New York State Senator James Skoufis, Chair of the Senate Committee on Investigations & Government Operations, in coordination with Senator Gustavo Rivera, Chair of the Senate Committee on Health, has released the Final Investigative Report: Pharmacy Benefit Managers in New York. The report comes after the Committee opened an investigation into the practices of Pharmacy Benefit Managers (PBMs) in New York State in January 2019.
Some key findings of the report include:
• One of the key mechanisms by which PBMs generate revenue is through spread pricing
• The lack of transparency and oversight of PBMs has created an environment in which PBMs are able to engage in self-dealing to the detriment of consumers across New York State
• New York State must take immediate action to regulate the practices of spread pricing, MAC appeals, mail order operations, and reimbursements
• The New York State Comptroller should perform a full audit of all dollars paid to PBMs via spread pricing
Legislative recommendations provided by the report include:
• Regulate the practices of spread pricing in all pharmacy benefit contracts
• Enhance the transparency of MAC appeals
• Require the licensing and registration of PBMs to enhance accountability and oversight by instituting a fiduciary duty for their clients
• Prohibit PBMs from mandating that patients use specialty and mail order pharmacies
• Providing for the adequate and transparent reimbursements for pharmacies
• Require PBMs to pass-through all discounts or rebates received from drug manufacturers to its Medicaid managed care clients
This is definitely not the last time New York, or any other state, will develop policies to help regulate abusive PBM practices. Frier Levitt Government Affairs (FLGA) is constantly monitoring new state PBM policies and working with pharmacy stakeholders nationwide to have their voices heard. Contact FLGA today to learn more about getting involved.
Over the last week, three states- Alabama, Illinois and Louisiana- sent legislation to their respective Governor’s to sign aimed at fighting back against Pharmacy Benefit Managers (PBMs). Highlights of the pending legislative bills include:
Effective January 1, 2020, a PBM must be licensed by the Commissioner. The legislation also prohibits gag clauses. Furthermore, a health plan may not include a provision that requires an enrollee to make a payment for a prescription drug at the point of sale in an amount that exceeds the lessor of:
1. the contracted co-payment amount; or
2. the amount an individual would pay for a prescription if that individual were paying with cash.
This bill states that a contract between a health insurer and PBM must:
1. Require the PBM to update maximum allowable cost pricing information and maintain a process that will eliminate drugs from maximum allowable cost lists or modify drug prices to remain consistent with changes in pricing data
2. Prohibit the PBM from limiting a pharmacist’s ability to disclose the availability of a more affordable alternative drug
3. Prohibit the PBM from requiring an insured to make a payment for a prescription drug in an amount that exceeds the lesser of the applicable cost-sharing amount or the retail price of the drug
• Prohibits PBM spread pricing unless the PBM provides written notice consisting of spread pricing transparency to the insurer
• Provides the Board of Pharmacy with PBM oversight
• Requires PBM licensure
• Strengthens maximum allowable costs (MAC) requirements
• Creates a PBM monitoring advisory council
• Prohibits unfair or deceptive trade practices by PBMs including prohibits them from patient steering to a PBM owned pharmacy without disclosure and prohibits penalizing beneficiaries or inducing them to use a pharmacy that is PBM owned
• Prohibits retroactive denials or reductions in pharmacy claims that have already been approved by the PBM
This legislation provides a model for other states on ways to combat abusive PBM tactics.
Frier Levitt Government Affairs (FLGA) monitors new legislative developments for pharmacy stakeholders and provides tools to help keep them “in the know.” Contact FLGA today to learn more about new legislative developments and for help preparing legislation that will get you back on track to attaining a level playing field for your respective state(s).
CMS has issued guidance for Medicaid Managed Care and CHIP health plans which clarify how current regulations require “spread pricing” to be accounted in the calculation of Medical Loss Ratios (MLRs), which according to CMS represents the percent of premium revenue that goes towards actual claims and activities that improve healthcare quality.
The guidance states, “CMS regulations require Medicaid and CHIP managed care plans to report an MLR and use an MLR target of 85 percent in developing rates. The 85 percent target means that only 15 percent of the revenue for the managed care plan can be for administrative costs and profits. CMS is concerned that some managed care plans are not accurately reporting pharmacy benefit spread pricing when they calculate and report MLRs.”
Spread pricing has been a negative PBM business practice against pharmacy reimbursement, primarily regarding generic prescription drugs. Several states, through auditor reports and legislative actions, are starting to see that pharmacy generic reimbursement is based on lower benchmarks that those used for Medicaid and CHIP managed care plans for the same medications.
CMS’ guidance states, “Spread pricing occurs when health plans contract with pharmacy benefit managers (PBMs) to manage their prescription drug benefits, and PBMs keep a portion of the amount paid to them by the health plans for prescription drugs instead of passing the full payments on to pharmacies. Thus, there is a spread between the amount that the health plan pays the PBM and the amount that the PBM reimburses the pharmacy for a beneficiary’s prescription. If spread pricing is not appropriately monitored and accounted for, a PBM can profit from charging health plans an excess amount above the amount paid to the pharmacy dispensing a drug, which increases Medicaid costs for taxpayers.”
Expect to see more regulation on spread pricing in the future. Louisiana’s Act 483 and Arkansas’ Act 994 have started to go after PBM spread pricing on their own, while there are many other pharmacies in other states that have not yet had legislative relief from spread pricing.
Frier Levitt Government Affairs, LLC (FLGA), working hand in hand with Frier Levitt, LLC, provides pharmacies with the appropriate legal recourse against unfair PBM business practices. FLGA can provide the strategic advice on how to get spread pricing legislation enacted into law in your state, while also offering you the lobbying tools to get it done. Contact Frier Levitt Government Affairs to get your voice heard.
The first step to achieving effective change at a legislative and policy level is understanding where the current
weaknesses lie. To do this, any organization seeking to be a part of change must conduct a “Gap Analysis” as to the
existing laws and policy to better understands where to direct its efforts and “political capital.”
To assist with this process, Frier Levitt Government Affairs (FLGA) can perform a comprehensive Gap Analysis of a
state’s pharmacy and pharmacy benefits laws. This in-depth service will help organizations understand where it
may be missing an opportunity, while also providing you with a proactive solution.
As part of the Gap Analysis, FLGA provides a summary of where current laws stand on certain identified issues and
identifies weak areas within a state’s laws, as well as realistic opportunities for change/improvement, based off of
what has been recently enacted in other jurisdictions. When weaknesses or gaps are identified, FLGA provides a
“model bill,” containing suggested language that will be helpful in addressing each particular issue.
This “bill check” service process examines proposed or existing language, verifies the correct statute that the
language would be added to, and ensures that the language has been reviewed by healthcare attorneys with
extensive backgrounds in pharmacy and pharmacy benefits laws, making it applicable to an organization’s
FLGA’s comprehensive Gap Analysis of a state’s pharmacy and pharmacy benefits laws includes:
• Any Willing Provider Laws
• Maximum Allowable Cost (MAC) Laws
• Prompt Payment Laws
• Fair Pharmacy Audit Laws
• PBM Licensure Laws
• Direct and Indirect Remuneration (DIR) Fee Laws
Contact FLGA today to have a Gap Analysis of your organization’s state pharmacy laws.
With the list price of newer drugs rising, policy makers are continuing to debate the cost savings biosimilar medications may offer. To date there are 17 FDA-approved biosimilars targeting various disease states. While biosimilars could slow the dramatic rise in the overall drug spend, many questions about them remain such as litigation, interchangeability, and how they will be integrated into the market. The last question is the most intriguing, and it is heavily dependent on the decision of pharmacy benefit managers (PBMs) about their formularies.
PBMs are third-party healthcare plan administrators that manage benefits on behalf of payers. They have the ability to negotiate prescription drug pricing with manufacturers and pharmacies, establish a network of pharmacies to fill prescriptions, and process and pay insurance claims. PBMs are industry middlemen. However, over a relatively short time frame, these middlemen have morphed from claims processors into a few large corporations that control the pharmacy benefits of more than 253 million Americans, as just three PBMs now control 78 percent of prescription drug benefit transactions in the U.S.1
In theory, PBMs are supposed to lower drug costs and increase generic utilization via their formulary controls and negotiated price concessions in which realized savings are passed on to the consumer. Currently, the PBM revenue model of manufacturer rebates, supply chain administrative fees, and pharmacy spread pricing — the difference between what they pay for drugs from a pharmacy and what they get paid by the insurer — has caused an unavoidable conflict in PBMs’ duties to consumers. A product’s placement on a PBM’s formulary is calculated carefully through the gauntlet of these decisions. However, the current dearth of transparency, as well as a lack of consistent regulatory state and federal oversight, has greatly contributed to the increase in prescription drug costs. This leads to the question of whether increased PBM transparency — and the efforts being developed to introduce greater pricing transparency — will positively impact biosimilars.
Several Model PBM Legislation Efforts
With PBMs playing such a major role in biosimilars and their potential formulary placements, are any policies regarding PBM transparency being discussed? The most discussed and arguably most aggressive form of PBM policy making has come from the National Council of Insurance Legislators (NCOIL). In December 2018, NCOIL approved their model PBM bill to address several marketplace concerns regarding PBMs. The model bill:
• prohibits gag clauses
• outlines several issues an insurance commissioner can regulate including maximum allowable cost list, medical loss ratio (MLR) abuses, prohibited market conduct practices, and network adequacy requirements
• requires a PBM to obtain a license from the state insurance commissioner, and allows the commissioner to perform oversight functions to ensure compliance with the model act
• does not provide an Employee Retirement Income Security Act of 1974 (ERISA) exemption for PBMs.
According to my conversations with NCOIL, the organization highly encourages state legislatures to use its model language and is lending its expertise if any opportunities to share its findings with state legislators present themselves.
In addition to NCOIL’s work on PBMs, the National Academy for State Health Policy (NASHP), a nonprofit, nonpartisan forum of state health policy leaders, has been actively engaged in this issue by drafting a model PBM bill. NASHP has developed two PBM models: model A enables states to directly regulate PBMs and gives states flexibility to identify which agency should oversee PBMs, while model B allows states to regulate PBMs through their state insurance departments. Model B is modeled after Montana’s Senate Bill 71, which was introduced this year. It addresses similar issues of outlawing gag clauses and providing transparency about conflicts of interest and information about rebates. The goal is to hold PBMs more accountable to interested stakeholders such as pharmacies, payers, and the general public for their actions.
The ultimate question is whether these efforts at creating PBM transparency will benefit biosimilars. I believe the answer is yes, but only because biosimilars may be an accidental beneficiary. As more biologics are introduced onto the market, whether rightly or wrongly, the perception is that this class of drugs will be higher in price due to improved outcomes and more intense manufacturing protocols. It can be argued that biosimilars may have the wind at their back with PBM formulary preference since they are expected to bring down biologic prices as a result of competition. While we are waiting to see if this hypothesis plays out, the push for PBM transparency is on, and these policies pushed by NASHP, NCOIL, and others could force additional insight into how products are priced and placed on formularies. If the goal of PBM transparency is to force prices down and level the playing field for market participants, this would also likely be a net positive for the use of biosimilars. This is all provided that biosimilar manufacturers actually price their products lower, similar to what the market expects from generic drugs; although generics and biosimilars are quite different from one another.
Additional Efforts Promoting Transparency In Drug Pricing
While PBMs will likely be the main driver of biosimilar utilization in the marketplace, another source is quietly gaining a lot of influence in the market on whether drug prices are becoming too expensive. The Institute for Clinical and Economic Review (ICER) is an independent nonprofit research institute that produces reports analyzing evidence on the effectiveness and value of drugs and other medical services. ICER has been increasing its comments on drug values over the last several months and recently surprised many in the industry with the announcement of its collaboration with the Department of Veterans Affairs (VA) Pharmacy Benefits Management Services to support VA coverage and price negotiations with drug manufacturers. Not many expected the government to utilize a group like ICER to determine whether a drug’s price was justified. With the administration pushing for more opportunities for the government to negotiate drug pricing, ICER could potentially spread its influence into other government programs such as Medicare Parts B and D, which could upend our current reimbursement structure.
ICER has an important public comment period that just closed on drug prices. Their draft protocol titled the “Unsupported Price Increase” (UPI) report analyzes significant prescription drug increases and looks to determine whether new clinical evidence exists that could be used to support those increases. Once finalized, the protocol will guide the development of the first of these annual reports, currently scheduled for release in October 2019.
The ICER process for this is interesting. According to the draft protocol, “ICER proposes to generate an annual report of up to 13 drugs that have experienced substantial price increases over a two-year time period. ICER will review changes in the evidence base for these drugs, and report on whether potential evidentiary support for price increases was found.”2 Further, ICER states, “These UPI reports are not intended to determine whether a price increase for a drug is fully justified by new clinical evidence or meets an ICER value-based price benchmark. Instead, we will focus the analysis on whether or not substantial new evidence exists that could justify its price increase.”3
Manufacturers will have an opportunity for input. “Specifically, ICER will ask each manufacturer for the following information [which may be submitted under ICER’s policy on academic-in-confidence data]:
• New clinical evidence over the prior 36 months that demonstrates improved clinical or economic outcomes
• New evidence relating to comparator therapies that the manufacturer believes indicate new evidence of relative clinical advantages of their drug
• Other potential justifications for a price increase, including information within the prior 36 months related to:
– a large increase in costs of production
– large price savings attributable to the drug in other parts of the health system
– all other reasons deemed relevant by the manufacturers.
Additionally, manufacturers will have four weeks from time of notification to provide input.”4 Overall, I believe reports like these will play a key role in determining whether a biologic — or biosimilars — will be priced too high based on the clinical value it provides.