July 25, 2024

Pharmacy Benefit Managers (PBMs) have come under scrutiny in recent years from several directions. Various news outlets have recently reported on PBMs (See: NYT), and PBMs are now the focus of the Federal Trade Commission’s (FTC) new report describing, in rather pointed language, the alleged practices that it asserts drive drug price inflation. (See: WSJ) Additionally, both chambers of Congress have undertaken multiple hearings touching on or focusing on the role and practices of PBMs in the health care system. (See most recently: July 23, 2024 - House Oversight Hearing; House Oversight Report; The Hill)

While PBMs are currently in the spotlight, this scrutiny is not unfamiliar to other health care industry stakeholders. Hospitals, pharmaceutical manufacturers, insurers, third-party administrators, employer plans and others have all faced inquiries for a variety of issues. These inquiries are often naturally followed by more policy proposals – some helpful and some burdensome to employer health plans – that heighten the role of government and the effect of politics in health care and beyond.

Additionally, recent decisions by the Supreme Court of the United States (SCOTUS) inject further uncertainty into legislative and regulatory actions and may exacerbate any overreach in unintended and undesirable ways.

Why Your CEO May Care

According to our 2024 Large Employer Health Care Strategy Survey (see report: Health Care Costs and 2024 Initiatives), the rate of increase of the already high health care costs in the United States has accelerated over the past two years, with pharmacy costs as the primary driver of the trend. Given that cost concern, it is understandable that CEOs of employers sponsoring health plans may care about the broad inquiry and legislative efforts around PBMs, as such inquiries may bring implications to the costs, design, administration, legal liability, compliance and viability of that employer’s health care plan offering to support its employees and their families. It may also raise natural questions about whether any concerning or alleged exploitative practices have been happening to your plan.

Additionally, the C-Suite may be concerned with broader implications of a pattern and normalization of Executive Branch and Congressional action in private markets and arrangements among private companies. Moreover, CEOs advised on the recent SCOTUS Loper Bright and Corner Post decisions may wonder what disruption may be wrought by legislation and regulations crafted under the prior SCOTUS perspective in light of these new legal precedents, and any untested new legislative approaches.

Overview of Recent PBM-Focused Federal Action

Since at least 2022, the Federal Trade Commission (FTC) has undertaken several inquiries into PBM practices (See, e.g.: FTC 2022 Release), and requests for information. It has also been reported that the FTC intends to sue some PBMs over certain drug prices and other issues (See: WSJ) Under the Biden administration, the FTC has adopted a more aggressive stance that, while generally characterized towards consumer protections and fostering competition, has raised concerns among businesses about overregulation. While appropriate government oversight is necessary to maintain a fair marketplace, the current approach risks creating an environment where businesses may feel hampered by excessive intervention, potentially affecting their ability to thrive, innovate, and compete globally.

Additionally, both chambers of Congress have held multiple hearings and prepared separate bipartisan legislation that would impact PBM business practices. (See: S.1339 & H.R.5378). While there are disagreements about which approach to use and how far any legislation should go, there is growing support for at least some level of additional federal legislation to further regulate PBMs and promote competition.

How Many Recent SCOTUS Decisions Impact PBM Reforms & Health Care Policy?

Following the close of SCOTUS’s 2023 term in June/July 2024, the Business Group provided a policy write-up on some of the impactful decisions and covered them in more detail in our July Policy & Advocacy monthly webinar installment. These materials go into greater detail, but as a high-level take-away for two of the most important cases:

• Corner Post – effectively and greatly expands the time period within which litigants may challenge a regulation under the APA.
• Loper Bright – tells the lower courts (and sets new precedent for the Supreme Court) to review and interpret federal statutes themselves and not give as much, if any, deference to the interpretation/rationale of the federal agency that is issuing regulations or guidance.

This means that the agencies’ interpretive authority may be significantly curtailed and limited over the coming years. This, we expect, will have both positive and negative consequences for employer health plans. On the one hand, it may help reduce regulatory overreach and administrative burden. On the other, it raises uncertainty around rules upon which plans have long relied and around new rulemaking.

In the context of PBM-focused federal activity, these changes to federal agency authority may impact the ability of the FTC to assert certain anticipated claims against PBMs if they are predominantly based on agency interpretation and implementation language versus unambiguous statutory language.

The cases also appear to inherently impact how Congress must approach pending and future legislation. In many cases, Congress has produced somewhat vague legislation to reduce the number of items over which the legislative process could become contentious or unproductive. Congress then would previously rely on the agencies to “fill in the gaps,” provide regulatory guidance, and implement the law.

Now, however, after the Loper Bright decision, it is expected that Congress will have to be much more explicit in legislation in order to, at least:

• better define the statutory terms, requirements, and intent of a new law – which may significantly slow the legislative process in order to provide adequate detail or work through differences with enough specificity, and/or;
• provide more robust authority to an agency to provide regulatory guidance and implement/enforce the statute. Thus, in some circumstances, it may “super charge” an agency’s authority in an effort to maintain statutory ambiguity while protecting its interpretations in the event of a court challenge.

For S.1339 and H.R. 5378, it is unclear whether their existing provisions are clear and unambiguous enough to be implemented without significant agency interpretation (thereby opening the agency to legal challenges). Or, alternatively, if any ambiguity could remain if Congress added a “super charge” provision for the agencies to fill-in any gaps and issue rules – which may be concerning as to how far a “super charged” agency may try to push its interpretation under elected and political executive branch leadership with various (often conflicting) policy objectives.

What's Next?

The Business Group will continue to track and engage on these issues on behalf of our members. We will provide updates as they become available and routinely on both our monthly Policy & Advocacy Webinar (Register for the next one on August 15 at 12:00 ET) and through our Policy & Advocacy Newsletter (which can be subscribed to by updating your preferences in your profile under the “my account” menu on the Business Group’s website). In addition, Business Group members can register for our Thought Leadership Series webinar release of the 2025 Employer Health Care Strategy Survey on August 20 at 2:00 PM ET, which includes employer perspectives on pharmacy as well as numerous other health and well-being areas of focus. being areas of focus.

In the meantime, we welcome member input and questions – please feel free to contact Garrett Hohimer, Vice President, Policy & Advocacy at [email protected] for comments or assistance.

More Topics

Resource Compliance Pharmacy/Prescription Drugs Transparency