Senators: New Jersey can finish the job on PBM reform — together

OPINION

Most New Jerseyans have never heard of a pharmacy benefit manager. Yet PBMs can influence which medicines are covered, what patients pay, which pharmacies they use, how much those pharmacies are reimbursed, and how billions of public and private health care dollars move through our prescription-drug system. 

PBMs can perform useful services. They negotiate with drug manufacturers, process pharmacy claims and help health plans manage prescription benefits. But the modern market has concentrated extraordinary power in a small number of vertically integrated corporations. Think of them as silos. In many cases, the same corporate family operates an insurer, a PBM, a mail-order or specialty pharmacy, and other health care businesses like your doctor, surgical center, or nurse practitioner. Each silo creates an obvious question: when a PBM decides, is it serving the patient and the health plan or an affiliated company’s bottom line? 

This isn’t a partisan question. It’s a question of patient choice. Your choice. It’s about honest competition and taxpayer accountability. 

Governor Phil Murphy and the Legislature deserve credit for acting in 2023. New Jersey’s landmark PBM law established licensing and regulatory oversight, strengthened reporting requirements, required carriers to monitor the PBMs acting on their behalf, improved pharmacy reimbursement procedures, and protected consumers from being charged more at the pharmacy counter than the applicable cost of the prescription. It also required PBMs to act in good faith and fair dealing and brought their compensation more clearly within regulatory review. 

That law created the foundation. It didn’t finish the work. 

The 2023 statute doesn’t specifically eliminate spread pricing, the PBM practice of charging a health plan more for a prescription than it pays the pharmacy, then pocketing the difference. It doesn’t impose the full fiduciary duty that was considered during the legislative process. It doesn’t fully prohibit PBMs from steering patients to a pharmacy owned, controlled and operated by the PBM’s corporate family. And it doesn’t require the kind of independent, transaction-level public audit needed to identify every rebate, fee, spread and affiliated-company payment flowing through a

public contract. Furthermore, it does not address antitrust violations, which contribute to anticompetitive and unfair practices. 

Those gaps matter because the proof nationally is hard to ignore. The Federal Trade Commission reported that the six largest PBMs manage nearly 95 percent of prescriptions in the United States and are increasingly tied to major insurers and pharmacies. In a later analysis of specialty generic drugs for things like cancer and hypertension, FTC staff reported that the three largest PBMs routinely paid their own pharmacies more money than they paid unaffiliated pharmacies for the same drugs and estimated that the companies generated roughly $1.4 billion through spread pricing within the study sample. The FTC also documented billions of dollars in affiliated-pharmacy dispensing revenue above actual costs. These findings are not a verdict against every PBM transaction, but they are a warning that transparency without enforceable rules doesn’t work. 

 PBMs must be held accountable for their role in creating an increasingly consolidated and vertically integrated pharmaceutical supply chain. The early presumption that PBMs were generally enhancing efficiency dismissed initial concerns when pharmaceutical companies began to acquire PBMs directly in the 1990s. This vertical consolidation expanded horizontally as well into the next decade. We see the result today, as three PBMs now control almost 80% of prescription drug claims. Under the current structure, a pharmaceutical company may also own and operate not only a PBM but an insurance company and pharmacy practice site as well.  

Other states have reached the same conclusion. The Government Accountability Office has documented state efforts to restrict spread pricing, regulate pharmacy reimbursement and require greater pass-through of manufacturer payments. Ohio’s Medicaid review showed why claim-level scrutiny is essential: the state auditor reported more than $200 million in PBM fees during the period reviewed and a generic-drug spread exceeding 31 percent. New Jersey shouldn’t assume that its experience is the same, but we should insist on the data needed to know. 

That is why we are proposing a bipartisan second phase of PBM reform built on five pillars. 

First, New Jersey should eliminate hidden spread pricing and require transparent pass-through contracting. A PBM should be compensated fairly for legitimate services, but that compensation should be stated clearly in the contract, not buried in the difference between what a plan is charged and what a pharmacy is paid. Rebates, discounts, price concessions and other payments attributable to the plan should be disclosed, independently reconciled and passed through to the plan participants: you.

Public purchasers should own their claims data and know the true net cost of the benefit they are buying. 

Second, we should restore patient choice and prevent self-preferencing. No patient should lose meaningful coverage, pay a financial penalty or face refusals for service merely because he or she chooses a qualified local pharmacy instead of a PBM-affiliated mail-order or specialty pharmacy. Affiliated and unaffiliated pharmacies must be subject to the same reasonable participation, reimbursement, audit and performance standards. Regardless of pharmacy or prescription plan, patients’ co-pays and reimbursements to pharmacies must be equal or equitable and not discriminate against or deny patient choice. At a minimum, New Jersey must prohibit mandatory affiliated-pharmacy steering, discriminatory cost sharing and the use of one pharmacy’s confidential information to move its patients to a corporate affiliate. And, where conflicts can’t be effectively policed, we should also seriously consider forced divestiture.  

Third, PBMs entrusted with public and plan dollars should owe enforceable fiduciary responsibilities. Good faith is important, but it is not the same as a duty of loyalty. When a PBM administers a benefit, it should be required to act prudently, disclose all material conflicts, avoid self-dealing and place the interests of the plan and its members ahead of the PBM’s undisclosed financial interests. Where a conflict can’t be avoided, it should require informed consent and verifiable, arm’s-length terms. 

Fourth, transparency must be auditable and enforcement must be meaningful. New Jersey should require annual independent audits of PBMs serving major public plans, including the State Health Benefits Program, the School Employees’ Health Benefits Program and Medicaid or NJ FamilyCare. Auditors should be able to trace pharmacy reimbursements, manufacturer payments, formulary incentives, administrative fees and transactions among affiliated companies. Aggregate findings should be made public while protecting patient information and legitimate trade secrets. But regulators must have the staff, subpoena authority, market-conduct tools and penalties necessary to recover overcharges and deter violations. Anything less is window dressing. 

Fifth, legislation must explicitly address antitrust practices. The monopolization and concentration of power that PBMs maintain are not just harmful to buyers, but to market fairness. In New Jersey, that means expanding protection beyond consumers and to independent and smaller pharmacy owners as well.  PBMs should be prohibited from acquiring a direct or indirect interest in, or holding, directly or indirectly, a permit to operate a pharmacy practice site. This would be a direct disruption to the exclusivity in drug availability, drug pricing, and insurance coverage that PBMs currently enjoy inside such a vertically consolidated silo. 

We know these proposals will generate significant lobbying. Vertically integrated companies have spent years building business models around the very silos we need to unwind. They will argue that reform is too complicated, existing contracts already provide sufficient protection, affiliation creates efficiencies, and stronger duties will disrupt the market. 

Efficiency can’t mean forcing patients into a company-owned pharmacy. Predictability can’t justify hidden spreads. “Trade secrets” can’t become a shield against the independent audit of public dollars. And disclosure of a conflict isn’t a substitute for preventing the conflicted party from profiting at the public’s expense. 

We weren’t elected to preserve opaque corporate arrangements simply because they’re established, sophisticated or well represented in Trenton. We were elected to represent the people of New Jersey: to protect patients, respect taxpayers, support fair competition and demand accountability from anyone entrusted with public dollars. 

This is also why bipartisan cooperation matters. Democrats can build on one of the Murphy administration’s major health care reforms and strengthen protections for workers, families and public programs. Republicans can advance competition, patient choice, independent businesses and fiscal accountability. Together, we can write rules that are rigorous, workable and durable because they’re not owned by one party. 

The public deserves a prescription-drug system in which the price is understandable, the compensation is transparent, the advice is loyal, and the choices are real. New Jersey began that work in 2023. Now we should finish it together. 

Doug Steinhardt, a Republican, and Vin Gopal, a Democrat, are both New Jersey State Senators.