Regulatory Changes and Their Impact on Pharmacy Benefit Management

Overview of the Current Regulatory Environment for PBMs

The current regulatory environment for Pharmacy Benefit Managers (PBMs) is characterized by significant challenges, including potential negative impacts on benefit levels for seniors and the need for tighter contract structures. Industry leaders emphasize the critical role of PBMs in negotiating drug prices and the necessity for collaborative changes to adapt to evolving regulations.

"Got you. Last question I'm going to see up here. And this is, pre cooling, PBM policy, PBM regulatory environment would be like that first question we'd ask." --- (CVS, conference, 2024/05/29)

"Specific to 2025, we expect benefit levels, planned stability and choice for seniors to be negatively impacted by the final MA rate notice, which is not sufficient to address their current medical cost trend environment and regulatory changes." --- (HUM, earning call, 2024/Q1)

"So operationally well, we also learned along the way going back to 2014 and all the way through the current, how to structure contracts, how to make sure that as a payer, you're overseeing the PBM and you're structuring contractual terms that are pretty tight." --- (CNC, conference, 2024/05/31)

"And while there are a lot of people who are critical of the PBMs, they are the only mechanism in the system which really acts to negotiate on drug pricing on behalf of the vast majority of participants in the marketplace." --- (UNH, conference, 2024/05/29)

"We think that has to change. And so we're collaborating with our PBM partners across the industry to make those changes." --- (WBA, earning call, 2024/Q1)

Government Policies Shaping PBM Operations and Responses

Government policies are significantly shaping Pharmacy Benefit Management (PBM) operations. Companies like CVS and WBA are adapting their strategies to enhance customer value and align with regulatory expectations. Meanwhile, firms like UNH and Centene emphasize growth through compliance and government-sponsored healthcare initiatives, reflecting a proactive response to evolving regulations.

"If you demonstrate the fact that we are evolving and continuing to create value for our customers, which results in a high retention rate and a high growth rate, then our customers will ultimately begin to create the voice for making sure that they’re protecting and actually continuing to--you know, what I think is reinvest in the things like the PBM tools and the programs that we’ve delivered in the past." --- (CVS, earning call, 2024/Q2)

"But at the front of the store, you saw us talk about footprint, which leaves us a more rational investment horizon in terms of them bringing up to the standard that our customers would expect the store experience as well as the assortment that we would have for them reducing our -- using almost a PBM-like approach to formulary to how we work with national brands being deeper with fewer in order to both drive better economics and better outcomes for them." --- (WBA, earning call, 2024/Q3)

"As you start to see that combined then with some of the other ancillary organizations, strong growth in PBM and elsewhere, what we see across the group is a portfolio of businesses that are individually strong." --- (UNH, conference, 2024/05/14)

"We are evaluating the final rule and its impact on our disclosures. We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes." --- (HUM, sec filing, 2024/Q1)

"We believe Centene's focus on government-sponsored health care positions us very well for profitable growth as we go forward, and we remain confident that we can deliver value to our shareholders by delivering value to our members and keeping them at the center of all that we do. We are pleased" --- (CNC, earning call, 2024/Q2)

Impact of Regulatory Changes on Pricing and Transparency

Regulatory changes are prompting pharmacy benefit managers like CVS and UNH to enhance pricing transparency and adjust rates. CVS emphasizes a new pricing model to reduce variability and boost consumer confidence, while UNH notes significant financial impacts from regulatory actions, indicating a shift in pricing strategies.

"We believe our model helps ensure greater transparency and pricing and helps consumers to be confident in their pharmacy benefit that is providing the best possible price." --- (CVS, earning call, 2024/Q2)

"And then ultimately, we do feel good about our discussions with our state partners, and that ultimately that they will adjust the rates to be reflective of those trends. So all things being considered, we still feel good about the Medicaid performance in '24 relative to our expectations, and then also on a go forward basis, given all the items I just mentioned." --- (HUM, earning call, 2024/Q2)

"About $220 million of this stems from a regulatory action in Chile, affecting all health plans." --- (UNH, earning call, 2024/Q2)

"We will take material pricing and benefit design actions for 2025, and the impact of those changes will depend on how cost trends develop in both 2024 and 2025 and how the market responds to those trends." --- (CVS, earning call, 2024/Q1)

"The fact is that we’re hitting what I believe are the issues head on by trying to drive a new price model that both serves our customers in eliminating the price variability, and creating more simplicity and transparency at the member or the consumer level." --- (CVS, earning call, 2024/Q2)

Implications of Regulatory Changes on Healthcare Costs

Regulatory changes, such as enhanced premium tax credits, are expected to improve access to affordable healthcare for millions, directly influencing healthcare costs. However, disruptions in services and verification processes may create additional costs and operational challenges, complicating the overall impact on healthcare expenses.

"The business disruption costs you've projected beyond the first quarter are, I think, smaller maybe than most had expected despite the fact we've heard commentary from stakeholders reducing their dependence on Change Healthcare during the quarter." --- (UNH, earning call, 2024/Q1)

"Maybe the easiest way to think about it is at the low end of that range, the AOI range for healthcare benefit, the risks are probably all roughly equivalent in magnitude, and they’re really the primary drivers of the change in outlook." --- (CVS, earning call, 2024/Q2)

"As we look to 2025 and scenarios around the enhanced advanced premium tax credits, we believe the benefits of enabling access to affordable healthcare for more than 20 million Americans are clear." --- (CNC, earning call, 2024/Q2)

"There's a little bit of less visibility into that because of the changed healthcare issue where we rely on them for dual eligible status verification." --- (HUM, earning call, 2024/Q1)

"We expect to continue to incur direct response costs and experience business disruption impacts over the remainder of the year, including costs to continue to restore Change Healthcare’s services and the impact of suspended care management activities." --- (UNH, sec filing, 2024/Q1)

Innovations in PBM Practices Due to Regulation

Regulatory changes are driving innovations in Pharmacy Benefit Management (PBM) practices. Companies like Walgreens emphasize collaboration among stakeholders, while UnitedHealth Group adapts to the Inflation Reduction Act's impact on Medicare. Centene focuses on modernizing infrastructure to enhance stakeholder experiences, reflecting a proactive response to regulatory demands.

"The initiative is focusing first on extreme heat events to provide timely excessive heat alerts and tailored outreach to at-risk patients, and will expand in the fall to patients susceptible to reduced lung function, asthma and cardiac problems resulting from exposure to high levels of air pollution." --- (CVS, press release, 2024/08/01)

"This dynamic is why PBMs, payers, providers, and pharma choose to work with Walgreens." --- (WBA, earning call, 2024/Q1)

"Nonetheless, we continue to expect our full year medical care ratio, excluding 30 basis points of cyber and South American effects to be within the range we offered in November, albeit at the upper end. For our 2025 Medicare Advantage planning process, we assumed care patterns and mix at the levels we are seeing today, in addition to fully incorporating the second of the three-year phased funding cuts, and we have been fully attuned to how the Inflation Reduction Act will affect Medicare Part D offerings in '25." --- (UNH, earning call, 2024/Q1)

"In 2024, Centene's focus remains on our work to streamline and modernize the underlying infrastructure of our company and to assemble the people, processes and tools necessary to deliver best-in-class experiences to our members, providers, regulators and state partners." --- (CNC, earning call, 2024/Q1)