State and Federal Legislation Addresses PBM Pricing Transparency

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Drug pricing legislation was on the docket in 47 states in 2019, with more than 51 drug pricing bills passed in 33 states as of September 2019. Of 275 drug pricing bills considered at the state level in 2019, 27 bills passed in 20 states were designed to enhance pharmacy benefit management (PBM) transparency.

A growing number of state legislatures are introducing bills to outlaw a “gag clause” that prohibits pharmacists from informing consumers when less expensive prescription drug alternatives are available, and bills that prohibit copay “claw back” contract provisions. Gag clause legislation has already been passed in several states.

States are acting before the Prescription Drug Pricing Reduction Act (PDPRA), which passed by the Senate Finance Committee in bipartisan fashion, is presented to the full Senate. The PDPRA was drafted in July 2019 and an updated version was drafted on December 6, 2019. The Senate bill is narrower than the sweeping drug pricing reform bill (H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act) that was passed in the House on December 12, 2019, and will enter the Senate for consideration, although passage is unlikely.

“Pharmacy benefit managers and insurance companies have the opportunity to negotiate lower prices, but the American people don’t know how much these middlemen pocket for themselves,” said Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR) in a prepared statement. “This legislation [PDPRA] shows that no industry is above accountability.” Like many state bills, a key feature of the PDPRA is increased oversight of PBMs that engage in claw backs and price spreading.

Claw backs are prescription drug overpayments that occur when “commercially insured patients’ copayments exceed the total cost of the drug to their insurer or pharmacy benefit manager.” As of October 2019, more than 20 states have passed some form of “claw back” legislation.

“In 2013, almost one quarter of filled pharmacy prescriptions (23%) involved a patient copayment that exceeded the average reimbursement paid by the insurer by more than $2.00,” according to a report by investigators at the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California, Los Angeles. “Among these overpayment claims, the average overpayment is $7.69.”

Price spreading refers to an amount kept by a PBM when he or she negotiates drug prices with a health plan instead of passing these savings on to pharmacies. Under the PDPRA draft legislation, PBMs would have to publicly publish annual reports on rebates, discounts, or price concessions that they negotiate for payers and state how much of these savings were passed on to payers. This proposed measure would take effect July 1, 2022.

Other bills at the state level would require PBMs to disclose business relationships with health plans and pharmacies.

Price increase reporting and price gouging legislation were also passed in a few states in 2019. Texas and Oregon passed bills that require manufacturers to report drug price increases that exceeded certain thresholds, with Oregon requiring that manufacturers report planned increases for certain drugs ≥60 days before they take effect. As part of new legislation, Virginia now requires that its Attorney General be notified when significant price increases are planned for generic drugs. The law also prohibits price gouging, “defined as unconscionable, excessive, or unjustified price increases for off-patent drugs deemed essential.”

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Last modified: February 14, 2020