PBM Reform

The Issue

PBMs were established to manage the high costs of prescription medicines, but their current opaque practices often serve to increase them – at the pharmacy counter and at the expense of taxpayers and patients.

The evidence of harm is clear: especially in seeing delayed coverage of generic medicines, slower access to lower-cost generics in Medicare, and concentrated market power stemming from only three PBMs controlling 80% of business in America. Reforming PBM practices is a regulatory and ethical imperative—especially for patients and taxpayers to receive the full value of generic and biosimilar medicines.

PBMs Prioritize Profits Over Affordability

Hidden Price Concessions and Fees: PBMs are incented to choose reference products with substantial price concessions and fees, frequently excluding generics and biosimilars from coverage or implementing barriers to dispensing when they are on the formularies.
Current PBM Revenue Models: Administrative fees, data charges, and pharmacy spreads tied to high list- price products create incentives for dispensing higher-cost medicines. These manufacturer pricing schemes ultimately increase payer claim costs, despite PBMs’ stated role of delivering value to payors.
Dispensing Barriers: More than 25% of new generics face prior authorization requirements during the first two years after launch. In the biosimilars market, nine Humira biosimilars, despite having parity coverage with the originator, had less than 2% market share in January 2024, even with lower net costs per unit.
Vertical Integration: Unchecked PBM ownership of specialty, mail, and retail pharmacies, and demand for privately marketed prescription medicines are creating anticompetitive barriers to dispensing lower-cost products even when they are included on formularies.

Zooming in on Humira Biosimilar Adoption

Formulary reforms can level the playing field by prioritizing biosimilars in coverage decisions and by nudging PBMs towards patient-centric choices.

The slow crawl of Humira biosimilar adoption stems from a tangled web of PBM pricing and rebating practices that combine to reward reliance on the brand product. Dislodging these deeply rooted barriers is no small feat. Biosimilars face an uphill battle despite having lower prices and no clinically meaningful differences. Policymakers must champion transparency, clear disclosure of net prices and rebates, and end the use of rebates and fees that are linked to list prices so that patients gain access to lower cost biosimilars.

A Call for PBM Reform

Prescription medicine pricing and reimbursement processes must be governed by transparency, accountability, and healthy competition. To realize the full savings potential of generic and biosimilar medicines and safeguard health budgets, policymakers should take decisive steps to reform PBM practices:

Reimagine the PBM Bidding Process: Implement prospective bidding for Part D and ERISA plan sponsors that requires PBMs to compete based on their ability to provide the lowest net effective cost across the entire pharmacy benefit, inclusive of rebates, discounts and the entire range of concessions guaranteed to payors.
Limit Vertical Control: Congress and the FTC should continue their work to provide additional guardrails on PBM utilization management, pharmacy sourcing, and network contracting practices that limit patient access to lower-cost medicines.
Legislative Action: Pass bipartisan PBM reform measures, like those included in the 2024 omnibus bill, and additional reforms to curb anti-competitive behavior and promote accountability.