Dive Brief:
The Department of Labor wants to force pharmacy benefit managers to share more information about their compensation and business practices with their employer clients, in the latest bet from the Trump administration that better price transparency will lower healthcare costs.
The DOL proposed a rule on Thursday that would require the drug middlemen to disclose rebates and fees they receive from pharmaceutical manufacturers, compensation from spread pricing arrangements, and any additional payments recouped from pharmacies related to an employers’ prescription drugs.
The regulation would also allow employers to audit PBMs’ disclosures for accuracy, and threatens potential enforcement action and civil penalties if PBMs don’t comply.
Dive Insight:
Thursday’s proposed rule is meant to bring “overdue” transparency to the fees and compensation PBMs receive, the DOL said in a press release. The department called the regulation the “most significant federal reform of prescription drug middlemen proposed in decades.”
PBMs are influential middlemen in the pharmaceutical supply chain that organize pharmacy networks, negotiate savings on drugs, create prescription formularies and process claims for employers and health plans. The companies, the biggest of which are owned by healthcare conglomerates, say they save significant money for their clients.
However, PBMs — which sit at the epicenter of the flow of U.S. prescription drugs — are facing rising criticism that they leverage that position in order to profit, while increasing drug costs for everyone else. It’s a difficult allegation to quantify, given PBMs maintain a complex web of hidden fees, opaque business contracts and rebate arrangements, experts say.
Their employer clients are also often in the dark. The DOL’s new rule aims to change that, federal regulators said on Thursday.
The Trump administration is proposing that PBMs disclose more information around the services they provide, the compensation they receive and arrangements with other parties in the pharmaceutical supply chain.
For example, PBMs would have to share the net cost of every drug on an employer’s formulary — including if the cost changes based on what pharmacy that drug is dispensed in, which would allow employers to see whether it costs them more to have a drug dispensed at a PBM-owned pharmacy.
PBMs would have to disclose which drugs are included on formularies due to compensation received from drugmakers, and share therapeutically equivalent alternatives. That would allow employers to know how their formularies are shaped by PBMs’ financial incentives, according to the rule.
PBMs would also have to share additional conflicts of interest, like if they benefit financially from step therapy protocols requiring patients “fail first” on drugs with higher manufacturer rebates.
The rule also targets brokers and consultants that help employers shop for PBM services. It would require those agents — who can get kickbacks from PBMs for pointing employers in their direction — to tell employers when that’s the case.
The DOL said that the disclosures will allow employers to better shop between PBMs, monitor their operations and analyze what’s driving their prescription drug costs.
Still, the rule has notable gaps.
The proposal would require PBMs to disclose rebates they receive from drugmakers and group purchasing organizations or “rebate aggregators,” middlemen that aggregate employer and health plan members to increase their leverage in negotiations with drugmakers. Ostensibly, that would allow employers to make sure PBMs are passing through 100% of rebates to them, if that’s in the terms of their contract.
However, GPOs may not pass all rebates through to the PBM in the first place. And given that major GPOs are all subsidiaries of the “Big Three” PBMs, the PBM could still comply with the DOL rule and tell employers that they passed 100% of the rebates they received through — even as their parent company keeps a slice.
In addition, the proposed rule only applies to self-insured group health plans, wherein employers directly assume the financial risk of providing healthcare benefits. It would not apply to fully insured group plans, in which PBM services are bundled with insurance.
If finalized as-is, the DOL estimates that roughly 9.5 million Americans will be affected by the proposed rule, a pittance of the entire employer-sponsored market. Some 165 Americans receive coverage through their or a family member’s job.
Still, the DOL requested comment on whether similar disclosure requirements would help in the fully insured space, too. Federal regulators are also seeking comment on whether they should expand the disclosure requirements to additional health services providers, such as health insurers, given employers might not have access to all claims data, fee and pricing data, and information about payments to providers.
“This price transparency and middlemen fee reveal will greatly lower costs for American workers, employers, and unions,” Cynthia Fisher, the founder and chairman of price transparency nonprofit PatientsRightsAdvocate.org, said in a statement. But “we urge the Trump administration to go even further and require full transparency for all middlemen and the entire health plan.”
The proposed rule is part of the Trump administration’s broader focus on price transparency, and follows an executive order from April directing the DOL to improve employers’ transparency into PBM compensation.
Experts generally agree that more transparency could help, mostly by encouraging PBMs to compete more aggressively against each other, which could reduce excessive profits. It’s one reform in a healthcare package that could be tied to funding legislation being hammered out on Capitol Hill.
Still, transparency is not a silver bullet, especially given the state of the market. Just three PBMs — Cigna’s Express Scripts, CVS’ Caremark and UnitedHealth’s Optum Rx — jointly control about 80% of all U.S. prescriptions, fueling calls for Congress to break them up as Washington looks for ways to improve healthcare affordability.
