State lawmakers have sent California Gov. Gavin Newsom a 29-page bill that would rewrite the rules governing how pharmacy benefit managers in his state operate.
The bill, introduced by state Sen. Scott Wiener, D-San Francisco, would define a PBM as an insurance business, require PBMs to get licenses from the California Department of Insurance and require PBMs to submit to oversight by California insurance regulators.
The bill also would require PBMs to report data that California insurance regulators could use to compile an annual PBM impact report that would include a list of the 50 costliest drugs, the 50 most frequently prescribed drugs and the 50 highest revenue-producing drugs.
A PBM would have to reveal its compensation arrangements to any health insurers or health plan it serves.
Newsom, a Democrat, seems to support the goals of the PBM bill but, at press time, had not indicated whether he would sign the bill.
Interest group perspectives
Many pharmacy and patient advocacy groups support the bill.
The list of groups backing the bill includes the National Association of Chain Drug Stores, the National Community Pharmacists Association, the Pharmaceutical Research and Manufacturers of America, the ALS Association, the American Diabetes Association, the California Medical Association and the National Multiple Sclerosis Society.
The California Pharmacists Association, a group that helped sponsor the California PBM bill, argued that PBMs’ position as owners of pharmacy chains and mail-order pharmacies creates conflicts of interest and gives PBMs too much power over prescription prices and the lists of drugs prescription plans cover.
The American Benefits Council, the ERISA Industry Committee, America’s Health Insurance Plans, the Association of California Life and Health Insurance Companies and the California Association of Health Plans have wondered how well putting PBMs under the California Department of Insurance would work and why lawmakers think removing incentives for drug makers and sellers to hold down prescription drug costs.
“By removing the existing incentive structure, this bill would likely lead to health plans paying significantly more to manufacturers and pharmacies due to the loss of rebates and discounts, causing a significant increase in health insurance premiums that are passed onto patients,” according to a summary of the opponents’ views prepared by California legislative analysts.
Katy Johnson, a health policy specialist at the American Benefits Council, suggested that the bill violates the federal Employee Retirement Income Security Act provision that preempts state efforts to regulate self-insured health plans.
Federal law does let states regulate the “business of insurance.”
California PBM bill drafters tried to get around federal ERISA preemption by classifying any PBM activity that does not serve the needs of a collectively bargained health plan as the business of insurance.
A U.S. Supreme Court ERISA ruling “specifically bars states from deeming a group health plan itself from being an insurer or engaged in the business of insurance,” Johnson writes. “Only through regulation of an insurance policy purchased by a group health plan does ERISA preemption permit a state to indirectly regulate the group health plan through regulation of the insurance policy itself.”
The backdrop
Many states have been developing and passing PBM regulation bills of their own.
“Prescription drug middlemen” have become a popular target for both Democrats and Republicans in Congress this year.
Other California bills
Newsom also has received a bill, introduced by Assemblymember Jim Wood, D-Ukiah, that would let the attorney general reject proposed private equity firm takeovers of doctors’ offices, outpatient clinics and many other types of health care providers.
The California governor has already signed a bill introduced by Assemblymember Dr. Corey Jackson, D-Moreno Valley, that will require fully insured small-group health plans and other state-regulated health insurance arrangements to provide annual notices to parents of children ages 8 through 18 about the benefits of children getting regular behavioral health screenings.