How legislation targeting pharmacy benefit managers could affect employer health plans

The possibility that federal lawmakers could soon pass legislation targeting pharmacy benefit managers (PBMs) was raised several times when health companies CVS and Cigna Group reported third-quarter earnings on Nov. 2.

PBMs, which serve as intermediaries between drugmakers and insurers, work to negotiate prices and process claims. But over the past few years, they’ve come under scrutiny among lawmakers and regulators.

There is a concern among lawmakers that PBMs could be pocketing a high share of the discounts they secure for customers, and may not be transparent enough about their pricing. Just three PBMs—CVS Caremark, Express Scripts, and Optum Rx—control an estimated 80% of the market. PBMs’ control over which drugs are covered by insurance plans can lead to higher health costs and worse outcomes for patients, Healthcare Brew reported in April.

Legislation targeting PBM practices has already taken effect at the state level, while lawmakers in Washington recently voted to advance a package that takes aim at these entities. Such changes could have an effect on employer health plans and require HR pros to be more communicative with employees about the way their insurance works going forward.

Why PBMs can be problematic for employers. As of January 2023, 275 million of the 332 million US adults who had health insurance were served by a PBM.

Employers who work with PBMs have historically been kept in the dark about how they land on pricing for prescription drugs, said David Dross, national leader of HR consulting firm Mercer’s managed pharmacy consulting practice, told HR Brew.

“The PBM has a lot of responsibility regarding negotiation of discounts, rebates, fees—a whole host of financial activities,” Dross said. “Yet the plan sponsor really doesn’t know a lot of the detail associated with those financial arrangements—in fact really [doesn’t] know much of any of them.” (“Plan sponsor” typically refers to a company that provides healthcare plans to its employees.)

PBMs often negotiate with drug manufacturers to secure rebates on prescription drugs—essentially, these are discounts that may be partially pocketed by the PBM rather than get passed on to the payer. In most cases, plan sponsors “don’t know exactly what that particular rebate is at the drug level,” Dross added.

The lack of transparency may pose challenges for HR professionals when they field questions from employees about the prices they’re paying for certain drugs under their health insurance. And because three major players control a large share of the PBM market, there is limited availability of more transparent, fair solutions for employers, according to Dross.

Changes on the table. There has already been a ton of legislative activity targeting PBMs at the state level, with all 50 states enacting at least one PBM law since 2016.

While Congress hasn’t passed anything on PBMs yet, there’s bipartisan appetite to get something done; the Senate Finance Committee voted to advance a bill on Nov. 8 that includes proposed PBM reforms.

There’s a fair amount of overlap between what’s being proposed at both the federal and state levels, Dross said. Some of the most common provisions include enhanced transparency requirements, as well as stipulations that PBMs pass on 100% of received rebates to plan sponsors.

The two aforementioned provisions would be positive developments for employers, but others could potentially make HR’s job more complicated. A ban on spread pricing, for example—a practice in which a PBM earns a bigger profit by charging a health plan more for a drug than what the PBM pays a pharmacy for it—would require most employers to renegotiate their PBM contracts, Dross said. He added that so-called anti-steering provisions, which stop a PBM from requiring patients to use pharmacies owned by the PBM, could end up driving up employer health costs, too, as plans can sometimes save money by “directing their utilization to a smaller number of providers.”

Should legislation get passed that includes changes employers haven’t budgeted for, it could mean they’d have to change their health plan design or increase employee contributions, Dross said. And regardless of where Congress lands on legislation, any changes to the PBM landscape would likely require employers to get “much more into the nitty gritty regarding the structure of the plan than they’ve had to do in the past,” Dross said. ”And that's just going to be, bluntly, a lot of work.”