July 20, 2017

As Feds Talk, States Act: A Survey of Recent State Actions to Rein in Drug Prices

While Congress and the White House continue to make statements about the need to rein in drug costs, several states are enacting legislation or regulations that offer the greatest opportunity to remake practices that are often depicted as abetting spiraling drug costs.

Following the passage of such laws in Vermont and Maryland, other states are considering laws to increase transparency among pharmacy benefit managers (PBMs) and combat high drug costs. Several recently enacted state laws are aimed at supporting pharmacies in the face of declining reimbursements from PBMs by mandating PBMs make drug-pricing disclosures and keep their drug reimbursement rates above certain levels.

A new law in Connecticut would close a drug price loophole that’s been the subject of more than a dozen lawsuits around the U.S., taking aim at a practice by PBMs called pharmacy clawbacks. The law, which takes effect in January, will allow pharmacists to tell patients about the cheapest way to pay for prescription drugs they pick up at the pharmacy counter.

A PBM clawback occurs when an insurance company assigns a high co-pay to a drug — one that may be significantly higher than the actual value and acquisition cost of the drug. The pharmacy then submits the claim for a prescription drug and collects a co-pay that may be excessive and is unrelated to the acquisition cost of the drug.

Suits over the clawbacks have been filed against UnitedHealth Group Inc., which runs the PBM OptumRx; Cigna Corp., which contracts with OptumRx; and Humana Inc. They allege that the PBMs defrauded consumers and violated insurance laws.

Connecticut joins Louisiana, Georgia, North Dakota and Maine, which have also passed legislation aimed at stopping clawbacks, a growing concern amid high prescription costs and a national debate over drug prices. Several other states have introduced legislation related to clawbacks, which have prompted at least 16 lawsuits since October.

Still other states are considering bills that would limit step therapy practices, which require the patient in a health insurance plan to “fail first” with a preferred drug for treating a particular condition before “stepping” to a more expensive drug. PBMs and insurers argue that step therapy programs make both clinical and economic sense — and permit people to ultimately find the drug that works for them.

In North Dakota, the Pharmaceutical Care Management Association (PCMA), a Washington-based lobby group for PBMs, is challenging a new law that would limit how PBMs profit from prescription drug sales. PCMA alleges that the state law is preempted by the Employee Retirement Income Security Act (ERISA) and Medicare Part D, because it regulates health plans and PBMs that administer prescription drug benefits on behalf of plans subject to those laws. PCMA claims the law will actually increase drug costs as well as jeopardize patient safety by limiting the ability of PBMs to reward pharmacies that meet performance metrics. The case, filed on July 11, is Pharm. Care Mgmt. Assoc. v. Tufte, D.N.D., No. 1:17-cv-00141-DLH-CSM.

PCMA successfully challenged similar laws in Arkansas and Iowa, spurring a federal appeals court to rule earlier this year that Iowa’s PBM law is preempted by ERISA. A federal judge relied on that appellate ruling in striking down Arkansas’s law in March.

In California, a bill under consideration would require PBMs to get state licenses and to disclose their rebates. Some of the disclosure requirements proposed by AB 315 include monthly reports by the PBMs to their health care plan client that would include any administrative fees collected by a drug manufacturer or a drug labeler; rates negotiated between PBM and the pharmacy for each therapeutic category of medication; total amount of all rebates received by the PBM for every therapeutic class of drug; and aggregate cost for acquiring drugs, organized along each class.

California currently has no such regulations for PBMs, unlike 18 other states that have specific statutes requiring PBMs to regularly disclose information. The PBMs will only be required to report to the purchaser client health plan itself, not the consumer being covered by the health plan, and the transparency requirements will not provide any savings in medication costs. Therefore, some experts believe that the proposal is more symbolic than practical.

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