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PhRMA witness tells House Insurance Committee PBMs and 340B growth are shifting drug costs to patients and employers
Summary
Leslie Wood of PhRMA told the committee that consolidation among pharmacy benefit managers and expansion of the federal 340B Drug Pricing Program are increasing patient out-of-pocket costs and state/employer spending; she offered reforms including passing rebates to patients and PBM regulation.
Leslie Wood, regional vice president of state policy for the Pharmaceutical Research and Manufacturers of America (PhRMA), told the House Insurance Committee that consolidation among pharmacy benefit managers (PBMs) and expansion of the federal 340B Drug Pricing Program have altered how discounts flow through the prescription supply chain and are increasing costs for patients, employers and state governments.
Wood said nearly 90% of prescriptions are filled with generics and that net prescription spending has remained a relatively stable share of total health-care spending, but that large portions of branded-drug spending are captured by intermediaries. "More than half of every dollar spent on branded medicines goes to entities other than the manufacturer," Wood said, adding that PBMs, wholesalers, contracted pharmacies and mandated rebates all take shares of the list price.
Wood cited several quantitative claims: she said net spending on medicines rose about 2.3% in 2023; generics and biosimilar use produced roughly $2.9 trillion in savings between February 2013 and February 2022; and the 340B program's purchasing volume expanded from about $12 billion in 2013 to roughly $66 billion in 2023. She said PBM consolidation gives three companies control of roughly 80% of the market and that four large contract pharmacies'Walgreens, Walmart, CVS Health and Accredo'absorb about half of 340B-related profits in contracted arrangements.
Wood argued that 340B growth can raise state and employer spending because drugs dispensed under 340B cannot simultaneously generate manufacturer rebates to insurers or PBMs (so-called duplicate discounts are prohibited). She said this dynamic costs employers an estimated $6.6 billion nationally and state and local governments about $1 billion nationally; for Michigan specifically she gave figures of roughly $272 million more for employers and about $34 million more for state and local government. Wood said contract-pharmacy mandates could increase costs further and could reduce Medicaid rebates to state plans.
On policy solutions, Wood proposed ensuring manufacturer rebates and discounts reduce patients' point-of-sale costs, protecting patient assistance programs and banning practices that leave coupon savings outside a patient's out-of-pocket maximum. She recommended PBM reforms including flat fees instead of percentage-based payments, banning spread pricing (charging insurers more than pharmacies receive), and prohibiting PBMs from steering patients solely to their own pharmacies.
Vice Chair Gerter asked whether the 340B program had departed from its intended purpose of helping patients. Wood said the program is federal and that many changes would require federal action but recommended state-level integrity measures such as claims modifiers and tracking to confirm eligible patients benefit from the program. "It is a federal program and so changes really do have to happen at the federal level," Wood said.
Committee members did not take action on policy changes during this meeting; the testimony was offered as background for the committee's work on cost-saving measures.
