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California could shed light on groups that determine how much your drugs cost

By   /   February 17, 2017  /   News  /   No Comments

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A PRESCRIPTION FOR TRANSPARENCY: A California bill would require pharmacy benefit managers to register with the state and disclose more about how they operate.


A California state lawmaker is attempting to shed more light on the operations of pharmacy benefit managers.

AB315 would require that PBMs be licensed by the California State Board of Pharmacy and would establish qualifications for PBMs to get a license, including making annual disclosures to the board.

Those transparency measures would require each PBM to disclose:

  • The percentage of oral prescriptions and self-administered drugs dispensed through pharmacies affiliated with the PBM and the percentage of the same dispensed through retail pharmacies.
  • The aggregate amount of discounts or price concessions the PBM received from drug manufacturers that can be attributed to usage by California residents whose prescription drug benefit was managed by the PBM.
  • The aggregate amount, as well as the types of rebates, discounts or price concessions, provided to health-care service plans that can be attributed to patient use under the plans. PBMs must also disclose the amount of rebates, discounts or price concessions that were passed through to plan enrollees and the total number of prescriptions dispensed.

Watchdog.org previously reported that this crucial link in the drug-price chain has largely gone unnoticed as lawmakers focus on drug manufacturers while investigating sharp price increases in some key medications like EpiPen and Sovaldi. But PBMs, who play a large role in determining how much millions of Americans pay for prescription drugs, are finally coming under the microscope.

RELATED: Pharmacy benefit managers could be in legislative crosshairs

The legislation, introduced by Rep. Jim Wood, D-Healdsburg, notes that PBMs have evolved over the decades from basic claims administrators to far-reaching groups providing a wide range of services, including drug-utilization review and drug-management tools.

Consumer advocates argue that PBMs are financially incentivized to favor high-priced, brand-name drugs over cheaper generics because of rebates they receive for the former. Critics claim that PBMs keep most of the discounts, rather than pass those on to patients. They also say that negotiations are done in secret, preventing the public from knowing how drug costs are determined.

The industry now pulls in roughly $423 billion in annual revenue. Express Scripts, the largest PBM, tallied $101 billion in revenue 2015 and is responsible for the drug coverage of more than 100 million people.

In March 2016, national insurance company Anthem filed a $15 billion lawsuit against Express Scripts for an alleged pattern of overcharging, claiming “massive damages to Anthem and an obscene profit windfall to ESI.” In July 2016, both Anthem and Express Scripts were hit with a class-action lawsuit claiming they overcharged for prescription drugs those patients with job-based insurance.

Wood’s bill says the “lack of oversight coupled with a lack of transparency regarding business operations has generated numerous questions. In order to address questions that have been raised about whether the industry fully discloses how much it is actually saving insurer and employer clients and what portion of those savings are actually passed along to consumers, the Legislature needs to address this issue through the regulation of PBMs.”

Robert Graboyes, a senior research fellow and health care scholar at the Mercatus Center, a free-market think tank,  said he’s skeptical of the California PBM registration law, calling it “an invitation for regulation capture” — control of a regulatory structure by an interested party, in this case pharmacists.

He told Watchdog that pharmacists have an “economic motive to not like the role that PBMs play in seeking discounts.”

“We see this all through health care — inside groups trying to prevent outside groups getting a toe-hold in their field,” Graboyes said. “This law looks like another example.”

But John Norton, spokesman for the National Community Pharmacists Association, told Watchdog that PBMs are primarily regulated at the state level, and fewer than half the states require oversight.

“Right now they are unchecked and any small step is a step in the right direction,” he said.

Fara Klein, state government affairs manager for NCPA, told Watchdog there is a growing movement to rein in the industry, including another California bill seeking audits of PBMs.

“More PBM bills are shedding more light on this complex issue,” she said.




Johnny Kampis is National Watchdog Reporter for Watchdog.org. Johnny previously worked in the newspaper industry and as a freelance writer, and has been published in The New York Times, Time.com, FoxNews.com and the Atlanta Journal-Constitution. A former semi-professional poker player, he is writing a book documenting the poker scene at the 2016 World Series of Poker, a decade after the peak of the poker boom. Johnny is also a member of Investigative Reporters and Editors.