Shares of CVS Health (NYSE:CVS), Cigna (NYSE:CI), and UnitedHealth Group (NYSE:UNH) witnessed a 5% drop following a report from the Wall Street Journal that said a bipartisan group of lawmakers is preparing to introduce a bill aimed at dismantling pharmacy-benefit managers (PBMs). The proposed Senate bill, backed by Senators Elizabeth Warren and Josh Hawley, would compel companies that own health insurers or PBMs to divest their pharmacy operations within a three-year period.
The legislation, which is also set to be introduced in the House, is the most significant attempt yet to reform the operations of PBMs and their parent companies. This move could sever a significant revenue stream for these companies and address patient frustrations. The bill is inspired by historical government actions that prohibited joint ownership in various industries.
Senator Elizabeth Warren criticized PBMs for market manipulation, which she claims has led to increased drug prices, harm to employers, and the closure of small pharmacies. She asserted that the new bipartisan bill would address these issues by limiting the influence of these intermediaries.
Senator Josh Hawley supported the bill, stating it would prevent insurance companies and PBMs from further monopolizing American healthcare and driving up costs for families.
However, the likelihood of the bill becoming law during this Congress is slim, as the session is concluding. Proponents of the bill are laying the groundwork for its passage in the next year.
The push for this legislation has gained momentum in the aftermath of UnitedHealth Group executive Brian Thompson's killing and subsequent bipartisan support. This follows extensive hearings and investigations into health industry practices, which critics argue have contributed to soaring drug prices.
The Pharmaceutical (TADAWUL:2070) Care Management Association, representing PBMs, countered by suggesting that the focus should be on holding drug companies accountable for high list prices to reduce prescription drug costs.
PBMs play a crucial role in the prescription drug market, determining the coverage and pricing of medications for insurance plans. The three largest PBMs—CVS Health's Caremark, Cigna's Express Scripts (NASDAQ:ESRX), and UnitedHealthGroup's OptumRx—are part of companies that also own some of the nation's biggest health insurers and operate mail-order pharmacies, with CVS also owning over 9,000 retail pharmacy locations.
While these firms claim their negotiation power with drugmakers helps control costs and lower premiums for Americans, critics argue that their practices have led to higher costs, with fees and payments that enhance their revenue. PBMs have been accused of favoring their pharmacies over independent retailers and sometimes charging higher prices.
Investigations have found that PBMs can cause patients to pay more at local pharmacies compared to PBM-affiliated mail-order pharmacies and can steer patients away from less expensive drugs.
Other legislative efforts targeting PBMs have focused on demanding transparency in their business practices or prohibiting certain pricing strategies. Some of these provisions nearly passed last year but were ultimately not included in the final legislative package.
The House bill, named the Patients Before Monopolies Act, is sponsored by Representatives Jake Auchincloss and Diana Harshbarger, who have previously collaborated on legislation addressing PBMs' pharmacy steering practices. The senators referenced the Volcker rule from the Dodd-Frank financial law as a historical example of the government's prohibition of joint ownership within industries.
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