Industry Alert: House Committee on Education and Labor Requests GAO Study on PBMs’ Role in Pharmaceutical Supply Chain, Demonstrating Rising Trend in PBM Regulatory Action

On Friday, June 17, 2022, the House Committee on Education and Labor (the Committee) issued a letter (the Letter) requesting the Hon. Gene L. Dodaro, U.S. Comptroller General and head of the Government Accountability Office (GAO) to conduct a study on Pharmacy Benefit Managers (PBMs) and their role in the pharmaceutical supply chain. The Committee’s letter follows a growing trend by which state and the federal government have begun looking deeply into the actions of PBMs.  The pharmacy industry should be encouraged by this federal action and should continue to place pressure on PBMs as they continue to abuse providers of pharmaceutical services.  Moreover, Plan Sponsors should take note of this trend, and may want to take appropriate steps to investigate and audit their PBM contractors to get ahead of any potential fiduciary duties Plans owe to their beneficiaries.

Objectives of the Letter

 The Committee asks the GAO to conduct a study addressing three questions:

  1. To what extent do PBMs provide pharmacy benefit management services to commercial health plans and how are they reimbursed for these services?
  2. What is known about the use and effect of PBM formularies and rebating arrangements on commercial drug spending for payers and beneficiaries?
  3. What role do ERISA fiduciary requirements have in the services PBMs provide to commercial plans?

This follows a GAO study released in 2019 that focused solely on PBMs’ role in Medicare Part D (Part D).  The Committee’s focus on commercial health plans, as opposed to Part D, demonstrates the Committee’s understanding that PBM conduct negatively affects American consumers of commercial health insurance and pharmaceutical providers in the commercial space. If the GAO decides to press forward with the study, it will be yet another step in the growing trend of government and legal actions against PBM abuses.  Moreover, the introduction of the ERISA fiduciary requirements that PBMs have may spark interest in the fiduciary duties ERISA Plans owe to their beneficiaries.

Other Government Action Against PBM Abuse

The Letter is part of a growing trend among state, federal, and private actors to hold PBMs accountable for abusive practices that harm consumers and pharmaceutical providers. For example, on December 6, 2021, Senator Ron Wyden, Chairman of the Committee on Finance, wrote a letter to the Federal Trade Commission (FTC) expressing concern over growing consolidation among payors and especially vertical integration of PBMs and associated pharmacies.  On December 10, 2021, following a hearing on the matter, the House Oversight Committee Minority staff issued a report on the role of PBMs, noting the anti-competitive effect of vertical consolidation, among other things. All of this follows the Biden Administration’s Executive Order on Competition, in which the Administration urged the FTC and other regulatory agencies to take action to enforce Antitrust laws.

More recently, the FTC voted 5-0 to approve a comprehensive study of PBMs’ abusive and anti-competitive practices following an open comment period in which the FTC solicited information from stakeholders regarding PBM misconduct, which yielded over 24,000 responses.  Other congressional leaders have recently gotten involved as well, including Oklahoma Senator James Lankford (R-Okla) who recently wrote to Chair Khan of the FTC to thank the agency and encourage its decision to investigate the PBMs, and Senators Maria Cantwell (D-Wash) and Chuck Grassley (R-Iowa) who introduced bipartisan legislation to further empower the FTC to curb unfair pricing schemes by the PBMs. Additionally, the State of New York recently established a Pharmacy Benefits Bureau, which shall be responsible for enforcing the state’s new, robust PBM law.

Plan Sponsors should be aware of this heightened scrutiny of PBMs and should consider investigating the Plan’s fiduciary and oversight responsibilities with respect to PBM activity. Plan Sponsors may be obligated under ERISA to conduct an audit of their PBMs as they may owe a fiduciary duty to plan participants.  In accordance with the above trend, the FTC announced on June 16, 2022 its intention to closely scrutinize the impact of rebates and fees on patients and payers to determine whether an illegal rebate scheme occurred, and it is highly likely that PBMs delegate their rebate duties to a rebate aggregator.  Plan Sponsors can lose millions of dollars to PBMs, whose wholly owned rebate aggregators may be siphoning profits meant for Plan Sponsors, as was the case in Lehigh County, Pennsylvania. These are the kind of arrangements in which the FTC, GAO, and legislators may be particularly interested, and are something Plan Sponsors should begin investigating themselves, both to reclaim funds that belong to the Plan and to protect their beneficiaries from PBM malfeasance. 

How Frier Levitt Can Help

Frier Levitt’s attorneys are experienced in disputes with PBMs and represent Plan Sponsors in litigation and contracting, helping them navigate potential pitfalls in their agreements with PBMs and other contractors.  Additionally, Frier Levitt has years of experience in drafting comments and other communications with regulators on behalf of pharmacies to fully articulate the manner in which PBMs are harming the pharmaceutical marketplace, competition, and Plan Sponsors. Contact Frier Levitt to learn more.