State PBM Legislation is a Growing Concern for Plan Sponsors
Drug price reform appears to be at the top of the list for state legislatures in 2022. Even though several different entities are involved in the supply chain, the battlefield frequently appears to pit pharmacy benefit managers (PBMs) against pharmacies.
Appearances can be deceiving. As noted in our article in October 2021, PBMs often operate on behalf of employers who sponsor group health plans with the overall goal of providing affordable health coverage (including prescription drugs). Reasons for this trend include the absence of a federal solution, significant cost increases and the state response to the US Supreme Court’s Rutledge decision in 2020, which concluded ERISA did not preempt a state PBM law.
For example, New York recently passed a law that goes into effect on March 31, 2022. The law – which does not apply directly to self-funded plans – requires PBMs to register and ultimately obtain licenses, provide disclosures and submit annual reports. Upcoming regulations may restrict PBM activities. These changes may increase not only transparency but administrative costs and lead to changes in coverage. In Kentucky, a pending bill would regulate PBM contracts with pharmacies and those with insurers and would curtail the use of mail-order pharmacies. The measure has raised some concern about the broad scope of its application, which applies to certain self-funded plans. The bill appears to have wide support among legislators. This bill has the potential to increase costs on employers and their plan members. In Washington state, four bills (HB 1813, SB 5794, SB 5546 and SB 5610) recently passed either the House or Senate, all by overwhelming margins. Similar efforts are underway in Arizona, Florida, Illinois, Michigan and Missouri, among other states.
What can employers do?
- Discuss with your PBM and/or insurer what laws in your state are currently under consideration and their possible impact on your plan
- Review your current plan design to see what PBM activities are critical in controlling plan costs
- Consider getting involved in grass-roots efforts (like-minded business groups and associations are a good start) to help shape these bills before they become law