Replay: PBM Legislation: Navigating State and Federal Regulatory Changes and How They May Impact You

Capital Rx’s General Counsel and Chief Compliance Officer, Lloyd Fiorini, hosted an informational webinar on June 7, 2023, covering recently passed and proposed legislation impacting pharmacy benefit managers (PBMs) and stakeholders responsible for managing health plans (including pharmacy benefit programs). He reviewed key provisions of the Consolidated Appropriations Act (CAA), Inflation Reduction Act (IRA), PBM Transparency Act, PBM Reform Act (HELP), the highlights of recent Senate hearings, and state-level activity, including Florida’s Prescription Drug Reform Act.

Check out the replay and highlights below, and CLICK HERE to download Lloyd’s presentation.

Highlights

Edited for length and clarity.

The Consolidated Appropriations Act (CAA)

The CAA requires group health plans and health insurance issuers to report prescription drug-related information to the Federal Government. The reporting obligations are significant, and additional requirements that should be on plan sponsors’ radar include the new compensation-related disclosures for employee benefits brokers, consultants, TPAs, and PBMs, and the removal of “gag clauses” from contracts.

The CAA established a fiduciary standard, which all plan sponsors have under ERISA. The requirement is to run the health plan in the interests of participants and for the exclusive purpose of providing benefits. Fiduciaries must act prudently and follow plan documents, and they must avoid conflicts of interest. The new requirements provide a framework for relationships with third parties and service providers, which is a new concept for health plans.

What should plan sponsors do to avoid penalties or personal liability?

• Acquire the necessary disclosures – be able to judge whether the information received is complete.
• If contracts are not updated already, ensure that provisions are in place to support the acquisition of data and the compensation disclosures (for direct and indirect compensation).
• Define a process to determine whether fees are reasonable under ERISA (and ensure that fees are appropriately understood); plan sponsors must be able to fairly assess whether the fees are reasonable given the services being provided by the service provider.

In Lloyd’s opinion, the new guidance on gag clauses doesn’t receive enough attention. We often hear that clients can’t provide data – specific cost of care, financial information, or claim-related data, for example – to third parties because a service provider, consultant, or other party claims the information is confidential or otherwise not allowed to be shared.  

The CMS requires each plan to make an attestation that it complies with the gag clause requirement, and it must be filed no later than December 31, 2023, this year (it’s an annual requirement). We include a gag clause provision in our contracts to identify to our clients that they have a right to certain information. Lloyd recommends that plan sponsors review their contracts to ensure that these provisions are in their agreements.

The Inflation Reduction Act (IRA)

The prescription drug-related provisions revolve around the government’s ability to negotiate drug prices for Medicare, which was previously prohibited. Some of the key aspects of the IRA include the process of selecting drugs eligible for negotiation, the requirement for pharmaceutical manufacturers to pay rebates if prices rise faster than inflation, and some caps and limits on spending (e.g., for out-of-pocket spending and cost-sharing for insulin, respectively).

The selection of drugs eligible for negotiation is based on total expenditure under Part D between June 1, 2022, and May 31, 2023. From that list, CMS will select 10 drugs no later than September 1, 2023. From there, it’s a relatively short timeline to establish maximum fair prices, and those prices are expected to be set by September 2024 (to be in effect for September 2026; slide 11 is a list of drugs that could be included in the first round of negotiation).

An anticipated reaction is for manufacturers to “squeeze the balloon” and make up for lost value in Medicare on the commercial side. Lloyd thinks it’s “unlikely that pharmaceutical manufacturers will increase prices for non-negotiated drugs beyond inflation, but it’d be reasonable to see higher list prices for new drugs than we’ve seen in the past.”

It will also be interesting to see how rebates play out for Part D over the next few years. Lloyd thinks these plans may seek lower WAC cost products and avoid rebates, “likely due to the change in the catastrophic coverage that typically relieves health plans from liability at this stage.” Plans may also move to lower cost formularies, which would help beneficiaries.  

Current PBM Reform Activity at the Federal Level - The PBM Transparency Act

There’s an “assault by congress and state governments against PBMs and traditional practices,” said Lloyd. The PBM Transparency Act is a bipartisan bill that expands the authority of the FTC to govern PBM practices.

The bill promotes greater transparency regarding how PBMs reimburse pharmacies and identifies certain traditional practices of the PBMs as anti-competitive and predatory (e.g., spread pricing, DIR fees, and the retention of rebate dollars). The PBM Transparency Act follows closely behind CMS’ prohibition of claw backs by PBMs (May 2022) and the FTC’s 6(b) Study into PBM practices in June 2022.

Additionally, the bill requires PBMs to report the following to the FTC on an annual basis:

• The difference between the amount a health plan paid A PBM vs. the amount a PBM paid each pharmacy;
• The amount of fees charged to pharmacies vs. the total amount of reimbursement clawed back; and
• If a PBM owns a pharmacy, the PBM would need to describe any difference between what they reimburse/ other pharmacies.

If the PBM Transparency Act passes, Lloyd thinks traditional PBMs will need to create infrastructure to comply with reporting requirements, which “may lead to greater costs for clients as it would not be unreasonable for these PBMs to build the costs into their pricing.”

PBM Reform Act (HELP)

This is a bipartisan bill referred to as the PBM Reform Bill, and it’s part of a “second wave” or assault on PBM practices. Lloyd said its intention is to lower prescription drug pricing. The Reform Act is a package of four bills addressing different stages of the pharmaceutical supply chain. It is similar to the Transparency Act in that it eliminates spread pricing and pharmacy claw backs, and requires 100% pass-through of rebates.

However, the Reform Act does not provide enhanced powers to the FTC or require reporting by the PBMs to the FTC. It does require PBMs to report a variety of information to health plans, including, but not limited to, data collected for copay assistance programs, detailed utilization information relating to number of claims, dosage, dispensing channel, the total out-of-pocket for plan members, and gross and net spending on prescription drugs by the health plan.

The Reform Act also requires the GAO to conduct a study and report to Congress by 2029 and HHS to study/report on the impact of disallowing rebates.

Senate Finance Committee Activity Relating to PBMs

The Senate Finance Committee is contemplating a bill that would reduce drug pricing by delinking PBM compensation from drug prices to align for lower costs. They’d also like to see enhanced PBM accountability to health plan clients to drive cost-cutting competition and produce better choices, and they want to ensure that the discounts negotiated by PBMs produce meaningful savings for seniors.  

Lloyd expects to see the Finance Committee mark up a PBM bill sometime this summer.

House of Representatives Activity on PBMs

There was a Ways and Means Hearing on Healthcare competition that included the Oklahoma Insurance Commissioner, Glen Mulready. In his testimony, he identified the hold three PBMs maintain on the market and explained his concerns relating to the vertical integration seen in the industry.

The Oversight and Accountability Committee held a hearing: The Role of PBMs in the Prescription Drug Markets Part 1 - Self Interest or Health Care? During this hearing, there was testimony regarding the control certain PBMs maintain over the marketplace, their ability to steer patients, and the impact they have on drug prices.

What does it all mean?

The House and Senate must pass the same legislation before it can be signed into law. And because the House does not seem as far along as the Senate, Lloyd isn’t sure what will come out of Congress during this session. That said, he does expect something to be done.

“I don’t expect the Senate to pass any specific bill on a straight vote, and any Congressional action will likely come via an appropriations bill,” he said. The PBM Reform Act probably won’t get much traction since the reporting requirements are largely covered by the CAA, and then what comes out of the Senate Finance Committee “may be a strong indication as to what Congress may actually pass. But we will need to wait and see.”

The PBM industry trade group, the PCMA, has opposed many of the initiatives by Congress. The arguments put forth by PCMA largely revolve around transparency requirements resulting in higher drug costs for health plans. By contrast, the PCMA advocates for greater transparency at the patient/member level and points to drug makers’ higher list pricing as the cause of higher drug costs.  

Put everything together, and Lloyd’s opinion is:

• The removal of spread pricing and elimination of DIR should not raise drug pricing, “it simply removes the ability of a PBM or Health plan to take value from the dispensing of the prescription.”
• The elimination of DIR or claw backs supports pharmacies and allows for certainty of reimbursement, greater access to care, and enables better outcomes or quality of care as there is greater choice for members.
• Passing 100% of rebates will not impact competition or provide for tacit collusion.
• The current versions of the statutes are unlikely to capture the value that certain PBMs may be retaining via different entities (e.g., GPOs) that are further upstream in the pharmacy supply chain.
• The level of reporting required will create what should be a manageable reporting burden on PBMs and highlight certain information that otherwise was not available to regulators or health plan clients. Some PBMs may need to increase headcount or develop a transparent program to comply, and neither should result in a dramatic increase in costs.
• PBMs will continue to leverage tools in their toolboxes to drive down prescription costs and battle drug manufacturers for better pricing (e.g., formulary and plan design); however, it may be a more difficult task (but not impossible).

Provided the Federal statutes do not limit the ability of health plans to implement certain plan design measures and are intended to provide additional information to the health plan about the business of the PBMs, Lloyd said, “It is unlikely that there would be a significant increase in prescription costs by these measures alone [in my opinion].”

State-Level Activity – “The Flanking Maneuver”

There has been an incredible amount of activity at the State level over the last 3 years, and it’s not only focused on the reimbursement to pharmacies or pass-through of rebates. Lloyd noted that States have been regulating many different practices used by health plans and PBMs, some of which “may be impacting the ability of PBMs to manage a client’s pharmacy benefit.”

Areas of focus at the state level have been:

• Pharmacy Reimbursement (e.g., MAC lists, claw backs)
• Anti-steering or restrictive networks
• Prior Authorization
• Spread Pricing
• Copay Accumulator Programs
• Point-of-Sale Rebates

At the beginning of the State Legislative season this year, there were well over 550 bills introduced relating to PBMs, health plans, or TPAs that could impact coverage, costs, and plan designs for health carriers/insurers and self-funded plans, including:

• 14 bills dealing with Gold Carding (these laws are intended to streamline the prior authorization process and give certain prescribers an exemption from a prior authorization)
• 45 bills dealing with Step Therapy
• 34 bills impacting Pharmacy Reimbursement
• 30 bills addressing Spread Pricing

In Lloyd’s opinion, the rise of activity can be traced back to the PCMA v. Rutledge decision. In 2017, the State of Arkansas passed legislation requiring PBMs to pay pharmacies based on their acquisition costs, update their MAC lists in a timely fashion, and provide pharmacies an appeal right to challenge their reimbursement. The PCMA challenged the law on the grounds Arkansas’ legislation was preempted by ERISA.

Lloyd explained that ERISA was passed by Congress to provide a national standard for employee benefit plans, including reporting, disclosures, fiduciary responsibilities, and claims/appeals and remedies for noncompliance. To minimize the potential patchwork effect of each state enacting its own laws regulating employee benefits, Congress included a broad preemption of state laws that could interfere with the uniform administration of ERISA plans. Essentially, ERISA preempts ‘any and all state laws’ to the extent they ‘relate to’ employee benefit plans.

State legislation that had been ruled to be preempted by ERISA has included fiduciary, any willing provider, and mandatory mail laws. The PCMA argued against the Arkansas law, but the Supreme Court decided in 2020 (unanimously) that it did not require certain coverage requirements or relate to any employee benefit plan. So, Lloyd said, “The holding from Rutledge should be seen as allowing States to regulate the commercial relationship between PBMs and pharmacies, or other parties.”

Many state legislators believe that legislation will extend to self-funded plans, and/or they have passed laws that would have been considered clearly preempted by ERISA prior to Rutledge. Lloyd believes that “the extensive activity by the States will likely lead to more litigation to redefine the lines of what is allowed under State regulation and what is preempted by ERISA.”

PCMA v. Mulready is a good example.

Oklahoma passed a law that requires all health plans, including ERISA self-funded plans, to:

• Eliminate mail-order-only networks (including specialty pharmacies) by requiring all pharmacy networks to meet certain geographic restrictions;
• Include any willing pharmacy into a plan’s preferred network;
• Eliminate cost-sharing discounts to incentivize the use of a particular pharmacy; and
• Allow a pharmacy to stay in the network if on probation with the State Board of Pharmacy.

The district court ruled the Oklahoma law was not preempted by ERISA, but certain aspects of the statute were preempted by Medicare Part D. The 10^th Circuit heard oral arguments on appeal, and a decision should be made soon as to whether this decision will stand.

It’s a wait-and-see situation, but if precedent is any indication, Lloyd thinks the Oklahoma law that restricts the use of mandatory mail programs, preferred networks, or plan designs that incentivize mail or other pharmacies should be preempted by ERISA.

Other State-Level PBM Reform Activity

Arkansas Act 333: Healthcare Insurer Share the Savings Act; Arkansas Pharmacy Benefits Manager Share the Saving Act. This statute requires health insurers/PBMs provide to the beneficiary/member the value of any rebate received by the health insurer/PBM at the point of sale. Lloyd said, “It seems to apply to insurance products and does not seemingly extend to self-insured plans.”

New Mexico SB 51: Calculating Cost-Sharing Contributions (POS Rebates). This statute is like the Arkansas law and requires POS rebates to be provided to beneficiaries/members. In addition, health plans are precluded from charging a different cost share for prescriptions obtained by non-affiliated pharmacies.

West Virginia SB 267: West Virginia passed new legislation intended to streamline the prior authorization process by creating an electronic portal through which all prior authorization-related communications and correspondence will be submitted and received.

California SB 598: Prior Authorization/Gold Carding. This requires an electronic prior authorization process to manage/monitor and eliminate items that are approved 95% of the time.

Florida’s Prescription Drug Reform Act (one of the most comprehensive state laws designed to reform the PBM and drug industry). Like the federal bills discussed earlier, it prohibits spread pricing and claw backs and requires 100% pass-through of all rebates. However, this law’s definition of rebate extends to a GPO that may be affiliated with a PBM.

Lloyd noted that it goes on to prohibit mandatory mail, mandatory networks of PBM-affiliated pharmacies (e.g., M-Choice), requires continuation of care for at least 60 days, and provides a process relating to MAC appeals and pharmacy audit requirements. It also prohibits PBMs from bundling participation in one network by requiring a pharmacy to participate in another network. Interestingly, he noted, “It requires pharma to provide information regarding increases to drug prices.”

It is hard to imagine aspects of the Florida Act not being challenged by the PCMA, specifically the requirements relating to mandatory mail or networks. Assuming, for the sake of argument, a challenge is successful on grounds the Florida Drug Reform Act is preempted by ERISA, it will still apply to insurance products at the very least, and PBMs will still need to register in the State, he added.

What Else Should Stakeholders Watch?

While we will continue to monitor state-level legislative activity, there are other notable activities that Lloyd thinks should be watched closely.

One such action is the recent complaint filed by the state of Ohio’s Attorney General in the matter of the State of Ohio v. Ascent Health Services LLC, Express Scripts, Inc., Cigna Health Group. Another is Johnson & Johnson Health Care Systems, Inc. v. SaveOnSP. These complaints are very different in that the first relates to anti-competitive activity driving up costs, and the second alleges SaveON took advantage of the J&J patient program covering patients’ out-of-pocket expenses for J&J products (a copay maximizer program). Lloyd noted that AbbVie filed a similar action against Payer Matrix.

A third item that caught Lloyd’s attention was the recent announcement by the FTC to expand its 6(b) study of the PBMs. On May 17^th, the FTC issued a compulsory order to the GPOs of CVS Health (Zinc Health Services) and Cigna Health Group (Ascent Health Services). He said that the FTC’s stated intent is to shed light on certain PBM practices, including charging fees and claw backs to unaffiliated pharmacies, steering patients towards PBM-owned pharmacies, and negotiation of rebates and fees with pharmaceutical manufacturers, to name a few.

Live Q&A

Q: Who at the payer is the fiduciary? The plan sponsor generally identifies that; it’s typically a CFO or could be the General Counsel. There are usually 2-3 people signed on as fiduciaries for a plan.

Q: Are plans required to comply with bills mandating pass-through pricing? Yes, if we’re talking PBM Reform Act, they have to pass on to the health plans, but in some of the state bills, the health plan is required to pass those savings on to benefit the plan. It’s not clear If they must be POS rebates vs. lower premiums or some other way to effectuate value to members.

Q: Does Florida’s new law apply to ERISA groups? Yes, on its face, it applies.

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