Pennsylvania Senate Passes Pharmacy Benefits Administration Reform Nearly Unanimously

The Pennsylvania Senate on Wednesday voted overwhelmingly to advance legislation that would regulate pharmaceutical industry middlemen known as Pharmaceutical Benefit Managers. The legislation is intended to lend a hand community pharmacists who say the practices of Pharmaceutical Benefit Managers have led directly to the closure of dozens of Pennsylvania pharmacies this year.

“What we have before us is a much-needed step to relieve the burden on our community pharmacies and our constituents who rely on them,” said Sen. Christine Tartaglione (D-Philadelphia).

More than 120 independent and compact chain pharmacies in Pennsylvania have closed since 2023. Pharmacies are often on the front lines of health care, providing services like immunizations and free medical advice to patients.

Latest Reports Public media station WVIA found that 27% of rural Pennsylvanians live in what could be called a pharmacy desert.

Pharmacists say that if pharmacy benefit reform is not passed, more and more pharmacies will close at a faster rate.

The bill, which passed the Senate on Wednesday, won overwhelming bipartisan support. Only one lawmaker, Sen. Doug Mastriano (R-Franklin), voted against it.

Tartaglione co-authored another bill regulating the activities of pharmaceutical benefit managers, which was successfully incorporated into the current bill.

The bill includes many of the provisions Pennsylvania pharmacists have requested that they say will lend a hand them keep their doors open. But it also includes significant exceptions to those rules and won’t address what state pharmacy trade groups have called their most pressing problem.

“It’s not everything we wanted,” said Pennsylvania Pharmacists Association CEO Victoria Elliott. “But it’s something.”

Pharmacy Benefits Managers Under the Microscope

Pharmacy benefit managers are intermediaries in the pharmaceutical supply chain. They are hired by insurance companies to administer the prescription drug side of their health plans. In this role, they negotiate discounts with drug manufacturers — often receiving rebates in exchange for placing high-priced drugs on the insurance plan’s approved drug list.

When a pharmacist fills a prescription for an insured patient and only receives a co-payment, the pharmacy benefits manager is also responsible for refunding the full price of the medication to the pharmacist.

But pharmacists say that for the most exorbitant drugs they dispense, pharmacy benefits managers regularly pay them less than it costs to put the drug on the shelf.

Pharmacy benefit managers, or PBMs, have also come under fire from federal lawmakers and regulators. This week FTC releases interim report accusing the largest pharmacy benefit management companies of engaging in anti-competitive activities that harm public pharmacies.

The three largest pharmacy benefit managers operate under parent companies that also own huge insurance companies and pharmacy chains. The three largest pharmacy benefit managers in the country—CVS Caremark, OptumRx and ExpressScripts—oversee prescription benefits for about 70% of Americans’ health plans.

For example, CVS Health, one of the most profitable healthcare companies in the country, ranks sixth in revenue in latest Fortune 500 listWith over $357 billion earned in 2023 aloneIn addition to owning the nation’s largest pharmacy chain and pharmacy benefits manager CVS Caremark, CVS Health also owns Aetna, one of the largest health insurance providers in the U.S.

What’s in the bill?

The current bill, which was introduced in April, underwent significant changes during negotiations between Gov. Josh Shapiro’s office, Senate Republicans, House Democrats, the Pennsylvania Pharmacists Association and a trade group representing pharmacy benefit managers.

The Act prohibits numerous practices that pharmacists believe make it hard for them to conduct their business.

This includes what is known as “patient steering,” when pharmacy benefit managers offer discounts to patients who fill their prescriptions at preferred pharmacies, often owned by the same parent company as the PBM.

The bill would also ban a practice called “spread pricing,” in which pharmacy benefit managers pay one price for a drug, reimburse the pharmacy a smaller amount, and make money off the difference.

Pharmacy benefit managers also would not be able to reimburse independent pharmacies less for drugs than they would at pharmacies owned by their parent company. For example, CVS Caremark would have to reimburse Walgreens or an independent pharmacy the same amount it reimburses CVS for a given drug.

The bill also would give the insurance department modern authority to regulate what drugs pharmacy benefit managers can define as “specialty drugs,” meaning those that require special treatment or care. For example, drugs that require refrigeration or regular dosage changes, or are prescribed for chronic and sophisticated conditions.

However, pharmacists have accused pharmaceutical benefit managers of classifying all kinds of other — especially profitable — medicines as specialty drugs.

Prescription for Trouble: Pennsylvania Pharmacists Say PBMs Are Causing Pharmacy Closures

This is because specialty drug reimbursement rates are lower for pharmacists, and the pharmacy benefit manager can direct patients to preferred pharmacies that are equipped to dispense them. Many of the largest pharmacy benefit managers have affiliated pharmacies that will dispense them.

The Pharmaceutical Care Management Association, an industry organization representing many of the nation’s largest pharmacy benefit management companies, opposes the bill.

“The legislation poses a significant risk to health care costs in Pennsylvania,” Greg Lopes, a spokesman for the Pharmaceutical Care Management Association, a trade group that manages pharmacy benefits, told the Capital-Star in an email. “By significantly restricting the tools that PBMs use to lower drug costs and mandating disclosures that could give drug companies more power to raise prices, the legislation would dramatically increase drug costs for health plans and patients in Pennsylvania.”

The state’s insurance department would be responsible for enforcing the bill. At a Senate Appropriations Committee hearing earlier Wednesday, Sen. Scott Martin (R-Lancaster) estimated that the enforcement effort could cost the insurance department $2 million in personnel and other operating costs.

Some of these costs will be offset by fees charged to pharmacy benefit managers, who will be required to register with the state.

The Insurance Department would also gain the authority to penalize pharmacy benefit managers who fail to comply with the modern rules. Those penalties could be up to $100,000 per offense, provided they don’t exceed $1 million in a single year.

The bill would also require pharmacy benefit managers to disclose their profits and revenues to the Department of Insurance. Most notably, that would mean showing whether the kickbacks they receive from drugmakers actually serve to lower health care costs for the patients they provide care for.

Rob Frankil, president of the Philadelphia Association of Retail Pharmacists, hopes the transparency requirements will lead to more stringent regulations in the future, or at least more favorable terms for pharmacists.

“The community will know where all this money is going,” Frankil said. “Hopefully, that will lead to more equitable contracts.”

Missing pieces

The bill is noticeably missing what many pharmacists consider the most critical element of pharmacy benefit manager reform: It would require pharmacy benefit managers to reimburse pharmacists for, at a minimum, the costs of storing and dispensing medications.

“We will continue to look for a solution to the reimbursement issue,” Frankil said.

Frankil and Elliott, heads of Pennsylvania’s largest pharmaceutical groups, said a lower limit on reimbursement rates was ruled out because it could boost the costs of state-funded insurance by hundreds of millions of dollars.

However, the bill directs the Department of Insurance to conduct a study of the impact of potential future legislation establishing standard reimbursement rates on overall health care costs. The bill for the study will be paid by pharmacy benefit managers.

“There will be more soon,” Frankil said.

The bill also includes significant exceptions for pharmacy benefit managers and will not apply to drugs dispensed under all health insurance plans.

Any plan that falls under a federal law known as the Employee Retirement Income Security Act (ERISA) would not be subject to the act’s regulations. That includes many employer-sponsored health plans.

The Pennsylvania Department of Insurance did not immediately respond to questions about how many Pennsylvanians would be exempt from the bill’s provisions.

Frankil believes the number of pharmacy patients that would fall under the bill could vary significantly from district to district.

This depends on the number of people using employer-sponsored health plans, which is the primary purpose of ERISA in regulating the health insurance market.

The bill will return to the House of Representatives, which initially passed it in June by a vote of 198-4. House members will have to agree with amendments introduced by the Senate.

Shapiro would then have to sign the bill into law. He has been a vocal supporter of the legislation, and his office has been involved in negotiations.

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