August 04, 2025
This week bipartisan legislation was introduced in Congress that seeks to bring long-overdue transparency and accountability to the pharmacy benefit manager (PBM) industry. HR 4317, the “Pharmacy Benefit Manager (PBM) Reform Act of 2025,” introduced by Representatives Earl “Buddy” Carter (R-GA) and Debbie Dingell (D-MI) along with California Representatives Lou Correa, Ro Khanna and Derek Tran, will help to ensure medications are affordable for patients and guided by physician medical decision-making, not opaque corporate PBM negotiations.
PBMs are middlemen between drug manufacturers and insurers (or employers). They have evolved from basic claims administrators to more complex organizations offering a wide range of prescription drug managed tools, like drug utilization review, disease management and consultative services. PBMs have not, however, been subject to oversight or regulation. As PBMs become an increasingly powerful force in the prescription drug supply chain, they have also driven up costs.
The PBM Reform Act legislation would prohibit PBMs from engaging in “spread pricing” in Medicaid, a practice where they charge health plans more for drugs than they reimburse pharmacies, pocketing the difference. The legislation would establish a transparent reimbursement model to ensure pharmacies are fairly compensated, remove incentives that encourage PBMs to favor higher-priced drugs by decoupling their compensation from drug prices, increase disclosure to employers and patients, and authorize the U.S. Department of Health and Human Services to enforce fair contract terms.
The California Medical Association has long been concerned with the lack of information related to formulary placement, utilization requirements such as step therapy, and patient cost-sharing obligations, all of which are heavily influenced by PBMs and often hidden from both prescribing physicians and patients.
A recent AMA analysis of competition in PBM markets found that nationally 77% of prescription drug plan lives are covered by an insurer that is vertically integrated with a PBM, highlighting how vertical integration and market concentration threaten access and affordability. The analysis states, “These are important findings because low competition may lead to higher prices paid by insurers for PBM services, higher insurance premiums, PBMs not fully passing rebates through, and lower reimbursement to pharmacies.”