States Target Pharmacy Benefit Managers to Lower Drug Costs

States across the U.S. are enacting legislation aimed at curbing the power of pharmacy benefit managers (PBMs) in an effort to reduce prescription drug costs for consumers. PBMs manage prescription drug coverage for health insurers, negotiating prices with manufacturers and determining which medications are covered.

At least a dozen states have passed laws this year that limit PBM compensation, set minimum payments to pharmacists, or require greater transparency from these companies. These measures come as affordability remains a significant concern for Americans, with a KFF poll indicating that about 6 in 10 U.S. adults are worried about affording their medications. Approximately 4 in 10 reported altering their prescriptions in the past year due to cost, such as taking lower doses or not filling prescriptions.

Pharmacy benefit managers, including large companies like CVS Health Corp., handle the majority of U.S. prescriptions. According to an Associated Press search, over 120 bills concerning PBMs were introduced in at least 26 states this year, with about a quarter advancing in at least one legislative chamber. Critics argue that the consolidation of PBMs gives them undue leverage in the pharmaceutical market.

The PBM industry asserts that it plays a crucial role in controlling drug costs and has contributed to the widespread adoption of generic drugs, which now constitute 90% of U.S. prescriptions. Prem Shaw, president of CVS Health's PBM operations, stated that PBMs were created to lower drug costs and compared criticism of them to blaming umbrellas for rain.

Companies like CVS have reportedly spent millions on advertising campaigns to influence public opinion and oppose state regulations. CVS has filed federal lawsuits challenging laws in states like Tennessee, where a new law prohibits PBMs from owning retail pharmacies as of July 1, 2028. CVS argues this law is protectionist and is seeking to avoid closing its 136 pharmacies in the state. The company has also faced lawsuits in other states, such as Arkansas and Louisiana, over its lobbying and business practices.

Some state laws mandate specific dispensing fees for pharmacists. For example, a new Kansas law requires PBMs to pay a $10.50 dispensing fee per prescription, which some pharmacists view as a positive step, though they note it may still be below their costs. A Louisiana law establishes an $11.81 dispensing fee and requires PBMs to act in the best interest of health plans and their enrollees.

Opponents of these dispensing fee mandates label them a "pill tax" that could increase consumer costs. Supporters counter that these laws also limit the markups PBMs can charge health plans, potentially leading to prices below wholesale costs. PBMs negotiate discounts with drug manufacturers, but some states are now requiring them to pass these savings directly to health plans.

The debate over PBM regulation also raises concerns about access to medications, particularly in rural areas where local pharmacies are essential. Faith Sanders, a resident of Cedar Vale, Kansas, noted that without the town's pharmacy, residents would need to travel 35 miles for prescriptions.

Some lawmakers have questioned the effectiveness of state-level regulation, suggesting that federal action might be more appropriate. Congress did pass new PBM regulations in February, including a provision to prevent PBMs from retaining negotiated rebates for certain Medicare plans.