Regulation of the Prescription Drug Benefit

Where We Stand:

The Academy of Managed Care Pharmacy (AMCP) believes that the government should encourage an environment in which pharmacists working within managed care organizations (MCOs), including pharmaceutical benefit management (PBMs) companies, can continue to develop innovative and integrated strategies to manage prescription drug benefits for a given patient population. A properly developed and managed pharmacy benefit not only maximizes positive patient outcomes, but also helps to maintain the affordability of the prescription drug benefit itself. It is essential that managed care pharmacists have broad latitude to exercise their professional judgment in structuring drug benefit programs. These capabilities are important in order to provide a safe, clinically effective, and valuable prescription benefit that helps to moderate costs for individuals and employers purchasing prescription drug benefits. 

AMCP opposes statutory and regulatory proposals that unduly restrict the ability of pharmacists working within MCOs from utilizing tools and services that are essential for the management of a prescription drug benefit. These programs are managed by pharmacists and other health professionals with expertise in analyzing clinical trial and cost-effectiveness research, implementing medication evaluation policies, and designing benefits that promote higher-value therapies The imposition of restrictions on formulary design and prescription drug pricing prevents managed care pharmacists and other health professionals from considering the range of clinical, legal, quality‐of‐life, safety, and pharmacoeconomic factors which form the basis for the design and implementation of effective drug benefit strategies and programs. The goals of these strategies and programs are to utilize evidence-based medication use strategies that improve access to medication, enhance patient and population health outcomes, and ensure the appropriate use of health care dollars. Examples of strategies and programs that pharmacy benefit managers have developed and successfully implemented include drug utilization review, formulary management, and disease and health management. These programs encourage the appropriate, safe, and effective use of prescription drugs to improve patient outcomes. 

Regulation of Formulary Design 

Pharmacy benefit mandates restrict an MCO’s ability to deliver a quality product and decrease the affordability and financial sustainability of the benefit. In recent years, policy makers at both the state and federal level have favored legislation that would require certain plans to cover either specific treatments or all treatments for a given indication or disease state. In some cases, coverage mandates require plans to use higher cost brand name treatments instead of lower cost generic alternatives. Such mandates can run counter to a plans’ ability to develop and implement an effective formulary. Three types of government mandates that can affect a managed care pharmacist’s ability to design an appropriate pharmacy benefit include mandated formulary content, mandated coverage parity terms, and mandated coverage of medications for specific indications. 

Restrictions on formulary content encourage the use of less–effective medications, or medications with significant safety concerns. When coverage of a particular drug is mandated, MCOs face little choice but to offer coverage to all patients, even if the effectiveness or safety of a drug is uncertain. Mandated formulary content discourages the development of safer, more effective medications. As the Food and Drug Administration (FDA) holds no requirement that manufacturers show that new drugs are safer or more effective than currently available treatments, an MCO may request evidence of this dynamic from the manufacturer before offering coverage to a new drug. Government mandates that require coverage of all FDA-approved treatments for a given indication or specific therapeutic class remove the incentive for manufacturers to develop clinically superior, high-value medication treatments. Mandates can also raise overall costs for payers and patients. First, the overall net costs of a plan increase as expanded coverage requirements facilitate the utilization of additional health care resources, as more patients gain access to covered services. Second, coverage mandates reduce or eliminate an MCO’s purchasing power to negotiate lower medication costs on behalf of their members. When costs for prescription drugs rise, premium rates and cost-sharing requirements for patients are negatively impacted. 

In light of the recent development of innovative medicines to treat certain disease states, mandates requiring coverage of all treatments of a certain disease state on a “no less favorable” basis to other treatments have grown in popularity. Due to the different structures of pharmacy and medical benefits, significant cost-sharing differences arise between self-administered and intravenous medications. Mandated coverage on a “no less favorable” basis forces MCOs to cover self-administered and provider-administered medications at the same cost-sharing levels. Mandated coverage parity terms may prove appealing in some instances, as in the case of mental health and substance abuse coverage. As the American Psychiatric Association estimates that 44 million adults are in need of mental health services, coverage of mental health treatments that are more restrictive than other medical coverage can exhibit serious consequences for patient care, including suicides, overdoses, and other forms of preventable death and injury.¹  

Mandated coverage parity terms also carry unintended consequences. As MCOs may choose to offer more favorable cost‐sharing requirements for new treatments shown to be more effective than existing treatments, coverage parity mandates remove the ability to offer more favorable cost‐sharing requirements for that treatment relative to other treatments. Coverage parity mandates create administrative challenges for MCOs when attempting to determine parity between two or more medications that are dissimilar to each other. When one treatment might require more frequent dosing than another treatment, higher out-of-pocket costs can arise for the patient if a copayment is taken at each administration within an office as opposed to each monthly refill at a pharmacy. These mandates may also create additional confusion and disruption for members who face delays in treatment as their MCOs attempt to determine parity between self- and provider-administered medications.  

Regulation of Prescription Drug Pricing 

The rising list prices of prescription drugs is a serious challenge in the American health system. Prescription drug list prices have increased twice as fast as all other goods and services since 2014,² while median prices for new drugs rose from $2,115 in 2008 to more than $180,000 in 2021.³ There is significant public interest in addressing drug prices; according to a 2019 survey conducted by the Journal of the American Medicine Association, 70% of Americans said that lowering prescription drug prices should be Congress’ top priority.⁴ Current proposals in federal and state legislatures would enable the Department of Health and Human Services (HHS) to negotiate prices for certain drugs in Medicare, cap out-of-pocket spending for seniors, impose penalties on drug price increases that are greater than inflation, and limit patient cost sharing for insulin. Recent HHS regulations have tried to limit the amount the patient pays at the point of sale by requiring manufacturer rebates to be passed through to the consumer. Adopting these proposals may provide relief for certain health care consumers but would represent a major shift away from market-based principles.  

AMCP believes that government regulation of prescription drug prices would counteract an MCO’s ability to design an evidence-based, clinically sound, and cost-effective benefit. Regulated prices can cause cost‐shifting to other consumers and may inadvertently discourage appropriate drug prescribing, dispensing, and utilization. Rather than distorting prices, the government should promote competition by removing barriers to entry for generic and biosimilar products. One analysis by RAND Corporation found that wider adoption of biosimilars could reduce total US spending on biologic drugs by up to $124 billion by 2025.⁵ In therapeutic classes with multiple acceptable treatment alternatives, MCOs are also able to use formulary placement to move market share, giving the MCO leverage when negotiating price discounts with manufacturers.  

Government regulation of prescription drug prices may also jeopardize the research and development of new pharmaceutical products. Government‐regulated prices could dampen innovation due to costly research and development. Fewer pharmaceutical products could result in increased utilization of more costly and risky therapies, such as surgery and hospitalizations. The net result, again, could be an increase in costs and insurance premiums and a decrease in health care quality. In addition to the negative impact on the health care industry, reduced pharmaceutical research and development could impact our global balance of trade, since the U.S. is the world's major exporter of drugs, and could impact other related industries, such as agriculture and chemicals. Proposals that would limit the flexibility of managed care organizations, including pharmacy benefit managers, to use existing and develop new strategies could have unintended consequences. Onerous regulations can prevent managed care organizations from effectively managing prescription drug benefits because they can restrict efforts needed to properly react to clinical and economic realities. For example, placing restrictions on formulary and utilization management activities can limit a plan’s ability to modify formularies or implement prior authorization requirements to address new clinical findings, newly approved medications, or the availability of less expensive therapeutic alternatives. Though often well-intentioned, regulatory restrictions on formulary content and prescription drug prices could reduce patient safeguards and increase the cost of health care, compromising the safety, availability, and affordability of the prescription drug benefit.   

The ability to develop programs and utilize tools and services to manage prescription drug benefits helps to assure that the benefit is safe and affordable for patients and purchasers. It further helps assure the benefit is delivered in a manner designed to optimize achieving therapeutic outcomes desired by patients and the health care professionals responsible for their care. Providing appropriate flexibility will mean that pharmacists and other health care professionals can respond to a complex and continually changing health care delivery system.  

See also:

• AMCP Where We Stand series:  https://www.amcp.org/policy-advocacy/policy-resource-center/where-we-stand-position-statements

Revised by the AMCP Board of Directors, October 2022

Revised by the AMCP Board of Directors, October 2021

Revised by the AMCP Board of Directors, October 2014 

Revised by the AMCP Board of Directors, June 2010 

Approved by the AMCP Board of Directors, April 2002 

¹ Mental Health Parity. American Psychiatric Association. 2022. Available online: https://www.psychiatry.org/psychiatrists/advocacy/federal-affairs/health-insurance-coverage-access-to-care/mental-health-parity  

² Li D. List Price Increases for Medications Lead to Higher Costs for Consumers. Good Rx Health. December 21, 2020.  Available online: https://www.goodrx.com/healthcare-access/drug-cost-and-savings/drug-list-price-increases-lead-to-higher-consumer-costs  

³ Rome BN, Egilman AC, Kesselheim AS. Trends in Prescription Drug Launch Prices, 2008-2021. JAMA. 2022;327(21):2145–2147. doi:10.1001/jama.2022.5542  

⁴ Kirzinger A, Muñana C, Fehr R, Rousseau D, for the Kaiser Family Foundation. US Public’s Perspective on Prescription Drug Costs.  JAMA. 2019;322(15):1440. doi:10.1001/jama.2019.15547 

⁵ Mulcahy A. Biosimilar Drugs Could Generate $38.4 Billion in Savings over Five Years. Rand Corporation. January 10, 2022. Available online: https://www.rand.org/news/press/2022/01/10.html