Factions of the health care system and members of Congress are turning their fire on an oft-maligned part of the drug pricing system — the middlemen who negotiate discounts with drug companies on behalf of health plans.

The business practices of pharmacy benefit managers, or PBMs, have attracted the ire of community pharmacies, health care providers, drug companies and both Republicans and Democrats, who argue the middlemen lead to increased costs for patients.

“We want to address the whole kit and caboodle,” said Rep. Earl L. “Buddy” Carter, R-Ga., referring to the full suite of PBM business practices. He said he and other lawmakers, including Democrats, will soon launch a bipartisan “Patient Access Caucus” to focus on issues impacting access to health care.

“That is going to be the first issue that we address: PBMs.”

PBMs work with health plans — and, in some cases, are owned by them — to decide what drugs will be on a covered list of drugs called a “formulary” and how much a patient will have to pay for them.

PBMs argue their work saves money and that the rebates they collect from drug companies in exchange for coverage by a health plan are used to lower premiums.

“I see some of that focus [in Congress] is providing an opportunity for us to better educate policymakers on Capitol Hill and the administration about the value that our companies deliver to the market in terms of lower costs, affordability, better patient access and better health care outcomes,” said JC Scott, president and CEO of the Pharmaceutical Care Management Association, a trade group representing PBMs.

But a 2019 Senate Finance Committee staff report argues drug companies raise list prices so they can offer PBMs larger rebates and get more favorable placement on formularies to improve their market share.

PBMs keep a portion of these rebates and also receive fees for their work, but how much is generally unknown because of the secrecy of contracts.

The new Republican majority in the House, reeling from a historic loss last year dealt to its allies in the pharmaceutical industry in a newly passed law addressing drug costs, wants to do something to make its own mark in the drug pricing debate.

“If you’re going to have a serious discussion about prescription drug costs, certainly the PBMs, in the eyes of many, have actually increased the cost of prescription drugs to consumers,” said Rep. James R. Comer, R-Ky., chair of the House Committee on Oversight and Accountability.

“We’re concerned about a lot of the decisions being made by the PBMs, the lack of transparency by many of the PBMs, the vertical integration by many of the PBMs,” he said, adding the committee would have hearings soon.

While a recently passed law addressing drug costs allows the government to negotiate lower prices for some of the most expensive drugs covered by Medicare, caps out-of-pocket drug costs and limits insulin costs to $35 per month for seniors, Republicans argue those provisions largely ignore issues in the commercial market, where about half of Americans get their insurance.

If Democrats focused more on why drugs’ list prices have increased so much instead of capping out-of-pocket costs in Medicare, “we could have not only solved the problem for insulin but for other maintenance drugs that people have to take every day. And we can still do that,” said Rep. Brett Guthrie, R-Ky., who is considered the likely chair of the House Energy and Commerce Committee’s Health Subcommittee.

Still, any action on PBMs is likely to be bipartisan, with some Democrats in the Senate having a long track record of targeting the middlemen.

“Pharmacy benefit managers continue to be a major issue I’m going to focus on,” Senate Finance Chair Ron Wyden, D-Ore., told reporters in November.

A spokesman for Wyden said this week that “the chairman is deeply concerned with PBM behavior, including actions that hurt community pharmacies and keep families paying high prices for prescription drugs.”

Legislation and oversight

Sens. Maria Cantwell, D-Wash., and Charles E. Grassley, R-Iowa, plan to reintroduce legislation this year that would address many of the issues raised by PBM critics, including spread pricing, a practice in which PBMs charge payers like health plans and Medicaid more for a drug than what they reimburse to the pharmacy.

The bill would also prohibit PBMs from “clawing back” payments to pharmacies, a practice that community pharmacies argue has harmed their businesses, and require PBMs to file certain information with the Federal Trade Commission.

While the bill advanced last year in the Senate Commerce, Science and Transportation Committee by a vote of 19-9, with six Republicans supporting it, it did not get a floor vote, which a spokesperson for the majority said was because of “scarce floor time.”

Lawmakers might also look into “specialty pharmacies” owned by PBMs and insurers. Critics say PBMs and insurers have steered patients into those pharmacies instead of independent businesses.

Much of the pressure for action is coming from drug companies and community pharmacies, which argue PBM practices are driving up costs for patients.

“I think it’s just a question of politics and can Republicans and Democrats work together, especially as we head into a contentious presidential cycle,” said Adam Harbison, senior director of congressional affairs for the National Community Pharmacists Association, which supports the Cantwell-Grassley bill.

Some trade groups representing drug manufacturers have also targeted a rebate overhaul as a high priority. The Senate Finance Committee investigation found the practice of offering rebates for insulin contributes to increased list prices and limited uptake of lower-priced products.

“Addressing the role of rebates is one of the biggest missing pieces of the Inflation Reduction Act. Without addressing a number of these perverse incentives, you just leave a system in place that tends to favor highly priced, highly rebated drugs and not incentivizing coverage of lower-cost medicine,” said Craig Burton, senior vice president of policy and strategic alliances for one of those groups, the Association for Accessible Medicines, which represents manufacturers of generic and biosimilar medicines.

Carter has suggested ending the rebate system or requiring that rebates be handed down to the patient.

After 2012, PBMs began excluding some drugs from formularies to leverage higher rebates, according to the Senate Finance report. That meant the drug typically wouldn’t be covered by a plan unless a patient could get an exemption.

Drugs are also sometimes moved to higher tiers with higher copays, which can mean “patients paying full costs of the generic drug,” said Burton, who is also executive director of the Biosimilars Council.

An Avalere study funded by the Association for Accessible Medicines found that 63 percent of Medicare Part D beneficiaries had paid the full cost of a generic drug at least once in 2020 because they were placed on a higher tier.

Regardless of whether legislation passes this Congress, oversight could be painful for PBMs and set the stage for action in the future, including enforcement actions or lawsuits.

The state of California announced litigation earlier this month against insulin makers and the three largest PBMs, claiming they “leveraged their market power to overcharge patients,” citing, in part, the 2019 Senate Finance Committee report.

The suit argues that larger rebates demanded by PBMs result in higher list prices for insulin, which particularly impacts patients paying the full price because they don’t have insurance or they have plans that require cost-sharing.

Other lawsuits against PBMs are pending.

Meanwhile, the FTC is currently conducting a market inquiry into PBMs, focusing on fees, clawbacks, reimbursement terms with pharmacies, patient steering and the impact of rebates on generic and biosimilar competition and patient costs.

Amid this backdrop, it will be difficult for PBMs to defend themselves on Capitol Hill, observers say.

An open question is how much the insurer trade group will step in to defend PBMs.

Three companies — CVS Caremark, Express Scripts and OptumRx — cover 80 percent of the market.

Express Scripts is owned by insurer Cigna, and OptumRx is a subsidiary of UnitedHealth Group. CVS Caremark is a subsidiary of CVS Health, which acquired insurer Aetna in 2018.

The insurer industry, represented in large part by America’s Health Insurance Plans, has more allies on the Hill than do PBMs, especially among Democrats.

“I think what people don’t realize is there really isn’t a PBM industry. It’s really a product of the health insurance companies,” said an industry observer who works in drug pricing.

“Are they going to increase their role because the scrutiny is going to be so high? [America’s Health Insurance Plans] obviously brings a lot of firepower. Maybe that would be an advantage for the PBMs.”