Deep inside the gun bill: a break for drug middlemen

Many Americans across the political spectrum are clamoring for federal action on guns in the wake of a mass shooting at an Uvalde, Texas, elementary school, a Buffalo, N.Y., grocery store and hundreds of other places.

But buried in a bipartisan compromise hashed out by the U.S. Senate on Tuesday is an unrelated provision they might not be so happy about. Apropos of nothing, the gun bill would enhance the exemption drug middlemen working with Medicare have from the federal “Anti-Kickback Statute.” 

That means, in this era of soaring costs, Senate negotiators decided to further insulate the nation’s largest health care companies from a federal law against accepting “any kickback, bribe, or rebate” — using a bill that’s supposedly about regulating guns. 

The offices of the two lead negotiators, Sens. John Cornyn, R-Texas, and Chris Murphy, D-Conn., didn’t immediately respond to requests for comment. 

Drug costs have become an increasingly pressing issue in the United States, with Gallup last year estimating that 18 million Americans couldn’t pay for at least one of their prescription medications. Meanwhile, a poll by the Pew Research Center last month indicated that the cost of health care was the No. 2 issue for Americans, ranking only behind inflation.

Yet the gun bill negotiated in the Senate would protect some of the biggest players in prescription drugs and in health care more generally.

The three biggest drug middlemen, or pharmacy benefit managers, in the United States control more than 70% of the marketplace and they have great leverage over how that business is transacted. They work on behalf of insurers (and they’re increasingly owned by the same companies) to create networks of pharmacies, determine reimbursements and facilitate transactions.

But it’s in their dealings with big drugmakers where the kickback statute comes in. 

The big three PBMs — CVS Caremark, Express Scripts and OptumRx — create formularies: lists of drugs that are covered and with what copayment. And because those PBMs represent more than seven-tenths of all insured Americans, drugmakers have a big motivation to get their products on their formularies. 

“To gain more favorable formulary placement, drug manufacturers will offer discounts to PBMs in the form of ‘rebates’ that the manufacturer pays to the PBM, who then pays the insurance company,” the American Economic Liberties Project, an anti-monopoly organization, wrote in a report that was released Wednesday. “Yet because PBMs are exempt from an anti-kickback statute under Medicare, they are allowed to take a cut of the rebate. The larger a rebate for a drug is, the more the PBM can profit. If not for the exemption, kickbacks like this are normally a felony offense.”

That exemption is addressed on page 55 of the gun bill. It would extend it from Jan. 1, 2026 to Jan. 1, 2027.

It’s unclear how an extension got slipped into unrelated legislation. A spokesman for a PBM industry group couldn’t immediately be reached for comment.

On background, a staffer for Sen. Sherrod Brown, D-Ohio, said a gun deal needed to be made, adding that the fight against rising drug costs continues.

“This bill is the first meaningful, bipartisan gun legislation Congress has moved forward on in decades,” the staffer said in an email. “The legislation will also fund school-based health programs and expand community-based mental health services which, as Senator Brown has heard in roundtables around the state, are critically needed.

“We’ll continue to fight for Pharmacy Benefit Manager (PBM) reform, and have already successfully gotten the Centers for Medicare and Medicaid Services to finalize a rule that will prohibit PBMs from issuing retroactive Direct and Indirect Remuneration fees,” the staffer added. “This will help save patients money at the pharmacy counter and protect community pharmacies.”

Matthew Lloyd, a spokesman for another Senator who supports the gun bill, Rob Portman, R-Ohio, didn’t answer directly when asked how the PBM kickback protections made it into the gun bill. But he pointed out that the Biden administration had already extended them for a year and last year’s bipartisan infrastructure bill extended them for another three.

In the latter case, Portman advocated the delay because the federal government collects a portion of rebates under the Medicare program. The Congressional Budget Office estimated that keeping the rebate rule will net the government about $180 billion over a decade — thus freeing up money to spend on things like infrastructure.

Lloyd also noted that the U.S. Department of Health and Human Services estimates that Medicare premiums would increase by 25% if PBMs are no longer allowed to take kickbacks. That ignores, however, other expenses faced by Medicare recipients and the public in general.

Drug rebates are thought to be a major culprit when it comes to the rising cost of prescription medication. A 2020 study by the University of Southern California’s Schaeffer Center found that every $1 increase in rebates correlated to a $1.17 increase in list prices for drugs.

Medicare recipients would feel those increases when their copayments are based on them — and when their costs are based on list prices when they enter the infamous “donut hole.”

“Because (Medicare) Part D sponsors generally base enrollee prescription cost sharing on list prices, higher prices can increase beneficiary out-of-pocket costs,” said a report last month by the Congressional Research Service.

Then, earlier this month, the Federal Trade Commission announced that it would investigate the system of manufacturers providing rebates and other fees in exchange for favorable treatment on PBMs’ formularies.

Community pharmacists in Ohio and elsewhere have been complaining for years that unfair practices by the PBMs — which own pharmacies of their own — are driving them out of business. A spokeswoman for the National Community Pharmacists Association on Wednesday said extending kickback protections in the gun bill is shady.

”This is objectionable on two levels: First, giving the PBMs an extension on one of their biggest scams harms patients and prevents real transparency in drug prices,” she said. “Second, hiding it in an unrelated gun bill is slippery and prevents real debate.”