"Profits Over Patients: The PBM Business Model Under Scrutiny"
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House Education and Workforce Subcommittee on Health, Employment, Labor, and Pensions U.S. House of Representatives
Follow its sittingsSpeaker 2
But Johnson and Johnson haven't spoken directly with the CEO of Johnson and Johnson over that, the Oversight Committee, and we brought him to testify. It's fair to get a reasonable rate of return. We encourage that for the private sector. But let's be honest about where much of the private, the primary investment research came from: American taxpayers and the brilliant people in the Department of Defense and the NIH and DARPA and ARPA. The legislation we've introduced on PBMs goes to the root of the problem, both for PBMs and the other issue about big pharma.
In this instance, with PBMs and this hearing targeting middlemen who will offer little value to employers or workers. Thank you, Mr. Chairman. I yield back.
Speaker 1
I thank the ranking member for yielding and for your cooperation and working together in collaboration. Thank you so much. Pursuant to committee rule HC, all members who wish to insert written statements into the record may do so by submitting them to the committee clerk electronically in Microsoft Word format by 5PM, 14 days after this hearing. And without objection, the hearing record will remain open for 14 days to allow such statements and other extraneous materials noted during the hearing to be submitted for the official hearing record. I will now turn to the introduction of our four distinguished witnesses.
Our first witness is Mister James Gilfan, president and CEO of the ERISA Industry Committee in Washington, DC. Our second witness is Missus Chris Deacon, principal and founder of Versand Consulting in Mooresville, New Jersey. Our third witness is doctor Mariana Sokal, associate professor of public health policy and management, Johns Hopkins Bloomberg School of Public Health in Baltimore, Maryland. Our last witness is Miss Hannah Anderson, director of Healthy American Policy and senior director of policy at AFPI in Washington DC. We thank the witnesses for being here today, and we look forward to your testimony.
Pursuant to committee rules, I would ask that you each limit your oral presentations to a three-minute summary of your written statement. As committee members have many questions for you, the clock will count down from 3 minutes. Pursuant to committee rule eight d and committee practice, however, we will not cut off your testimony until you reach the 5 minute mark. I would also like to remind the witnesses to be aware of your responsibility to provide accurate information to this subcommittee. I will first recognize Mister Gilfan for your testimony.
Speaker 3
Thank you, mister chairman, ranking member DeSanye and members of the subcommittee, for the opportunity to testify today. I'm James Galfin, president and CEO of the ERISA Industry Committee or ERIC, the only national association that exclusively represents large employers regarding health, retirement, and compensation policies. Our Fortune 100 member companies employ people in every state and are the backbone of the employer-sponsored insurance system that provides health benefits to over 160,000,000 American workers and their families. ERIC member companies provide coverage through self-insured health benefit plans. So when an employee fills a prescription, goes to the doctor, goes to the emergency room, it's not the insurance company paying the bill.
It's the employer and the employee. On average, member companies pay about 80% of the health care costs for their employees and families. Providing affordable access to health care is a responsibility employers take seriously, and ERIC's member companies are committed to pursuing value for employees, selecting the very best vendors, the best plan design, and the lowest fees to maximize the benefits for our plan enrollees. And one way that employers seek to be responsible managers of benefit plans is by relying on advice and counsel from outside experts, such as brokers and consultants. Employers retain these experts to help advise on plan design, to construct requests for proposals to choose vendors such as third-party administrators and PBMs, and to oversee the conduct and performance of those vendors through audits, evaluations, and ongoing comparisons with market research and other metrics.
Unfortunately, we have been made aware of a troubling practice wherein some, not all, but some brokers, consultants, and advisers who are supposed to advise employer plans are actually paid what appear to be kickbacks from the very vendors they are supposed to be sorting through and fairly evaluating. These arrangements create clear conflicts of interest and undermine employers' ability to make informed, cost-effective decisions for our beneficiaries. The kickbacks in the form of fees, commissions, overrides, and even per prescription cost add-ons drive costs higher and have the potential to prioritize revenue over value in the vendor selection process. This conflict of interest should be addressed so that employers can fully trust the advice and counsel they receive in administering employee benefits. We appreciate Congress' investment in PBM transparency and the administration's recent regulatory action.
The PBM Kickback Prohibition Act introduced by Chairman Allen would prohibit PBMs from providing kickbacks or referral fees to intermediaries in exchange for steering business to them. We believe that this legislation would restore trust, accountability, and integrity to the process, and lead to more affordable health care for working families. We look forward to working with you to advance targeted reforms like this that lower cost and align incentives, so that health benefits serve patients and workers, not middlemen. Thank you. I welcome any questions.
Speaker 1
Thank you, gentlemen, for yielding now. Recognize Mrs. Deacon for your testimony.
Speaker 4
Thank you, chairman, ranking member, and members of the subcommittee. I've run one of the largest commercial health plans in the country, written and negotiated PBM contracts, run procurements, and I'm familiar with the financial arrangements and conflicts that drive this system. I am here to tell you plainly that the current kickback pay-to-play model is failing employees, employers, and taxpayers. One of the primary functions of broker consultants is to assist the group health plan in procuring PBM services. Unbeknownst to employers, payment to the consultant is often a precondition of even bidding on PBM contracts.
It is not uncommon to see question one of an RFP. Do you agree to pay big box broker $50,000 annually over the life of the contract? Employers never even get to see potential bidders that have agreed not to pay or pay to play. Not only are these conditions not disclosed to employers, they are often told that these questionnaires and bidding documents are proprietary, confidential, and cannot be shared with clients. Beyond procurement, there are ongoing payments between PBMs and consultants related to the group health plan's business.
In one example I share in my written testimony, CVS Caremark agreed to pay Gallagher $2.50 per retail prescription and $7 per mail and specialty prescription filled by the group health plan members. This dynamic does not reward reducing cost, nor does it reward reducing utilization. It rewards increased volume and handsomely rewards increased volume filled through those channels that generate the highest profits for PBMs and their affiliates. This dynamic rewards the status quo, and it acts to dissuade consultants from engaging in procurements or oversight that may be financially disruptive to legacy PBM arrangements. I do want to be very clear.
Not every consultant operates this way. Those that are truly independent, those that compete on transparent pricing and aligned incentives, will not be disadvantaged by this legislation. They will benefit from it, and more importantly, their clients will benefit. The same is true for PBMs. Those that are willing to compete based on pricing and their product, not on their ability to support these types of financial arrangements, will win.
The PBM kickback prohibition act addresses a specific and important problem. Employers are fiduciaries under ERISA, and they are expected to act in the best interests of the plan and plan participants. But today, they're making decisions involving hundreds of millions, billions of dollars, without clear visibility into how incentives are structured and without the power or leverage to change them. This bill is a necessary first step towards correcting that. Thank you, and I welcome any questions.
Speaker 1
I thank the gentlelady for yielding. Next, I recognize Professor Socal for your testimony.
Speaker 5
Thank you so much, chairman, ranking member, and members of the subcommittee. It's a great honor to be speaking with you today. I'm Mariana Soquel, an associate professor at the Johns Hopkins Bloomberg School of Public Health. My research focuses on improving access and affordability of prescription drugs, and I'm speaking today on my own behalf. My views do not reflect the views of Johns Hopkins University.
For several years, I've been working with large employer organizations, such as the Orissa industry committee and the purchase of the business school, Broupon Health. I have witnessed firsthand how the high cost of prescription drugs weighs heavily on American employers. Over half of all Americans obtain coverage, including for drugs, through their employer. Three out of four employers report persistent growth in costs in recent years, and the high price of prescription drugs has driven much of this increase. The problem is that many Americans cannot afford the drugs they need, even if they have insurance, because of high prices.
Commercial plans and self-insured employers typically hire a pharmacy benefit manager, a PBM, to manage their drug benefit. The PBM helps determine the drugs that the plan will cover and negotiates prices with drug manufacturers. Therefore, the PBM plays a central role in determining the plan's pharmacy spending, the therapeutic options available to patients, and the out-of-pocket costs. Today, the three large PBMs that collectively control 80% of the U. S.
Markets are vertically integrated with some plans, pharmacies, and providers. In this market, that is characterized by the lack of transparent information. Plans that are not integrated must select a PBM, and often turn to brokers and consultants for help with that. However, these consultants often get paid by the PBMs that ultimately are selected. This can create a conflict of interest, incentivizing some consultants to prefer the PBM that pays the most, not necessarily the PBM that provides the best option for the plan.
Through initiatives such as the PBM Kickback Prohibition Act, Congress should prohibit such payments to avoid this conflict of interest. Now while this and other recent reforms have brought greater transparency onto PBMs, and employers may have more visibility into what they're paying, the laws do not address the high drug prices in this market, and this is an important gap. The current PBM business model incentivizes the use of big rebates, to which drug manufacturers have responded by raising list prices. Patients pay based on these high prices when they're paying cash, when there are deductible fees, or when they must pay a percentage of the drug cost to get their drug. The Medicare program received a series of reforms to directly address high drug prices through the passage of the Inflation Reduction Act, the IRA.
Starting in 2022, 2023, Medicare beneficiaries began receiving IRA protections, out of pocket caps, inflation rebates, and the first drug selected for drug price negotiation. Employers, however, receive none of these protections, and they had their prescription drug costs grow by 8.4% in that period. Through initiatives such as HR 6000 01/1966, Congress should consider extending these protections to over 160,000,000 Americans that obtain health coverage through their employers. Expanding Medicare negotiated prices to the commercial market would allow commercial insurers and self-insured employers to access transparent negotiated prices that in 2026 were up to 90.79% lower than the list price. This can reduce the contribution of rebates in coverage decisions, increase transparency, and lower overall costs, including for beneficiaries.
Extending inflation rebates to commercial markets would also help mitigate the increasing trend of drug companies raising prices to maximize rebates when negotiating with a PBM. PBM reform is urgently needed throughout our healthcare system, but in isolation, it is not sufficient to provide the needed relief for employers and patients. Lowering prescription drug prices in the commercial market is imperative. Lower health care costs can also contribute to making American workers and companies more competitive in the global market. Thank you so much, and I look forward to answering any questions you may have.
Speaker 1
I thank the gentlelady for yielding. Lastly, I recognize Missus Anderson for your testimony.
Speaker 6
Good morning. Chairman Allen, ranking member Desanye, and members of the subcommittee, thank you so much for this opportunity to testify on the president's great health plan. My name is Hannah Anderson, and I lead Healthy America policy at the America First Policy Institute. And I just wanna say a special thanks to getting to be before you today with friends like Jeannie and Dan who I worked with on legislation like this in the past. A 136000000 Americans have employer-sponsored health care.
These patients rely on their employers or unions to provide them with health benefits as part of their compensation package. And under ERISA, they have the authority to provide the most tailor-made health benefits for their employee population. Just like any other industry, they often turn to brokers and consultants to help them offer a more competitive benefits package to potential employees. Ideally, these independent consultants are able to stretch the company's dollar further, getting lower costs, greater coverage, and better health for the employee population. However, that's not been the case.
The problem is that those consultants they rely on to select PBMs are not always independent. Reports have found that they often take more kickbacks from the PBMs than they do payments by the plan sponsors. And my fellow witnesses have acknowledged this and kind of discussed this at length, but it's really disappointing because it seems that instead of placing the plan sponsor with the best PBM, it's more about placing the PBM with the plan sponsor who pays the consultant the most. And so this isn't theoretical. It's affecting millions of Americans right now.
One example comes to mind. A patient at J and J found out that their insurance was paying $10,000 for a drug that was available for $28 if they only paid cash at the pharmacy counter. In their lawsuit, they claimed that it was because the broker, Aon, steered J and J to Express Scripts, which was paying Aon referral fees. That's so disappointing. And these conflicts don't stop at consulting fees.
PBMs have inserted gag clauses that prevent pharmacists from telling patients the cash price of the drug, and use rebate aggregators to hide rebate revenue. This has also hurt the independent and community pharmacy. Thanks to President Trump and this committee, we've made real progress. The 2021 appropriations bill required disclosure of broker and consultant compensation. The appropriations bill of this year extended that to the PBM remuneration.
And in January 2026, the Department of Labor proposed a PBM disclosure rule pursuant to the president's executive order putting Americans first on drug pricing. These are meaningful steps, but as we've heard, disclosure alone is not enough when the underlying financial perverse incentives still exist. So chairman Allen's PBM kickback prohibition act takes the next step to codify President Trump's great health care plan into law. This legislation would amend ERISA to directly prohibit PBMs from paying referral fees to brokers, consultants, advisers in exchange for directing employer health plan business to the PBM. It ends the structural incentive, not just requires the disclosure of it.
Patients first is not a tagline. It's a legal obligation under ERISA, and the president's great health care plan makes that real. Thank you, and I look forward to your questions.
Speaker 1
I thank the gentle lady for yielding. Committee rule nine, we will now question witnesses under the five-minute rule. I will recognize myself for 5 minutes. Mister Gilpin, your testimony states that one way employers seek to responsibly manage costs is relying on advice from outside experts. Could you discuss whether these relationships between the plan sponsor and health plan fiduciaries on the one hand, and brokers and consultants on the other, are typically long-standing relationships?
Speaker 3
Absolutely, Mr. Chairman. Many employers maintain long-standing relationships with their brokers and consultants. They spend years working together to develop and refine benefit plans. They experiment with different vendors and point solutions, and evaluate different options to try to maximize value. So these are relationships that often can span many years, and the broker and consultant may have a very deep familiarity with a particular employee benefits plan.
Speaker 1
Why should a plan sponsor or health plan fiduciary be able to trust their broker or consultant to give recommendations that are in the best interest of the plan?
Speaker 3
Well, in short, they work for us. So, you know, earlier this year, Congress fixed a terrible conflict of interest with PBMs. The PBMs were supposed to work for the employer and fight for us against big pharma to lower drug costs, but it turned out they were actually paid by big pharma. Right? And they were using us to play both sides and to maximize their revenue.
So now we are faced with a very similar conflict of interest wherein the brokers and consultants that are expected to advise us and be advocates for the employers are instead potentially being paid by the vendors they're supposed to be arguing against and negotiating down. We do think that brokers and consultants provide an incredibly valuable service. They have expertise that employers simply don't have and can't afford to include in their benefits department, but we've got to be able to trust them. We've gotta be able to rely on them, because we are fiduciaries. Employers have to act in the best interests of employees.
We have to do our best to control costs, and we need accurate and unbiased advice if we're going to do that.
Speaker 1
Thank you. Miss Deacon, your written testimony states that employers and health plan sponsors rely on brokers and consultants to advise them on which PBM to select and how those contracts are structured. Could you discuss whether these employers and plan sponsors trust the broker to render advice that is in the best interest of plan sponsors' goal of designing a robust but affordable benefit structure?
Speaker 4
You know, similar to my colleague, many employers do trust them to counsel on these decisions. And in many cases, you know, they have to. In some cases, those trusts are warranted. But this PBM environment is highly technical, and employers don't often have the internal staff or resources to evaluate things like rebate structures, formulary strategies, specialty pharmacy economics. But, you know, and despite the increased disclosure as discussed, the 408b2 disclosures, this increased disclosure of the market has been woefully insufficient, and it will continue to be woefully insufficient so long as consultants continue to get paid by the PBM or the bidding PBM, including on per claim basis or participation based compensation.
I mean, the conflict between the employer's expectation of getting the best PBM for their plan and independent advice and the consultants' economic incentives, on the other hand, are completely at odds. So until this is solved, that trust is very difficult.
Speaker 1
How can a plan sponsor learn if a broker or consultant has a financial incentive or outside incentive that would impair the broker's independence?
Speaker 4
Well, I mean, certainly, they should ask. And under 408 b 2, they must ask. Right? The problem is, again, I have seen firsthand where those disclosures are requested, and the consultants are not being fully transparent about what those fees are. And, again, when the underlying economics of the relationship, like per script fees, increased utilization at higher profitable channels for the PBM, when the employer isn't able to actually see those underlying economics either.
Sometimes these very, like, high level disclosures do not adequately inform the employer as to what the economic incentives of the consultant are. So, disclosures alone here are really insufficient.
Speaker 1
Miss Anderson, do you have any comment on that? Twenty-seven, twenty-six seconds. Okay.
Speaker 6
No, sir. Only just to say that, you know, this is all part of an employee's compensation package. So all of this money, even though it's leaking to other parts of the health system, at the end of the day, belongs to the patient or employee that is benefiting from the employee welfare benefit plan similar to 401k's and all of the other benefits employers provide.
Speaker 1
Okay. I'm out of time. And so, Miss Lee from Pennsylvania, is your time to answer, ask questions?
Speaker 7
Thank you, Mr. Chairman. Pharmacy benefit managers have an unbelievable amount of control over our health care. They control drug prices, decide which drugs are covered by insurance, and which pharmacies are in the network. This is all while owning and operating their own pharmacies. Express Scripts, OptumRx, and Caremark manage 80% of the drug claims in this country.
And they're owned by Cigna, UnitedHealth, and CVS, which also owns Aetna. It would be understandable to assume all these names mean different things, but health care monopolies control every part of the system. They profit off families having to choose between rent or groceries or childcare, or their lifesaving medications. This administration has come out against PBMs, but they've made it abundantly clear that the issue is not with exploiting consumers. It's with who benefits from the exploitation.
Over the last several months, the Trump administration has signed secret deals with 16 drug companies in exchange for 3 year exemptions from tariffs. The White House claims these deals have secured the lowest drug prices ever. And I'm sure it's just a coincidence that Donald Trump Junior sits on the board of BlinkRx, a company that serves to profit from pharmaceutical companies establishing direct-to-consumer platforms that comply with President Trump's demands. Doctor Sokol, what do we know about Trump's deal with the drug companies? Is there any evidence these deals created the lowest drug prices ever?
Speaker 5
Thank you so much for this question. I think the attention on international drug prices helps us identify that we're paying much more than other countries. But, how to incorporate that into getting a better deal for us? In these negotiations, in these announcements, these are voluntary deals that the industry has taken up together with the administration. We don't know how long they last.
We don't know why some manufacturers have agreed, and others haven't. And so why didn't manufacturers do it before if they can sell, right, at these lower prices? So, leaving those mechanisms to incorporate external prices into getting lower prices for us should be incorporated into things that are written in statute. For example, the Medicare drug negotiation program. In the first Trump administration, had that idea for Part B drugs, and we could have it today as part of the Medicare drug negotiation program as well.
Speaker 7
Thank you. I'd also add that reports show more than half of the drugs listed in CHOMPRx have cheaper alternatives on other direct to consumer sites. Conservatives are celebrating drug pricing transparency through PBM reform in the same breath as celebrating Trump's secret dealings with drug companies, and we can't stop at transparency. We have to actually lower those costs. So your testimony mentions a gap in recent PBM reform policies where they don't actually modify the high prices that the manufacturers charge.
So, does the law actually compel? And does it compel lower drug prices? Are these reforms, or could these reforms increase patient cost-sharing or health insurance premiums?
Speaker 5
Thank you for this question. Today, the legislation that covers, you know, increased transparency, increased disclosure of information between PBMs and their clients, does not change how manufacturers charge, how much manufacturers charge for their drugs. And that's a special problem for drugs that are in our market without competition. We have, in today, very few drugs that account for a large portion of the spending and don't have competition, generics, and biosimilars. And that's the kind of drug that we negotiate price for in Medicare, and we achieve very significant price reductions.
However, all these 150-plus million beneficiaries that are getting their insurance coverage through the commercial market, they don't have access to these lower prices. And that's a huge gap because that really weighs, like was said here, on their paychecks, on their benefits, and so on.
Speaker 7
Thank you. So between PPM reforms and TrumpRx, we still aren't making a dent in the real problem. Healthcare monopolies, the president and his family profiting, while people in this country go bankrupt trying to afford care. The problems we're seeing with PBMs are a natural byproduct of a failing health care system that relies on profits over human lives. It's important that we hold PBMs accountable, but that's only going to address the symptoms of an underlying failing system.
We need universal health care so that no American ever has to rely on a GoFundMe for life-saving medications, or so that no one is choosing between feeding their families or paying for insulin. Americans pay three to four times more for medication than in Canada, the United Kingdom, France, Japan, and Australia. So when we say that we take steps, that's great. But at the end of the day, we need to pass Medicare for all so that all people in this country are covered, or no longer going bankrupt, and are able to access the care that they need and that they deserve. Thank you so much for your time, and I yield back.
Speaker 1
General Lady Yields. And now I'll call on our chairman Wahlberg for his five minutes of questions.
Speaker 8
Thank you, Mr. Chairman, and thanks to the panel for being here. It's good to see some of you again. We haven't seen you for a little while and appreciate your involvement here today. Mister Gulfand, many of us have heard concerns from the constituents about the practice of PBMs and how consolidation of PBMs has taken away options for health plan sponsors and patients. Could you discuss whether employers have any type of flexibility when designing their prescription drug benefit programs?
And secondly, what choices do employers have when working with PBMs?
Speaker 3
I'm sure the press release is being written as we speak, but a PBM will tell you that everything's negotiable, and an employer can have any kind of plan that they want. But in practice, the flexibility is constrained, since market consolidation limits meaningful competition. With the three largest PBMs controlling something like 90% of prescriptions, they know that they hold all the cards. So if anyone could negotiate, it would be Eric's member companies because we're the biggest. We pay the most.
We have the most covered lives. But oftentimes, we're just stuck. Take one of the couple of options that they offer or take a hike. One strategy many of our member companies have tried is mixing and matching vendors. So it's carving out the pharmacy benefit, so we're not using the same company for the medical plan and the pharmacy plan.
But this is increasingly difficult as those companies just get bigger and more vertically integrated, and they've got more clout in the entire health care ecosystem.
Speaker 3
Well, smaller employers have very few choices. They may be just stuck with the PBM chosen by their TPA. With a larger employer, you might be able to choose between a traditional PBM or a smaller upstart PBM, but that sometimes is a hard sell because they're smaller, so they may get worse prices from big pharma. And once they settle on a big PBM, an employer may be able to choose, do I want a rebate plan or a spread-focused plan? But what we're talking about is how to pay the PBM, not how to design a plan that benefits patients.
Speaker 8
Thank you. Missus Deacon, according to the Federal Trade Commission, the market for PBM services is highly concentrated, and the largest PBMs are now also vertically integrated with the nation's largest health insurers and specialty and retail pharmacies. As a result of a high degree of consolidation and vertical integration, how much ability and incentive do PBMs have to prefer their own affiliated business?
Speaker 4
In short, they have a massive incentive. In that FTC report that you actually referenced, I think an excerpt from a PBM executive really said it best. Quote, you can get the drug imitinab, mesylate, at a nonpreferred pharmacy at Costco for $97. We've created plan designs to aggressively steer customers to home delivery where they can get the drug for $2,900, where the drug is 200 times higher. The optics are not good, end quote.
Right? The optics are not good. They recognize this because it hurts plan sponsors and patients. The economics are fantastic for the PBM. So as they have vertically integrated and own everything from the insurance company to the PBM to the specialty pharmacy to the rebate aggregator, group purchasing organization, and now even the manufacturers themselves.
They own the entire vertical line and absolutely have a motivation and financial incentive to steer as many patients to those high profit channels as possible. And as it relates to this bill, those high channels are often compensating the broker consultants on a per-claim basis.
Speaker 8
So for the very popular ERISA health plans, that has a significant negative impact.
Speaker 4
Yeah. At $2,900 versus, you know, $97 for a drug. There is an incentive to steer that employer and their members to the 2,900 drug, which the patient is paying a percentage of, and the employer is paying full freight on.
Speaker 8
Yeah. Thank you. Missus Anderson, these same brokers and consultants are responsible for advising the health plan sponsor on the selection of the PBM, and everything involved with it appears in some type of conclusion. Are these brokers and consultants also responsible for advising the plan sponsor on the terms of the contract with the PBM?
Speaker 6
Yes. They are, and they're not really doing their job to hold them responsible. So these brokers and consultants are advising the plan sponsor on a variety of different options for the group health plan, for the employee welfare benefit plans that the company may, excuse me, offer. And they're not doing their job when they're steering them to the most expensive options. Options.
Because, again, if a patient can go and get something at a cash price for $28 or $3, but it's actually costing the group health plan $10,000, that's my money as an employee that's going out the door. That is not my compensation package. That's not my benefit package that's being used responsibly.
Speaker 1
Gentleman yields. Now I call on Mister Mania from New York for his five minutes of questioning.
Speaker 9
Thank you, Mr. Chair. Thanks to all of our witnesses for being here today. This hearing will help inform our continued work in tackling rising health care costs. I hear from my constituents every day prescription drug costs are out of control and can be a devastating burden on families. Earlier this year, I was proud to vote in favor of the PBM reforms we passed to help improve price transparency and bring costs down.
Requiring PBMs to disclose their compensation and pass through rebates directly to the health plan was a common-sense measure to ensure plan participants reap the benefit. However, the work we've done is just the start when it comes to addressing drug costs. Inflation Reduction Act gave us a model that legislation created the first drug price negotiation program for Medicare beneficiaries and capped annual out of pocket costs for Part D drugs. We should be working to extend these savings to the more than 160000000 Americans who receive coverage through their employer. As some of my colleagues have noted, the Lowering Drug Costs for American Families Act would build on recent reforms by making Medicare fair price negotiation available to all Americans with private health coverage.
It would also limit out-of-pocket drug costs under ERISA-covered health plans and prevent pharmaceutical companies from raising prices faster than inflation, among other reforms. I'm hopeful that this committee will give consideration to proposals like this, and also find bipartisan agreement on future PBM reforms. Professor Sokol, my question is for you. An important provision of the Inflation Reduction Act is the requirement that pharmaceutical companies provide a rebate to Medicare when they raise the list price of drugs covered by Medicare Part B and Part D. However, because of procedural obligations raised by Senate Republicans, these rebates do not apply to drugs provided to privately insured individuals.
So would you please talk about the significance of ensuring the inflation rebates also apply to commercially insured patients?
Speaker 5
Thank you so much for this question. First of all, it is really important to have the inflation rebate because in this country, there is a tendency of these list prices just going up over time without any changes to the drug, any innovations. And that's what really drives the higher prices we pay, as compared to other countries. Now it's not only about penalizing manufacturers. It's also about deterring them from raising these prices.
So the inflation rebate is today, it's calculated by the difference. What is the actual price versus what the price would have been if it was according to inflation? And it's multiplied by the number of claims in Medicare. Now, Medicare has a lot of beneficiaries. It spends a lot on prescription drugs.
But when we compare that to the commercial market, that really covers about 50% of the prescription drug costs. That's a much heavier penalty, but more importantly, a much heavier deterrent against these raising the list prices. And that has a direct implication on patients that are paying over these prices over time.
Speaker 9
Thank you for that. And how does the Lowering Drug Costs for American Families Act address this issue to ensure that commercial plans would be included when it comes to those negotiations?
Speaker 5
I think the very first and most important thing is including these claims. Right? This that's the way that the rebate is calculated, and that's what determines the weight on manufacturers' pockets, how much rebate they would have to pay. So that's really what would change if I have to pay, all of a sudden, a much bigger amount. Also, there are some drugs that are more relevant in the commercial space.
So today, if they don't have many units in Medicare, these manufacturers are fine with raising prices. Right? So that expansion of the units that are accounted for in these two environments would serve as a big deterrent. And some estimates would have savings as well for the commercial market. Yep.
Some estimates have up to $31,000,000,000 by 2030, both for plans and for beneficiaries in the commercial market.
Speaker 9
Thank you for that. Thank you, Mr. Chair. Thank you, professor. And I yield back.
Speaker 10
Thank you. I'm gonna recognize myself for 5 minutes. Our health care system is under serious strain, not just because of complexity or expense, but because some have learned how to use that complexity for their own financial gain. This has led to a health care system that has been pulled in opposite directions where patients are told price costs are going up, while the middlemen record profits. PBMs are not created to be the billions.
They were meant to help the student help the patients to negotiate lower price drug prices, improve their access, and bring an order to a fragmented system. But over time, this purpose has drifted. Today, too many PBMs seem more focused on taking value out of the system than on delivering value to the patient. And this is not an accident. It's the result of incentives that reward secrecy, consolidation, shifting profits into shadows, instead of rewarding openness, competition, and patient care.
At the end of the day, this hearing is about accountability. It's about transparency. It's about whether we are willing to confront a system where too often profit comes before the patients. And, again, I wanna thank the witnesses for being here today. This is a very important topic that we're going through right now.
Miss Anderson, as we touched on before, the major PBM managers control approximately 75 to 80% of the total US prescription drugs. What would be the impact if we were to take this back to the free market as opposed to the monopoly that we're now seeing? What would be the difference we'll see as in the entire supply chain?
Speaker 6
And thank you for the question. I really appreciate it, because I think this is what we're seeing with TrumpRx. You know, the president put TrumpRx together to make sure that we were taking the middlemen out of the system. And so for some of the drugs that we're seeing that an 86, 90%, 95% cost reduction for American patients, and patients can go and buy that directly without using their, you know, PBM or other middlemen. And they're seeing a really true cost reduction on a drug that they might want to purchase and then not go through step therapy or other utilization management tools to get to.
So for a drug like Humira, which is, I think, now listed at $425 a pen on TrumpRx, that's a huge cost reduction from the list price of 6 or 7,000. And that's thanks to President Trump's leadership in putting TrumpRx together so that American patients can see what it would be like to have a no middleman price on prescription drugs.
Speaker 10
Thank you. Mister Giffield, is this his phone? Is that his name? Okay. Thank you.
There's a growing recognition that limited transparency in PBM operations makes it difficult for policymakers to fully assess the costs that are occurring. Based on your work, what are the most critical data gaps that Congress should be focused on to close this bet and better understand the marketplace and how it functions?
Speaker 3
Thank you for the question, Mr. Owens. Plan sponsors believe that our claims data belongs to us, that it should be in our possession. It's developed based on what we pay for and what our patients pay for. But oftentimes, we do not get access to those claims. Congress attempted to solve this problem in 2021, passing the Consolidated Appropriations Act that banned so called gag clauses, wherein a TPA or a PBM would refuse to provide data to the plan that generated that data.
However, it hasn't worked. The result has been that the PBMs and TPAs have simply said, we have other reasons for not providing that data. It's proprietary. It belongs to us. Without it, we can't truly know what we're spending on, what or where the money is going.
I think if we could solve that problem in combination both with the reforms that were passed in February and with the regulation that should soon be finalized from the Department of Labor, we will have enough knowledge of the ecosystem that we can really start to make meaningful change.
Speaker 10
Thank you so much. Mister Deacon, spread price has been identified as a key way PBMs generate profits, often at the expense of both plans and pharmacies. In your experience, how widespread is this practice? You might have addressed this a little earlier. And does it reflect a system that is fundamentally prioritizing margins over the patient's access?
Speaker 4
Yeah. I believe that these practices are prolific. And, absolutely, there are times, again, when the profits and margins are placed above, you know, whether it's a cost or a clinical analysis, whether that be through spread pricing, formulary management and placement, or different utilization management techniques. Employers and patients are certainly under the assumption and understanding, or for most of us, that these decisions of what drugs are were given access to and the cost of the drugs are driven by clinical reasons, not because it serves somebody else's bottom line or profits. But these, you know, continued conduct, it flies in the face of that.
And, again, to my colleague's point, the more data and access we can have, the more we can begin to understand those and solve those problems.
Speaker 10
Thank you so much. This, again, is such an important conversation. It should be bipartisan. We need to stop this monopoly, not trade it off to another government monopoly. Let the free market work.
There's no accountability, no loyalty. It's total greed, and we need to, that's not the American way. So I appreciate what you guys are doing. And with that, I'm gonna recognize my friend from Georgia, Miss Macbeth.
Speaker 11
Thank you, mister chair, and thank you, ranking member Desanje. Thank you to our witnesses who are here this morning. I have read your testimonies. But thank you for being here to discuss pharmacy benefit managers, otherwise known as PBMs, and the role that they play in limiting access to life-saving drugs. I don't have any formal questions for you today, but I do want to say I'm really encouraged by the bipartisan progress that Congress has made to curb PBM abuses.
I like the language that I'm hearing, the discussion that I'm hearing. But there's still so much more work to be done to regulate PBM's control over the drugs that are or are not covered, and the challenges patients must navigate to get the medication that they need. The big three, PBMs, CVS Care, Caremark, Express Scripts, and OptimumRx, administer about 80% of all prescriptions in the United States. This market structure has given PBMs immense power to limit which prescription medications patients can have access to under their health plans. PBMs often employ a practice called step therapy, or what I like to call fail first, which requires patients to first fail a medication preferred by an insurer before they are able to access the treatment that the patient and the doctors have agreed is best suited for them.
The problem with step therapy is that real-life people are not one size fits all. PBM policies are guided by business leaders and driven by profit incentives. Their lack of transparency leads to practices like step therapy and other health plan designs that do not always make sense for our patients, and ultimately may not achieve the cost savings that PBMs are touting. But what happens to the patients who are forced to start PBM preferred medication that they already know doesn't work for them? What is the human cost for patients who must wait months at the expense of their health before they get the coverage for the treatments that they need.
Like a teenager from Georgia with Crohn's disease, Georgia is where I represent, who, while preparing for a college entrance exam, experienced a stress-induced flare-up. Even though she and her doctor knew that biologic would be the best source of care and treatment for her, fail first required her to try a steroid first. While waiting to fail, her disease progressed. She lost 50 pounds in a matter of weeks. Her face swelled up, her hair fell out, and she lost complete control of her body.
She also lost the chance to enjoy the milestone of her senior year. And instead of celebrating graduation with her friends, she spent the last day of high school isolated at home. That is the cost of sweeping mandates that far too often leave patients behind, at the expense of their health and their quality of life. And while we all continue to grapple with the exorbitant cost of health care, we have to find the balance between the policies to keep costs down, and still deliver the lifesaving medications that our patients need. This session, Congressman Rick Allen and I reintroduce the Safe Step Act, which would provide a clear and timely exceptions process for PBM-mandated fail-first policies.
The legislation would require health plans to offer a step therapy exemption process for those who have already tried and failed a PBM-preferred drug, and for whom delayed treatment could cause irreversible health consequences. This is much needed for patients who are being steered to treatments that they know will not work for them. It means less time failing through the wrong medication, less time waiting to feel better, and to heal. I am thankful to the Department of Labor's proposed rule that will help shed light on the financial incentives PBMs have to add certain medications to their list of covered drugs and push patients toward one treatment over another. But as we wait to see just how PBMs churn their profits and influence health plans, we can act now, right now, this very minute, to provide much needed relief for patients who are just patiently waiting for care, waiting for their condition to get worse before they are ever given the opportunity to feel better.
I urge my colleagues, all of them, to support this common-sense legislation that will better protect patients from the influence of PBMs. NIL.
Speaker 12
Thank you very much, mister chairman, and I really appreciate our witnesses for being here today. This is a really important subject, that we've been dealing with for a long time and seriously need to find an answer to. Mrs. Deacon, you everybody's described the vertical integration of PBMs, the fact that they control 80% of the market, or three of them do. So how does the market power increase their leverage to enter into the complex and opaque relationships with brokers and consultants?
And what are they likely to do as we, pardon the expression, put the screws on them and try to get more visibility into what they're doing? We know that people who get their money this way are not gonna give up easily. So what will they be doing to try to maintain their market share?
Speaker 4
Thank you for the question. And you're absolutely right that this will not be something that they simply lay over and accept. You know, with respect to this bill, I think we know the game plan. We've seen it before. We see it in contracts today where these big PBMs contractually try to reclassify kickbacks to be something else.
In fact, in one of the contracts that I highlighted in my written testimony, they state in the contract, for purposes of the anti kickback statute, this, you know, this kickback shall not be constituted as a kickback. Right? We know that will happen. So I think we have to, when we're tightening those screws, be aware of that, and really account for that in how we're describing and not focus so much on the labels that these entities are labeling themselves and rebates and whatever the thing is they're labeling. We have to look at the underlying economics.
What are the economics here? What is this economic relationship? And then legislate or regulate from there. You know, their vast and growing market share and vertical integration has just led them to be able to call the shots and pay as much as they can, again, in this context to the broker and consultant community, not all of them, but many of them, to, you know, pay to play and to be the only ones that are being able to be considered by employers and employees as possible PBM vendors.
Speaker 12
It's astonishing to me that we've gotten into this position when even people on the street, so to speak, know PBMs are bad. I mean, I talk to people in my district who've read enough about this to know it. And it's amazing that some of the smartest people running the biggest companies in this country could have let us get into this position to begin with. So I'm thinking we're gonna all have to be on our toes. Mister Gelfan, thank you for the work you've done over the years with the committee.
What we know is that over the years, the National Institutes of Health says pharmaceutical expenditures were over 800,000,000,000 in 2025. So we all know the FDC is now on top of some of these things. So how I think you've talked about this, but say a little bit more about the PBM actions affecting the cost and availability of prescription drugs to ERISA health plan participants, because that's, of course, what we're most concerned about.
Speaker 3
So PBMs thank you, by the way, madam chairman. PBMs do play a central role in determining both the cost and accessibility of medications, because the power to create and manage a drug formulary is the power to grant and deny market share to drugs. I've never seen a better example of this of when biosimilars for Humira came to the market. There were a dozen of them, they were way cheaper than the branded product. But none of them got any market share, and this was 100% due to decisions that PBMs made about how to structure their formularies.
And those decisions they made were based on rebates and GPO fees. They were decisions that were not based on the best interests of patients or on affordability. Even the largest employers have very limited leverage when it comes to trying to go against what a PBM wants to do in designing a pharmacy network or a formulary. And don't forget, we don't really know what goes on in rebate negotiations. It all happens behind closed doors.
Speaker 1
Gentle lady yields. And now, Miss Hayes, I'm gonna get you in here before we have to recess for votes. So you have five minutes of questioning.
Speaker 13
Thank you. Thank you to our witnesses for being here today. The cost of health care remains extraordinarily high. In my state of Connecticut, the average employee-sponsored premium has reached almost $27,000 in 2025. Families are making impossible trade-offs, paying for health care as they continue to experience rising costs in essentials like gas, groceries, utilities, insurance, and housing.
A major driver of those health care costs is prescription drugs. PBMs play a role in managing prescription drug programs, serving as intermediaries between insurance providers and pharmaceutical manufacturers to manage drug benefits. PBMs develop the formulary list of drugs covered by plans, negotiate prices, and reimburse pharmacies for drugs. In theory, this should give them significant leverage to lower patient costs. In practice, however, the market structure raises serious concerns about transparency.
I supported bipartisan legislation signed into law in February that enacted sweeping PBM reforms in Medicare and employer-sponsored plans. This legislation included increasing transparency and reducing the incentives for PBMs to favor high-priced drugs. But additional reform is needed to address the opaque business practices of PBMs, which are highly concentrated and vertically integrated. The PPM market is dominated by three large companies as we've heard many times today: CVS Health, Cigna Express Scripts, and UnitedHealthGroup OptumRx. That controls more than 80% of the market and owns insurance plans, pharmacies, and provider networks.
As a result, these companies continue to hold significant influence over which drugs are covered and their prices. Mister Galfin, how do vertically integrated arrangements impact the ability of employers to evaluate PBM performance and fulfill their fiduciary responsibilities under ERISA?
Speaker 3
Thank you for the question. Vertically integrated PBMs, those that are affiliated with insurers and pharmacies, can exert significant control over the supply chain. So they can design the drug formularies that determine which drugs will be covered. They can use tiering and prior authorization and step therapy to create barriers, and steer patients to one drug or to a different drug. They can set reimbursement rates for pharmacies, including their own pharmacies.
And remember, all PBMs own specialty pharmacies and mail order pharmacies if they don't also own retail pharmacies. They can create preferred pharmacy networks that can exclude competitors or exclude independent pharmacies. The mergers and acquisitions that keep getting approved, they almost always say that this vertical integration is going to create efficiency. It's gonna save money. It's gonna be better for patients because of the efficiency.
But at this point, I'm not sure we could even find a credible expert who would agree that that's actually what has been happening. I mean, instead, the market consolidation has just been used against plan sponsors and against patients.
Speaker 13
Thank you. Professor Sokal, in your testimony, you describe how market concentration means there's no real competition across PBM, similar to what we've just heard. According to your research, how does market concentration impact access and drug prices in rural areas like many parts of my district?
Speaker 5
Really important question, and thank you so much for this question. I should say that all the actions of the PBMs do matter when there are choices in the marketplace. When there are Humira and biosimilars, for example, then they can choose across these drugs. And often they choose the highest cost. And then what we see is patients not being able to afford that.
What I think is even more concerning is the fact that if the patient couldn't afford the drug because of that choice that the PBM made, and they went to the emergency room because they couldn't get the drug they needed, for example, insulin, it is the plan that is going to pay for that medical visit. And there is no skin in the game for the PBM in terms of accountability for that decision. Now, those decisions about which product to cover, we have identified in self insured employers how much money, how much extra money they add to the employer spending. In one of the companies that we examined their formularies, it was a 15% change. Only associated with those choices, those of the products that were included in the formulary.
And it is no surprise that every year, one in every 4 Americans say we can't afford our drugs even though we have insurance because of those choices.
Speaker 13
Thank you. It's clear that we need to do more to improve the system. With that, I yield back.
Speaker 1
The general lady yields. A vote has been called in the House. Pursuant to the previous order, the chair declares the committee in recess subject to the call of the chair. We'll plan to reconvene promptly 10 minutes after the last votes have been called in this series. The committee will reconvene and continue your questioning.
And, doctor Unger, you're up for your five minutes of questioning.
Speaker 14
Thank you, Mr. Chairman. And, yeah, thank you to all the witnesses for being here today. You know, Miss Deacon, you know, this kickback shall not be considered as a kickback. I guess it depends on what the word is. Well, House Republicans have been working to lower health care costs for patients and their employer-sponsored plans, all while reducing unnecessary delays in care.
One of these reforms is the Safe Step Act, which is led by our subcommittee chairman, Mister Allen. Every patient is unique, which is why a physician spends time working through each patient's individual history to decide which treatment will be most effective. But insurances require patients to try their preferred drugs first before moving on to what the physician initially wanted to prescribe. The intent here, ostensibly, is to prevent physicians from prescribing more expensive drugs when more affordable options are available. In practice, though, the health plans often steer patients to more expensive brand name drugs even when generic or other options are available.
And I believe it was you, Mr. Gelfand, who said, yeah, biosimilars for Humira developed acquired minimal market share despite being dramatically less expensive than the named brand Humira. You know, this current system unfortunately isn't designed around controlling cost for patients. It too often is designed to financially benefit everyone except the patient and the employer plan to, in other words, to benefit middleman over the payer and over the patient. In the meantime, patients are exposed to preventable complications that require more visits to the doctor, emergency department visits, and even hospitalizations.
Now, again, I understand the goal of step therapy if it's genuinely designed with the patient in mind or even with some cost considerations injected. But that's often not the case. We sometimes see this when a patient has been on the same drug for years, shopped around for plans that cover the drug only to find out after he or she switches plans that the gov this drug will only be covered if they first fail other drugs. Even the even more concerning scenarios when the doctor knows the patient will experience problems with the insurer preferred drug, but has to recommend that the patient risk it anyway before he or she can access the drug they truly need. Miss Anderson, can you explain how step therapy protocols are designed and why they sometimes steer patients to expensive name brand drugs rather than alternatives?
Speaker 6
Absolutely. And, you know, step therapy is something that, again, like you had mentioned in your remarks, is something very benevolent. It's something that you say, okay. You know what? We wanna make sure that we are doing cost containment.
We're trying to manage costs for the health plans. We're trying to make sure everyone's premiums don't go up too much. But I think what the challenge is.
Speaker 14
And I would add, if I could just interrupt for a second. And, you know, as a physician myself, there are, you know, MeToo drugs. You know, there are several different statins. There are several different ACE inhibitors, and so on. And, you know, I know most of the two classes I mentioned are now all generic, but there was a day when there were, you know, let's say, or three generic statins and two and three name brand statins.
It only makes sense that you prescribe the more cost-effective drug first, because often it works. That was my experience, certainly as a clinician. But proceed.
Speaker 6
But you know, I mean, and this is the case with many people who have rheumatoid arthritis, ulcerative colitis, Crohn's disease, is the drug that they're being asked to fail first on is not the drug that they have maybe heard and worked for them in the past. Yes. So a patient is gonna have their insurance restart at the beginning of the year, and maybe they're gonna have to restart for six months back on that drug that didn't work for them. And I think that is so heartbreaking for patients who say we can control our cost best, actually, more so than the health plan, more so than the PBM, and they can control it best. And, you know, thanks to president Trump's reforms, many of the things between TrumpRx and expansion of HSAs, that really gives patients more ability to control their health costs and their quality of care because they're the ones having to go through all the step therapies.
Speaker 14
Great. This probably is worth more than the 20 seconds we have, mister Gulfand. What should congress consider doing to improve this situation?
Speaker 3
I think that there are aspects of safe steps therapy that could certainly be reformed and modernized. For instance, it should all be electronic. It should all take place. You as a patient should be able to track through an online portal exactly where you are in there, but there are some serious problems with the legislation that's currently being considered.
Speaker 1
The gentleman yields. And now I'll call on Mr. Courtney from Connecticut for his line of questioning.
Speaker 15
Great. Thank you, Mr. Allen. Miss Deacon, you've written extensively on the issue of PBM transparency both in your testimony and elsewhere, and I appreciate the attention to this complex relationship between PBMs, manufacturers, brokers, and other businesses that can contribute to rising costs of health insurance for employers and patients. One provision of bipartisan legislation that I introduced, the Hidden Fee Disclosure Act that was included in the COBRA Act in February, amended ERISA to clarify the scope of who is a, quote, covered service provider that must disclose their direct and indirect compensation to plan fiduciaries. Before this change, there was confusion as to whether or not only companies that characterize themselves as brokers and consultants had to provide these disclosures.
I think, again, you've written about this topic. So what is the significance of ensuring that a broad range of entities are covered service providers under the ERISA statute, and how will that improve the ability of fiduciaries to have real transparency and get a fair deal?
Speaker 4
Thank you for that question. And you're right. This was a huge issue. And with covered service providers like third party administrators and PBMs taking the position that they weren't covered service providers for purposes of disclosure after the CAA 2021. So now, again, employers can actually understand if conflicts exist, who's being paid by whom, if the bidders or procurements being put in front of them are truly disinterested or given, you know, sort of the best advice in their interest.
And I think, again, because of the vertical consolidation in the industry, where we have, you know, providers being owned by insurance companies, being owned by pharmaceutical benefit managers, being owned by, you know, specialty pharmacies. They're all vertically integrated. Knowing where those compensation dollars flow across all of those covered service providers is key. You squeeze one end of the balloon, it pops out on the other. Right?
So if you're not catching all of those covered service providers, you will be missing something. So I think that that's really important.
Speaker 15
Well, that is a really helpful answer and very clear. So, again, we're really excited about the fact that language was included and, again, really looking forward hopefully to DOL to make sure that, you know, the word gets out, that, you know, these entities really are part of the scope of the law. Doctor Sokol, can you estimate the savings available to plan sponsors as a result of increased transparency for PBMs and other service providers? I mean, even roughly.
Speaker 5
Thank you for this question. Yes. When PBMs have choices and they add more wasteful, more expensive products into the formulary, that's when they primarily increase costs. And we estimated that if we were to change that formula, in practice, savings would be up to 15% net, net of all rebates and discounts, per member per month. I mean, that's very significant for the self-insured employers that we have examined.
Speaker 15
And just to sort of put that in context, how does that compare to savings available to plans and employers if we were to incorporate the inflation reduction act price inflation cap in private plans or to extend negotiated prices to these, to that population?
Speaker 5
It's an excellent question, primarily because what PBMs cannot do is when the drug has no competition. If we have a drug that has been in the market for a long time and that is no generic, there's no biosimilar like Ozempic, for example, it has generics in other places in the world, but it doesn't have it here. So what can the PBM do? There's no competition there. And that's exactly the reason why we, number one, need to negotiate the price of these drugs, the top spending drugs that have been in our market without competition for a long time, and expand those negotiated prices to the commercial market.
Ozempic was negotiated in Medicare from $900 list price for 30 days to $274 for 30 days. For a patient in a high deductible health plan that has to pay the full price until their deductible is reached, that's a very significant change. And savings from the expansion of those inflation rebates, I mean, Ozempic has been in our market for a long time. It didn't start at 900. It just increased over time.
So savings from expanding those rebates have been estimated as more than 30,000,000,000 until 2031 for the commercial market.
Speaker 15
Great. Again, thank you to both of you for your really outstanding answers. With that, I yield back.
Speaker 1
I thank the gentleman for yielding. Now I'm calling Mister Fine from Florida for his line of questioning.
Speaker 16
Thank you, Mr. Chairman. The issue of PBMs is a complicated one. I was the chairman of the health care committee in Florida for my final two years in the Florida house, in which we dealt with PBM reform. And what I learned in my time, I had really no experience in health care prior to that. The speaker asked me to do it and think in part because he wanted something that I could sink my teeth into, and learn a lot about.
And what I learned in this is that there were no clean hands, that everyone wanted to blame someone else, but everyone had some responsibility. So I'll have some questions about PBMs. But I would start by noting I don't know. I'm gonna ask one of you, I'll ask the professor. PBMs are responsible for negotiating, to some degree, with the drug manufacturer.
I would note, by the way, that the United States of America has the lowest generic drug prices in the world. So, obviously, something's working when we have generic drugs. They're the lowest in the world. But when it comes to prescriptions, I mean, to non generics, the ones that are under patent because they've invented, traditionally, we've had the highest prices in the world. So, professor, why is it that in this sort of PBM architecture that we have today, why are PBMs, I guess, so good at negotiating generic prices and so bad at negotiating prescription?
I mean, that, you know, the on-patent drugs. Why the bifurcation?
Speaker 5
Thank you so much for that question. Such a good question. And I love mentioning that number. We always forget that generics are so much cheaper here. We're paying 85% of what other countries pay for the same generics, whereas we're paying three times higher prices.
Speaker 5
Well, one of the reasons is that PBMs feed on these rebates that are confidential, and they negotiate that only for the branded products. So, that is part of the reason why branded prices keep going up, is really to inflate that bubble and create some opportunities for profit for the PBM.
Speaker 16
So if we pass legislation in line with what President Trump is trying to do with TrumpRx, where we had international drug reference pricing, where we said branded or unbranded. Under patent drugs, whatever you wanna call them, patent-protected drugs could not be sold in the United States for any more than they are sold in other countries, a most favored nation. Would that resolve the issue with the PBMs? Because they wouldn't be able to keep pushing the list prices up. Would that solve it?
Speaker 5
One of the problems is how do we know that it's cheaper? That's one of the problems. How do we know that it's cheaper than in other countries? Because the same manufacturers can be giving confidential rebates to other countries. So that's part of the story.
Now I do agree that we pay so much more, and we should be finding ways to lower these prices. So one of them is incorporating that into negotiation and incorporating that for our branded products.
Speaker 16
See, one of the observations that I had was that because we were so good on off patent drugs, generic drugs versus nongeneric drugs, was it part of the problem was that the drug companies were trying to make a lot of money in The United States and then sell those drugs for a lot less overseas. And to some degree, the PBMs had to deal with that. How much of the issue do we think is with PBMs? I'm gonna ask Mister Galfon just randomly. How much of the issue with the PBMs occurs when we allow a PBM to also own a pharmacy, for example, and we create this vertical integration that can create, you know, bad incentives?
Speaker 3
I think there's no question that when you have a vertically integrated health care company that owns the means of distribution as well as is deciding what will be distributed and to who. You create opportunities for arbitrage. Right? So it's interesting. You look across the different major PBMs, and the drugs that they choose to run through their specialty pharmacies as opposed to running through retail pharmacies are different.
In fact, there's less than a 50% overlap in what the different PBMs say is a specialty drug. It's not a real definition. It's just what do we wanna sell you versus what do we wanna let other people sell you. So you're creating this opportunity for them, and they're gonna seize that opportunity in this system, and they're gonna make profit from it.
Speaker 16
Yeah. I would wrap up by saying, again, I don't think there are clean hands here. I think there are challenges with the PBMs. I think there are challenges with the people who hire PBMs. I think there are challenges with the drug companies.
I think it's a complicated system that has to be managed. And while I think there is ample room for reform, the number one thing we could do is create transparency, because if we do that, people can then see what is going on, and we can deal with the problems as they stand. So I thank all of you for being here on this issue. And, mister chairman, I yield back.
Speaker 1
Gentlemen, yields. Now I'll call on Mister Scott from Virginia, our ranking member, for his line of questioning.
Speaker 17
Thank you, Mr. Chairman. Mister Gaulfield, you mentioned that PBMs are hired by employers to manage programs, often because of conflicts. Employers are paying too much. What would happen if PBMs were required to act as fiduciaries?
Speaker 3
Thank you for the question, Mr. Scott. We are in favor of making a legal change to clarify that PBMs should be acting as fiduciaries because the decisions that PBMs make have a material effect on the plan and on the patients in that plan, on the prices that they pay, and on the products that are available to them. And what would change is that the PBM would then have the exact same requirements that employers have had for 50 years. And when you boil it down, it's two primary requirements. Number one, to act in the best interest of the people on the plan, and number two, to try to control costs for the plan.
We don't think that those requirements are unreasonable. We've managed to comply for 50 years. It makes sense to have our vendors who are standing in our shoes comply as well.
Speaker 17
Thank you. And if the, if you prohibit kickbacks, if you did not prohibit kickbacks but just required disclosure of all fees, would the employer actually know whether or not they're getting the best value and be able to compare plans if all he sees is a spreadsheet of fees without knowing how effective the PBM is in actually reducing costs?
Speaker 3
I think transparency alone would leave two problems. The first problem is noncompliance. And as we mentioned, we've seen noncompliance with the 2021 CAA, in which the brokers and consultants were already supposed to be telling us what fees they were getting and how they were being paid. And the PBMs declared themselves exempt from that, which is why Congress had to issue a clarification in 2026 to CAA. I think that the second problem with that is that, ultimately, we do not have access to their data.
We do not know where the flows are. And if they don't tell us, we can't really double-check. We don't have the right to audit all of their information. So a ban would be more effective than simple transparency.
Speaker 17
Thank you. Miss Anderson, you mentioned the benefits of TrumpRx. Are there examples of brand names with lower costs on TrumpRx, where there are actual charges, where there are actual cheaper generics not on TrumpRx, where the patient could actually pay even less?
Speaker 6
Absolutely. I think many of the drugs on TrumpRx offer a lower priced generic, but I think it goes back to the patient choice and what's working best for the patient. I know this committee has talked a lot about step therapy, and I think when you go to drugs like, again, recently, Humira.
Speaker 17
I mean, are there other examples of generics not on TrumpRx that the patient would not have been aware of where they could have paid even less than the bargain they would get on TrumpRx?
Speaker 6
In terms of no. I don't believe there are any generics on TrumpRx at the moment. But.
Speaker 17
So that if it's all brand names, they could have possibly paid even less by going off of TrumpRx into a generic. With TrumpRx, can you use your insurance to pay for drugs off of TrumpRx?
Speaker 6
No. But you can use your HSA, and you can get on average a 30% discount.
Speaker 5
Certainly. I think that we have to keep in mind that patients very rarely just use one drug. Right? Most chronic conditions and drugs that people need to take for a long time, they are multidrug regimens. So for patients who do need drugs, some of them may be in Trumper X.
We have about 45 drugs in that list, but others are not. So these individuals with insurance, they have to make an informed choice about, wait, if I use this drug not under insurance, these other drugs under insurance, how soon will I meet my deductible? What is the best deal for me? And I think it gets complex very quickly. And I'm not sure that all patients, even as a provider, I could say, as a provider, I would try to do the best for my patient, but I would be very puzzled about mathematically what would be the best deal for them.
Speaker 17
Thank you. We've said a lot about the fact that prices paid in other countries are less than those you pay in the United States. Are these the exact same drugs?
Speaker 5
They are, but sometimes our insurers are paying less. It's really about the high list price that affects our patients. That's what's paying more. After the rebates and discounts, sometimes our insurers are paying the same. It's just not having these prices transparently available to our population.
That's really why some fully insured individuals can still not afford a drug, whereas their plans are paying less, but they have to pay based on the high list price.
Speaker 1
Okay. Now we'll recognize Mister McKenzie from Pennsylvania for his five minutes of questioning.
Speaker 18
Well, thank you, Mister Chairman, and thank you to Ranking Member Scott for bringing up the issue of PBMs being considered fiduciaries. I have bipartisan legislation to do that. I think that would be a positive step forward. For my questions, I'll start with Mister Galfant. PBMs receive compensation from employer-sponsored health plans as well as other sources in the drug industry chain.
What types of compensation do PBMs receive, and how does this inflate costs and restrict the availability of drugs to employer plan participants?
Speaker 3
Thank you. I will try to answer that question quickly because there's a lot of line items there. A PBM will receive compensation, for instance, from an employer who may pay a percentage of rebates, a per member per month fee, administrative fees based on other services like medical management, fees related to integrating the PBM with other vendors, arbitraged amounts the PBM makes off of spread pricing, or fees in the form of so-called rebate credits when the employer finds ways to save money and the PBM then punishes the employer. But the PBM also collects a lot of money from pharma manufacturers. For instance, administrative GPO fees for the pleasure of negotiating with the GPO, formulary placement fees similar to rebates that help the drug get in front of the competition and better placement on the formulary, data fees that are purportedly in exchange for analytics that the PBM and its GPO may require the pharma company to purchase.
And in some cases, the PBM may require a drug company to sell their drugs at or even below cost to the PBM. So the PBM can then relabel that drug and sell it at a markup at a higher price. I should also mention that pharmacies, a PBM might use an employer's money to pay a pharmacy, and then claw back that money and keep it. These are just some examples of the very interesting and creative ways that they get paid.
Speaker 18
Understood. And so if you can, please submit that to the committee for our review. I think it's important to see that full list of all the different ways that they are being compensated. Next question for you would be, what can Congress do to bring transparency to those forms of direct and indirect compensation?
Speaker 3
Thank you. I think a couple of things that should be considered are, number one, support the administration's work to require full transparency into the direct and indirect remuneration that PBMs receive. Please support our efforts as well to ensure that covers their GPOs, their specialty pharmacies, their overseas drug branding entities, and the other interesting parts of their enterprise. We hope that this committee and congress will pass your bill, the PBM FAIR Act, as well as, congressman Allen's bill, the PBM kickback and prohibition act. Both of these bills would crack down on some of the abuses that are taking place in the system.
Importantly, neither of these bills stops these companies from doing their job and doing the right thing for the patients. Congress could also go above and beyond addressing these issues, but we would be happy to submit for the record a number of other ideas.
Speaker 18
Great. Thank you. Next, I'll go to Mrs. Deacon. PBMs and drug manufacturers sometimes negotiate prescription drug rebates that are expressly conditioned on limiting access to potentially lower-cost generic options. How does this impact the health plan participants' access to specific drugs and the cost of health care?
Speaker 4
Thank you for the question. It directly reduces access to lower cost drugs, and it also increases both planned spending and out of patient costs. When the PBMs and the brand manufacturers enter into rebate agreements, they often do so expressly conditioned, as you said, on limiting access to lower cost generics, including the exclusion of generics, biosimilars, and other formularies in exchange, again, for higher rebates. As my colleague stated, this is one of the reasons we didn't see a huge drop when Humira went off patent and biosimilars entered the market. They immediately stepped in, and directed employer plans to their own biosimilar product that they were manufacturing and white labeling.
So, absolutely, again, I think another colleague highlighted a case where a member in the Johnson and Johnson employee, Miss Lewandowski, who is in a lawsuit, she could have gotten a drug for close to $20, but she ended up paying her cost share on a drug for $10,000 because that was the drug that was on the formulary, and that decision was driven by rebates.
Speaker 18
Understood. Well, thank you. I'll close out by just saying that I wanna thank all of you for being here. I think PBMs is an important topic for congress to be considering right now, a space where we can make real reforms, bring down the cost of prescription drugs for all Americans, and also potentially increase the access to these lifesaving treatments that are out there and available on the market. So, look forward to continuing the conversation, and just wanna thank all of you again.
With that, Mr. Chairman, I yield back.
Speaker 1
Thanks, gentlemen, for yielding. And now I'll call on Mr. Desanya, our ranking member, for his line of questioning.
Speaker 2
Thank you, Mr. Chairman. I'd like unanimous consent to submit for the record a statement from the National MS Society.
Speaker 2
Thank you, Mr. Chairman. I'd like to start my comments from the perspective of somebody who didn't have health problems until 10 years ago, when I was diagnosed with stage four leukemia. I was in a situation where I was told by my oncologist, you're lucky because 15 years ago, there was nothing we could do for you. So the treatments that I got primarily came from American taxpayers' investment in the National Cancer Institute, the National Institutes of Health, and DARPA. And then private sector companies came in and distributed those products, and made a reasonable profit.
But, unfortunately, some of them came in and took advantage of our laws. And I'm also a survivor of I'm not supposed to be here because the ICU doctors six years ago at George Washington told my two sons when they had to fly across the country that I was going to die. And because of providence and their talent and four weeks on a ventilator, I am sitting here. So from that perspective, I am so grateful for much of the American health care system, but I am so angry at people who have Miss Deacon, Missus Deacon, and I wanna ask you about this part is too many people who basically are sociopaths. I mean, my view of PBMs and much of the pharmaceutical industry is we are too nice.
We're dealing with organizations that are like The Sopranos, kickbacks. Think of the language we're using here. We have to energize, Mister Chairman, to realize what we're dealing with. We've been sort of nipping at the edges here, but we're dealing with a culture. And, Miss Deacon, you referred to this in your opening statement that are solely driven from return on investment, astronomical returns on investment.
I think my drug was one of the five drugs in the initial negotiations in the Biden administration. It was about $400 a day when it was put on the market by Johnson and Johnson. But in Australia, it was $40 a day. In Europe, it was $90 a day, extended people's lives. People in America, The Wall Street Journal did stories about this.
Upper middle income people had to make life-and-death decisions because they couldn't afford the copay. Well, we walked in, and mister chairman, as you and I as friends and former business owners, and me as a former republican in a different time. We believe in the private sector and competition, but not when the competition is consolidated, and there's no competition. And the culture within those organizations does not have the intellectual capacity to understand how much pain they're causing to people. So, Miss Deacon, two things, just if you could comment on that in its PBMs, but it's also pharmaceutical companies, not all of them.
To Mister Gilfren's point, how do we incentivize better behavior? People have to have consequences when they take these approaches, and they compete unfairly against people who actually have a social and moral responsibility. How do we change this culture that is permeating this part of the health care industry?
Speaker 4
Well, I'll first start by saying that it would be a misconception to think that we have a competitive market. It would be a misconception to think that we have competition or that we even have a market. Right? Markets require transparency. They require that we do not have information asymmetry.
What we have today is, again, a very vertically integrated market that operates, and not just the PBMs, but I'm also talking about largely the provider side of this. You know, UnitedHealth Group is the largest employer of physicians in America. Most people don't know that. We do not have markets. We do not have competition.
We have monopolistic entities that are operating with that profit motive, with no check and balance of the market, right, with no check and balance of competition. And so I think that that's probably the first and most important point. And I think once those forces come into play, and in addition, again, we have to have some check on the greed. Right? Once those forces come into play, I think we will have some checks.
But it's gotta be both the incentives and realigning the financial incentives, number one. Number two, ensuring that the disincentives to bad behavior are real and felt by those entities.
Speaker 2
Thank you. And I wanna point out a study has shown that 25 of the fastest growing drugs in The United States are owned by firms that are owned by private equity companies. And then lastly, just as an example of that, if you remember Martin Secrilli, who we had in front of the Oversight Committee, where he took over a company and raised the price of an anti-parasitic drug that worked from $13.50 to $750, and he ended up spending seven years in federal prison. That would be a good disincentive. Thank you.
I yield back.
Speaker 1
Okay. Seeing no further questions, I will ask the ranking member for his closing remarks.
Speaker 2
I might have just made it, Sharon. I just think I look forward to working with you. And I really hope that, you know, we are in a culture up here where we, unfortunately, are sort of trained to get in our own ideological perspectives and say, we're taking credit for this, or, you know, the other people are not. This is something for the sake of Americans' lives and the culture in this country. If we could get together, mister chairman, and really forcefully create disincentives for the bad behavior that all of the witnesses have talked about, Republicans and Democrats who believe in an American, what I refer to as a mixed market system where competition is important.
But that competition is based on a moral authority that you're going to do the right thing and get a good rate of return. So these folks are taking low risk and making high rates of return, and everyone else pays for it. Mister chairman, I would be thrilled to work with you on proposals that not only do legally and politically, and structurally that we have in front of us, but also capture the spirit of the urgency that I'm trying to express. This is really a cancer that has metastasized on the American business culture, and we could do something about it.
Speaker 1
Yes, sir. I thank the ranking member. Without objection, I will enter in the record a letter from 52 associations in support of HR 7895, my PBM kickback prohibition act, and a letter from the National Association of Manufacturers on reforming PBMs. And I'll do that without objection. Now, thanks to our witnesses for testifying about the brokers and consultants who employers trust to help design their health care plans, and the opaque financial rewards that PPMs are paying to some of these brokers and consultants.
And it is time. We need to immediately do something about this. This committee remains committed to ensuring that American families have access to high-quality and affordable health care that works for them. Access to the prescription drugs your doctor recommends is a major part of our health care system. PBMs control the drugs that a group health plan will provide to its participants through a list of covered drugs.
Americans work hard to pay their group health plan premiums, the copays and deductibles for their prescriptions. Health care costs continue to rise. It's time that we shed a light on hidden and deceptive practices that impact cost and accessibility for drugs for American workers. Employers who place their trust in experts to help design their group health plans need independent advice to allow them to design cost effective, high quality health plans. This committee will continue our work and thank you for your cooperation, to design, to stop these deceptive practices and expand access to more choices and better options for families and workers.
Again, I would like to thank our witnesses for taking the time to testify before the subcommittee today. Without objection, there being no further business. The committee stands adjourned.
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