While prices in the pharmaceutical market continue to rise, Congress has failed to address the role of Pharmacy Benefit Managers (PBMs). As patients face rising costs and pharmacies go out of business, state governments have stepped in with a patchwork of rules. In their rush to regulate, states often do so blindly, prioritizing immediate restrictions over transparency. Instead, states should start by shedding light on the opaque PBM industry — not for regulators, but for employers, insurers, hospitals, pharmacies and patients.
Transparency through reporting requirements is the reform most favored by employers, with 85 percent support. While transparency doesn’t directly lower prices, it allows employers and insurers to choose which PBMs they do business with and creates more informed negotiations. This incentivizes PBMs to compete.
Before rushing in to micromanage the industry, policymakers should adopt the path that provides the information needed to thoughtfully evaluate other regulations. Regulating without transparency risks locking in inefficient market structures and stifling better alternatives.
For example, Arkansas was the first state to ban PBMs from providing services through pharmacies they own — a move PBMs immediately challenged in court. Without a view into the PBM market, states have no information with which to decide between the Arkansas approach versus Illinois’ more limited proposal to simply prevent PBMs from steering patients to their pharmacies. Theoretically, both approaches could be wrong, but without transparency, it is impossible to know.
Some states are exploring increased transparency, but they often include additional requirements unlikely to reduce drug costs. In California, Gov. Gavin Newsom is considering operations and financial reporting from PBMs. Good in theory, but Newsom would also introduce a licensure regime. This is despite the governor’s previous skepticism over the effect that licensing PBMs would have on lowering drug costs. His doubts were well-founded. Licensing adds costs to doing business without addressing the problem. Even worse, California’s reporting would go to California’s Department of Health Care Access and Information, with no mention of informing the broader healthcare system.
Unless California is planning to make the data public, this reporting requirement will miss the point. PBM data must be accessible to insurers, manufacturers, hospitals and pharmacies the PBMs contract with. These are the parties that need to be able to compare PBMs and negotiate. Reporting solely to state regulators equips the state to micromanage. It doesn’t equip the market to function.
The example states should look to is Texas’ 2019 law that was later amended. Instead of immediately regulating how the market operated, the legislature enacted reporting requirements for the three largest players in the pharmaceutical industry: manufacturers, health insurance and PBMs. Once received, the department is obligated to make the data available on a publicly accessible website. Legislators in Texas have since enacted other legislation preventing patient steering, gag clauses, and payment clawbacks armed with knowledge of the industry in their state instead of acting blindly.
Two proposed bills in Ohio require PBM reporting directly to insurers and health plan sponsors but also begin regulating before the information is available. One bill would limit accreditation requirements on pharmacies, a tactic used to exclude independent pharmacies.
The second Ohio bill would require licensing for PBMs on top of the reporting requirements. This would give the Ohio Insurance Department the authority to review PBM contracts. As noted with California, there is little reason to think licensing will reduce drug costs.
The first of the Ohio bills is moving in the right direction, but the licensing and micromanagement of the second could undermine the potential reform. Costly regulations not only increase prices, they also take tax dollars to enforce. Simply shining a light on PBM practices would empower insurers, employers and pharmacies to negotiate better deals.
Policymakers who are serious about lowering drug costs must prioritize transparency. When insurers and pharmacies have access to real market data, PBMs will be forced to compete for their business. By mandating open reporting, the market can do what markets do best: reward value and punish waste.
