Pharmacy Benefit Managers: States Put the Middlemen on the Run – Passing Multiple Laws in 2018

PharmacyState Policy
By Thomas Sullivan
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As the federal government continues talking on ways it could address drug costs for tomorrow, state legislatures are acting to address the issue today. State lawmakers are targeting everyone within the industry: drug manufacturers, wholesalers, pharmacies, insurance providers, and the middlemen, the pharmacy benefit managers (“PBMs”). But with six months into the 2018 legislative session, state legislation that became law targeting PBMs should not go unnoticed.

The most common issue addressed by lawmakers has been “gag clauses,” which have been used as a means to contractually prevent pharmacists from disclosing to patients that they could pay less out-of-pocket, including patients overpaying due to their copayment exceeding the actual cost of the drug (known as “clawbacks”). According to the National Conference of State Legislatures, since 2016, 22 states have enacted legislating prohibiting PBM “gag clauses” with at least 40 legislatures that have considered the prohibition. But of those 22, 18 states have passed law prohibiting the “gag clauses” in 2018. In the Health and Human Services’ American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs (the “Blueprint”), HHS discusses how it may prohibit Part D plans from engaging in similar conduct (see our Policy & Medicine article here on the Blueprint).

Unless otherwise indicated, each bill below has been passed and signed into law, which includes the corresponding session law (e.g., Act 1, Public Law 100, Chapter No. 100, etc.).

Prohibiting “Gag Clauses”

 Licensure or Registration of PBMs

These laws would require PBMs to either be licensed or registered with a state administrative agency before conducting business in the state (i.e., similar to wholesale drug distributors).

Disclosure Reports

These laws mandate some form of disclosure reporting and vary accordingly. For example, the Louisiana law requires PBMs to issue an annual transparency report that discloses aggregate data on rebates received from drug manufacturers, administrative fees, and aggregate rebates received that did not pass through to the health benefit plan or insurer; Kentucky’s law requires PBMs that contract with a managed care organization to administer Medicaid benefits to annually disclose, among other things, total Medicaid dollars paid to the pharmacy benefit manager by a managed care organization.

  • Arkansas (HB1010 – Act 1; SB2 – Act 3; requires PBMs to file a network adequacy report describing the pharmacy benefits manager network and the pharmacy benefits manager network’s accessibility in the state; also requires PBMs to annual disclose information related to seeking payments or reimbursements for pharmacist services provided in connection with a pharmacy benefits plan or program or reporting expenditures for pharmacist services provided in connection with a pharmacy benefits plan or program)
  • Connecticut (Raised HB5384 – Public Act 18-158; see our Policy & Medicine article here)
  • Kentucky (SB5 — Acts, ch. 157; applies to PBMs contracting with a managed care organization to administer Medicaid benefits)
  • Louisiana (SB283 – Act No. 371; also requires a pharmaceutical drug manufacturer to notify the commissioner of insurance by electronic mail o not more than 30 days after an increase in wholesale acquisition cost of 50% or greater for a drug with a wholesale acquisition cost of $100 or more for a 30-day supply – effective 1/1/2020)

Working Group/Task Force to Study Prescription Drug Costs

These laws are designed primarily to study prescription drug costs across the industry with the exception of New Hampshire’s law, which focuses exclusively on PBMs. The intent of the law states the following: While the distribution and reimbursement of prescription drugs is a complex national issue that encompasses numerous entities, the role and oversight of pharmacy benefit managers (PBMs), which sit in the middle of this ecosystem wield significant decision making power. . . . The study committee established in this act will review the PBM system to determine whether changes to New Hampshire’s PBM statutes could assist insurers in lowering related costs.

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Concerning Maximum Allowable Cost (“MAC”) Lists

According to the National Community Pharmacists Association (“NCPA”), a “MAC” list refers to a payer or PBM-generated list of products that includes the upper limit or maximum amount that a plan will pay for generic drugs and brand name drugs that have generic versions available. Essentially, it leaves pharmacies in the dark about how they will be paid. The NCPA states that MAC legislation would: (1) Provide clarity to plan sponsors and pharmacies with regard to how MAC pricing is determined and updated and establishing an appeals process in which a dispensing provider can contest a listed MAC price; (2) Provide standardization for how products are selected for inclusion on a MAC list; and (3) Compel PBM disclosures to plan sponsors about the use of multiple MAC lists and whether or not MAC pricing is utilized for mail order products.

Prohibiting PBMs from Requiring Accreditation

These laws would restrict PBMs from setting accreditation standards. For example, some PBMs have imposed requirements that it will only accept and process claims for products if they were purchased from an entity that has been accredited by the National Association of Boards of Pharmacy Verified-Accredited Wholesale Distributor (VAWD) program (this article here provides an example).

Prohibiting PBMs from Retaining Drug Rebates

  • Louisiana (SB130 – Act 483; requires Medicaid pharmacy benefit manager contracts to be limited to a set per transaction rate for every pharmacy claim paid; also prohibits pharmacy benefit managers from retaining federal drug rebates, credits, or “spread pricing” amounts in excess of what they paid the pharmacist)

PBM Reimbursement Report

  • Utah (SB208 – Chapter 305; requires a “pharmacy service entity” (includes PBMs) to report certain information to pharmacies or the pharmacies’ pharmacy services administration organization)

Audit Restrictions

  • Alaska (HB240 – awaiting transmittal to governor; if signed into law, would impose certain auditing limitations on PBMs)
  • Alabama (HB457 – Act No. 2018-457; imposes limitations on recoupment for certain errors by a pharmacy, unless error resulted in overpayment to the pharmacy)

Takeaway

With some state legislatures still in session, there is a good chance the list above could grow. Clearly, the state lawmakers have the PBM middlemen on the run.  Thanks to Nicodemo Fiorentino for his collaboration in research for this article.

Thomas Sullivan

Thomas Sullivan is Editor of Policy and Medicine, Senior Vice President at Clinical Education Alliance (CEA) a leading continuing education provider. Founder and director of CME Coalition a lobbying and education organization for CE providers and supporters.

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