Potential Impacts of Proposed Government Regulation on Commercial Health Care

Congress closed out 2022 by passing the Inflation Reduction Act, establishing for the first time Medicare’s ability to negotiate drug prices for a limited set of drugs. The Pharmaceutical Research and Manufacturers of America (PhRMA) kicked off 2023 by escalating their attacks on pharmacy benefit managers (PBMs) — the only entities in commercial health care that work to drive down high drug costs.

Faced with government interference, manufacturers are working to ensure they can continue to increase drug costs by weakening the role of PBMs. Lawmakers of both parties have jumped on the bandwagon, either because of strong ties to the pharma industry or in anticipation of next year’s tight election.

Unfortunately, employer trade groups in Washington, D.C., are backing PhRMA's agenda. These organizations are advocating for insurance “reforms” disguised as legislation to reduce prescription drug costs, instead of prioritizing closing a legal loophole that permits each state to have its own laws regulating employer health care.

Problematic legislative proposals

Seven different committees across both chambers of Congress are considering related legislation, and it is hard to keep track of what is going on. While it is tempting to take a “wait and see” approach, experience has taught us it is important to weigh in early. We have identified a handful of issues under consideration that could directly impact your pharmacy benefits by limiting how employer health plans can be administered, including:

• Spread ban: The Senate Health Education Labor and Pension Committee, led by Chairman Bernie Sanders (D-VT), has approved a bill to ban spread pricing in the commercial marketplace.
• 100 percent rebate passthrough to plan sponsor: Chairman Sanders’ legislation will also mandate 100 percent rebate passthrough (including all manufacturer fees) to health plan sponsors, which in the case of self-insured plans means to the employers. This proposal essentially dictates the contract terms between a PBM and its clients, eliminating plan sponsors’ ability to negotiate a fee structure that aligns to their business needs.
• Fiduciary mandate: The House Education and Workforce Committee is likely to advance a fiduciary mandate for PBMs. Keep in mind that ERISA mandates that a fiduciary has “the exclusive purpose of providing benefits to participants and their beneficiaries.” With a PBM as a fiduciary, plans and employers would likely no longer be able to choose how to spend rebates or control formularies.

What’s missing?

What is missing is any concerted advocacy effort to close the ERISA loophole and get states out of the business of regulating employer health care. Instead, the employer community in Washington, D.C., has been largely silent on including any ERISA language, instead proactively advocating for more regulation of employer health.

A letter signed by many of the top national employer groups on behalf of the “nation’s employers” asked a Congressional committee to increase government control of private health care contracting. They urged Congress to limit employer choices by banning the option of spread pricing, mandating 100 percent rebate passthroughs, and applying fiduciary standards to PBMs. Worse still, they are advocating for strengthening federal restrictions in ERISA but not for strengthening ERISA pre-emption.

The 50-state patchwork of PBM laws is undermining the employer health care system. Congress can and should act now to strengthen ERISA by adding pre-emption language to any bill further regulating employer health care.

What’s next

Absent any employer or plan voices speaking out in favor of employer-run health care and against further government regulation of it, Congress is likely to pass a bill to limit your benefit choices, while leaving the door open for states to continue their individual health care reform agendas and increasing costs for plan sponsors.

Over the next few weeks, Congressional committees will conclude their activities and legislation will move to the floors of the House and Senate. Now is the time for you to weigh in with your elected officials and national employer groups to maintain control over how you administer your plans and health benefits and stop the state-level onslaught of PBM “reforms.”