Pharmacy benefit manager reform bill inches closer to passage in Pa. Senate

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The state Senate Health and Human Services committee advanced a bill on Monday to increase oversight of pharmacy benefit managers.

Pharmacy benefit managers are pharmaceutical industry middlemen. They’re largely responsible for overseeing the prescription drug side of health insurance plans. In that role, they negotiate the cost of drugs on behalf of insurance companies, often receiving discounts on expensive drugs in exchange for placing those medicines on a given plan’s formulary. They are also responsible for reimbursing pharmacies for the cost of drugs when patients pay only a copay upfront.

The nation’s largest pharmacy benefit managers have lately come under heavy scrutiny from state lawmakers, like in Pennsylvania, and federal regulators.

The FTC is currently engaged in an antitrust investigation into some of the largest pharmacy benefit managers. The three largest pharmacy benefit managers operate under parent companies that also have their own massive health insurance companies and pharmacy chains. The nation’s three largest pharmacy benefit managers are estimated to be responsible for overseeing prescription benefits for 70% of Americans’ health care plans.

Take, for example, CVS Health, one of the most profitable healthcare companies in the country, and one of the most profitable companies more generally. In the latest Fortune 500 list , CVS Health ranked as the country’s 6th largest company by revenue, with over $357 billion earned in 2023 alone . Aside from owning the nation’s largest pharmacy chain, CVS Health also owns one of the largest pharmacy benefit managers, Caremark, and one of the largest health insurance providers, Aetna.

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

The Pennsylvania legislation would allow the state’s Insurance Department to regulate certain aspects of pharmacy benefit managers’ business that have been called anti-competitive.

It would outlaw a practice called “patient steering,” in which a pharmacy benefit manager directs patients away from independently owned pharmacies and towards preferred pharmacies, often owned by the same parent company.

The current version of the bill would also ban a practice called “spread pricing,” which is when pharmacy benefit managers charge an insurance plan one price for a drug, reimburse pharmacies that dispense it for less, and profit off the difference.

It would also require pharmacy benefit managers to report more details about their revenues and profits to the state’s insurance department. That would include how or whether they use the money they receive from deals with drug manufacturers to lower costs for patients.

The state’s insurance department would be responsible for enforcing the legislation, and would also have to establish a process to settle disputes between pharmacies and pharmacy benefit managers.

However, as it currently stands, the bill is missing a key provision requested by pharmacists.

Many independent pharmacists have accused pharmacy benefit managers of under-reimbursing them; this means the pharmacies receive less for some of the drugs they dispense than it costs to stock and distribute them. That effectively forces pharmacies to operate with low profits or, worse, a loss.

Though Pennsylvania pharmacist trade groups lobbied to include language that would have stopped that practice, it did not make it into the current bill. However, there is a notable exception.

The bill would require any pharmacy benefit manager hired to oversee the prescription side of a state employee health plan to reimburse pharmacies at a rate that would ensure they aren’t losing money when filling prescriptions. However, that would only account for a small amount of total prescriptions filled at most pharmacies.

Pa. legislators passed a law to regulate pharmacy middlemen. But the state doesn’t enforce it.

The Pennsylvania Pharmacists Association and the Philadelphia Association of Retail Druggists (PARD) both blame low reimbursement rates for forcing the closure of dozens of pharmacies across the state over the last year.

“These are warm and fuzzy and nice things,” Rob Frankil, PARD’s executive director, said about the components of the bill that have remained intact. “But what pharmacies really need is a reimbursement fix, and this is not in there.”

Two versions of the bill, originating in the House and Senate, respectively, have been moving through the statehouse for months. They were pushed forward with bipartisan support from lawmakers and the backing of Gov. Josh Shapiro. The state’s pharmacy trade groups have also been pressuring lawmakers to rein in pharmacy benefit managers.

Ultimately, it appears the House version of the bill, sponsored by Reps. Jessica Benham (D-Allegheny) and Valerie Gaydos (R-Allegheny) will be the one to pass, if either does.

Over the last several weeks, negotiations have been ongoing between House Democrats, Senate Republicans, Shapiro’s office, Pennsylvania pharmacy trade groups, and another trade group representing some of the largest pharmacy benefit managers, about what the final bill will look like.

Sen Judy Ward (R-Blair), the prime sponsor of the Senate version of the bill, said it will likely be amended again before it passes the full Senate.

The House, which already passed an earlier version of the bill, will have to concur with any changes the Senate makes.

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