***Update: 12/19/2024***
As we are nearing the end of 2025, Congress is working on an end-of-year bill that includes PBM reform. One of the major changes expected is the elimination of spread pricing (when a PBM charges payers more than they reimburse pharmacies).
Recent legislative efforts propose requiring PBMs to reimburse pharmacies at NADAC rates plus the state's fee-for-service dispensing fee for all Medicaid managed care programs across all states.
💊 𝘛𝘩𝘦 𝘱𝘳𝘰𝘱𝘰𝘴𝘦𝘥 𝘤𝘩𝘢𝘯𝘨𝘦𝘴 𝘸𝘪𝘭𝘭 𝘩𝘢𝘷𝘦 𝘸𝘪𝘯𝘯𝘦𝘳𝘴 𝘢𝘯𝘥 𝘭𝘰𝘴𝘦𝘳𝘴 𝘢𝘯𝘥 𝘸𝘪𝘭𝘭 𝘩𝘢𝘷𝘦 𝘴𝘪𝘨𝘯𝘪𝘧𝘪𝘤𝘢𝘯𝘵 𝘪𝘮𝘱𝘢𝘤𝘵 𝘰𝘯 𝘥𝘳𝘶𝘨 𝘱𝘳𝘪𝘤𝘪𝘯𝘨 𝘢𝘯𝘥 𝘢𝘤𝘤𝘦𝘴𝘴 𝘵𝘰 𝘱𝘳𝘦𝘴𝘤𝘳𝘪𝘱𝘵𝘪𝘰𝘯 𝘥𝘳𝘶𝘨𝘴.
A key element of the proposed bill will be transparency around PBM financials and significantly limiting the PBMs ability to skim money from every part of the drug delivery ecosystem. 💵
Another critical element of the new bill will be NADAC pricing. Most drug reimbursement in the future will be based on NADAC.
𝗗𝗼 𝘆𝗼𝘂𝗿 𝗿𝗲𝗽𝘀 𝘂𝗻𝗱𝗲𝗿𝘀𝘁𝗮𝗻𝗱 𝘄𝗵𝗮𝘁 𝗡𝗔𝗗𝗔𝗖 𝗽𝗿𝗶𝗰𝗶𝗻𝗴 𝗶𝘀?
The National Average Drug Acquisition Cost (NADAC) is a pricing benchmark reflecting the average prices pharmacies pay to acquire medications. It is calculated based on a monthly retail price survey that includes independent and chain pharmacies.
NADAC is considered more current than WAC (wholesale acquisition cost) because NADAC reflects the actual prices paid by pharmacies after discounts and rebates.
📢 𝗧𝗵𝗲 𝗶𝗺𝗽𝗮𝗰𝘁
Adopting NADAC for pharmacy reimbursement, alongside PBM reform, represents a fundamental shift toward transparency and cost alignment. While pharmacies and payers stand to benefit, PBMs face financial and operational pressures to adapt. This paradigm shift could foster fairer competition, stabilize costs, and improve access, but successful implementation will hinge on navigating reimbursement challenges and maintaining innovation.***End of Update***
In today’s healthcare landscape, financial challenges are mounting for employers, providers, and patients alike. All while health insurers and PBMs are reaping substantial financial gains. As intermediaries, PBMs have grown into powerful monopolies, extracting profits from every possible avenue.
The problem
In the healthcare sector, employers, providers, and patients are facing financial challenges, while health insurers and Pharmacy Benefit Managers (PBMs) are experiencing significant financial success. As the middlemen, the PBMs have become massive monopolies, taking their cuts from anywhere and everywhere they can. Their diversified revenue stream (spread pricing, administrative fees, claw-backs, rebates, mail-order pharmacies, etc.) has caused financial damage in the healthcare sector.¹˒²
PBMs are supposed to play a critical role in managing prescription drug benefits and controlling costs. Instead, they are causing structural damage, such as¹⁻⁴...
Market consolidation
Putting providers and pharmacies out of business
Rising drug costs
Causing patients to pay more out-of-pocket costs
Increasing what employers pay for healthcare
Limiting access to care and medications
Lack of transparency
Creating healthcare deserts
Large parts of the country without access to local healthcare services
Blocking the introduction of money-saving biosimilars driving the cost of care higher for many
Creating complexity in billing and reimbursement processes
PBMs have taken their focus off of providing patients with the best care and are instead prioritizing personal gain and maximized profits.
Over the years, while PBMs have become one of the least regulated and transparent components of the healthcare delivery system – they have simultaneously (and maybe not so coincidentally) become the most profitable.¹
Because of these ongoing problems, the Federal Trade Commission (FTC) launched an investigation into PBMs and other associated group purchasing organizations. There are also calls within Congress for PBM reform with bipartisan support.⁵
But before we discuss the potential legislation change, let’s get to the root of the problem with PBMs.
The root of the problem
We refer to PBMs as ‘middlemen’ because they serve as intermediaries between insurers and pharmaceutical manufacturers. They’ve used their position to ‘hide’ within the healthcare system while still having a say in just about every financial decision being made.⁶ This powerful, yet somewhat invisible, position has allowed important financial and healthcare decisions to slip through the cracks unnoticed. That is – until recently.
PBMs hold a lot of power when it comes to impactful decisions within the healthcare system. PBMs help determine³:
What product is covered (formulary)
How the product is covered (any restrictions and access requirements)
Who can dispense the product (the network)
Who can access it (access requirements)
The cost of the medication (for employers and patients)
Paired with this much power is a lack of visibility into their motivations for these decisions. Recent findings coming out of state and federal government investigations and court filings have shown that PBMs base these decisions on the best financial gain for themselves and not what’s best for patients or employers.
These recent findings shed light on one of the biggest criticisms PBMs face – their lack of transparency about their financials. PBM financials are a ‘black box’. They keep many things in hidden and rarely share key numbers, including¹˒³…
What percentage of rebates do PBMs keep?
What is the true cost of medications (spread pricing)?
What are their administrative fees?
PBMs have arguably abused their power. Given their placement in the healthcare sector, PBMs use this as leverage and force manufacturers, employers, and pharmacies into unfair positions.
Manufacturers³˒⁶⁻⁸:
Are forced to adjust pricing strategies to meet PBM demands, including offering rebates to PBMs
Can be impacted by utilization management techniques imposed by PBMs
Must share any price increases with the PBMs
Must purchase data and consulting services to offset rebates being passed to employers and health plans
Are forced to distribute more drugs through specialty drug pharmacies owned by the PBMs thus generating more revenue for PBMs
Employers¹˒³:
Are not passed down all negotiated rebates and discounts that PBMs receive
Pay a higher cost for healthcare because PBMs choose more expensive products to receive higher rebates
Pharmacies¹˒⁷˒⁹:
Have reduced bargaining power due to PBM consolidation
Receive low reimbursement rates – often below cost
Are paid minimal (pennies) or $0 dispensing fees
Are reimbursed significantly less than PBM-owned pharmacies (spread pricing)
Are forced to pay network fees and direct and indirect reimbursement (DIR) fees
Often lose patients as PBMs steer them to their own pharmacies
Are often exposed to intrusive audits and claw backs
A call for reform
Due to the current role and lack of trust of PBMs, there has been a call for reform from both sides of the aisle. With bipartisan support, the various bills being reviewed by Congress will address several areas related to how PBMs conduct business. These reforms will have significant impact on how drugs are included on PBM formularies, how patients access their medications, and how drugs are reimbursed.¹˒³
The following is a list of some of the expected reforms.
Providing transparency regarding…²˒³˒⁶˒⁷:
Rebates:
Disclosing what rebates are received
Showing the process of how the rebates and savings are passed to patients, health insurers, and other payers
Spread pricing:
Identifying the price PBMs are paying pharmacies for drugs vs. the reimbursement they receive from health plans and employers
Recognizing the impact of spreads on medical loss ratio (MLR) calculations for PBMs that are vertically integrated with health plans
How PBMs pay their own pharmacies vs. other pharmacies
Formulary decisions:
Disclosing how PBMs make formulary decisions and the impact those decisions have on increasing rebates vs. reducing patient out of pocket costs
Eliminating spread pricing altogether
Prohibiting patient steering to PBM-operated pharmacies
Eliminating pharmacy reimbursement claw-backs and retroactive fees that are arbitrary, unfair, or deceptive
Establishing reimbursement rate floor (minimum) for pharmacies
Standardizing performance measures
Reforming direct and indirect renumeration (DIR) fees
Additionally, all 50 states have imposed regulatory limitations on PBM practices, with limited success.⁶ State legislatures are demanding more from PBMs. In 2023, 43 states introduced 137 bills to regulate PBMs, and 17 of those were enacted.¹⁰
What PBMs are doing¹¹˒¹²
In the midst of what could be a major PBM reform, PBMs are:
Considering renegotiating contracts with pharmacies, health plans, and manufacturers
Introducing new administrative fees
Reducing reimbursements to pharmacies, even lower
The legislation is intended to create an environment in which PBMs cannot unjustifiably raise drug prices, increasing transparency of their practices and administering more accountability. With these changes, health plans should be more empowered to negotiate contracts with PBMs, which will ultimately create a better experience and lower costs for the patient.¹˒³
Though there are numerous bills in review, the House and Senate need to first reconcile the differences in their bills before passing a final version. In the meantime, we have no way of knowing what legislation will pass or when.
We might not see real reform until after the November 2024 elections. Stay tuned for more updates as the events unfold.
References
LUGPA. Pharmacy benefit manager (PBM) reform update. LUGPA.org. https://www.lugpa.org/pharmacy-benefit-manager--pbm--reform-update. Updated 2023. Accessed February 21, 2024.
M Fiedler, L Adler, Frank R. A brief look at current debates about pharmacy benefit managers. Brookings.edu. https://www.brookings.edu/articles/a-brief-look-at-current-debates-about-pharmacy-benefit-managers/. Updated 2023. Accessed February 23, 2024.
The Commonwealth Fund. Pharmacy benefit managers and their role in drug spending. Commonwealthfund.org. https://www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-spending. Updated 2019. Accessed February 21, 2024.
Equitable Growth Fund. The significant impact of PBMs on pharmaceutical access: dissecting pharmacy deserts and health inequities. EGF website. https://www.equitablegrowthfund.org/the-significant-impact-of-pbms-on-pharmaceutical-access-dissecting-pharmacy-deserts-and-health-inequities/. Updated 2023. Accessed March 21, 2024.
Federal Trade Commission. FTC deepens inquiry into prescription drug middlemen. FTC. https://www.ftc.gov/news-events/news/press-releases/2023/05/ftc-deepens-inquiry-prescription-drug-middlemen. Updated 2023. Accessed March 21, 2024.
TJ Mattingly II, DA Hyman, Bai G. Pharmacy benefit managers; History, business practices, economics, policy. JAMA Health Forum. 2023;4(11). 10.1001/jamahealthforum.2023.3804.
National Association of Chain Drug Stores. Stop pharmaceutical benefit manipulation: Principles for PBM reform. NACDS website. https://www.nacds.org/pdfs/NACDS-PBM-Reform-Principles-2-2023.pdf. Updated 2023. Accessed February 21, 2024.
US Congress. The modernizing and ensuring PBM accountability. https://www.congress.gov/118/crpt/srpt122/CRPT-118srpt122.pdf. Updated 2023. Accessed March 35, 2024.
National Community Pharmacists Association. PBM reform. NCPA website. https://ncpa.org/pbm-reform. Updated 2024. Accessed February 21, 2024.
Waddick K. PBMs could soon feel the regulatory sting. PharmaVoice. 2023.
PhRMA foundation. New analysis shows PBMs use fees as a profit center. PhRMA. https://phrma.org/Blog/New-analysis-shows-PBMs-use-fees-as-a-profit-center. Updated 2023. Accessed March 23, 2024.
Pharmacy practice news. PBMs implement sweeping reimbursement cuts and ramp up audits. https://www.pharmacypracticenews.com/Online-First/Article/12-23/PBMs-Implement-Sweeping-Reimbursement-Cuts-and-Ramp-Up-Audits/72495. Updated 2023. Accessed March 25, 2024.
