Shares Drop for CVS, Cigna, and UnitedHealth Group

Shares of CVS Health (NYSE:CVS), Cigna (NYSE:CI), and UnitedHealth Group (NYSE:UNH) witnessed a 5% drop following a report from the Wall Street Journal that said a bipartisan group of lawmakers is preparing to introduce a bill aimed at dismantling pharmacy-benefit managers (PBMs).

The proposed Senate bill, backed by Senators Elizabeth Warren and Josh Hawley, would compel companies that own health insurers or PBMs to divest their pharmacy operations within a three-year period.

Legislative Significance

This legislation, also set to be introduced in the House, represents the most significant attempt yet to reform the operations of PBMs and their parent companies. The move could sever a significant revenue stream for these companies and address patient frustrations, drawing inspiration from historical government actions that prohibited joint ownership in various industries.

Senator Criticism

Senator Elizabeth Warren criticized PBMs for market manipulation leading to increased drug prices, harm to employers, and the closure of small pharmacies. She asserts that the new bipartisan bill addresses these issues by limiting the influence of these intermediaries.

Senator Josh Hawley expressed support for the bill, stating it would prevent insurance companies and PBMs from further monopolizing American healthcare and driving up costs for families.

Legislative Outlook

However, the likelihood of the bill becoming law during this Congress is slim as the session is concluding. Proponents are laying the groundwork for its passage next year.

Context of the Legislation

The push for this legislation has gained momentum following the tragic killing of UnitedHealth Group executive Brian Thompson and bipartisan support arising from extensive hearings and investigations into health industry practices that many argue have raised drug prices.

The Pharmaceutical Care Management Association, representing PBMs, countered by suggesting that the focus should instead be on holding drug companies accountable for high list prices to reduce prescription drug costs.

Role of PBMs

PBMs are crucial in the prescription drug market, determining coverage and pricing of medications for insurance plans. The three largest PBMs—CVS Health's Caremark, Cigna's Express Scripts, and UnitedHealth Group's OptumRx—are part of companies that also own some of the nation's biggest health insurers and operate mail-order pharmacies, with CVS also owning over 9,000 retail pharmacy locations.

While these firms claim their negotiation power with drugmakers helps control costs, critics argue their practices lead to higher costs, enhancing their revenue at the expense of patients. PBMs have been accused of favoring their pharmacies over independent retailers and often charging higher prices.

Investigations highlighted that PBMs can cause patients to pay more at local pharmacies compared to PBM-affiliated mail-order pharmacies and can steer patients away from less expensive drugs.

Previous Legislative Efforts

Other legislative efforts targeting PBMs sought to demand transparency in their business operations or prohibit certain pricing strategies. Some of these provisions nearly passed last year but were ultimately omitted from the final legislative package.

The House bill, named the Patients Before Monopolies Act, is sponsored by Representatives Jake Auchincloss and Diana Harshbarger, who have previously collaborated on legislation addressing PBMs' pharmacy steering practices. The senators referenced the Volcker rule from the Dodd-Frank financial law as a historical example of government prohibition of joint ownership within industries.

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