Stopping a ‘moral obscenity’: Senate Judiciary Committee expresses support for PBM reform

There’s still significant support in Congress for overhauling the pharmacy benefit manager industry, after reforms almost made it across the finish line late last year but died at the 11th hour, lawmakers said during a Senate Judiciary Committee hearing on Tuesday.

“Americans are fed up… they’re eager for Congress to act to put a stop to shady PBM practices,” said Judiciary Chairman Chuck Grassley, R-Iowa, during the hearing.

Congress was poised to pass significant PBM reform in an end-of-year spending bill in December. However, the policies were stripped from the legislation after being criticized by billionaire Elon Musk, a close advisor of President Donald Trump. The delay was widely viewed as a gift to the massive PBM industry.

But now, that gift is looking more like a brief reprieve than a total stay of execution. Congress is still interested in tweaking how PBMs do business, and should act quickly in light of evidence that PBMs contribute to higher drug prices, impede patient access to drugs and cause independent pharmacies to go out of business, senators on both sides of the aisle said Tuesday.

“This is a level of corporate violence that is costing American lives. A level of colossal greed at the expense of patient well-being,” said Sen. Cory Booker, D-N.J., adding: “This is a moral obscenity.” 

‘Nobody can afford their drugs in this country’

PBMs negotiate discounts on drugs with manufacturers, contract with payers to oversee members’ access to medications and pay pharmacies for filling prescriptions.

Scrutiny of major players in the industry has been rising, with critics especially concerned about the highly concentrated and vertically integrated nature of the market. Just three PBMs — CVS’ Caremark, Cigna’s Express Scripts and UnitedHealth’s Optum Rx — control 80% of all U.S. prescriptions, and each company also operates a major insurer and pharmacy network of its own.

During the Judiciary hearing, witnesses testified how PBM practices impact different elements of the healthcare industry. However, much of the hearing focused on the ramifications on independent pharmacies and patient access to drugs.

PBMs commonly reimburse pharmacies below the cost of a drug, said pharmacist Randy McDonough, the CEO and co-owner of small business Towncrest Pharmacy Corporation in Iowa. McDonough gave an example of a patient who was prescribed a medication that cost over $700, but for which their PBM reimbursed only about $10.

Along with inadequate reimbursement, practices like charging pharmacies performance-based fees and enacting spread pricing, when a PBM reimburses pharmacies a lower rate for dispensing a drug than what it charges the health plan, are forcing independent pharmacies out of business, according to the pharmacist.

Towncrest, which owns six pharmacy locations, operated at a loss of $116,000 last year, McDonough said. The company has had to convert one pharmacy to a hybrid telepharmacy and recently decided to close another pharmacy entirely in order to stay afloat.

“At the end of the day I just call it a broken system. A system where I want to provide care but it’s become financially unfeasible,” McDonough said. “The race to the bottom has ended and I along with my community pharmacy colleagues can no longer survive.”

PBMs also create hoops that physicians need to jump through to get patients needed medications, testified Sheetal Kircher, an associate professor of hematology and oncology at Northwestern Medicine in Chicago.

The middlemen frequently switch where a patient can fill a medication to their in-house pharmacy, or change the drug a patient is prescribed to a pricier brand-name version — with no input from the patient or physicians, Kircher said.

“It’s unclear who benefits,” she said. “This committee has a meaningful opportunity to help reform the policies and practices that are causing delays, confusion and burden.”

PBMs maintain that their role in the pharmaceutical supply chain is to lower costs for their health plans and employers, and that their clients choose how to set up their contracts and decide on pharmacy networks and how services are paid.

Instead, the middlemen point to drug manufacturers as the biggest driver of high drug costs, given that drugmakers set list prices for medications.

“Our mission is to negotiate for lower net costs for employers and clients, which means lower costs for patients. A lower list price means a better starting point for those negotiations, and we have been actively calling on drug companies to lower their prices,” testified Juan Carlos Scott, the CEO of the Pharmaceutical Care Management Association, a major PBM lobby.

“I do not dispute that there is an affordability challenge for many patients and a need to continue to improve how the system serves consumers. Understanding drug costs must include a look at the entire supply chain, including drug companies,” Scott added.

Lawmakers allowed that drugmaker actions, including setting high list prices and frequent marketing, are influencing consumer access to medications. Multiple senators, for example, spoke out against round-the-clock pharmaceutical advertising on TV.

However, PBMs are not blameless, given their influential position in the pharmaceutical supply chain and research that they are profiting heavily off of it, lawmakers said.

Many senators cited an interim report from the Federal Trade Commission released in January that found Caremark, Express Scripts and Optum Rx were jacking up the price of some lifesaving medications by hundreds and thousands of percent.

The so-called “Big Three” PBMs also directed the most profitable prescriptions to affiliated pharmacies at the expense of independent operators, and paid themselves more than other pharmacies for dispensing drugs, the report says.

Caremark, Express Scripts and Optum Rx made $7.3 billion in additional revenue from marking up specialty generic drugs dispensed at affiliated pharmacies alone from 2017 to 2022, according to the FTC.

“Why is it that nobody can afford their drugs in this country but you’re making $7.3 billion? That’s more than the revenue of some nations,” Sen. Josh Hawley, R-Mo., asked Scott.

Scott refuted that PBMs pay affiliated pharmacies more than other operators and that vertical integration leads to higher costs for patients. However, the PCMA executive was frequently interrupted by senators, including in a testy exchange with Sen. John Kennedy, R-La., who fired question after question at Scott and accused him of not giving the committee clear answers.

“You speak Sanskrit. I’m sorry. You’re good at it and I know your job is to protect PBMs and, like [Sen. Thom] Tillis, I don’t think PBMs are the only ones at fault. But you don’t have unclean hands,” Kennedy said.

Creating transparency, fiduciary responsibility

Senators bandied about a variety of reforms during the hearing, from moderate actions, like forcing PBMs to give clients more information on prescription drug spending, to bigger steps, like forbidding spread pricing.

Banning spread pricing in Medicaid was one proposal included but later scrubbed from the spending package in December. However, the policy was recently brought back to life in reconciliation bill text drafted by the House Energy and Commerce Committee.

The Judiciary committee also debated more radical measures, such as forcing PBMs to separate from insurance businesses or divest pharmacies to eliminate conflicts of interest.

“Why is it a good idea for the biggest PBMs to be owned by the biggest insurers and now you’re buying up pharmacies as well? Why should we allow that?” Hawley asked Scott.

Bipartisan legislation also proposed in December would have broken up PBM conglomerates by forcing them to sell pharmacy assets, but fizzled in Congress. However, there’s been some corresponding action in the states, with Arkansas passing first-in-the-nation legislation in April banning PBMs from owning pharmacies. A handful of other states are considering similar bills.

Forcing divestitures is aggressively opposed by the PBM industry, and could potentially raise prices for consumers down the line, experts have said.

Instead, Congress should consider forcing more transparency on PBMs and making them legally beholden to lowering drug costs for their clients, said Neeraj Sood, the interim chair of the department of health policy and management at the University of Southern California Price School of Public Policy. Sood has run extensive research into PBMs’ impact on the pharmaceutical market.

“I would implement price transparency so that everyone knows what they’re paying. And then the fiduciary responsibility says if you’re getting screwed, I can take you to court,” Sood said. “Those are I think better than banning particular practices. Because otherwise it’s whack-a-mole. You ban spread pricing and something else will show up a year from now.”

During the hearing, Grassley suggested that PBM reform could once again become a focus for Congress after it passes Trump’s “one big, beautiful bill” enacting conservative tax and policy priorities through the reconciliation process. Republicans are aiming to have the megabill on Trump’s desk by July 4.

But in the meantime, PBMs appear to have an uphill battle in avoiding future reform, even in a historically unproductive Congress.

“Let’s not walk away from this hearing and say, oh my god that’s really a mess. Let’s do something that we were elected to do and legislate,” said Ranking Member Dick Durbin, D-Ill. “I don’t see how PBMs in the examples we’ve heard today have done the right thing for the patient. They’ve done the right thing for their bottom line.”