Senate Casts Skeptical Eye on PBMs: 'I Don't Know Why the Hell They Even Exist.'

The Senate Commerce Committee voiced bipartisan support for a bill to regulate PBMs.

U.S. Senate Commerce Committee members on Thursday vented bipartisan confusion and frustration about the opaque, unregulated, and possibly anticompetitive practices of pharmacy benefits managers and their reputed role in driving up drug costs for consumers.

"I gotta be honest with you, the way I see the situation on PBMs I don't know why the hell they even exist," Sen. John Tester (D-MT) told the committee, which met to discuss Pharmacy Benefit Manager Transparency Act of 2023, a bill that would enhance state and federal oversight of PBMs.

"They were set up for all the right reasons, going to negotiate drug prices, going to pass along benefits to the consumer. But what I see them doing in my state, I don't think the consumer gets much benefit. They're shutting down small businesses on Main Street right and left and those are called our local neighborhood pharmacies."

"As far as holding the big pharmaceutical companies accountable, I don't see it. And the reason I don't see it is because there is no transparency in PBMs. None, zero, nada, kaput, nothing," Tester said. "And quite frankly, when you combine that with anticompetitive tactics, this is a recipe were the only people that win with healthcare costs are the PBMs."

Tester's frustration was shared by Sen. Shelley Moore Capito (R-WV) who said she created a flow chart to understand the complex relationships between stakeholders.

"You've got the researchers, the manufacturing, the distributor, the PBM, the insurer, the doctor or hospital, the pharmacy, and then it gets to the patient," Capito said, "and I guarantee you if we actually had that in front of us, it would be more difficult to read than a flowchart from the Corps of Engineers. It would be ‘if this, that', ‘if this, that' and before you know it total confusion, which is what we have in terms of the lack of transparency with PBMs."

Committee Chair Maria Cantwell (D-WA), the sponsor of SB127, likened the complex, secretive inner workings of PBMs to the arcane practices of the housing and banking sectors before the 2008 crash.

"I'm reminded of a time when we had a similar issue of derivatives and one of our colleagues on the Senate floor said ‘we can't regulate derivatives, we don't understand them.' And then shortly thereafter, our whole U.S. economy blew up," Cantwell said. "So I guarantee you, we can look at this market, and we can understand what's going on. And we certainly can benefit from more transparency."

The committee took no action on the bill Thursday.

Mystery and Margin

Expert witness Erin Trish, PhD, co-director of pharmaceutical and health Economics at USC's Schaeffer Center, told the committee that the opaque dealings of PBMs are intentional and to their benefit.

"Prescription drug markets are complicated, and it takes a lot of boxes and arrows to show you even a simplified version of how the dollars and goods flow," Trish said. "While this complexity keeps health economists like me in business, it still remains a mystery to most Americans. And where there is mystery, there is margin."

Trish said that PBMs initially were independent of health plans and effectively reduced prices, encouraged generics, and expanded mail-order services. However, in recent years PBMs have consolidated to the point where three companies -- CVS Health (33%), Cigna (26%) and UnitedHealthcare (21%) -- control 80% of the market.

"The wave of consolidation in the last few years—including health insurers buying up PBMs and PBMs expanding their footprint in pharmacy markets—and other activities have distorted behavior," she said. "Unfortunately, evidence indicates that PBMs are now leveraging their position to extract profits in ways that are detrimental to patients, payers, and the drug innovation system more broadly."

Prof. Casey B. Mulligan, director of The Initiative on Enabling Choice and Competition in Healthcare at the University of Chicago, warned against unintended consequences in the PBM Transparency Act of 2023 and other PBM regulations, which he said "put some of these economic gains (made by PBMs) at risk by constraining the use of benefit-management tools; discouraging investment in the capital assets that help manage utilization, claims, and other activities of drug plans; and creating barriers to further innovation and entry in the PBM business."

"In the likely case that large incumbent PBMs are better able to adapt to the regulations than smaller new PBMs are, the regulations would have the unintended consequence of reducing competition – growing large PBMs at the expense of smaller ones – while they increase the resource costs of managing pharmacy benefits," Mulligan said. "Even if a new regulation eliminated only 10% of the value of benefit management – something like $14 billion annually – it would not pass a cost-benefit test unless it also resulted in a commensurate regulatory benefit."

Sen. Chuck Grassley (R-IA), speaking as a witness before the committee, raised concerns that PBMs push consumers to buy more expensive drugs so the PBMs can collect higher rebates.

"PBMs are blocking a cheaper product," Grassley said. "PBMs will claim they pass on savings to consumers or through lowering premiums, but their spread pricing and clawback tactics prove otherwise."

"When a PBM goes with a higher-price product, consumers may pay more out of pocket before their deductible kicks in or through co-insurance," he said. "The consumer ought to be the point of everything we are trying to accomplish."