Legislators reached a bipartisan agreement to fund the federal government on Tuesday in a sweeping package that includes a number of important provisions for healthcare, including a two-year extension of Medicare’s telehealth flexibilities and payment relief for doctors.
Yet, perhaps the most significant healthcare reforms in the stopgap funding bill released late Tuesday are changes to how controversial middlemen in the drug supply chain, called pharmacy benefit managers, do business.
The bill would force PBMs to pass through 100% of rebates to sponsors of prescription drug plans in Medicare and the group health market. The middlemen would be prohibited from billing Medicaid states and plans more for drugs than what they reimburse pharmacies. And, PBMs would have to provide detailed data on prescription drug spending to federal regulators and their clients.
The policies have been championed by pharmacist groups, patient advocates and many lawmakers in Congress facing intense public pressure to lower drug costs and improve access. Eliminating rebate retention in particular could remove an incentive for drugmakers to increase the list prices of drugs, while simplifying PBMs’ opaque financial practices, advocates say.
However, it’s uncertain whether such reforms will actually reduce costs for patients down the line.
Tuesday’s package also prevents payment cuts in Medicaid to hospitals that serve vulnerable patients, extends Medicare programs that increase access to rural healthcare and hikes funding for community health centers.
It also cracks down on so-called “ghost networks” in privatized Medicare plans, by protecting Medicare Advantage beneficiaries from hefty cost sharing if they get services from a provider listed in their plan’s directory but who isn’t actually in network.
The bill, which maintains current funding levels until mid-March, was delayed over House Republican infighting over infrastructure and farm provisions, according to reports. Though congressional leaders unveiled it with enough time to pass before government agencies shut down on Saturday, further squabbling could still threaten the agreement.
Historic PBM reforms
Currently, PBMs frequently retain a percentage of rebates paid to them by pharmaceutical companies in return for placing their drugs on the PBM’s formulary. The higher the list price of a drug, the more generous the rebate.
But the middlemen will no longer be allowed to link their payments to the prices of drugs in Medicare if the bill is passed in its current form. PBMs overseeing Medicare’s prescription drug benefit won’t be allowed to collect revenue other than “bona fide service fees,” according to the legislation.
Any rebates or fees collected by a PBM won’t be in violation, even if they’re calculated as a percentage of a drug’s price, if that revenue is passed through to a plan sponsor.
Similarly, PBMs would be required to pass through 100% of rebates to group health plans, or commercial coverage offered by employers or other associations.
Eliminating rebate retention was part of legislation during President-elect Donald Trump’s first term, but never made it across the finish line in Congress. Research from the Brookings Institution last year found restricting the practice is unlikely to save much money, since PBMs can extract revenue in other ways, like raising fees.
It could even backfire by making it harder for PBMs to negotiate down drug prices with manufacturers, according to the nonprofit public policy group.
PBM lobby the Pharmaceutical Care Management Association slammed the package, pointing to research suggesting delinking PBM rebates from the cost of drugs will raise premiums for seniors in Part D plans by $13 billion, with $10 billion of that going directly to drugmakers in increased profits.
“This bill does nothing to lower costs, nothing to improve pharmacy access, nothing to benefit patients. And that is because Congress is choosing to release 1,547 pages of new text hours before a vote, leaving no time to thoroughly review the provisions that will have serious consequences for our health care system,” the PCMA said in a statement Tuesday night.
The bill also bans spread pricing in Medicaid by requiring PBMs to reimburse pharmacies the entire cost of a drug plus a dispensing fee.
Pharmacy groups cheered the reform, with the National Community Pharmacists Association saying it will save taxpayers roughly $1 billion over the next decade.
Clients and regulators would also have more clarity into PBMs’ business practices under the legislation. The bill would force PBMs to provide detailed data on prescription drug spending and business practices to the HHS and to plan sponsors in Medicare and the group health market, including how much in rebates it collected from drugmakers. PBMs that didn’t promptly disclose the information would be fined.
The package, which represents the first meaningful PBM reform from Congress, is likely a boon for the pharmaceutical industry, which has lobbied heavily to place blame for rising drug prices on the middlemen. It’s also likely to help independent pharmacies, which point to PBMs’ tactics as a driver of pharmacy closures nationwide.
Lawmakers focused on PBM reform also applauded the legislation.
“The health policies in the bill Congress is about to vote on represent modest but important steps towards a health care system that favors seniors and families over big corporations and middlemen that manipulate the system to maximize profit,” said Senate Finance Committee Chair Ron Wyden, D-Ore., in a statement Tuesday. “These policies are an important start to bringing more common sense to the way Medicare and Medicaid pay for prescription drugs.”
Stocks in companies operating major PBMs, including CVS, UnitedHealth and Cigna have fallen this week amid speculation such policies would be included in the law. President-elect Donald Trump didn’t help on Monday when he said “we are going to knock out the middleman” — a reference to PBMs — during a press conference at his Mar-a-Lago resort.
The three companies’ PBMs — Caremark, Express Scripts and Optum Rx, respectively — account for 80% of all U.S. prescriptions and have borne the brunt of scrutiny from Congress and antitrust regulators over their business practices, including how collecting rebates could be inflating the price of drugs. The Federal Trade Commission sued the companies in September over the issue.
“PBMs are currently in a negative headline spiral,” wrote Leerink Partners analyst Michael Cherny in a note Monday, pointing to other legislation proposed last week to break up PBMs.
Still, “the net sum of the [new] proposals are not overly drastic,” Cherny said, as rebate pass-through has “long been a broad offering” among PBMs.
Telehealth flexibilities survive the year
The end-of-year legislation would extend flexibilities for telehealth coverage in Medicare for another two years, a move long-awaited by virtual care advocates and providers.
Under the bill, Medicare would allow temporary changes to telehealth rules first enacted during the COVID-19 pandemic to continue, like allowing patients to receive telehealth care in their homes or permit some non-mental healthcare to be offered through an audio-only phone call.
Telehealth groups cheered the news. Advocates and providers have pushed lawmakers for months to extend the flexibilities or make them permanent, pointing to a looming year-end deadline. Expiration would have proved a huge hit to telehealth providers like Teladoc that saw business soar over the pandemic but have struggled recently amid a return to in-person care.
“With just two weeks left until the expiration of current telehealth flexibilities, we express our gratitude to lawmakers for making telehealth protections a priority in the end-of-year budget negotiations. We fully support the proposed two-year extension of telehealth Medicare flexibilities in the current continuing resolution,” said Alye Mlinar, the executive director of Telehealth Access for America, in a statement.
The flexibilities were first implemented in 2020 to speed adoption of telehealth and prevent lapses in care amid the public health emergency. Before the pandemic, telehealth use in Medicare was restricted to certain types of facilities or services, or for beneficiaries who lived in rural areas.
Though some policies have been made permanent, others are still operating on temporary waivers. At the end of 2022, Congress passed an omnibus law that extended the Medicare flexibilities until the end of 2024.
Provider and telehealth groups say expanded virtual care increases access to care, particularly for mental healthcare and for patients who face long travel times to facilities. Some providers have noted the temporary nature of the flexibilities makes it challenging for smaller practices to invest in virtual care.
Lawmakers have largely expressed support for telehealth expansion too, though some have raised questions about cost and quality.
The bill would also extend the CMS’ Acute Hospital Care At Home program for five years. The initiative, first enacted during the pandemic to boost hospital capacity during COVID surges, allows approved Medicare-certified facilities to provide inpatient level care in patients’ homes.
The program was also set to expire at the end of the year without congressional approval. As of July, 332 hospitals participated in the initiative across 38 states, according to the CMS.
Small sigh of relief for physicians
The stopgap funding bill provides some relief to doctors by shrinking a reduction in Medicare funding next year to 0.3%, instead of the 2.8% originally approved by regulators.
Congress has to step in at the end of the year and obviate scheduled cuts due to statutory requirements around how Medicare pays doctors. That creates significant stress for physicians, who have amplified calls for a permanent fix to the situation this year amid elevated costs.
Physician groups support tying annual reimbursement hikes to a measure of inflation, a reform supported by some members of Congress and influential advisory groups.
“The health provisions in the proposed CR represent a mixed bag for medical groups,” said Anders Gilberg, the top lobbyist for the Medical Group Management Association. “We are deeply disappointed that Congress failed to fully remedy the looming 2025 Medicare payment cut to physician practices. Any cut, however fractional, is unacceptable.”
Emily Olsen contributed reporting.
