Congress Finally Takes on PBM Reform

Taxpayers and consumers are tired of rising healthcare prices. Medicare and Medicaid—the two largest taxpayer-funded health insurance programs in the country—cost taxpayers a combined $2 trillion each year, or more than the entire size of the yearly budget deficit.  From laws restricting supply to improper payments to soaring demand, there are plenty of culprits behind soaring healthcare spending. But some practices and policies have played a particularly large role in fueling cost inflation.  Pricing practices by pharmacy benefit managers (PBMs)—third-party companies that manage prescription drug benefits for health insurers—have led to higher costs for taxpayers and patients.

These middlemen have made a pretty (taxpayer) penny by charging taxpayer-funded government insurers like Medicare and Medicaid more than they pay to procure medications and pocketing the difference. The recently-signed Consolidated Appropriations Act (CAA) contains commendable, albeit flawed, reforms that ensure taxpayers will no longer be giving a blank check to PBMs. It’s long past time to get healthcare costs under control.

The task for lawmakers has been a tricky one: crack down on PBM practices as they apply to government programs (and taxpayers by extension) without resorting to industry-wide rules that would raise costs on the entire healthcare sector. Laudably, the CAA’s PBM provisions mainly focus on taxpayer-funded insurance programs. Section 6224 of the bill requires that, when PBMs enter agreements to manage Medicare Part D prescription drug plans, they “shall not derive any remuneration with respect to any services provided on behalf of any entity or individual, in connection with the utilization of covered [P]art D drugs, from any such entity or individual other than bona fide service fees.”  In other words, payments (ultimately coming from taxpayers) that PBMs had previously pocketed are now strictly limited, and any rebates and discounts must be passed through to government plan sponsors such as insurers and employers. Government plan sponsors also now have the right to audit PBMs, and PBMs must provide regular reporting to sponsors.

However, the CAA also expands PBM requirements to medical plans outside of Medicare and Medicaid, undermining healthcare choices in the process. Section 6702 of the legislation requires that “pharmacy benefit management services” pass through 100 percent of rebates to private health plan insurance issuers. The CAA also expands reporting requirements into the private marketplace.

Lawmakers were right to focus on PBMs and the outsized role they play in fueling healthcare costs. While the Medicare-focused reforms will save taxpayers and consumers a significant amount of money, Congress should avoid imposing even more rules on private plans. Fortunately, there is plenty more that Congress can do to end red tape in healthcare and lower costs for millions of Americans. The Taxpayers Protection Alliance has many ideas for reforming healthcare, including ending Obamacare’s cap on physician-owned hospitals and allowing employers to use surplus pension funds to pay for their employees’ healthcare. Building on recent PBM changes, free-market healthcare reform is just what the doctor ordered.