PBM Reform in the Commercial Insurance Market: Understanding the Federal Budgetary Impact
Congress is considering changes that would significantly alter how Pharmacy Benefit Managers (PBMs) are compensated in commercial insurance. The DRUG Act (H.R. 2214) proposes two key shifts:
- Replacing percentage-based PBM fees with flat service fees
- Requiring 100% pass-through of negotiated rebates and discounts to health plans
PBM stakeholders believe these changes could eliminate performance-based discounts that help lower premiums, potentially increasing commercial premiums and reducing federal tax revenue.
Infographic: Potential Effects of PBM Compensation Reform
Why PBM Reform Matters
PBMs play a central role in the pharmaceutical supply chain—negotiating with manufacturers, managing formularies, and administering prescription drug benefits for more than 289 million Americans on behalf of health plans, employers, and unions.
Because of their influence on drug costs and reimbursement structures, PBMs are central to policy discussions around transparency and pricing. This focus has intensified in the wake of the Inflation Reduction Act and subsequent commercial-market proposals.
Federal Budget Impact: Key Findings From Our Analysis
Magnolia Market Access was engaged by a healthcare company to evaluate how the DRUG Act could affect federal spending. The analysis incorporated:
Eliminating percentage-based fees and performance-based discounts—without mechanisms to recoup lost revenue—could increase costs for employers, plan sponsors, and employees. Because commercial premiums are tax-deductible, higher premiums could reduce federal taxable income.
Estimated Federal Fiscal Impact
- 5-Year Impact: $52.4B – $61.9B
- 10-Year Impact: $118.1B – $136.3B
These ranges reflect rebate pass-through baselines of 88.75% (upper range) and 95.0% (lower range).
Download the Full Analysis
For full methodology, assumptions, and modeling details, download the complete report:
Talk With Our Team
Organizations navigating evolving PBM legislation often need support interpreting commercial and budgetary implications. If you’d like to discuss how these changes may affect your strategies, our team is available to help.