Built-in structures to incentivize jacking up drug prices in pharmacies, and prey on seniors, could soon be whittled down.

Sens. Maggie Hassan (D-NH) and Bob Menendez (D-N.J.) were among those who voted Wednesday to advance a bipartisan bill she personally helped develop to reduce the rocketing cost of prescription drugs and the way pharmacy managers benefit from rising drug prices. 

The Modernizing and Ensuring PBM Accountability (MEPA) Act, which passed the Finance Committee July 26 on a bipartisan basis, reduces the cost incentive for pharmacy benefit managers (PBMs) to prioritize more expensive drugs because they receive higher payouts for higher priced drugs.

Drugmakers say that the rising rebates they must pay PBMs are forcing them to jack up prescription drug prices. According to a recent analysis, drugmaker rebates to PBMs increased from $39.7 billion in 2012 to $89.5 billion in 2016, partially offsetting list prescription drug price increases. PBMs say, however, that they have been passing along a larger share of the money to insurers.

“Last year, we took on Big Pharma by giving Medicare the ability to negotiate drug prices, and we must continue to stand up to the health care industry and help people afford the medications that they need,” said Senator Hassan. “This bipartisan legislation will ensure that pharmacy benefit managers don’t push people to more expensive drugs just so that they can get a larger payout, saving seniors their hard-earned money while also saving taxpayer dollars.”

HIV drugmaker Gilead Sciences was slammed for its PBM Express Scripts because it jacked up the prices of its lifesaving hepatitis C cures Sovaldi and Harvoni. But Gilead later changed its tune and joined chorus of drugmakers—turning on PBMs. “I have never met, in this entire experience, a PBM or a payer outside of the Medicaid segment that preferred a price of $50,000 over $75,000 and a rebate back to them,” Jim Meyers, executive VP of worldwide commercial operations for Gilead told Bloomberg in 2017. “We have a system that’s incentivized upon rebate revenue.”

What Would Change Under The Modernizing and Ensuring PBM Accountability Act

The bill would lower prescription drug costs and is estimated to save $1.7 billion in taxpayer dollars. It makes a few adjustments to common PBM practices and transparency requirements under Medicare Part D, which the Senator outlined as follows:

• PBMs often prioritize coverage of more expensive drugs because part of their compensation is calculated through the list prices of drugs. This legislation will break the link between drug prices and how much pharmacy benefit managers are paid, so there is no longer a financial incentive for these companies to push patients to buy more expensive medication.
• This legislation will ban the practice of “spread pricing” in Medicaid, in which pharmacy benefit managers negotiate a lower price with a pharmacy but charge a higher price to the health plan, pocketing the difference.
• The legislation also includes a bipartisan measure that Senator Hassan led to ensure that pharmacy benefit managers report transparently on how they price low-cost generics and biosimilar medications, allowing more visibility into whether people can easily access these generics.

Sen. Menendez (D-N.J.), a senior member of the U.S. Senate Committee on Finance, said the Modernizing and Ensuring PBM Accountability (MEPA) Act includes his own inclusion, the Patients Before Middlemen (PBM) Act, joined by Marsha Blackburn (R-TN), alongside Senate Finance Chairman Ron Wyden (D-OR), Senate Finance Ranking Member Mike Crapo (R-ID), Sen. Jon Tester (D-MN), and Sen. Roger Marshall (R-KS).

“For too long, PBMs have held a vise grip over the prescription drug supply chain—price gouging hardworking families and seniors alike. Through the current incentive structure, whereby they turn a profit as a percentage of the list price of a prescription, PBMs wield their influence to have health insurers cover more and more expensive drugs—even when cheaper options are available,” said Sen. Menendez. “My Patients Before Middlemen Act, which I’ve introduced alongside Senators Blackburn, Wyden, Crapo, Marshall, and Tester, would replace the complicated scheme of opaque rebates and administrative charges with a flat fee—one that is negotiated before entering into a contract. By delinking PBM compensation from drug prices, we help lower prescription drug costs for Medicare Part D beneficiaries and better align incentives in the market. Our bipartisan Patients Before Middlemen (“PBM”) Act would curb the biggest abuses in the PBM industry today.”

Multiple factors impact skyrocketing drug prices—and when it’s a lifesaving drug, people will pay anything. Between 2007 and 2018, the cost of some insulin products increased by over 200%, according to study published in 2022 in The Lancet. Most famously, “Pharma Bro” Martin Shkreli jacked up the price of lifesaving antiparasitic medication Daraprim, for people with HIV, in 2015 by 4000%. He also allegedly created an elaborate scheme to deny the entry of generic drug competition from getting a piece of the pie.

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