We have previously written about pharmacy benefit managers (PBMs) and the way states are trying to regulate them through legislation and other means. With just one week left of the California session, it is possible that the state will become the most recent to regulate PBMs.
California Assembly Bill 315, simply titled Pharmacy benefit management, was previously stalled and set as inactive in the Senate but recently was revived with an amendment on August 20, 2018.
The legislation, if passed, would require PBMs to be licensed by the California Department of Managed Health Care; require that a PBM exercise a duty of good faith and fair dealing in the performance of its contractual duties to a purchaser, and would require the PBM to disclose to a purchaser any conflict of interest that would interfere with the discharge of that duty; require a PBM to periodically disclose to a purchaser, at their request, certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies; require PBMs to notify pharmacy network providers of certain material contract changes at least 30 days before those changes take effect; prohibit PBMs from including in a contract with a pharmacy network provider provisions that prohibit the provider from informing consumers of alternative medication options or from dispensing a certain amount of prescribed medication; and would also create a toll-free provider line for pharmacies to report any PBMs who are in violation of the law.
PBMs were initially created in an attempt to reduce prescription drug prices. The idea behind them is that they will wield a large purchasing power from the payers (i.e., consumers, insurance companies, and businesses) and use that power to negotiate lower drug prices from manufacturers and lower fees from pharmacies. One of the issues many take with PBMs is that they are not as transparent and accountable as would be ideal – three companies tend to hoard the market share and in turn use their market share power to restrict consumers to use their own mail order and specialty pharmacies, thereby reducing the choice and quality of care for patients.
Thus far, however, the federal government has taken a hands-off approach to regulating PBMs, and the Federal Trade Commission voted to approve a merger between two PBMs back in 2012.
A group advocating for the regulation of PBMs, the California Pharmacists Association, alleges that PBMs have an “inherent conflict of interest and lack of transparency in how they operate.” They further allege that PBMs use their leverage to steer patients to company-owned mail order pharmacies. The group believes that the passage of this legislation is a “critical first step in bringing to light how PBMs contribute to the rising costs in healthcare.”
David Balto, the former Policy Director of the Federal Trade Commission and a public interest antitrust attorney, is also advocating for the bill’s passage, writing, “A.B. 315 is a solid first step toward regulating PBMs and ensuring that they truly help consumers. This industry is extremely opaque and unaccountable, and this bill would begin the journey toward informing payers, protecting consumers, and ensuring savings for all.”