New bipartisan legislation would force insurers, PBMs to sell pharmacy businesses

Rebecca PiferHealthcare Dive

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A bipartisan group of legislators is seeking to break up pharmacy benefit managers by forcing them to sell pharmacy businesses, in what experts described as Congress' most radical attempt to reform the controversial drug middlemen to date.

On Wednesday, Sens. Elizabeth Warren, D-Mass., and Josh Hawley, R-Mo., introduced a bill in the Senate that would require healthcare companies that own health insurers or PBMs to sell pharmacy assets within three years. A companion bill was also introduced in the House.

The legislation, if passed, would be a massive shakeup for the U.S. pharmacy supply chain, cutting off revenue and market power for PBM giants and the conglomerates that own them.

Forcing PBMs to offload owned pharmacies would also directly benefit independent pharmacies, which accuse PBMs of paying them less than in-house businesses for dispensing medication and directing patients away from their doors.

Its impact on patients is less evident, according to experts.

“It’s very unclear whether the fact that PBMs own pharmacies is good or bad for consumers on balance. Given that, it’s unclear if forcing them to divest their pharmacies would be good or bad on balance,” said Matt Fiedler, a senior fellow at the USC-Brookings Schaeffer Initiative for Health Policy.

However, it’s unlikely the legislation — which continues Congress’ recent habit of zeroing in on PBMs, not drug manufacturers, as the main culprit behind skyrocketing drug prices — will pass before the end of the year.

Its future is also uncertain in a tightly divided Congress come 2025. President-elect Donald Trump’s transition team did not respond to a request for comment on whether Trump would sign the package if it reaches his desk.

Still, Wall Street reacted negatively to the news, sending shares in major PBM operators falling over Wednesday’s trade.

‘Patients Before Monopolies’

In recent years, PBMs have been hit with a barrage of criticism from antitrust regulators, state and federal lawmakers, independent pharmacies and patient advocates for business practices that detractors say drive up drug costs for Americans.

The industry is highly consolidated, with just three PBMs — Caremark, Express Scripts and OptumRx — accounting for 80% of U.S. prescriptions. Each of those PBMs belong to huge healthcare conglomerates that own major insurers and pharmacy networks, too: Caremark by CVS, Express Scripts by Cigna and OptumRx by UnitedHealth.

Among other concerning practices, critics have accused those “Big Three” PBMs of paying independent pharmacies lower rates than in-house pharmacies, directing business to their owned subsidiaries and pressuring independent pharmacies to accept coercive and damaging fees.

Independent pharmacies have also raised alarms about the practice of spread pricing, when PBMs charge insurers a higher price for a drug than what they reimburse to the pharmacy, and keep the difference.

Caremark, Express Scripts and OptumRx have denied such accusations, despite investigations finding evidence to the contrary.

A Federal Trade Commission report published this summer found major PBMs steered patients to their own pharmacy subsidiaries instead of other local operators, including for mail-order medications and lucrative specialty drugs, and paid owned pharmacies notably higher reimbursement rates.

Similarly, a House investigation earlier this year found PBMs preferred in-house pharmacies, sometimes to the detriment of patients.

Such practices may be contributing to pharmacy deserts, according to research. Roughly one in three retail pharmacies have closed since 2010, with independent pharmacies at a notably higher risk of closure — likely due to PBM business practices, according a study published in Health Affairs earlier this month. Almost half of U.S. counties are considered pharmacy deserts as a result of the closures.

Major PBMs have attempted to extend olive branches to independent pharmacies through recent partnerships.

If backers of the new legislation get their way, the number of independent pharmacies PBMs have to forge relationships with could significantly increase.

The Patients Before Monopolies (PBM) Act would prohibit a parent company of a PBM or insurer from owning a pharmacy business, according to a press release from Warren’s office. It would empower antitrust regulators and state attorneys general to require any companies that don’t divest their pharmacies within three years to do so, and hand over any revenue received during that the period they were in violation. That revenue will be distributed by the FTC to harmed communities, including consumers who were overcharged at PBM-owned pharmacies.

“PBMs have manipulated the market to enrich themselves — hiking up drug costs, cheating employers, and driving small pharmacies out of business. My new bipartisan bill will untangle these conflicts of interest by reining in these middlemen,” Warren said in a statement Wednesday.

The legislation is endorsed by a number of pharmacy groups, an anti-monopoly nonprofit, a patient advocacy association and AffirmedRx, a PBM that relies on administrative fees instead of discounts and rebates for its revenue.

Along with the Big Three PBMs, the legislation would also affect other insurers that operate pharmacies like Elevance and Humana, both of which have specialty pharmacy arms.

In a statement, Hawley said the PBM Act “will stop the insurance companies and PBMs from gobbling up even more of American health care and charging American families more and more for less.”

“The insurance monopolies are ruining American health care,” Hawley said.

Legislation ‘largely misses the point’

Pressure has been mounting on the federal government to curb high drug prices, at a time when roughly one-third of Americans report not taking medication they need because of cost.

Anger and frustration with healthcare companies reached a boiling point last week with the killing of UnitedHealth executive Brian Thompson. The crime set off a wave of dark jokes and vitriol online, with posters on social media lambasting healthcare industry practices that allegedly restrict care in pursuit of profits.

However, ire against PBMs is misdirected, according to the Pharmaceutical Care Management Association, the largest lobby representing PBMs. The companies say they save payers and consumers money by leveraging their scale to force drugmakers to agree to discounts, and that drugmakers, which set initial list prices for medication, should be to blame for skyrocketing drug costs.

The PCMA cited the value of PBMs in a statement asking Congress to reconsider the legislation.

“Whether it’s through negotiations to lower costs, partnerships with pharmacies, or clinical care programs, our value is in helping patients conveniently, safely, and affordably access prescription drugs. We are always striving to do better in delivering that value. Congress should be thoughtful in understanding that before they take away consumers’ ability to access their medicines how and where they’d like,” PCMA spokesperson Greg Lopes said over email.

PBMs steering patients to owned pharmacies could reduce dispensing options available to consumers, according to Brooking’s Fiedler. However, it may be more efficient for PBMs to work with their own pharmacies, which could translate to lower costs for the payers and consumers footing the bill for drugs, he said.

Similarly, allowing PBMs to own pharmacies provides a check against the market power of other pharmacies.

“I think a lot of the concern about PBMs owning their own pharmacies has been fomented by independent pharmacies who feel that they’re being put at a competitive disadvantage by the big PBMs. What I think is clearly true is the interests of independent pharmacies are not necessarily one and the same with consumer interests,” Fiedler said.

The legislation “largely misses the point” on what’s driving elevated out-of-pocket costs for patients: higher utilization of more expensive specialty drugs, wrote TD Cowen analyst Charles Rhyee in a Wednesday note.

To date, attempts in Washington to pass legislation curbing PBM’s business practices have fizzled out. Last year, a number of proposals failed to make it into an end-of-year spending package.

Similar interia, and a focus on larger priorities, could leave the PBM Act to a similar fate, according to Michael Cherny, an analyst with Leerink Partners.

The legislation is “unlikely to gain traction, although it is hard to dismiss outright,” Cherny wrote in a note Wednesday.