John O'Brien, OPM's director of planning and policy analysis, said he agreed more must be done to rein in the pharmaceutical benefit managers who work with the Federal Employees Health Benefits Program. But he told lawmakers on the House Oversight and Government Reform Subcommittee on the Federal Workforce, Postal Service and the District of Columbia he did not think a bill Rep. Stephen Lynch, D-Mass., introduced in January was necessary.
O'Brien said OPM already was addressing drug pricing issues by enacting strong transparency requirements and by stipulating how much PBMs can benefit from manufacturer rebates or other incentives.
Kathleen McGettigan, acting associate director for retirement and benefits at OPM, spelled out the agency's new transparency standards in a Feb. 22 administrative letter to the health care plans that contract with PBMs. Among the requirements, pharmaceutical benefit managers' profit must come from "clearly identifiable sources."
The standards will be used during contract negotiations for 2011, according to the letter.
"We are concerned that [Lynch's] bill legislates PBM pricing and purchasing terms for FEHBP carriers," O'Brien said. "Requiring the use of specific contracting models and pricing methods via legislation will not allow the program flexibility in an industry where business practices are rapidly evolving."
O'Brien also noted administrative costs could be passed on to enrollees.
The bill (H.R. 4489) would enact strict new regulations for PBMs, including capping prescription drug prices to the Average Manufacturer Price; prohibiting pharmaceutical benefit managers from switching drugs without a physician's approval; and requiring PBMs to return to the federal plan almost all proceeds from rebates and incentives from drug manufacturers. The bill also would create stronger disclosure requirements for pharmaceutical benefit managers and prohibit a pharmaceutical company from owning a controlling interest in a PBM.
Lynch, chairman of the subcommittee, expressed dismay at O'Brien's statement.
"I'm concerned that [OPM] has become captive to the current system, and is resistant to change," Lynch said. "The current system -- we've got to blow it up, get rid of it and move on to a different system."
OPM Inspector General Patrick McFarland said he supported some type of legislation to ensure OPM remains focused on lowering prescription drug costs and deals forcefully with PBMs. But he raised several specific issues with Lynch's proposal, noting that it could restrict OPM's ability to negotiate future contracts.
"Legislation should be careful not to limit options, because of the complexity of the subject matter," McFarland said.
The bill provoked strong opposition from John Calfee, a scholar at the American Enterprise Institute, who said there was little evidence that federal employees were being overcharged and that past studies have shown transparency does not reduce prices. PBMs also remained opposed.
But the measure continued to draw support from Democratic lawmakers, federal labor unions and community pharmacists.
"What's the point of having this big buying pool, if we're not getting the best value for it?" said Rep. Anthony Weiner, D-N.Y., who has sponsored separate legislation regulating all PBMs, not just those in FEHBP.