Kentucky Bans Pharmacy Gag Clauses

OCTOBER 13, 2018
Allison Ellis, PharmD Candidate, and Joseph L. Fink III, BSPharm, JD, DSC (Hon), FAPHA
Imagine a patient walking into your pharmacy with a new prescription from a physician appointment that day. After the technicians process the prescription and the pharmacist has reviewed everything, the patient is ready to be checked out. Prepared for the copay the insurance company has established, the patient pulls out his or her wallet and finishes the transaction. However, behind the scenes, the medication for which the patient just paid $28 through insurance would have only cost $10 if he or she had paid out of pocket. This may seem counterintuitive, as insurance companies are supposed to save patients money. Yet this is happening across the country every day.

Up until this year in Kentucky, there was a barrier to communication with patients. Pharmacists could not legally inform patients of this price difference without the risk of losing the participating pharmacy contract with the insurance company. Many pharmacists could not take this risk, because losing even 1 contract with an insurer could have devastating effects on the pharmacy’s business. Known as the pharmacy gag clause, this provision in contracts with insurance companies and pharmaceutical benefit managers (PBMs) has tied pharmacists’ hands, preventing them from informing patients about the most affordable options for their health care.

Originally, the pharmacy gag clause was a way for PBMs to maximize profits. These companies acted as middlemen between insurers and pharmacies by negotiating drug prices and setting copay levels. Therefore, by preventing pharmacists from informing patients of cheaper alternatives, insurers steered patients to use their insurance instead of paying out of pocket and the excess money went directly to the PBMs. This practice ensured that more money flowed through the insurers and has resulted in them becoming increasingly profitable in recent years. Although not all medications have inflated copays, the profits to the PBMs were enough to make lawmakers act.

On April 10, 2018, Kentucky’s governor signed H.B. 463 into law, effectively prohibiting pharmacy gag clauses in contracts. This legislation will go into effect January 1, 2019. As of July 23, 2018, Kentucky became one of at least 22 states that have enacted laws prohibiting gag clauses since 2016, and many more are following suit, according to the National Conference of State Legislatures (see online figure). Arizona, Colorado, Florida, Indiana, Kansas, Kentucky, Mississippi, Utah, Virginia, and West Virginia enacted legislation, between March and May 2018.

Not only are the states making headway with legislation, but so is the national government. The United States has 2 bills that were introduced in the Senate on March 14, 2018: the Patient Right to Know Drug Prices Act (S. 2554) and the Know the Lowest Price Act of 2018 (S. 2553). The Patient Right to Know Drug Prices Act focuses on prohibiting phar- macy gag clauses for health insurance marketplace plans and Employee Retirement Income Security Act plans, which are employee benefit plans offered by private-sector employers. The Know the Lowest Price Act of 2018 focuses on prohibiting pharmacy gag clauses for those covered by Medicare Part D. If enacted, these bills will give patients more infor- mation about their drug costs and allow them to make more informed decisions before they pull out their wallets.

Removal of the gag clause also would allow for more open communication between patients and pharmacists. This transparency lets patients have more of a say in their own health care. Prohibiting pharmacy gag clauses is a step toward minimizing the cost of medications for patients and allowing them to explore cheaper alternatives without com- promising quality of care.
Allison Ellis is a PharmD candidate at the University of Kentucky College of Pharmacy in Lexington.

Joseph L. Fink III, BSPharm, JD, DSc (Hon), FAPhA, is a professor of pharmacy law and policy and the Kentucky Pharmacists Association Endowed Professor of Leadership at the University of Kentucky College of Pharmacy.

  1. National Conference of State Legislatures. Prohibiting PBM “gag clauses” that restrict pharmacists from disclosing price options: recent state legislation 2016-2018. National Conference of State Legislatures website. Pharmacist_Gag_clauses-2018-14523.pdf. Published July 23, 2018. Accessed August 22, 2018.