Congress considers micromanaging PBM finances

With the first reconciliation bill behind it, Congress is now looking to reform other aspects of the health care system. Pharmacy Benefit Manager (PBM) reform is high on their list of priorities.

One reform was almost included in the 2024 budget package and again in the One Big Beautiful Bill, but was dropped both times. It should be dropped again. Policy wonks call the practice “spread pricing,” but it is essentially just a markup: the difference between the price a consumer pays and the price the seller paid.

In pharmaceuticals, spread pricing is the difference in the price between what an insurance plan pays the PBM for a drug and what the PBM pays the pharmacy. While intermediaries often draw criticism when prices are high, they play an integral role in negotiation and sourcing behind the scenes. Though their profits appear to onlookers as extraneous, the service they’re providing reduces the cost.

Despite spread pricing’s negligible effect on consumer prices—the average spread is just 2 percent—health policy experts are devoted to ending it. Yet in other industries, the difference between retail prices and wholesale prices is often larger, and sometimes much larger.

CBO estimates that banning spread pricing in Medicaid would save less than $250 million over ten years, while Medicaid is expected to grow by more than $1 trillion over the same period. This provision would shave 0.02 percent from Medicaid’s expected growth.

These aren’t necessarily added costs. One of PBMs’ major objectives is to reduce costs by using formularies and networks, much like Costco does with groceries. The adoption of PBMs by health plans suggests that they are, overall, saving those plans (as well as consumers and taxpayers) money.

Congress shouldn’t insert itself into complex and functioning markets. The existence of a profit margin is not evidence that a market is not working. Most would scoff at the idea that Congress should ban markups in electronics or groceries, and that rationale should apply to pharmaceuticals as well.