Proposed DOL Rule Would Require More PBM Transparency

A new proposed rule would require more transparency from pharmacy benefit managers (PBMs) — a move that may help employers lower drug spending and fulfill fiduciary duties. 

The U.S. Department of Labor’s Employee Benefits Security Administration proposed a rule Jan. 28 that would require PBMs to disclose to health plan fiduciaries the rebates and fees they receive from pharmaceutical manufacturers, compensation from spread pricing arrangements, and any additional payments recouped from pharmacies related to an employers’ prescription drugs.

The rule — which would apply to self-insured group health plans governed by the Employee Retirement Income Security Act — would also allow employers to audit PBMs’ disclosures for accuracy. It threatens potential enforcement action and civil penalties if PBMs don’t comply.

“This action will allow employers to see the full extent of the fees charged by pharmacy benefit managers, enabling them to negotiate a better deal for themselves and American workers,” Deputy Secretary of Labor Keith Sonderling said in a statement. Employers use PBMs to help control, manage, and reduce the costs of prescription drug benefits for their employees. PBMs develop drug formularies, negotiate rebates and fees with drug manufacturers, establish pharmacy networks, and process prescription drug claims. 

The new DOL proposal follows President Donald Trump’s executive order on lowering drug prices. 

Public comments on the proposed rule are due by March 31.

Providing ‘Desperately Needed’ Transparency

The proposal marks a significant shift in the drug industry — which has often been criticized for not being transparent about costs.  

Historically, many fees have been silent and generally not disclosed to employers, such as how fees and commissions are disclosed on a Form 5500, explained Matt Collier, senior consultant, pharmacy benefit and self-funded strategy, at IMA Financial Group, a Denver-based insurance and brokerage firm. “PBMs have used these practices in their model to earn their fees by pricing them into various areas of the plan which were silent and undisclosed to the employer, thus never truly understanding the real cost of their pharmacy program. This includes revenue streams such as spread pricing, retained rebates, manufacturer fees, and specialty drug markups — all areas that historically operated outside employer visibility,” he said.

Prescription drug costs have been a growing pain point for employers over the past several years.

The proposed rule provides “meaningful transparency to employers and their participants on the overall economics of the plan,” Collier said.

“Transparency in the marketplace is desperately needed. This is a great first step to getting to that point,” he said. 

At the same time, Collier said, the rule may also increase some overall administration and governance burdens on plans, such as additional 5500 or other reporting requirements, to monitor these fees, interpret, and review. 

“There will likely be short‑term administrative and legal costs as plans adjust to new oversight responsibilities, but those burdens are outweighed by the long‑term fiduciary protections and improved accountability these disclosures create,” he said. “There could also be short-term costs to plans with legal and other administrative costs to eventually see overall long-term savings, or at least disclosure of what a plan is spending on these programs that are hidden.”