As more states review similar PBM arrangements, we expect to see more states acting in similar fashion to enact drug-pricing reforms, provide fairer reimbursement to independent pharmacies and provide cost savings to the states and consumers.

On June 12, 2019, the Pennsylvania House Health Committee unanimously passed two bills that will be sent to the House floor for consideration: HB 941 and HB 944. Each of these bills calls for additional transparency in the pricing practices of pharmacy benefit managers (PBMs) contracting with the state-approved managed care organizations.

HB 941 provides for additional oversight of PBMs and how they set reimbursement rates for drugs dispensed to Medicaid recipients. The bill provides that, upon request by the Pennsylvania Department of Health, PBMs would be required to provide a host of specific information, which they are not currently obligated to share with the commonwealth, and which critics allege help lead to Pennsylvania being overcharged for PBM services.

Among the information that can be requested is the payment methodology employed by PBMs, which includes the financial terms between a PBM and a managed care organization, as well as the actual amount paid by the PBM to a pharmacy for dispensing a drug, including the ingredient costs and dispensing fees.

The bill also sets pharmacy reimbursement rates for pharmacy services to Medicaid recipients at the national average drug acquisition cost, plus a dispensing fee (equal to no less than that approved by the Centers for Medicare and Medicaid Services). This provision was included as an attempt to rectify complaints by hundreds of independent pharmacies across Pennsylvania concerning below-cost reimbursement by the PBMs.

HB 944 grants the Pennsylvania Department of Health the right to conduct full-scale audits of PBMs receiving state money through contracts directly with the commonwealth or with the state-contracted managed care organizations.

These bills generally aim to curb unfair practices and pricing by the PBMs under Medicaid. And they follow on the heels of calls for such legislation by Auditor General Eugene DePasquale after a report found that in 2017, state-contracted PBMs made approximately $40 million on spread pricing. The commonwealth found that PBMs earned almost $13 per Medicaid prescription, and that the PBMs pocketed the spread as profits, as opposed to returning the extra money to the commonwealth to help lower consumer costs.

As we have previously reported, many states are increasing scrutiny of PBMs after numerous investigations and reports have found, similar to Pennsylvania, that hundreds of millions of state-funded dollars are being pocketed by PBMs, while PBMs continually decrease reimbursement rates they pay to the independent pharmacies that service state Medicaid patients.

Such investigations have led to reforms in other states as well. Those reforms include, among others:

• Bans on gag clauses that prevent pharmacists from sharing lower-cost options with patients;
• Requirements for PBMs to be licensed by the state in order to operate in the state;
• Mandatory disclosure of drug costs, pricing and rebate information in order to promote transparency;
• Limits on patient copayment amounts; and
• Prevention of spread pricing.

In a more drastic move last year, Kentucky enacted SB 5, which prohibits Medicaid managed care organizations from contracting with PBMs, requiring the state Department of Medicaid to directly administer all outpatient pharmacy benefits.

As more states review similar PBM arrangements, we expect to see more states acting in similar fashion to enact drug-pricing reforms, provide fairer reimbursement to independent pharmacies and provide cost savings to the states and consumers.

Duane Morris attorneys will continue to monitor developments in this area and other related issues and report on the key details for our clients and others in the industry.

For More Information

If you have any questions about this Alert, please contact Jonathan L. Swichar, Bradley A. Wasser, any of the attorneys in our Pharmacy Litigation Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.