Pioneering Drug Pricing Legislation Gets Boost from Consumers Union, CMA; Hearing Tuesday

By Steven Maviglio

Legislation authored by Assemblymember Jim Wood (D-Healdsburg) calling for the first-time regulation of the middlemen of drug pricing — Pharmacy Benefit Managers (PBMs) — today received a boost with the endorsement of Consumers Union, the California Medical Association, the California Pharmacists Association, and the San-Francisco-based HIV/AIDS advocacy group Project Inform.

Assembly Bill 315 will require PBMs in California to obtain licenses from the State Board of Pharmacy and describe their rebates and pricing methodology. The goals of AB 315 are lower pharmacy prices and marketplace.

The legislation will be heard on Tuesday, April 18th in the Assembly Business & Professions Committee at 9 a.m.

“This bill would improve transparency in PBMs business practices, shining a light into the black box around prescription drugs costs,” notes Consumers Union Staff Attorney Dena Mendelsohn. “We believe this is an important first step in increasing transparency around the contributing factors to consumers’ rising healthcare costs. The ever-increasing cost of prescription drugs has become a pain point for consumers that cannot be ignored.”

“As the cost of prescription drugs and health care overall has increased, there has been increased scrutiny of all providers, insurers, and manufacturers. The sole exception has been the PBM industry,” notes California Medical Association Center for Government Affairs Associate Director Juan Thomas. “AB 315 would help the Legislature and state regulators better understand whether the business activities of PBMs benefit patients and consumers by reducing the cost and medications and health care.”

“AB 315 is a critical first step in bringing light to how PBMs contribute to the rising costs in healthcare,” said Michelle Rivas of the California Pharmacists Association, the largest statewide association representing pharmacists in the nation. “PBMs operate in the shadows of the health care system. It’s critical that we have transparency into PBMs practices, many of which add hidden costs that lead to higher healthcare prices.

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. This inherent self-dealing is further emphasized when PBMs steer patients to their company-owned mail-order, community and special pharmacies all of which calls in question their ability to fairly represent the employers, providers, and the patients they are serving.

“Community pharmacies are often faced with a ‘take it or leave it’ contract with PBMs to secure inclusion into the PBM provider network to care for their patients,” notes Rivas. “These one-size-fits-all contracts are not negotiable and often include provisions that restrict pharmacists from informing patients when lower cost medications or copayments are available to the patient outside the PBM prescription plan.”

Only 14 states license, regulate or require PBM transparency. Assemblymember Wood said his bill simply would allow for a “look under the hood” of these companies.

“We just fundamentally don’t understand how the money flows, quite frankly,” Wood said in a recent interview. “There are rebates that go back and forth between manufacturers and pharmacy benefit managers and health plans. Where does the consumer benefit from that?”

Assemblymember Wood’s legislation will:

  • Require PBMs operating in California to obtain a license with the California Board of Pharmacy;
  • Provide data about the discounts and price concessions PBMs receive from drug manufacturers as well as similar information provided to health care service plans and insurers; and
  • Establish a Designated Pharmacy Benefit Manager, whose role will be to protect public health and safety in the handling, storage, warehousing, distribution and shipment of dangerous drugs and devices within a licensed PBM.

The U.S. Justice Department fined two major PBMs, Express Scripts and Medco, for taking kickbacks and engaging in drug switching, where patients were driven toward higher priced drugs.

Assemblymember Wood’s legislation is the first to be introduced in the state legislature. Several bipartisan bills to add transparency and restrict kickbacks have been introduced in Congress as well.