Pa. Senate passes pharmacy benefit manager reform with near-unanimous vote

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The Pennsylvania Senate voted overwhelmingly on Wednesday to pass a bill that would regulate pharmaceutical industry middlemen called pharmacy benefit managers. The regulations are intended to help community pharmacists, who say that pharmacy benefit managers’ practices have led directly to the closure of dozens of pharmacies across Pennsylvania this year alone.

“What we have before us is a sorely needed step in relieving our community pharmacies and our constituents who rely on them,” said Sen. Christine Tartaglione (D-Philadelphia).

Since 2023, more than 120 independent and small chain pharmacies across Pennsylvania have closed. Pharmacies are often on the front lines of health care, providing services like vaccinations and free medical advice for patients.

Recent reporting by public media station WVIA found that 27% of rural Pennsylvanians live in what can be called a pharmacy desert.

And pharmacists say that unless pharmacy benefit manager reform is passed, more and more pharmacies will close at a faster rate.

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

Tartaglione was the co-sponsor of a different bill regulating pharmacy benefit managers, which was effectively rolled into the current one.

The bill contains many provisions requested by Pennsylvania pharmacists, which they say will help them keep their doors open. However, it also contains notable exceptions to these rules and will not address what the state’s pharmacy trade groups have called their most pressing issue.

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

Pharmacy benefit managers under scrutiny

Pharmacy benefit managers are middlemen in the pharmaceutical supply chain. They’re hired by insurance companies to administer the prescription drug sides of their health insurance plans. In that role, they negotiate discounts with drug manufacturers — often receiving rebates in exchange for placing expensive drugs on an insurance plan’s list of approved drugs.

When a pharmacist fills a prescription for an insured patient and only receives a copay, it’s also a pharmacy benefit manager’s job to pay the pharmacist back for that drug.

But pharmacists say that, when it comes to the most expensive drugs they dispense, pharmacy benefit managers regularly pay them less than it costs just to put the drug on their shelves.

Pharmacy benefit managers, or PBMs, have also come under fire from federal lawmakers and regulators. Just this week, the FTC released an interim report accusing the largest pharmacy benefit managers of engaging in anti-competitive behavior that has been damaging to community pharmacies.

The three largest pharmacy benefit managers operate under parent companies that also own massive health insurance companies and pharmacy chains. The nation’s three largest pharmacy benefit managers — CVS Caremark, OptumRx and ExpressScripts — oversee  prescription benefits for an estimated 70% of Americans’ health care plans.

CVS Health, for instance, one of the most profitable healthcare companies in the country, ranked as the 6th largest company by revenue in the latest Fortune 500 list , with over $357 billion earned in 2023 alone . Aside from owning the nation’s largest pharmacy chain and pharmacy benefit 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, has undergone substantial changes during negotiations among Gov. Josh Shapiro’s office, Senate Republicans, House Democrats, the Pennsylvania Pharmacists Association and a trade group representing pharmacy benefit managers.

It bans numerous practices that pharmacists have told lawmakers are making it harder to stay in business.

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

It would also ban a practice called “spread pricing,” which is when pharmacy benefit managers pay one price for a drug, reimburse a pharmacy for less and profit off the difference.

Pharmacy benefit managers would also be banned from reimbursing independent pharmacies less for drugs than they would at pharmacies owned by their parent company. So for instance, CVS Caremark would have to reimburse a Walgreens or independent pharmacy the same amount it reimburses a CVS pharmacy for a given drug.

Phil Blando, a spokesperson for CVS Health, said “we definitely reimburse independent [pharmacies] more than we reimburse CVS pharmacies with network contracts.”

The bill will also give the insurance department new authority to regulate what drugs pharmacy benefit managers can define as “specialty drugs,”those that require special handling or care. For example, drugs that require refrigeration, or frequent dosage adjustments, or are prescribed for chronic and complex conditions.

However, pharmacists have accused pharmacy benefit managers of classifying all sorts of other — particularly profitable — medications as specialty drugs.

Prescription for trouble: Pennsylvania pharmacists say PBMs are driving pharmacy closures

That’s because reimbursement rates for specialty drugs are lower for pharmacists, and a pharmacy benefit manager can direct patients towards preferred pharmacies that are equipped to dispense them. Many of the largest pharmacy benefit managers have affiliated pharmacies that dispense those.

The Pharmaceutical Care Management Association, a trade group representing many of the nation’s largest pharmacy benefit managers, is opposing the bill.

“The legislation represents a serious risk to Pennsylvania health care costs,” Greg Lopes , a spokesperson for the Pharmaceutical Care Management Association, a pharmacy benefit manager trade group, told the Capital-Star in an email.  “By significantly restricting the tools PBMs use to lower drug costs and mandating disclosure of information that could give drug companies more power to increase prices, the result of the legislation would be soaring drug costs for Pennsylvania health plans and patients.”

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

Some of that will be offset by fees charged to pharmacy benefit managers that will have to register with the state.

The insurance department would also get the power to penalize pharmacy benefit managers who don’t comply with the new regulations. Those penalties can be up to $100,000 per offense, so long as they don’t exceed $1 million in a single year.

The bill will also require pharmacy benefit managers to disclose information about their profits and revenues to the insurance department. Primarily, that will mean showing whether or not the kickbacks they get from drug manufacturers are actually going towards lowering the cost of health care for the patients they cover.

Rob Frankil, the president of the Philadelphia Association of Retail Druggists, hopes that the transparency requirements will lead to future, more stringent, regulation, or at least to better deals for pharmacists.

“The commonwealth will know where all that money goes,” Frankil said. “One would hope that leads to more fair contracts.”

Missing pieces

The bill is notably missing what many pharmacists see as the most important piece of pharmacy benefit manager reform. That would be requiring pharmacy benefit managers to reimburse pharmacists for at least the cost of stocking and dispensing medications.

“We’re gonna keep pursuing the reimbursement fix,” Frankil said.

Frankil and Elliott, the heads of Pennsylvania’s largest pharmacist trade groups, both said that a floor for reimbursement rates was excluded because it could add hundreds of millions in costs to state-funded insurance coverage.

However, the bill directs the insurance department to conduct a study on what the effect of potential future legislation setting standard reimbursement rates would be on its total healthcare costs. The bill for the study would be footed by pharmacy benefit managers.

“There’s more coming down the road,” Frankil said.

The bill also provides significant exemptions for pharmacy benefit managers, and would not apply to drugs dispensed under all health insurance plans.

Any plan that falls under a federal rule known as the Employee Retirement Income Security Act (ERISA), would not be subject to the regulations in the bill. That includes many employer-sponsored healthcare plans.

The Pennsylvania Insurance Department did not immediately respond to questions about how many Pennsylvanians would be exempt from the regulations set forward in the bill.

According to Frankil, how many of a pharmacy’s patients would be subject to the bill’s regulations could vary drastically from neighborhood to neighborhood.

This would depend on the number of people who have employer-sponsored healthcare plans, which is what ERISA is primarily designed to regulate in the health insurance space.

The bill will go back to the House, which initially passed it in June with a 198-4 vote. House members will have to agree with amendments made by the Senate.

Shapiro would then need to sign the bill. He has been a vocal proponent of the legislation, with his office involved in negotiations.

This story was updated with a statement from a CVS Health spokesperson at 12:20 p.m. July 11, 2024.

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