California Gov. Gavin Newsom will soon decide whether the most populous U.S. state will join 25 others in regulating the middlemen known as pharmacy benefit managers, or PBMs. Many policymakers blame PBMs for the soaring cost of prescription drugs.
PBMs have been under fire for years for alleged profiteering and anticompetitive conduct, but efforts to regulate the industry at the federal level have stalled in Congress.
Insurers and retail pharmacy chains own the three largest PBMs, and they control about 80% of prescription drug sales in the United States: OptumRx, owned by UnitedHealth Group; CVS Caremark, owned by CVS Health, which also owns the insurer Aetna; and Express Scripts, owned by The Cigna Group.
The proposed law, spearheaded by state Sen. Scott Wiener of San Francisco, a Democrat, would require PBMs to apply for a license by 2027 and would mandate that licensed PBMs pass along 100% of pharmaceutical manufacturers’ rebates to health plans or insurers. Drug companies often offer substantial discounts on medications to boost demand, and one of the major criticisms of PBMs is that they pocket rebates rather than pass savings along to customers.
The law would also mostly bar PBMs from steering patients to pharmacies they own, including the significant mail-order pharmacies. It would also prohibit them from giving independent pharmacies lower insurance reimbursements than they offer the big chains—an important issue for the dwindling number of independents nationwide.
Wiener said the law aimed to rein in what he called “the worst abuses by PBMs.” Proponents of the legislation say the experiences in the 25 states that require PBM licensing and the 16 that ban steering patients to preferred vendors show that regulations reduce consumer costs.
“When they’re licensed like we’re looking at, the cost goes down. States without licensing saw costs go up,” said Assemblymember Devon Mathis, one of two Republicans to co-author the bill, citing the National Community Pharmacists Association.
The association calculated that health insurance premiums increased an average of 16.7% nationwide from 2015 to 2019, with premiums in states that license PBMs increasing 0.3 of a percentage point below the national average and those without 0.4 above.
The Pharmaceutical Care Management Association, representing pharmacy benefit managers, said Wiener’s bill “blatantly” favors independent retail pharmacies over chains.
“This legislation does nothing to lower costs for patients; it simply seeks to financially promote one industry over another with no consumer benefit,” the group said.
Insurance companies argue that the California bill would reduce the PBMs’ ability to negotiate lower drug prices, resulting in higher coverage premiums for everyone. But drugmakers argue that reforms don’t raise premiums.
Supreme Court Decision Looms
States have stepped in to regulate PBMs without federal action, while Congress has been holding oversight hearings on PBMs. In July, the Federal Trade Commission said PBMs “may be profiting by inflating drug costs and squeezing Main Street pharmacies.” Still, lawmakers and regulators have not introduced new legislation or efforts to crack down on existing laws that bar anticompetitive conduct.
The U.S. Supreme Court could soon decide whether states can regulate PBMs. A federal appellate court blocked Oklahoma’s regulations on PBMs because federal law held sway, and 35 state attorneys general, including California’s Rob Bonta, have asked the Supreme Court to overturn the ruling.
A central complaint about PBMs is that they take money from pharmaceutical companies as “rebates” to give their drugs preferential treatment on health plans’ lists of medications covered by insurance, known as formularies. A 2020 paper by the University of Southern California’s Schaeffer Center for Health Policy & Economics found that those rebates may raise drug prices.
Under the California bill, those rebates are to be used “for the sole purpose of lowering deductibles and out-of-pocket cost for consumers,” said Assembly member Jim Wood, a Democrat. “There is a perverse incentive by PBMs to choose for their formulary the drugs that will give them the biggest rebate, the largest rebate, even if there are other drugs just as effective and lower-cost. That alone should send shivers down your spine.”
Crackdown in California
California collected more than $215 million last year from the nation’s largest Medicaid insurer, Centene, after it failed to disclose or pass along drug discounts negotiated by its PBM to the state Medicaid agency.
Independent pharmacies say the proposed California law’s provisions requiring PBMs to offer them the exact pricing as the chains could be a lifeline.
Clint Hopkins, who has co-owned Pucci’s Pharmacy in Sacramento for eight years, said he regularly turns away customers to avoid losing hundreds of dollars each time he fills their high-cost prescriptions.
For instance, he said his cost for a monthly dose of Biktarvy, used to treat HIV, is $3,881.68. But he said pharmacy benefit managers short him up to $360 on the reimbursement.
“They dictate the rates to us, and they will not negotiate,” said Hopkins, who testified for the bill on behalf of the California Pharmacists Association. “Sometimes I have to say, ‘I’m sorry, I want to help you, but I can’t lose this much money on your prescription.’”
While the bill passed with unusual legislative support, its future is uncertain with the Democratic governor, who has until Sept. 30 to sign or veto it.
Newsom vetoed a 2021 bill that would have barred PBMs from steering patients to their pharmacies, citing potential unintended consequences.
His Department of Finance said administering the licensing and collecting the data required by the law would cost several million dollars. Newsom has repeatedly cited costs in vetoing other legislation as the state struggles with a massive budget deficit.
SOURCE: Story by Don Thompson | California Healthline
