State lawmakers want to ‘rein in abusive practices of middlemen in pharmaceutical supply chain’

AUSTIN, Texas – An alarming number of pharmacies have closed in Texas in the past two years – a net closure of at least one pharmacy every week, threatening a critical access point to health care for many Texans. 

These closures threaten pharmacy access for growing numbers of Texans, especially in low-income urban and rural areas. In fact, 4.3 million Texans now live in a pharmacy desert. And nearly two million Texans rely on a single pharmacy whose closure would create a pharmacy desert, further undermining access to care.

Texas lawmakers are considering legislation to help address this growing problem, specifically by reining in what they believe are the abusive practices of middlemen in the pharmaceutical supply chain. They are known as pharmacy benefit managers (PBMs).  

Recently, state Sen. Lois Kolkhorst, chair of the state Senate Committee on Health and Human Services, offered commentary on the issue and full support for Senate Bill 1236 by state Sen. Bryan Hughes to rein in the business tactics of PBMs, which are widely blamed for driving up the price patients pay for prescription drugs and driving neighborhood pharmacies out of business. SB 1236 was left pending in committee.

The bill seeks to increase oversight of pharmacy benefit managers and help maintain patient access to prescription drugs. This legislation is one of the Texas Pharmacy Association’s top priorities for the 89th Legislature.

PBMs, serve as middlemen between health plans, patients, and pharmacies, determining not only which prescription drugs are covered but also at which pharmacies patients can fill their prescriptions. The three largest PBMs control approximately 80% of the nation’s drug claims. Critics say PBM practices are rife with self-dealing and threaten Texas pharmacies’ continued viability.

“PBMs are powerful organizations with the power to crush our small, independent pharmacies. When that happens, we see less competition and prices increase,” Hughes said. “An uneven playing field shortchanges pharmacists and creates barriers, denying Texans the medications they need.”

Hughes says his legislation would protect Texas pharmacies and the patients they serve by instituting audit protections, mandating contract fairness and transparency, ensuring compliance with existing PBM laws, and prohibiting unfair fees.

“This a watershed moment—one that can ensure a fairer, more competitive marketplace,” said TPA President Jobby John, Pharm.D. “While PBMs were created with the intention of reducing costs, we now see a system that has spiraled out of control, contributing to rising health care costs and creating an unsustainable cycle of negative reimbursements. This is a fight for fairness, transparency, and the survival of pharmacies across Texas.”

PBMs face mounting scrutiny nationwide for their lack of transparency and their role in driving up the cost of prescription drugs. In July 2024, the Federal Trade Commission (FTC) issued a scathing report finding that PBMs wield enormous power over patients’ ability to access and afford their prescription drugs, allowing PBMs to significantly influence what drugs are available and at what price. The FTC released a second interim staff report on January 14 focusing on PBMs’ influence over specialty generic drugs. Recent PBM reform legislation received broad, bipartisan support in Congress.

Critics of PBMs say they often use audits as a financial tool to aggressively claw back payments from pharmacies over minor clerical errors that do not impact patient care. They also use market power to force pharmacies to enter into “all or nothing” bundled contracts.

Chair Kolkhorst is critical of PBM middlemen, noting that the top three PBMs control 80% of the drug supply market.  

“Who in America thinks that’s a good idea?”Kolkhorst said, noting that“the losers are the pharmacists which are sometimes the only people that people in underserved areas get a chance to interact [with]. . . but the other loser is the patient.”

Kolkhorst continued: “I think that PBMs are so vertically integrated. . .that also the loser is. . . the taxpayer. . .  it’s just not right.”

In her closing comments, Kolkhorst said, “I’m not going to be quiet on this issue anymore,” later adding, “it’s just time for there to be more transparency. Senator Hughes, what an excellent bill.”

The hearing followed the March 26 Texas Pharmacy Day at the Capitol, as more than 400 pharmacy professionals converged on the Texas Capitol to urge legislators to enact new laws to protect patients, pharmacies and employers from what they believe are the anti-competitive, anti-consumer practices of PBMs. The pharmacy professionals also called for PBMs to adhere to existing Texas laws requiring transparent contracts with independent pharmacies and fair compensation for their pharmacy services.

In 2021, the Texas Legislature took a stand against PBM overreach by passing two landmark laws—House Bill 1919 and House Bill 1763 to protect patients and pharmacies. Yet, PBMs continue to undermine these laws, critics say, creating deliberate confusion about their applicability to specific patients and contracts. Despite legislative efforts to ban exploitative fees, such as post-adjudication recoupments and transaction fees, PBMs have found new ways to squeeze pharmacies, demanding application and re-credentialing fees, sometimes before even allowing pharmacies to review contract terms. These predatory tactics threaten patient access, pharmacy viability, and the integrity of Texas’ health care system, according to Sen. Hughes and Kolkhorst.

Senate Bill 1236 would:

• Prohibit PBMs from recouping anything beyond a nominal dispensing fee as a result of an audit if a patient received the correct medication,
• Ensure any changes or modifications to contracts are provided to pharmacies with at least 90 days to review, and prohibit unilateral changes by the PBM without pharmacy consent,
• Require patient ID cards have unique identifier numbers for plans regulated by the Texas Department of Insurance and would require PBM contracts to indicate that the terms are subject to the Texas Insurance Code, increasing oversight clarity, and
• Prohibit certain fees that are unfair to community pharmacies.

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