Bill proposed to regulate pharmacy benefit managers

July 8, 2010
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The insurance industry opposes the bill, while the Michigan Pharmacy Association welcomes it.

House Bill 5772 would regulate the business activities of pharmacy benefit managers in many respects, if it gets through the state legislature intact. Pharmacy benefit managers, or PBMs, coordinate employee medication benefits between employers and pharmacies.

Jill Cobb, director of communication for the Michigan Pharmacy Association, said the state’s PBM industry isn’t “really regulated” today. Her organization feels a number of issues need to be addressed and none may be more important than erasing the ambiguity it feels exists regarding prescription charges.

“Many times, pharmacy benefit managers charge one price for a prescription to an employer and reimburse a different price to the pharmacy. So they may be charging inflated numbers to an employer, but not passing through that payment to the pharmacy,” said Cobb.

“An employer could spend, let’s say, $5, on a prescription for their employee through their contract. But the PBM might only reimburse the pharmacy $2. So that spread is all profit for the PBM, and right now there is no regulation in place that says they have to disclose that information,” she said.

The House bill would change that by requiring PBMs to disclose a lot of financial information, including if there is a “difference between the price paid to (a) retail pharmacy and the amount billed to the covered entity for a prescription drug purchase.”

The bill also requires PBMs to disclose all financial terms and arrangements for remuneration of any kind with any prescription drug manufacturer or labeler, along with pharmacy network fees that are charged from retail pharmacies and data sales fees. The bill also would give a covered entity, an employer, the right to audit a PBM’s books and records that relate to rebates and other items.

“What we found is, businesses that re-evaluate their pharmacy-benefits contract and ask for transparency, to know what they’re paying and what is being reimbursed to the pharmacies, can work on shoring up that spread so that an employer can actually make money. So it’s a business issue,” said Cobb.

“The organizations and businesses that have actually addressed that issue have saved considerable amounts of money, and in this economy, that’s so critical to businesses,” she said, adding that some savings have reached six figures.

Cobb used the University of Michigan as an example. Because the university is an employer and a provider, the school was able to see the amount it was paying for drugs as an employer and the amount it was being reimbursed by its PBM as a provider. When U-M renegotiated its PBM contract and entered into what is called a pass-through contract, the school reportedly saved $6.5 million in the first year of the agreement through lower drug prices and drug rebates.

Under a pass-through contract, an employer reimburses a PBM for the amount paid to a pharmacy plus an administrative fee for a transaction. “So they’re not paying more than it actually costs,” said Cobb.

HB 5772 would also require a PBM to obtain a fidelity bond in an amount equal to 10 percent of the funds that it handles annually. Also, the commissioner of the Office of Insurance and Financial Regulation could increase the bond amount above $500,000 but not over the 10 percent threshold.

The bill also prohibits a PBM from terminating or penalizing a pharmacist or pharmacy if either files a complaint about a PBM; expresses disagreement with a PBM’s decision to deny or limit benefits to a covered person; assists a covered person with seeking reconsideration of a PBM decision; and discusses alternative medications with a covered person.

But Cobb said the bill’s major benefit for the MPA might be that it could correct what the organization feels is a misleading public perception.

“A lot of times there’s a perception that pharmacies might be overcharging patients, when in actuality they don’t set those prices at all. The pharmacy benefit managers do. (Pharmacies) just have a contract with them,” said Cobb, whose organization represents nearly 10,000 Michigan pharmacists.

The bill also would prohibit an employee’s prescription from being changed to a different drug therapy or to a high-priced medication without a worker’s knowledge.

“A lot of times that is out of the pharmacist’s hands. It’s the PBM dictating that they can’t have that medication and they’re going to have this medication. Pharmacists want to make sure that medical decisions are being made by a physician and a patient, with the support of the pharmacist being able to counsel patients on their drug therapy,” said Cobb. “Right now, a lot of times decisions are being made by the PBMs through the insurance carriers rather than the physician who is familiar with the patient.”

In addition, the bill would allow employees to choose the pharmacy they want to fill a prescription. “This is the aspect that pharmacies are so supportive of because so many times PBMs mandate that employees have to use mail-order service. The problem with that is, it takes an employee’s freedom away to chose where they receive their medical services,” said Cobb, who added that the insurance industry is very likely to oppose the bill as it moves through the Legislature.

State Rep. Brian Calley, R-Portland, is the bill’s primary sponsor. He introduced HB 5772 in January and it was referred to the House Committee on Health Policy.

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