Proposed Laws Would Increase Transparency Into Pharmacy Benefits Manager Profits

OCTOBER 3, 2023

Pharmacy spending is the fastest-growing expense for employer health plans, driven by the increasing availability of high-cost specialty medications and emerging treatments like gene therapy. Unlike medical insurance, the insurance company and/or pharmacy benefits manager (PBM) earns a profit from prescription drug claims costs under pharmacy coverage. In addition to administration fees, additional revenue for PBMs and carriers is generated by rebates paid to the PBM from drug manufacturers and fee-based charges embedded in pharmacy contracts. While pharmacy coverage remains profitable, there is no real incentive for PBMs to help employers control spending.

Until now, there has been limited transparency into the revenue generation tactics used by PBMs. However, lawmakers are seeking to change that. Recent bipartisan support exists for federal legislation regulating PBM activities, with a focus on compensation and transparency. USI Insurance Services is keeping an eye on several bills currently under consideration in Congress:

PATIENT Act (H.R. 3561)

Passed unanimously out of the House Energy and Commerce Committee, the Promoting Access to Treatments and Increasing Extremely Needed Transparency Act (or “PATIENT” Act) would require additional reporting requirements from PBMs for plan years starting on or after January 1, 2025. Under the Act, carriers and PBMs providing services to a plan would be required to report specific information to the plan sponsor, such as prescription spending and dispensing, out-of-pocket costs, and formulary rationale. PBMs and carriers must also disclose any rebates, fees, alternative discounts or other remuneration received by the plan from drug manufacturers — and failure to comply could result in a penalty of $10,000 a day for PBMs.

Pharmacy Benefit Reform Act (S. 1339)

Similar to the PATIENT Act, the Pharmacy Benefit Reform Act — passed out of the Senate Health, Education, Labor and Pensions (HELP) committee — would require PBMs to provide a detailed annual report to plan sponsors. The report would include the amount of prescription copayment assistance funded by drug manufacturers, a list of covered drugs billed under the plan, and total net spending on prescription drugs. In addition, the Act would require PBMs to remit to plan sponsors any remuneration received from drug manufacturers, and would prohibit the practice of charging employers more than the pharmacy was reimbursed (known as spread pricing). Failing to comply would result in a penalty of $10,000 a day for the plan, insurance company or PBM. If passed, the Act would take effect for plan years beginning on or after 30 months (2.5 years) following enactment.

Hidden Fee Disclosure Act (H.R. 4508)

Passed out of the House Committee on Education and Workforce, the Hidden Fee Disclosure Act is a federal bill that would make PBMs and third-party administrators (TPAs) subject to broker/consultant reporting requirements set forth by the Consolidated Appropriations Act of 2021 (CAA). PBMs and TPAs would be required to disclose all direct and indirect compensation received as part of servicing a group health plan. PBMs and TPAs would also be required to disclose specific details on rebates, spread pricing, and clawbacks (or when the copay amount is higher than the cost of the prescription). If passed, the Hidden Fee Disclosure Act would take effect on January 1, 2025.

Health DATA Act (H.R. 4527)

The Health Data Access and Transparency and Affordability Act (or “Heath DATA” Act) would amend the Employee Retirement Income Security Act of 1974 (ERISA) to prohibit a group health plan from entering a contract or service agreement with any entity (including TPAs and PBMs) unless the plan fiduciary is permitted to audit all “de-identified claims and encounter information” as stated in the text of the bill, and does not impose unreasonable limitations. Plans would be required to annually submit an attestation of compliance, and a penalty of $10,000 per day may be assessed against a provider, provider network, TPA, PBM or other service provider per violation.