“Across the board, there is increasing scrutiny of whether and how PBMs are contributing to high costs for drugs, [and] high costs for patients at the pharmacy counter,” said Margaux Hall, a partner in Ropes & Gray LLP’s healthcare practice. “And so I think employers are pushing back because they want to manage their health insurance costs.”
In a 2024 report to Congress on prescription drug spending in private health insurance plans, the U.S. Department of Health and Human Services laid out the explosion in the nation’s prescription drug spending in stark terms. Total spending on retail prescription drugs, net of rebates, was $406 billion in 2022, rising from $291 billion in 2014, the report said, which amounts to a nearly 40% increase.
Here are three things benefits and health care attorneys are watching as PBM lobbying heats up under a new administration.
December Agreement Could Change
Attorneys are fairly confident that PBM legislation can move sometime soon given that President Donald Trump and his deputies appear open to it. But how much any new legislation will resemble the proposal that came up short in December is anyone’s guess.
“Really, the big question in my mind is, whether it’s going to look exactly like what was included in the [continuing resolution] back in December, or whether there will be additional limitations, or different limitations on the way PBMs and payors contract and the way PBMs administer pharmacy benefits for insurers and group health plans,” said Ryan Temme, a principal at Groom Law Group who advises insurance companies and PBMs.
Along with beefed up reporting requirements on PBMs, another significant proposed change in the December agreement would have required PBMs to pass on 100% of prescription drug rebates or other discounts to employer health plan sponsors. Currently, PBMs frequently retain a percentage of those rebates.
In letters sent to Trump and congressional leaders Feb. 5, industry trade groups said that Congress’ agreement from December included policy changes that would “de-link drug prices from PBM revenues, share negotiated savings with employers, workers and their families, ban spread pricing, and require transparency from the PBM corporations that have persistently resisted it.” Spread pricing refers to a practice by PBMs in which they charge health plans more than they pay pharmacies for the same drug and pocket the difference.
More broadly, attorneys expect Congress could build on PBM law changes enacted at the end of 2020 in a bill called the 2021 Consolidated Appropriations Act, which contained significant new transparency and contract requirements on PBMs. The changes included amendments to ERISA prohibiting contracts between PBMs and employer group health plans from containing so-called gag clauses, which made it harder for plans to understand their drug costs, including the amount of reimbursements that PBMs paid to pharmacies. The law also included significant new fee disclosure requirements on benefit plan service providers.
States Advance Their Own Regulations
Attorneys are also keeping a close eye on the vast array of state regulatory activity on PBMs that has sprung up as Congress has yet to act, and say a patchwork of state laws is another major driver for federal action.
State law is developing because the U.S. Supreme Court allowed some state PBM laws to go forward in its 2020 decision in Rutledge v. Pharmaceutical Care Management Association. In that decision, the justices upheld a state law regulating PBMs in Arkansas as not preempted and concluded that state laws regulating PBMs are preempted only if they force an ERISA plan to adopt certain coverage.
PBM state regulation might be up for consideration by the Supreme Court again soon, because the state of Oklahoma has petitioned the justices for review of a Tenth Circuit decision from August 2023 that found parts of a law regulating pharmacy benefit managers were preempted by federal benefits laws and Medicare Part D. The justices in October asked the federal government to file a brief in the case.
But even as the high court considers whether to take up the case, other states are pushing forward with their own efforts to regulate PBMs, including Texas, which has pushed for its laws to be enforced against ERISA plans despite their arguments the laws are preempted.
“I think the reason why employers really want to see some action here is that the states are making a mess of it,” said Alden Bianchi, counsel at McDermott Will & Emery LLP and an employer-side attorney.
Bianchi said he’s recently fielded questions about a Feb. 5 legal opinion from Texas Attorney General Ken Paxton that asserted two recently enacted state laws regulating PBMs, H.B. 1763 and H.B. 1919, would apply to all commercial health plans in the state, including self-funded employee benefit plans regulated by ERISA.
The attorney general’s assertion came despite the fact that the ERISA Industry Committee, or ERIC, which represents large employer plan sponsors of ERISA-regulated benefits, urged Paxton in a letter sent in June to prevent any enforcement of the new laws on self-funded employee benefit plans. ERIC said ERISA’s broad federal preemption provision over laws that affect ERISA plan design or administration would apply to the two laws regulating PBM practices in the state.
“While we share the goal of reducing health care costs, policies that stand to erode ERISA preemption and national uniformity threaten to do more harm than good,” ERIC said in its June letter to Paxton.
Bianchi said he’s watching for how the Supreme Court handles the Oklahoma case, but in the meantime, states haven’t slowed down on enacting new PBM laws.
“State by state, they’re enacting PBM laws,”Bianchi said.”They read the Arkansas decision as basically a license to do whatever they damn well pleased.”
New HHS Secretary Supports PBM Crackdown
Recent remarks from the Trump administration indicate openness for changes in federal PBM laws, although some attorneys are critical of remarks so far because they don’t outline what exactly the White House will support.
In addition to comments from Trump during a December interview on “Meet the Press” where he voiced support for cutting out middlemen to lower drug prices, HHS Secretary Robert F. Kennedy Jr., who was confirmed Thursday, has voiced support for changes in PBM law.
He elaborated on the administration’s support for PBM legislation in an exchange with Sen. Maria Cantwell, D-Wash., at his Senate Finance Committee confirmation hearing Jan. 29.
“President Trump is absolutely committed to fixing the PBMs,” Kennedy said.
Cantwell sought assurances that the administration would back specific legislation in the Senate to tackle spread pricing, but Kennedy didn’t take a position.
“I haven’t read the entire law, so I don’t know, but I think that we need to reform the PBMs,” Kennedy said to Cantwell, though later in the exchange he said he supported efforts the committee had pursued on PBMs “in principle.”
Cantwell, who voted no on Kennedy’s confirmation, reintroduced legislation Tuesday with Sen. Chuck Grassley, R-Iowa, that would require PBMs to report on their compensation via spread pricing and fees to the Federal Trade Commission, among other changes. Grassley was the bill’s sponsor and Cantwell was among a bipartisan group of 10 original co-sponsors.
Employer-side attorney Anne Tyler Hall, managing partner at Hall Benefits Law, said, “I think we’ve got some good indicators” that the White House would enact federal legislation on PBMs.
She pointed to language in the 2021 Consolidated Appropriations Act, signed into law by Trump at the end of his first term, that imposed new requirements on service providers to comply with direct and indirect compensation disclosures under ERISA Section 408(b)(2).
“I think what’s going to happen is there’s going to be more transparency required from the PBMs. Maybe they are explicitly required to now comply with 408(b)(2) fee disclosures of indirect and direct compensation. Because when we go and negotiate these PBM fees, we still can’t get the big three to give us their fees. They refuse to provide their fees,” Hall said. She referred to three major PBM players in the employee benefits industry that are run by three big insurance companies: Caremark of CVS Health, Express Scripts of Cigna and Optum Rx of UnitedHealth Group.
Given the lack of specifics, other attorneys are more skeptical of the Trump administration’s remarks on PBMs, including McDermott’s Bianchi.
“Plans don’t have the expertise to administer themselves,” Bianchi said. “They require a middleman. …We might regulate the middleman, but we’re not going to cut out the middleman,”
Bianchi added that it wasn’t clear that Trump’s commitments to cut out drug-pricing middlemen indicated support for regulating PBMs.
“I’m not sure I can discern their intent,” he said.
–Editing by Abbie Sarfo.
Hall Benefits Law, LLC
