Pharmacy benefit managers tell House panel they lower drug costs but urge caution on further state action

Lansing The House Insurance Committee heard a presentation from Sean Stephenson of the Pharmaceutical Care Management Association (PCMA), who said pharmacy benefit managers (PBMs) deliver cost savings and a range of services to payers and patients but urged lawmakers to weigh consequences before pursuing additional state reforms.

Stephenson described PBMs as private-sector contractors hired to administer prescription benefits for employers, insurers and government programs. "A PBM is a health care company hired by insurers, employers, and government programs to administer their prescription drug benefit," he said, and he offered PCMA figures that PBMs cover roughly 289 million lives nationally and that PBM tools save an average of about $1,154 per covered life.

The nut graf: PCMA told the committee PBMs negotiate manufacturer rebates, pharmacy discounts, operate mail-order and specialty pharmacies, manage formularies and run utilization programs. While PCMA credited PBMs with cost savings and error prevention, the witness asked lawmakers to evaluate whether recent state laws achieved their intended price reductions before adopting additional mandates.

What PCMA said it does

Stephenson ran through PBM functions: negotiating rebates with manufacturers, contracting with retail and mail pharmacies, operating specialty pharmacy programs, managing formularies and prior authorization, and running adherence and disease-management programs. He said PBM-managed mail-order services and specialty networks can reduce costs for payers and called the PBM role "a service to businesses and employers and union groups." He cited studies and national statistics in support of those claims and noted PBMs' role in claim auditing and preventing payment duplication.

Michigan-specific numbers provided

Stephenson offered state-level estimates: PBMs cover about 9.3 million lives in Michigan and, he said, will save Michigan payers about $33.25 billion over the next 10 years, with roughly $2.25 billion of that attributed to Medicaid-managed programs.

Committee concerns and PCMA responses

Members asked about vertical integration, transparency, rebates and pharmacy reimbursement. Representative Aragona asked about federal PBM reform efforts; Stephenson said federal debate is ongoing and that PCMA is monitoring proposals. Multiple members asked whether PBMs control formularies; Stephenson said formulary composition is decided by the payer (for example, the state or an employer) and that the PBM provides options and implementation support.

On transparency and rebate flows, Stephenson said plan sponsors receive detailed information in contracts or RFP responses but cautioned that public disclosure of specific rebate amounts could reveal competitive information and reduce manufacturers' incentive to offer discounts. He said PBM compensation typically combines administrative fees, rebate retention, and (where allowed) spread pricing; Michigan law had already restricted spread pricing in a 2022 package, he noted.

Members also asked about independent pharmacies' reimbursement. Stephenson said reimbursements and terms are set by contract between pharmacies (or a pharmacy service administrative organization) and the PBM; contract negotiations typically consider an aggregate portfolio of drugs so some individual reimbursements may be low while higher-reimbursing drugs and volume make up overall pharmacy revenue.

Ending

Members thanked the witness and indicated the committee will continue reviewing transparency and cost drivers in the prescription drug market as part of broader healthcare cost work this session.