State Legislation Seeks Tighter Regulation of Pharmacy Benefit Managers

Proposed legislation would increase PBM transparency regarding drug costs.

Last week, California state Assemblyman Jim Wood (D-Healdsburg) introduced AB 315, a bill to increase transparency among pharmacy benefit managers (PBMs) operating in the state, according to a press release. AB 315 is the latest of many pieces of legislation to be introduced in various states seeking to combat high drug costs.

“Drug prices are out of control,” Wood said in the release. “Consumers are paying the price — literally – in escalating out-of-pocket costs and health insurance premium increases. We have to understand this marketplace so that we can fix it.”

Approximately 80% of the market is operated by 3 large PBMs due to numerous mergers and acquisitions. However, PBMs argue that consolidation is necessary to drive down drug costs, especially since many other stakeholders have also increased in size.

Legislators have become increasingly concerned that large PBMs have the power to drive community pharmacies out of business in favor of PBM-owned pharmacies, as alleged in a recent pharmacy versus PBM lawsuit. Wood noted that this calls into question how fairly PBMs are able to represent their customers, according to the release.

“That narrowing of the market is concerning enough,” Wood said, “but combine that with not being regulated, and you get a mysterious black box that is in desperate need of oversight and transparency so that we can understand how their business model works and how it affects consumers.”

To date, few states require PBMs to be licensed, regulated, or engage in transparency measures. AB 315 aims to gain a better understanding of how PBMs operate and determine how they can save patients money.

“We fundamentally don’t understand how the money flows,” Wood said. “There are rebates that go back and forth between manufacturers and pharmacy benefit managers and health plans. How does the consumer benefit from that?”

However, PBMs report that the patients benefit from their negotiated rebates due to savings on premiums and other spending. While patients may not directly benefit from negotiations by lower drug costs, PBMs note that there are still indirect benefits.

Thus far, the bill has received support from the California Medical Association, the California Pharmacists Association, and the HIV/AIDS advocacy group, Project Inform, according to the release.

The supporters of the bill state that increasing transparency may reduce healthcare costs for patients.

“AB 315 is a critical first step in bringing light to how PBMs contribute to the rising costs in healthcare,” Michelle Rivas, California Pharmacists Association, said in a press release. “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.

The proposed bill aims to better understand how PBMs operate to determine if there are ways to reduce drug costs, according to the legislators.

“PBMs portray themselves as white knights, saving health care dollars,” Wood concluded, “but that just doesn’t align with what we know — and the more I try to learn about how PBMs operate, the more I come up against a wall preventing me from accessing the information we need. It’s a mystery that needs to be solved, and needs to be solved soon.”