan paid the PBM for prescription drugs, and how much the PBM paid each pharmacy on behalf of health plans for such drugs;
- The aggregate total amount of fees the PBM charged to pharmacies and the total amount of reimbursements the PBM clawed back from pharmacies;
- Why the cost, copay, coinsurance, or deductible for a consumer increased, or why the reimbursement rate to a pharmacy decreased for a prescription drug; and
- For PBMs that control or are affiliated with a pharmacy, a description of any differences between what they reimburse or charge affiliated and nonaffiliated pharmacies.
The FTC and state attorneys general would both have jurisdiction to enforce the law, which would include seeking civil penalties from PBM companies for each violation, plus an additional penalty of up to $1 million.
The Industry and Lawmaker Commentary
Senator Cantwell, chair of the Committee and co-sponsor of the bill, introduced the hearing and panelists, making an opening statement that addressed the fact that prescription drug prices have increased by 35% since 2014, and the need to explore the “mysterious middlemen,” PBMs.
The panelists included Senator Grassley, who has been a champion for increased PBM scrutiny and regulation, having introduced many bills with bipartisan support over the past several years, and engaged in oversight and advocacy on behalf of patients and independent pharmacies. Senator Grassley’s statement focused on the kinds of PBM malfeasance that inspired the Bill. These bills include manufacturer rebates that have, for example, prevented a Humira biosimilar from reaching patients, even with a 55% discount to its list price. He also touched on the anti-competitive structure of vertically integrated Plan/PBM/Pharmacy systems, which has resulted in only three companies controlling 80% of the pharmacy benefits market. Grassley’s statement was a stirring introduction to the other industry panelists.
The other panelists included Ryan Oftebro, a pharmacist and CEO of the Kelly-Ross pharmacies located in the Seattle area. Speaking on behalf of community pharmacies, Oftebro testified that the tremendous financial pressure occasioned by DIR fees caused his pharmacy located in the East Lake neighborhood of Seattle to close down completely. According to Dr. Oftebro, this was the only pharmacy serving that community. Similarly, Senator Jon Tester also discussed how the anti-competitive conduct of PBMs caused the closure of local pharmacies in rural Montana communities. Experience has shown that the lack of local pharmacies in small, rural communities forces patients to travel unreasonably long distances to fill their prescription(s), and oftentimes, results in patients failing to adhere to their medication regimen.
Another panelist was Dr. Debra Patt, a medical oncologist serving in the leadership of Texas Oncology and Vice President of the Community Oncology Alliance (COA). Dr. Patt offered compelling discussion regarding the ways in which PBMs harm oncology patient care, including a heartbreaking story about one of her patients who, because of PBM limitations on dispensing, was unable to receive medical care that could substantially improve her life and medical prognosis. Dr. Patt also testified that, in the oncology setting, DIR fees are not meaningful measures of quality because they are often based on whether the oncologist also dispenses high-blood pressure or cholesterol medications — drugs totally unrelated to treating cancer. Additionally, the Senate Commerce Committee heard that DIR fees are also unreasonable as applied to oncologists because they are based on whether patients refill their medication every thirty (30) days. However, as Dr. Patt explained, doctors frequently hold cancer therapies due to toxicity and to ensure that patients are actually benefitting from the therapy. Indeed, cancer medications can be extremely toxic and often produce debilitating side-effects that only subside if the drug is held. Thus, PBMs DIR fee programs oftentimes fail to account for these legitimate clinical considerations.
Finally, advocating for the Bill was Dr. Erin Trish, the Co-Director of the Leonard D. Schaeffer Center for Health Policy & Economics and Associate Professor at the University of Southern California. Her statements focused on the need for structural reform in the vertically integrated PBM system that has led to anti-competitive results. Like other panelists, she raised the undisputed fact that rebates, spread pricing, clawbacks, vertical integration, and other practices allow PBMs to hide cost savings from patients and payers. She concluded that the Bill, which would bring greater transparency to the marketplace, is needed so that consumers and plans can share in drug savings.
Voices in Opposition
Senator Ted Cruz (R-TX) was the main voice expressing skepticism of the bill and was joined by panelist Casey Mulligan, a professor in economics from the University of Chicago. Mulligan expressed the view that PBMs are essentially “buyers clubs” and, like Costco, are able to purchase in volume and pass on savings to their customers. He also expressed the view that the proposed bill would increase costs to consumers and the federal government, as prompted by Senator Cruz. He did not address (and Dr. Patt astutely pointed out) the fact that customers have a choice to use Costco or not, and health consumers do not have similar choices, nor did he provide any justification for the kinds of clawbacks and other PBM abuses the other panelists were focused on.
Committee Members’ Views
The other committee members present, aside from Senator Cruz, all spoke in favor of independent pharmacies and asked probing questions on PBMs’ anticompetitive behavior. Senator Jon Tester (D-MT) stated, “The way I see the situation on PBMs, I don’t know why the hell they even exist… They were set up with all the right reasons … But what I see them doing in my state, I don’t think the consumer gets much benefit and they’re shutting down small businesses on main street right and left and those are called our local neighborhood pharmacies.”
Senator Shelley Capito (R-WV), described the lack of transparency with PBMs as “total confusion.” She said a flowchart that starts from the research of the drug to the patient who receives it and what was paid could illustrate that confusion: “You’ve got the research, the manufacturing, the distributor, the PBM, the insurer, the doctor or hospital, the pharmacy and then it gets to the patient. I guarantee you … if we had that in front of us, it would be more difficult to read than a flowchart from the Corps of Engineers.” Oftebro responded that Capito’s description of a flowchart was “not complicated enough.”
Conclusion of the Hearing
The record is open until March 9 for other Committee members to add their statements and questions. The Bill will ultimately go to a Committee vote to determine whether it should advance out of Committee, as it did last year. Frier Levitt will be tracking the progress of the Bill as it moves through the Senate.
How Frier Levitt Can Help
Frier Levitt’s PBM Litigation Group is highly experienced in litigation and arbitration against PBMs over abuses, including DIR fees and other clawbacks, abusive audits and terminations, and other disputes that arise between independent pharmacies and PBMs. Our attorneys have successfully challenged DIR fees against major PBMs, obtaining more than $40 million in damages on behalf of pharmacy clients. Additionally, we have vast experience drafting proposed legislation on behalf of pharmacy groups and other interested parties on the federal and state level. Frier Levitt recommends that providers and other stakeholders in the pharmaceutical industry write to Senate Commerce Committee members in favor of advancing the Bill. Contact Frier Levitt to learn more about how we can help prepare support letters and our other services.
