The state of pharmacy regulations

Pharmacy benefit managers (PBMs) have long been subject to a broad array of regulatory requirements. Yet, a flurry of new legislation and rulemaking has emerged in recent years – some of which threatens to undermine longstanding practices PBMs use to save members and plan sponsors money and ensure quality of care.

To help bring clarity to this burst of activity and sort through the implications for patients and plan sponsors alike, Optum Rx Senior Vice President of Clinical Consulting Scott Draeger welcomed Marissa Schlaifer, vice president of policy for Optum and Sara Strothman, vice president of policy for Optum Rx for a wide-ranging discussion on the Pharmacy Insights Podcast.

Read on for edited excerpts of their conversation, or listen to the full podcast episode.

Scott Draeger: Marissa, it seems policy makers are currently focused on the PBM business model. As much as possible can you give us a brief outline of the increased interest in regulating PBMs and why?

Marissa Schlaifer: The PBM regulatory landscape continues to evolve rapidly at both federal and state levels. There is tremendous pressure on Members of Congress, state legislators and administration leaders at both the federal and state level to deliver on promises to lower the cost of drugs.

Policymakers are being fed a constant narrative that PBMs are the problem — that PBMs are somehow responsible for high and ever-increasing drug prices — when in fact it is pharmaceutical manufacturers that set the list prices for the drugs they develop and bring to market.

What PBMs do is offer tools to help employers, unions and government plans manage the cost of providing pharmacy benefits. PBMs are the only player in the pharmaceutical supply chain focused on lowering the cost of drugs and of prescription drug benefits.

To be clear, the pharmacy supply chain is complicated and while legislators have stated goals that are admirable, because of the complexity involved, legislation can have unintended consequences or even have the opposite effect of what is intended. 

Scott: Hearing that it seems there is overlap with some of the stated goals of federal and state policymakers and the guiding principles of Optum Rx which include increased competition, lower drug prices for plan sponsors and a better member experience. Sara, can you talk about the intersection of the two?

Sara Strothman: Let’s take transparency as an example. Federal and state legislatures are focused on PBM transparency measures based on a belief that increasing PBM reporting requirements will translate to lower drug costs. 

Optum Rx believes in meaningful transparency for payers, prescribers and consumers:

• Payers should have visibility to all of the information they need to make decisions about designing their benefits and managing their costs.
• Prescribers should know how much a drug they prescribe costs, what utilization management requirements may apply to the drug and whether there are lower cost alternatives.
• Consumers need to know where the drug is available and what they will need to pay for it.

However, too often transparency mandates are not tailored in a way to protect confidential and proprietary information; rather many of these laws require costly reporting of excessive information to government agencies without any explanation of how that information will be used.

Expansive transparency mandates pose serious concerns that the information, if it does not remain confidential, will upend the competitive landscape that exists in arms-length negotiations between PBMs and pharmaceutical manufacturers and PBMs and retail pharmacy chains, PSAOs or independent pharmacies, which will result in higher, not lower, pharmacy benefit costs.

Scott: As we noted earlier, our industry is regulated at both the federal and state levels. Marissa, can we start at the federal level? Recently, we’ve had the implementation of the Inflation Reduction Act and some very consequential judicial decisions. What are the big, impactful events of the past year and what do you anticipate mattering most for plan sponsors as we head into 2025?

Marissa: That’s correct Scott, the Inflation Reduction Act, the components of which have various effective dates, makes several changes to the Medicare and Medicaid programs. 

Already in effect are insulin cost-sharing limits for Medicare Part D and penalties for pharmaceutical manufacturers if Medicare Part B and Part D drug prices increase faster than the inflation rate.

Beginning in January 2025 is a new $2,000 out-of-pocket spending cap for Medicare beneficiaries and an option for beneficiaries to pay out-of-pocket prescription drug costs spread across monthly installment payments. And, come January 2026, the first government negotiated drug prices for select Part D drugs will go into effect, with negotiation on Part B and additional Part D drugs slated in future years. These prices negotiated by CMS are built upon the negotiated rates obtained by Part D plan sponsors and their PBMs in previous years.

Since the time of enactment of the Inflation Reduction Act at the end of 2022, Congress has continued to focus its attention on health care costs and in particular high drug prices but their focus has shifted from pharmaceutical manufacturers to pharmacy benefit managers.

Over the past 18 months, Congressional committees in both the House and Senate have also acted on legislation aimed at prohibiting certain pharmacy benefit management tools and contracting methods. Congress has been referring to this legislation as PBM reform legislation but it’s important to recognize that the legislation would impact employers, unions and other PBM clients because it’s how payers manage their prescription drug costs that is at stake.

Pharmacy benefit reform is one of the few policy areas where consensus exists across both political parties. The legislation being considered could again impact the Medicare and Medicaid programs, but also could impact commercial benefit plans, including self-funded plans. Congress is expected to package various legislative provisions together and advance them on some other moving legislative vehicle such as the legislation needed to fund the federal government for the next fiscal year which will be considered in 2025.

Some of the provisions that may find their way into a future package include provisions that could dictate what reports and information payers receive from their PBMs and impose a ban on one pricing methodology widely used by payers. A concern with this legislation is the federal government taking away choice and flexibility for payers to use pharmacy benefit management tools in the way they want to decrease their costs in providing pharmacy benefits to their members.

You also mentioned consequential judicial decisions and we don’t want to miss an opportunity to talk about an important case that could affect plan sponsors’ ability to structure their benefit plans in a particular manner and to have uniform benefits nationwide. Many self-funded plan sponsors rely on a federal law referred to as ERISA (Employee Retirement Income Security Act of 1974) to manage their employee benefits. ERISA allows employers to manage consistent benefits across state lines, without having to make modifications to comply with each state’s unique insurance regulations.

PCMA v. Mulready is a case on appeal to the United States Supreme Court. At issue is an Oklahoma law that restricts a plan’s flexibility in designing their pharmacy network, specifically preventing plans from using preferred pharmacy networks and prohibiting offering discounts to individuals to use mail order and specialty pharmacies.

In this case, PCMA (Pharmaceutical Care Management Association) is representing prescription benefit managers and acting to safeguard how payers design their prescription benefits. The most recent ruling on the case by the 10^th Circuit Court of Appeals was in favor of PCMA, finding that the Oklahoma law network provisions govern a central matter of plan administration and are thus preempted by federal ERISA law.

The Supreme Court recently announced that it will decide in May of 2025 whether to hear the case on appeal after considering the Solicitor General’s views on the matter.

Scott: Sara, same question but at the state level. We know that there are literally hundreds of bills introduced each year in legislatures across the country. Obviously, you don’t have to analyze all of them, but are there certain overarching trends you have identified that people need to be aware of?

Sara: State policymakers are very active in this area. For several years now we have seen the introduction of over 500 bills each year by state legislatures that would impact pharmacy benefits. The overarching theme of this legislation is government entities dictating how PBM clients’ pharmacy benefits should be managed. There are a range of different topics that fall under this theme. I will highlight three topics that are especially common:

1. A ban on traditional or spread pricing arrangements
2. Restrictions on how pharmacy networks are designed
3. Mandated pharmacy reimbursement

Some health payers may choose a traditional network where the PBM bears the risk that it can deliver a pharmacy network at or below the cost it has contracted with the client. This is called traditional or spread pricing. Other payers may choose a pass-through network where the payer pays what the PBM pays the pharmacy for every dispensed prescription.

Whatever the choice, we believe payers, whether an employer, union or government payer, are in the best position to decide how to pay for drugs dispensed through their pharmacy network based on their unique circumstances and needs.

Several states have enacted legislation that prohibits traditional pricing arrangements between PBMs and clients which prevents payers from having a choice in how they contract with PBMs and forces them to accept pass through pricing as the only way to pay for dispensed drugs. 

Anti-steering laws vary but commonly prohibit payers from requiring the use of a specific pharmacy in order to obtain a specific drug or the use of a specific pharmacy to receive a reduced copay or higher quantity limit of a drug. This could be a requirement to use a mail order pharmacy rather than a retail pharmacy. Or this could be a requirement to receive specialty drugs from a certain specialty pharmacy. 

Some legislation also applies to the practice of white bagging. White bagging is where:

• A health care practitioner prescribes a medication to a patient.
• The medication is shipped by a specialty pharmacy directly to the facility where it will be administered to that patient.
• The specialty pharmacy then bills the health insurer directly for the medication.

White bagging is a practice that saves payers money when compared to the provider practice of buying the drug and billing the insurer for the cost of that drug. Legislation aimed at white bagging restricts a plan from requiring physician-administered drugs to be dispensed by a particular pharmacy and shipped to the physician for administration.

The issue we saw emerge this year as a top trending issue as compared to prior years is mandated pharmacy reimbursement. 

With increasing frequency, states are considering legislation that would require PBMs to pay pharmacies a minimum reimbursement amount based on a cost benchmark plus a mandated dispensing fee.  For example, the legislation may require a minimum reimbursement amount based on a nationally published benchmark or on the pharmacy’s actual acquisition cost and a dispensing fee based on the state’s Medicaid program dispensing fee which is typically over $10 per prescriptions.

This type of legislation removes any incentive for pharmacies to look for the lowest possible price from wholesalers. And, mandating dispensing fees at amounts that are many times more than a payer’s current dispensing fee will cause pharmacy benefit costs to skyrocket for that payer.

We expect to see these same trends in next years’ state legislative sessions.

Scott: Before we go, Marissa, I wanted to dig in a little more on our advocacy efforts – both some of the work we do as an organization as well as the work we do in partnership with others. Also, if anyone would like to support us in these efforts, how can they get involved?

Marissa: Our focus is on how we can continue to inform policymakers of potential positive and negative effects of legislation. Both federal and state policymakers want to find a way to lower drug costs – our role is to make sure they understand the positive and negative effects of the legislation they propose and to help provide concepts for the legislation that will achieve policy goals to lower the cost of prescription drug benefits and maximize health outcomes.

We do this work in partnership with our advocacy partners. Our message is simple: employers, unions and other health plans deserve to have meaningful choices in how they offer prescription drug benefits and manage the costs associated with those benefits.

While Optum Rx and our industry coalitions share the facts with policymakers, payers in the pharmacy benefit space can be some of the most influential voices. Whether it’s copays, rebates, reporting, pharmacy networks, payers, along with their benefit consultants, can educate legislators that they need the flexibility to manage the benefit as they and their consultants determine to be best. 

For those responsible for managing pharmacy benefits, you can share your expertise with federal and state policymakers in meetings, letters or phone calls, depending on what works best for you.

If you are an Optum Rx client, please let your account management executive know that you want to work with us to protect your ability to manage your benefit as you know best.