As 2024 comes to a close, traditional pharmacy benefit managers (PBMs) find themselves under unprecedented scrutiny. From congressional hearings to employee lawsuits and sweeping legislative efforts, this year has reshaped the public and regulatory perception of PBMs. Let’s explore the key events that defined this year and how they impact the future of pharmacy benefits.

Federal Trade Commission (FTC) report.

One of the most impactful developments of the year was the release of the Federal Trade Commission’s (FTC’s) long-awaited report on PBM practices. The report highlighted the significant influence of PBMs on prescription drug pricing and access. It brought to light issues like:

• Anti-competitive practices: The report revealed how PBMs leverage market dominance to favor their affiliated pharmacies, often at the expense of independent competitors. It cited specific examples, such as exclusive network arrangements that effectively barred non-affiliated pharmacies from participating even if they provided the same or better pricing.

• Rebate aggregators: The FTC uncovered evidence of entities called "rebate aggregators" that negotiate contracts and rebates with drug manufacturers. While PBMs claim these aggregators increase bargaining power for better savings, experts suggest they also serve to retain revenue from new fees and evade regulatory reforms. Internal documents reveal these aggregators generated $7.6 billion in fees by 2022, raising concerns about their legality, ethical implications, and reduced oversight.

• Limited generic drug access: It was revealed that PBMs and brand drug manufacturers sometimes negotiate rebate contracts that restrict access to lower-cost generic alternatives. These agreements often exclude generic drugs and biosimilars from formularies in exchange for higher rebates from manufacturers.

Congressional hearings.

In July, the U.S. House Committee on Oversight and Accountability held a hearing titled "The Role of Pharmacy Benefit Managers in Prescription Drug Markets Part III: Transparency and Accountability." Bipartisan lawmakers raised concerns over opaque pricing practices, alleged anti-competitive behaviors, and the impact of PBM policies on drug affordability for consumers. Executives from the three major PBMs testified, and key findings included:

• Market dominance and vertical integration: The Committee's investigation highlighted that the three largest PBMs, CVS Caremark, Express Scripts, and OptumRx, control approximately 80% of the market. This concentration has enabled them to implement anticompetitive policies, such as steering patients toward pharmacies they own and imposing pricing tactics that can elevate drug costs.

• Inflated drug costs: Evidence indicated that PBMs often place higher-cost medications in more favorable formulary positions, even when lower-cost, equally effective alternatives are available. This practice can lead to increased out-of-pocket expenses for patients and restrict access to necessary medications.

• Lack of transparency: The opaque nature of PBM operations, including complex rebate structures and pricing mechanisms like spread pricing, makes it challenging for plan sponsors and patients to understand the true cost of medications and the extent of savings, if any, being passed on to consumers.

Legislative action.

This year marked a strong legislative push to reform traditional PBM practices. Inspired by Congressional action, many states also introduced and enacted measures to enhance price transparency and address problematic PBM tactics. Below are some key examples of these initiatives.

• The Lower Costs, More Transparency Act: This bill would require PBMs to provide employers with semi-annual prescription drug spending data like total out-of-pocket spending and formulary placement rationale. It was overwhelmingly passed in the House last year and is currently pending Senate action.

• New York Senate Bill 9040: Signed into law on September 27, 2024, this bill prohibits PBMs from penalizing pharmacies that inform customers about the costs of prescription medications, including the pharmacy's reimbursement rates.

• Idaho House Bill 596: Effective January 1, 2025, this law will prohibit PBMs from limiting pharmacy networks to affiliated pharmacies, mandate the pass-through of manufacturer rebates to clients, and ban spread pricing practices.

Employee lawsuits.

Throughout 2024, employees brought to light major fiduciary failings by their employers related to PBM oversight. These lawsuits revealed critical gaps in employers’ diligence in protecting their workforce from inflated drug costs and unethical PBM practices. Notable cases include:

• Johnson & Johnson: A class-action lawsuit was filed against the company, accusing it of violating fiduciary duties under the Employee Retirement Income Security Act (ERISA) by overpaying for prescription drugs. Allegations included:

  • J&J paid nearly 500% above pharmacy purchase prices, costing employees millions in unnecessary expenses.

  • The company neglected to audit PBM practices, allowing steep price increases that inflated premiums, deductibles, and copays for employees.

• Wells Fargo: Wells Fargo was accused of neglecting its fiduciary duties and mismanaging prescription drug benefits, in violation of ERISA and the Consolidated Appropriations Act (CAA). Allegations included:

  • Significant price disparities for specialty generic drugs compared to benchmarks.

  • Consultants retained portions of PBM rebates from pharmaceutical manufacturers.

Looking ahead: what to expect in 2025.

The scrutiny of PBMs is far from over. Increased attention from Congress, the FTC, media outlets, and patients underscores the urgency for change. At the same time, organizations are stepping up to protect their interests and prioritize their employees’ well-being.

This new era of oversight means organizations must be proactive in addressing PBM practices. Employers who fail to align with legislative mandates or neglect to audit their PBMs risk increased costs, potential litigation, and reputational harm. Partnering with a PBM that is already compliant with evolving regulations like Rightway offers a significant advantage. Rightway’s transparent, fiduciary-aligned PBM approach ensures compliance with current and future legislative requirements while delivering an unmatched member experience for your teams.