Pharmacy Benefit Managers (PBM) have been scrutinized heavily by the 118th Congress, with multiple hearings and investigations to determine whether the use of PBMs is a cost-effective way to reduce drug prices or if instead drug prices to consumers increase when a PBM is engaged.  The Biden administration has also been actively pursuing PBMs, particularly through the Federal Trade Commission.

The House Oversight and Accountability Committee initiated an investigation into PBMs on November 17, 2021, at a hearing, “Reviewing the Role of Pharmacy Benefit Managers in Pharmaceutical Markets.”  The third hearing on PBMs, “The Role of Pharmacy Benefit Managers in Prescription drug Markets Part III: Transparency and Accountability,” took place on July 23, 2024.

During the hearing, Committee Chairman James Comer (R-Ky.) stated, “Instead of prioritizing the health of Americans across the country, evidence obtained by the House Oversight Committee shows how the three largest pharmacy benefit managers colluded to line their own pockets.  These self-benefitting pricing tactics pushed by PBMs have done nothing but jeopardize patient care, undermine local pharmacies, and raise prescription drug prices.”  Chairman Comer further noted that “Since 2021, the Committee has made it a priority to expose harmful PBM practices and advance legislative solutions to ensure greater transparency and accountability in the PBM industry.  Americans deserve access to affordable, life-saving medications and the Committee will continue to work in a bipartisan fashion to shine a light on PBMs and restore competition in the pharmaceutical marketplace.”  In conjunction with the hearing the committee published an additional report, “The Role of Pharmacy Benefit Managers in Prescription Drug Markets.” 

The report blames PBMs for drug price increases but fails to establish a direct correlation.  Instead, the report states, “Pharmacy Benefit Managers (PBMs) role as intermediaries between drug manufacturers and health insurance providers should have made them, in theory, the best positioned entities to decrease the cost of prescription drugs.  The three largest PBMs, CVS Caremark (Caremark), Cigna Express Scripts (Express Scripts), and UnitedHealth Group’s Optum Rx (Optum Rx), control more than 80 percent of the market and are vertically integrated with health insurers, pharmacies, and providers.  As large healthcare conglomerates, some have argued that these PBMs’ vertical integration with insurers and pharmacies would better position them to improve patient access and decrease the cost of prescription drugs.  Instead, the opposite has occurred: patients are seeing significantly higher costs with fewer choices and worse care.”  The report goes on to extrapolate that this is the cause of high “drug prices” by noting, “In 2023, the U.S. health care system spent $772.5 billion on prescription drugs, including $307.8 billion on retail drugs.”

The U.S. pays more for drugs than any other country in the world but the cause is not the PBMs.  

They administer drug plans for more than 275 million Americans who receive their health insurance from employers, unions, governments, insurers, and other entities.  These voluntary and competitive arrangements save an average of $1,040 per payer and patient annually, and the number of patients receiving these benefits continues to grow due to the efficiencies and savings they provide.  The negotiating power of PBMs helps to secure 40 to 50 percent savings on prescription drugs and related medical costs for their customers.  This growth occurs because plan sponsors and customers are satisfied with their pharmacy benefit agreements, and if they are not, they are free to choose another way to deliver those benefits.  Unlike the mandates or government-run healthcare programs, PBMs provide the freedom to choose plans that fit the needs of sponsors and beneficiaries.

These benefits of PBMs are not in alignment with the claims made in the Oversight Committee hearings.  Dennis W. Carlton, Ph.D., David McDaniel Keller Professor of Economics Emeritus at the University of Chicago Booth School of Business, one of the leading industrial organization economists in the country, and former chief economist at the U.S. Department of Justice (DOJ) Antitrust Division, released a report on July 19, 2024, that revealed PBMs encourage greater competition in the prescription drug supply chain and lower drug costs for plan sponsors, including insurance plans, employers of all sizes, labor unions, and government programs.  The report found that the pass-through rate for rebates and administrative fees was close to 100 percent in 2020 and 2021 and a more recent survey determined that 100 percent of rebates were provided to a majority of small and large employers. 

The report noted that the operating margins for PBMs have been below 5 percent on average in recent years and were lower in 2022 than in 2017.  This means that if plan sponsors paid PBMs only enough to cover their operating costs of providing service, as some have argued they should do, patient drug costs would only be lowered by 5 percent.  It is unrealistic to believe that PBMs, or any business for that matter, would or could continue providing services without some sort of profit margin.  

The report also contradicts claims made in the hearing that PBMs put independent pharmacies out of business.  According to the report, “The gross margins of independent pharmacies have not fallen over time, holding at roughly 23 percent from 2011 through 2021.” 

Other reports confirm the benefits of using PBMs, including a March 31, 2023, Department of Labor (DOL) Office of Inspector General (OIG) Office of Audit report, which found that the DOL overspent $321.3 million in six years (fiscal years 2015-2020) on prescription drugs for the Federal Employees’ Compensation Act (FECA) program because the Office of Workers’ Compensation Programs (OWCP) did not use a PBM.  There are approximately 2.6 million federal and postal workers in the FECA program.  Prior OIG audits determined that OWCP did not have a PBM “to help contain costs.” 

The OIG also found that the OWCP failed to adequately keep track of changes in pharmaceutical policy, leading to the issuance of thousands of “inappropriate prescriptions and potentially lethal drugs, including 1,330 prescriptions for fast-acting fentanyl after issuing a policy that restricted its use.  The OWCP also had insufficient oversight of drugs that are not usually covered in workers’ compensation programs, leading to hundreds of millions of dollars being spent that “may not have been necessary or appropriate for FECA claimants. … OWCP lacked sufficient clinical expertise and guidelines to ensure appropriate pharmaceutical decisions, which could negatively impact claimants’ health, recovery, and return to work.”

An August 14, 2019, Government Accountability Office (GAO) report, “Medicare Part D: Use of Pharmacy Benefit Managers and Efforts to Manage Drug Expenditures and Utilization,” examined how PBMs are used in voluntary Medicare Part D drug plans.  In 2016, PBMs were used by drug plan sponsors, like insurers, to provide 74 percent of drug management services, while the sponsors provided the remaining 26 percent.  In 2016, GAO found total gross expenditures in Part D were $145 billion, with PBM-negotiated rebates and other price concessions offsetting that amount by 20 percent, or net Part D expenditures being $116 billion.

The facts do not support the claims made against PBMs during the House Oversight and Accountability Committee hearings.  PBMs are not the cause of high drug prices.  Overregulating them or mandating how they should provide their services would not only drive up prices but also be a disservice to the 275 million Americans that receive the benefits provided to them by PBMs.