J. Scott Applewhite/AP Photo
Senate Finance Committee Chair Ron Wyden (D-OR) speaks about the Pharmacy Benefit Manager Reform Act at the U.S. Capitol, March 14, 2024.
Weeks after Donald Trump chose as his health and human services secretary Robert F. Kennedy Jr., whose anti-vax tendencies and general distrust of Big Pharma alarmed the industry, he and RFK had dinner with drug company CEOs. He reportedly shifted the focus to a common enemy: pharmacy benefit managers (PBMs). These concentrated middlemen, whose information advantages in the prescription drug supply chain create incentives for higher prices, serve multiple purposes for Trump. First, reforming PBMs really would save patients and the government money. Second, it aligns Trump with pharma in the finger-pointing contest over who’s responsible for high drug prices.
This is nothing new; Trump’s previous HHS secretary was literally a top executive at drugmaker Eli Lilly. Trump took action on PBMs during his presidency, by eliminating the rebates PBMs negotiate with drug companies as violating anti-kickback statutes. The rebates are problematic because they are often not passed on to health plans and patients, and because they incentivize higher list prices for drugs (the higher the list price, the higher the rebate). The Congressional Budget Office scored the Trump rebate rule as costing the government money, essentially buying PBM spin that they lower drug prices. Democrats then used successive delays of the rebate rule to “save” money and pay for various programs. The rule was eventually killed.
This gives Trump the opportunity to rerun this playbook, taking action on drug prices while keeping Big Pharma happy. But he’s run into a problem; Congress may do the PBM reform before he can get to it, and Joe Biden will be the one to sign it.
The PBM reforms are part of a giant year-end package of health policies bolted onto a three-month government funding bill. It accomplishes some but not all of what bipartisan reformers hoped to crack down on these middlemen. It’s fully bipartisan; the House Republican leadership put the reforms in their summary to whip votes on the overall package, which is on life support at the moment. Whenever Congress gets its act together and funds the government, PBM reform will ride along.
That leaves the Trump White House with some tough choices. If PBMs are mitigated and drug prices remain uncomfortably high, there won’t be many more fingers to point. Even if Trump takes on the much bigger and more politically powerful insurance industry, Big Pharma’s practices will eventually emerge as the primary obstacle. And this uneasy peace that Trump wants to fashion with the industry will be severed.
The PBM reforms in the continuing resolution are a compromise but pretty far-reaching in their own right. The biggest component takes on those rebates by requiring that they fully pass through from the drug companies to private health plans, without the PBM taking a share. Health plans would get detailed data from PBMs on all transactions, eliminating the information advantage that is the source of PBM profits.
Congress may do the PBM reform before Trump can get to it, and Joe Biden will be the one to sign it.
For Medicaid, PBMs can no longer engage in “spread pricing,” where some of a rebate is retained and they derive excessive profit off the spread between what they get from drug companies and health plans and what they pay out to pharmacies. PBMs would have to reimburse pharmacies at a flat rate using the National Average Drug Acquisition Cost (NADAC), ensuring that pharmacists survive while attacking the profit bubble in the supply chain. For Medicare Part D, the Centers for Medicare & Medicaid Services would have to establish a standard, transparent PBM contract with a dispute mechanism, reporting requirements, auditing rights, and a penalty process.
This covers virtually all prescription transactions, and returns PBMs to their original purpose of claims processing, dispensing with the fiction that they are cost reducers in the system. “The PBMs systematically reimburse pharmacies less than their cost to buy and dispense medicine. That guarantees huge financial losses and has led to thousands of pharmacy closures and a loss of access for patients,” said Doug Hoey of the National Community Pharmacists Association in a statement. “The provisions in this legislation will help ensure that pharmacies are reimbursed more fairly, and that their contracts with PBMs aren’t the completely one-sided, take-it-or-leave-it contracts currently offered by the PBMs and their big insurance plan owners.”
Not everything that reformers wanted is in here. In July, Reps. Jake Auchincloss (D-MA) and Diana Harshbarger (R-TN) released the Pharmacists Fight Back Act, a bipartisan bill that was seen as the strongest set of reforms introduced in Congress to date. The crackdown on spread pricing in Medicaid and transparent NADAC pricing come right from the Pharmacists Fight Back Act; but that bill went further by eliminating network exclusions for certain prescription drugs and ending the practice of PBMs steering patients to their own specialty and mail-order pharmacies. (Auchincloss could not be reached for comment.)
Still, these reforms are the closest to an overhaul of the system that Congress has ever considered.
The overall health package has a lot to it; just the summary of it is 17 pages long. It mostly extends some expiring measures, like telehealth coverage, pandemic preparedness, Medicare early-detection cancer screening, the Medicare-dependent hospital program, an opioid recovery program, and much more. Community health centers, a socialized medicine–style structure of clinics across the country that is supported by the strange bedfellows of Bernie Sanders and right-wing rural lawmakers in medical deserts, also are extended in the program.
There are some annoying features as well. The package increases physician payments in Medicare for one year by 2.5 percent, after the Medicare fee schedule cut those payments by 2.8 percent just a month ago. And members of Congress will get to go back to the Federal Employees Health Benefits plan, after spending years on the Obamacare exchanges; that’s not exactly a ringing endorsement of the exchanges, especially a year before subsidies for them are likely to be slashed.
But the significant number of expiring programs means that this package will likely ride along on something, even as the continuing resolution crumbles. There are simply too many stakeholders with too much at stake. And the PBM overhaul is not controversial, so it’s fairly locked in too.
That brings us back to the Trump dilemma. PBMs were a convenient punching bag for him, a way to offload all the problems in the health system on one group. And it’s certainly true that PBMs are a significant source of the problems. But they’re not even close to the whole problem. Drug companies are fighting very modest price negotiations with Medicare inaugurated in 2022. (Previously, they had been shamelessly ripping off the program; European health services pay a fraction of what Medicare does.) Pharma companies also use all kinds of patent games to maintain monopoly exclusivity for their products. Nationalizing clinical trials and rewriting the patent process would save Americans and the government hundreds of billions of dollars annually.
What’s more, if you really want to affect the drug transaction chain, you could follow up with the bipartisan bill released earlier this month, to delink the biggest PBMs and their mail-order and specialty pharmacies from giant insurance companies. This kind of Glass-Steagall Act for health care would reverse the vertical integration that has perverted all sides of health care.
In other words, if and when these PBM reforms pass, Trump would have two main options left on the high-profile issue of drug prices: He could seek to break up the insurance companies, or deal with the drug company games. Both take on the types of big money that Trump sought to mollify in his final presidential campaign. The option of taking credit for his predecessors’ victories is also available, by touting the PBM reform as his own and gradually negotiating prices in Medicare that Biden kicked off. But trying to lower prices in any form will also require antagonizing Big Pharma.
In other words, PBM reform doesn’t just secure real benefits for patients and public-health programs; it takes Trump’s finger-pointing strategy off the table. That will over time result in another societal challenge where Trump will promise big and deliver small. Hopefully, someone in the opposition party will manage to notice.
