Photo: RUNSTUDIO/Getty Images
California Governor Gavin Newsom has signed into law a new piece of legislation regulating pharmacy benefit managers in the state, seeking to curtail what the sponsoring Senator called "abusive behavior" that raises costs.
The bill, advanced by state Sen. Scott Wiener (D-San Francisco), requires all PBMs be licensed and disclose basic information regarding their business practices to the licensing entity.
It also requires all PBMs to be licensed through the California Department of Insurance and prohibits steering patients to affiliated pharmacies, instead allowing patients to choose which in-network pharmacy best meets their needs.
The bill prohibits "spread pricing," in which PBMs charge a plan more for a drug than it pays a pharmacy. And it requires that the PBM pass through all negotiated drug rebates to the payers or patients.
Additionally, the bill outlaws making untrue or deceptive statements; prohibits PBMs from negotiating exclusive arrangements with manufacturers for drugs, devices, or other products; and limits how fees may be charged, and requires transparency in fees.
"With SB 41, California is standing up for consumers against giant mega corporations trying to rip them off on essential medications," Wiener said in a statement. "This new law builds on the licensing framework we established earlier this year to begin holding PBMs accountable for abusive behavior."
WHAT'S THE IMPACT
As the middlemen of the pharmaceutical industry, PBMs buy prescription drugs from manufacturers and wholesalers and then sells them to pharmacies and health plans.
According to Wiener's office, in recent years, PBMs have increasingly taken advantage of their position as essential go-betweens to steer patients to higher-cost drugs and pharmacies, charge high administrative fees, and charge pharmacies more for drugs than they paid for them.
Wiener's office cited a BRG study showing that PBMs are capturing a larger and larger share of total prescription drug spending at a time when prices are rising precipitously.
A Department of Managed Health Care report showed that in 2022, drug spending in California grew by 12% – much faster than the overall rate of inflation – while total health premiums rose by just 4%. And the 2023 CHCF California Health Policy Survey showed that last year, more than half of Californians either skipped or postponed mental and physical healthcare due to cost. One in three reported holding medical debt, including half of low-income Californians.
THE LARGER TREND
PBMs have become a major focus of regulation in recent years, with the Federal Trade Commission investigating anti-competitive practices in the industry and multiple bipartisan efforts moving through Congress.
The House Committee on Oversight and Government Reform said in September that it's expanding its investigation into the role of pharmacy benefit managers by seeking information about how they use foreign headquartered group purchasing organizations, or GPOs, claiming that some evade transparency and oversight in the United States.
In July 2024, the House Oversight Committee released a report detailing how PBMs have used their position as middlemen to enact anti-competitive policies and protect their bottom line.
The report also highlighted how GPOs create another layer of pricing opacity and complexity, which appeared especially true for GPOs headquartered overseas, as these entities may be used to retain additional revenue and fees, and to sidestep U.S. legislative and regulatory reforms.
The American Medical Association released data last year showing that the four largest pharmacy benefit managers in the country control roughly 70% of the national market.
The analysis, based on 2022 data on commercial and Medicare Part D prescription drug plan (PDP) enrollees, also found a high prevalence of vertical integration of PBMs with health insurance companies.
CVS Health is the largest PBM (with a 21.3% market share), followed by OptumRx (20.8%), Express Scripts (17.1%) and Prime Therapeutics (10.3%).
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.