PBMs No Longer Able to Discriminate Against 340B Program Covered Entities in California

California Governor Gavin Newsom recently signed Senate Bill 786 (SB 786) into law, which will prohibit pharmacy benefit managers (PBMs) from discriminating against covered entities, 340B owned pharmacies, or 340B contract pharmacies that participate in the 340B program, in connection with dispensing drugs or preventing a covered entity from retaining the benefit of discounted pricing for 340B drugs.

The law became effective January 1, 2024, and will prohibit PBMs from imposing requirements, conditions, or exclusions that would either: (1) discriminate against a covered entity or a specified pharmacy in connection with dispensing covered drugs or (2) prevent a covered entity from retaining the benefit of discounted pricing for the purchase of covered drugs.

Some of the prohibited discriminatory practices include – but are not limited to:

• Establishing payment terms, reimbursement methodologies, or other terms or conditions that: (1) distinguish between covered drugs and other drugs, (2) account for the availability of discounts under the 340B program in determining reimbursement, or (3) are less favorable than the payment terms or reimbursement methodologies for similarly situated entities that are not furnishing or dispensing covered drugs.
• Establishing terms or conditions that are applied to covered entities or specified pharmacies based on dispensing of 340B drugs or their status as a covered entity or specified pharmacy. This includes requirements for participation in specialty/standard/preferred pharmacy networks, or requirements related to the frequency or scope of audits.
• Refusing to contract (or terminating a contract) with a covered entity or specified pharmacy, or otherwise excluding a covered entity or specified pharmacy from a specialty or preferred network on the basis that the entity or pharmacy is a covered entity/specified pharmacy.
• Refusing to contract (or terminating a contract) with a covered entity or specified pharmacy for any reason other than those that apply equally to entities or pharmacies that are not covered entities or specified pharmacies.
• Retaliating against a covered entity or specified pharmacy based on its exercise of the rights included in the law.
• Interfering with an individual’s choice to receive a 340B drug.
• Restricting or prohibiting a covered entity from raising a grievance, speaking out publicly, or filing legal action against any PBM that violates the law.

The law will apply to any entity that falls under the California definition of a PBM – including wholly and partially owned and controlled entities of a PBM, as well as PBMs that contract with Medicare or Medi-Cal managed care organizations. Additionally, the law notes that the provisions contained within are unable to be waived, voided, or nullified by contract.

“California needs to protect patients and health care providers to ensure that they are able to offer and receive affordable prescription drugs,” stated Senator Anthony J. Portantino, the legislator who put forth the bill. “SB 786 puts additional oversight on pharmacy benefit managers to protect prescription services for California’s rural and most vulnerable communities. I am grateful to the Governor for signing this bill into law, helping to create healthcare equity, and ensuring that all patients who need prescription medication are able to receive it.”