Major activity on PBM front that will help redefine drug pricing and costs
There have been major headlines recently about impending pharmacy benefits manager (PBM) reforms. Many are asking: “What changes have occurred and what are the impacts?” Frankly, so much is going on that it was hard to make any sense of it. So, I sat down to take my best shot at cataloguing and explaining the recent developments. Here is my quick take of the major developments broken up in these buckets (I like to talk about buckets to keep it all straight) – (1) FFY 2026 Bill; (2) Future Capitol Hill Reforms; (3) The FTC Settlement; (4) Express Scripts’ Net Price Announcement; and (5) Drug Price Reform Proposals.
The FFY 2026 Appropriations Bill
The recent compromise to fund FFY 2026 had major PBM reforms. It was the first major bill on PBM changes in several years – after years of trying. The changes can be broken down into a few major reforms:
All rebates get passed through — PBMs will have to pass through 100% of rebates to employer group health plans to remit 100% of rebates. This includes other concessions and remuneration, including from drug makers and aggregators. As part of this reform, PBMs have to tell employer groups about all their financial arrangements with these entities.
More reporting and transparency — PBMs will be required to supply all rebate and related information to plans for auditing at least once per year in the employer world as well. Here also will be standardized reporting from PBMs to employer groups and plans beginning in 2028 and 2029. Reporting includes drug-level rebate information, pharmacy reimbursement rates, compensation paid to brokers/consultants, affiliated pharmacy arrangements, and wholesale acquisition costs.
Medicare Part D changes – PBMs must adopt a transparent, flat-fee compensation structure (“de-linked” from rebates) and no longer tie it to rebates or utilization of drugs. Similar standardized annual reporting requirements also kick in on pricing and PBM compensation. Audit rights will apply as well. And disclosure of financial relationships will be required as well. Currently, PBMs often earn more when drug prices and rebates are higher, which can inflate prices. This helps ensure the lowest priced drugs appear on formularies as well. The bill also provides for enhanced CMS reporting, oversight, and enforcement on Part D PBM contract terms, payment trends, and network dynamics.
Any willing pharmacy participation — PBMs will have to accept any qualified pharmacy willing to meet contract terms to join Medicare Part D networks. This helps protect access to community and independent pharmacies from network exclusion or steering to PBM-owned chains.
Draft Labor Department regulation – In a related move for employer plans, the Department of Labor has proposed a draft rule that would require PBMs to reveal data on services, rebates, pharmacy reimbursements, compensation, and financial arrangements with business partners.
As to implementation timelines, some of the transparency reporting and contract standards are effective immediately with the flat fee compensation, expanded reports, and full rebate pass-through requirements effective in 2028.
What could come on Capitol Hill
Healthcare advocates and many in the drug chain are cheering the major pharmacy benefits manager (PBM) reforms included in the FFY 2026 funding package. But some in Congress are talking about even more extensive reforms broadening the bill’s reforms. And many want to target PBM’s ownership of group purchasing organizations, including concerns about the subsidiaries’ opaque structures, apparent enormous profitability and in some cases, their overseas locations. Critics argue these GPOs show how creative PBMs have been at finding loopholes to get around transparency and hide profits.
FTC settlement with Cigna’s Express Scripts
The Federal Trade Commission (FTC) and Cigna’s Express Scripts pharmacy benefits manager (PBM) reached a settlement that resolves allegations that the PBM artificially drove up prices for insulin. Cases continue against CVS Caremark and OptumRx.
Express Scripts will implement a number of reforms, including:
- Stop listing preferred drugs at the high wholesale acquisition cost rather than lower cost versions on its standard formularies.
- No longer omit drugs with a low per-unit list price on formularies or give preferential treatment to those with a high list price.
- Establish a standard offering for plan sponsors where the out-of-pocket costs for patients are based on the net cost of a drug, rather than the list price.
- Offer a standard benefit design that allows plan sponsors to transfer off of rebates or spread pricing, and delinking drug manufacturers’ payouts from list prices in standard benefits and rebate guarantees.
- Delink PBM compensation from drug list prices — again removing incentives to favor higher list price products.
- Provide full access to its Patient Assurance Program to all individuals if insulin is on a formulary unless the plan sponsor chooses to opt out.
- Ensure employers do not pay higher than a drug’s net cost.
- Pay pharmacies the cost of drugs plus a dispensing fee.
- Reshore its group purchasing organization, Ascent, from Switzerland to the United States.
- Increase transparency, including reporting more data on drug spending and disclosing any kickbacks to brokers that help employers choose PBMs.
- Expand access to its patient assistance program’s insulin benefits.
- Offer access to Trump Rx’s direct-to-consumer platform as part of its standard offerings. Costs will count toward Express Scripts members’ deductibles.
The FTC expects the settlement to lower out-of-pocket costs for drugs by $7 billion over a decade.
Express Scripts move to net pricing
Express Scripts will phase out prescription drug rebates for brand drugs. Cigna will eliminate rebates in many of its commercial health plans in 2027. The phaseout will expand to Express Scripts clients starting in 2028 as the default option. The goal is to get half of employer and health plan clients to adopt the model within three years.
The new model will save members an average of 30% each month on brand drugs. Patients will pay the lowest available cost — whether the PBM’s negotiated rate, the consumer’s benefit copay, the cash price, or a direct-to-consumer price. It will lean on technology to compare pricing options for patients and ensure they see the lowest cost when they pick up a prescription.
In addition, Express Scripts will adopt a cost-plus reimbursement model for pharmacies, paying them based on their cost for medications with a dispensing fee added in.
The PBM’s phaseout program could mean a major transformation of the PBM industry, moving billions of dollars to offset consumer costs at the expense of rebates to insurers and employers as well as some amounts retained by PBMs. But while it appears to be a sea change, it may not be all that the hype says it is.
First it does not eliminate rebates, which in my mind is fundamental to drug price reform.
Second, it is at best a hybrid approach, where rebates and net pricing will stand side-by-side in product offerings. That hybrid approach will continue to mean all the negatives of rebates continue to impact and drain the system.
Third, employers will likely continue to be enticed to stay with the rebates. I noted above that some rebates are passed on at the drug counter through what are known as point-of-sale rebate programs. Indeed, some states mandate this in at-risk insurance regulated by the state. The literature seems to indicate, though, that less than 15% of all employers share some or all of the rebates at the point of sale. So, the point-of-sale rebates are not well adopted and how meaningfully different will the new net-price rebate program really be? That a hybrid system will continue could very well mean employer groups and health plans stay with the rebate model. Indeed, Express Scripts calls the conversion voluntary and not mandatory for employer groups. Cigna’s commercial risk business will totally make the leap to net price.
Other drug developments on drug pricing
President Trump’s executive orders: In an initial executive order, the president showed a sophisticated and nuanced approach to reforming the opaqueness of the drug channel and other aspects of price-setting in our nation, including importation, biosimilar and generic uptake, site neutral payments, reforming acquisition costs and charges by hospitals and other entities, a new payment model, and changing the current Part D drug negotiation law.
In a second executive order, the president indicated a desire to implement most-favored nation (MFN) pricing, the strictest form of international reference pricing, across all lines of business. America would adopt the lowest price agreed to in any other developed country. This would result if brand drug makers did not come back with significant price concessions in the meantime.
Drug maker negotiations: President Trump arrived at drug price deals with 16 of 17 top band drug makers. The deal generally includes MFN pricing in Medicaid now, a promise to introduce new drugs across lines of business using MFN pricing, and discounts for self-pay consumers through the TrumpRx website.
MFN models: The Trump administration announced three new MFN models post the second executive order.
- The Guarding U.S. Medicare Against Rising Drug Costs Model, or GUARD Model, would cover Part D drugs. It is mandatory for drug makers participating in Part D.
- The Global Benchmark for Efficient Drug Pricing Model, or GLOBE Model, would cover Part B drugs.It is mandatory for drug makers participating in Part D.
- The GENErating cost Reductions fOr U.S. Medicaid Model, or GENEROUS model, would establish MFN in Medicaid.
Impacts
Here are some closing thoughts:
- A lot of these developments are seminal, with structural changes that directly address how rebates and incentives affect drug pricing and patient costs.
- The reporting and transparency will be unprecedented for health plans, employer groups, and government programs. It opens up new oversight and regulation of PBMs.
- The reforms seem to begin to stifle the opaque middleman deals that drive price and divert savings from consumers.
- PBMs are already reforming due to the rise of transparent PBMs and the loss of market share. This will accelerate industry reform.
- The direct drug price reforms add to definable savings and affordability over time. A case in point: drug manufacturers already seem to be responding and making price changes in some cases, even as they drive up prices globally.
- At the same time, we are a ways off from truly low prices across all lines of business in America.
#pbms #drugpricing #healthcare #coverage
— Marc S. Ryan
