Pharmacy benefit managers must disclose detailed information to clients on how they are paid under a final rule the Labor Department issued Thursday.
The regulation mandates that employers receive more granular information on drugmaker rebates, pharmacy reimbursements and other negotiated compensation. Financial arrangements with group purchasing organizations, benefits consultants and pharmaceutical supply vendors must also be divulged to clients.
Contracts between large, self-insured employers and PBMs will be subject to reasonable contract requirements under the Employee Retirement Income Security Act of 1974. PBMs could face penalties if they are found not disclosing all relevant information, while employers should be more equipped to fulfill their fiduciary responsibility.
Employers should expect to be notified how much PBMs, brokers and other vendors receive in compensation from sources other than plan sponsors. This includes rebates, fees, discounts, spread pricing arrangements and formulary placement incentives.
“By unmasking these fees and compensation, this rule will allow employers to negotiate better deals and lower drug prices for the over 72 million Americans on self-insured group healthcare plans,” Labor Secretary Keith Sonderling said during a news conference Thursday. The agency projects the rule will save $22 billion over 10 years.
Plan sponsors have annual audit rights with an auditor of their choice, the rule says. The regulation will take effect in July. The Labor Department’s Employee Benefits Security Administration issued the proposed rule in January.
The PBM sector has broadly opposed new regulations on their business practices, and some mid-size PBMs criticized the proposed rule as as cost-intensive to implement. The final rule is more limited in scope, however, as it only applies to employers with at least 100 workers.
The Pharmaceutical Care Management Association, the PBM sector’s main trade group, blasted the regulation. “We are extremely concerned that it will lead to higher patient costs and less competition, the opposite of the department’s stated intent,” President and CEO David Marin said in a news release. “The department has made modest efforts to harmonize the rule with the recently enacted federal law, but we are concerned it may have exceeded Congress’s intent and its own authority.”
Transparency Rising, which represents smaller PBMs, endorsed the final rule yesterday at the news conference. “Employers, in our view, should request disclosures before renewals, compare bids on net effective costs, scrutinize advisor compensation and secure meaningful audit rights,” Transparency Rising CEO Joe Shields said.
PBMs have been forced to rewrite their playbooks amid scrutiny from lawmakers and enforcement agencies and new policies at the federal and state levels. Leading PBMs such as UnitedHealth Group unit Optum Rx, Cigna Group division Express Scripts and CVS Health subsidiary CVS Caremark responded to their pressure by proactively altering their business models before new requirements formally went into effect.