By: Kendall Jackson

The high costs associated with prescription drugs consistently provoke conversation in the self-funded healthcare industry. Not only is it an issue that most health plans encounter, but it is also a concern that trickles down to the member-level. Whether you’ve personally experienced the effects of high-cost drugs, or they have impacted a close family member, we can all empathize with the stress of having to pay for an expensive prescription.

In an effort to minimize these concerns, President Trump issued an executive order (EO) titled “Lowering Drug Prices by Once Again Putting Americans First.” One goal of this EO is to modify the Inflation Reduction Act that was originally signed into law by the Biden Administration in 2022. The Inflation Reduction Act included the Medicare Prescription Drug Negotiation Program, which aimed to reduce drug prices for Medicare beneficiaries. President Trump’s EO seeks to modify this program to improve transparency and minimize the negative impact of high-cost prescription drugs.

Beyond Medicare, the EO questions the current role of middlemen in the pharmaceutical industry and instructs several entities to provide recommendations of how to best “promote a more competitive, efficient, transparent, and resilient pharmaceutical value chain that delivers lower drug prices for Americans.” These recommendations, and any potential rulemaking that may stem from them, could have a significant impact on the self-funded industry. Currently, there are six pharmacy benefit managers (PBMs) that dominate the market, with three of them holding the majority of the market share. The vertical and horizontal consolidation of the market has stifled the marketplace, given the disproportionate amount of power these PBMs wield in comparison to smaller, independent entities. Since these large PBMs are integrated with suppliers and operate their own pharmacies, they are incentivized to utilize affiliated pharmacies to generate higher profits. Furthermore, the major PBMs often retain a portion of rebates, which can lead to higher costs for health plans and plan participants.

Only a few years ago, the Federal Trade Commission (FTC) launched an inquiry into the business practices of PBMs. The FTC found that the PBMs paid their own pharmacies significantly more for commonly prescribed drugs that were otherwise available for lower costs at rival pharmacies. Additionally, the FTC noted that between 2013 and 2022, 10% of rural, independent retail pharmacies closed their doors, demonstrating how the major PBMs’ control of the market can negatively impact smaller players.

With this data from the FTC and the general desire for PBM reform within the industry, the EO is a step in the right direction. It will be interesting to see how the tasks imposed on Secretary of Health and Human Services Robert F. Kennedy Jr. and other federal entities by this EO play out over the coming months. Any rule-making that may spring from their guidance and recommendations that limit the major PBMs’ control of the market would likely have a positive outcome that broadly benefits the industry, whether that be assisting smaller pharmacies in the market or lowering costs for health plans and plan participants.