Background
The original intent of Pharmacy Benefit Managers (PBMs) was to assist insurers and employers in managing prescription drug benefit programs acting as third party administrators. PBM’s have evolved into much more complex organizations including acquiring or establishing their own specialty, mail-order and community pharmacies.
Pharmacy Benefit Managers largely operate in the shadows of the healthcare system but they have a tremendous impact on U.S. healthcare decision-making. The three largest PBMs cover more than 180 million lives, or roughly 78% of the market. With this market influence, employers, government entities and other purchasers of healthcare must have transparency into PBM practices, many of which add hidden costs that lead to higher healthcare prices.
Problem
While the initial purpose of PBMs was to negotiate contracts on behalf of their clients (health plans), these enterprises have evolved into ones in which there is an inherent conflict of interest and lack of transparency in how they operate. PBMs involve themselves in all aspects of a prescription drug program, from negotiating drug prices with manufacturers, to demanding rebates for medication placement on formularies, to contracting with health plans and pharmacies. PBMs even use their leverage to steer patients to their company-owned mail-order, community and special pharmacies all of which calls in to question their ability to fairly represent the employers, health plans, providers, and the patients they are serving.
PBMs have, for the most part, escaped the scrutiny of regulation and licensure. This lack of oversight coupled with a lack of corporate transparency regarding business practices has generated numerous questions and concerns about the PBM industry and its ownership, control or influence on the prescription marketplace.
Legislative Solution
CPhA believes AB 315 is a critical first step in bringing to light how PBMs contribute to the rising costs in healthcare. By requiring that Pharmacy Benefit Managers (PBMs) be regulated by the Department of Managed Health Care, transparency and oversight into PBM’s business practices can be subject to scrutiny.
Specifically, this bill will:
- Require pharmacy benefit managers to be licensed by the California Department of Managed Health Care.
- Require that a pharmacy benefit manager exercise a duty of good faith and fair dealing in the performance of its contractual duties to a purchaser, and require a pharmacy benefit manager to disclose to a purchaser any conflict of interest that would interfere with the discharge of that duty.
- Require a pharmacy benefit manager to periodically disclose to a purchaser, at the purchaser’s request, certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies.
- Require a pharmacy benefit manager to notify a pharmacy network provider of certain material contract changes at least 30 days before those changes take effect.
- Prohibit a pharmacy benefit manager 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.
- Create a toll-free provider line for pharmacies to use to report any PBMs who are in violation.
Given the direct relationship between PBMs and the health plans they contract with, the Department of Managed Health Care is well-structured to regulate these entities.