Shares of major healthcare companies, including CVS Health, Cigna, and UnitedHealth Group, tumbled on Wednesday following the introduction of a bipartisan bill aiming to force the divestiture of pharmacy benefit management (PBM) businesses from health insurers. This proposed legislation seeks to address concerns about potential conflicts of interest and anti-competitive practices within the pharmaceutical industry.
The bill, spearheaded by Senators Elizabeth Warren (D-MA) and Josh Hawley (R-MO), along with Representatives Diana Harshbarger (R-TN) and Jake Auchincloss (D-MA), mandates that companies owning both health insurers and PBMs divest their pharmacy operations within three years. This legislation directly impacts industry giants like CVS Health’s Caremark, Cigna’s Express Scripts, and UnitedHealth Group’s Optum, which collectively control a significant portion of the US PBM market. The Wall Street Journal initially reported on the bill, triggering a notable market reaction with shares of the aforementioned companies declining between 4.8% and 5.5%.
PBMs play a pivotal role in negotiating drug prices between insurers, pharmacies, and pharmaceutical manufacturers. They are responsible for establishing formularies, processing prescription claims, and reimbursing pharmacies. However, their substantial market power has drawn criticism for potentially inflating drug costs and contributing to the closure of independent pharmacies. Senator Warren asserted that PBMs “have manipulated the market to enrich themselves — hiking up drug costs, cheating employers, and driving small pharmacies out of business.” This bill seeks to rectify these perceived imbalances by separating the PBM and insurance functions.
The proposed legislation also impacted other insurers, with Elevance, Humana, and Centene experiencing share declines between 1% and 3%. While the bill’s long-term prospects remain uncertain, its introduction underscores growing bipartisan concern regarding PBM practices and their impact on healthcare costs. Leerink Partners analyst Michael Cherny commented that while the bill’s passage is not guaranteed, its potential impact cannot be disregarded.
Adding to the industry’s challenges, the recent death of Brian Thompson, CEO of UnitedHealth’s health insurance unit, further contributed to market volatility. The confluence of these events highlights a period of significant uncertainty and potential regulatory change for the healthcare sector. This proposed legislation marks a significant development in the ongoing debate surrounding drug pricing and the role of PBMs in the American healthcare system. The bill’s progress and potential impact on the industry will continue to be closely monitored.
