Health care update (PBMs)

Recent/upcoming developments… Earlier this week, the House Energy & Commerce (E&C) Health Subcommittee held a hearing to discuss the practices of PBMs and set the table for possible legislative reforms this year.

* As a reminder, for the better part of two years, lawmakers have been working on a bipartisan basis to enact PBM reforms.  Last December – following full House passage of a package of reforms and Senate committee passage of various proposals – lawmakers looked poised to enact such reforms as part of the FY25 continuing resolution (CR).  That bill included provisions to impose market-wide transparency requirements, delink PBM compensation from drug prices in the Medicare program, ban spread pricing in the Medicaid program, and require PBMs to pass through 100% of all rebates to commercial health plans (the latter was unexpected given the PBM reform effort’s primary focus on public payer programs).  The CR, however, was scuttled by incoming-President Trump and Republican lawmakers and the PBM issue was left unresolved.  Had they been enacted, these various PBM reforms would have generated ~$7b in federal savings over a 10-year period.

Our outlook… In general, the E&C hearing revealed – unsurprisingly – that the bipartisan motivation to enact PBM reforms remains as high as ever.  As such, we continue to believe it is more likely than not (50%+ probability) that reforms will be enacted this year.  However, the hearing also suggested that there are partisan divides over process and substance.  On process, there are two potential pathways to enactment: through Republicans’ partisan reconciliation bill or through bipartisan legislation.  In either case, the enactment of reforms would not occur until later this year (~Q4).  The means by which PBM reforms are enacted will have an impact on substance.  In general, reconciliation can only be used to enact proposals which impact federal revenue and spending, and as such commercial market reforms (i.e., rebate pass-through) are likely off the table in this context.  In the bipartisan context, the risk of commercial market reforms being enacted is marginally higher, though long-running bipartisan concern around such proposals does somewhat diminish that risk.  Regardless of process, bipartisan reforms around public payer delinking and spread pricing are likely to be included.

* Save for isolated Republicans with parochial interests (i.e., Rep. Carter (R-GA), a pharmacist, and Senate HELP Chair Cassidy (R-LA), a physician), commercial market reforms have primarily been of interest to Democrats and have tended to draw more controversy than public payer reforms.  This is due, in part, to pushback by some large employers and concerns that altering PBM conduct in the commercial market could increase premiums for employer-sponsored coverage.  This dynamic is reflected by the fact that the PBM reforms passed by the full House last year omitted commercial market reforms (aside from transparency).  As such, we believe inclusion of the rebate pass through provision in the failed CR was more likely the result of political horse-trading as opposed to a groundswell in support for broader reforms.  If lawmakers opt to pursue PBM reforms on a bipartisan basis this year, material commercial market reforms will be technically eligible for inclusion, though their probability of enactment will remain low absent broader buy-in from Republicans than has been the case to date.

Watch for these developments… PBM reforms have not been a prominent topic in Republicans’ debate around the reconciliation bill and its potential healthcare provisions (as compared to Medicaid, ACA, and, to a lesser extent, Medicare).  That said, we are watching for evidence that Republicans – in search of additional federal savings – are discussing the inclusion of PBM reforms in the reconciliation bill (such action would occur at E&C).  If Republicans intend to include PBM reforms in the reconciliation bill, it will result in commercial market reforms being excluded from that bill and would likely diminish the motivation of lawmakers (particularly Republicans) to pursue other PBM reforms for the rest of this Congressional session (through at least 2026).