Although it has not gotten nearly the attention that gambling, ethics, school choice or divisive concepts have thus far in the 2024 legislative session, a behind-the-scenes fight is being waged between pharmacists and the business community over House Bill 238 (HB238).
The legislation, sponsored by State Rep. Phillip Rigsby (R-Huntsville), would add reporting and practice restrictions to how PBMs operate.
The sponsor leading the bill to restrict Pharmacy Benefits Managers (PBMs) and add a dispensing fee to prescriptions filled in the state is pushing back against “misinformation” on the legislation.
PBMs operate as intermediaries between drug manufacturers and insurance companies by negotiating rebates and discounts, processing claims, reviewing drug utilization and much more. PBMs are generally understood to reduce the cost of prescription medication. However, critics claim PBMs cut down on choices for consumers and that PBM savings never reach the customer's pocket.
HB238 includes the following provisions:
1. Prohibit PBMs from reimbursing pharmacies less than the acquisition cost of a drug.
2. Prohibit PBMs from instigating an investigation against a pharmacy for fraud, waste, or abuse without reasonable suspicion.
3. Allow the commissioner on insurance to investigate PBMs and make PBMs subject to the Pharmacy Audit Integrity Act in cases involving fraud, waste and abuse.
4. Require PBMs to pass on 100 percent of the rebates they receive from pharmaceutical manufacturers, and mandate reporting requirements from the PBMs to the commissioner on insurance and the insurer.
5. Add a $10.64 dispensing charge on all prescriptions to be paid by the insurer.
6. Require PBMs to pass on 100% of all rebates they receive from pharmaceutical manufacturers.
Critics of the legislation say the bill would bring additional costs to the employees and employers that pay insurance premiums, while many pharmacists and supporters of the bill say it will cut down on manipulation and malpractice on the part of the PBM.
Drug wholesalers determine the actual price of a drug. PBMs then negotiate with pharmacies and insurance providers regarding the price a customer pays for an individual drug, depending on the customer’s insurance plan. PBMs also determine how much pharmacies are reimbursed for the cost of a drug, meaning some pharmacies could be forced to sell any number of medications at a net loss.
Additionally, PBMs negotiate rebates with drug manufacturers, for which they keep an undisclosed amount.
According to Josh Hardin, the owner and chief compliance officer of Mills Pharmacy, PBM contracts are not really negotiable, saying a PBM’s contract is “take it or leave it.”
Hardin said that opponents of the bill have focused on the $10.64 dispensing charge, relying on media coverage that is “wrongly calling it a tax.” He says the model is consistent with Alabama’s Medicaid laws, which require drugs be dispensed at cost, with the dispensing fee allowing the pharmacy to make a “modest” profit.
“Alabama Medicaid regularly examines the invoices of all contracted pharmacies throughout Alabama to determine the actual average acquisition cost of any given drug in this state,” Harding said in a letter responding to reporting from Al(dot)com. “It then pays pharmacy claims at that average cost plus a $10.64 dispensing fee, a fair (and certainly modest) amount. While paying its pharmacy providers fairly, Alabama Medicaid saves money: in fiscal year 2021, the program paid $1730 per recipient for prescription drugs. At that time, the annual cost per prescription drug user in the U.S. at large averaged somewhere between $2500 and $3000. The bill's opponents imply that paying pharmacies fairly while keeping costs low is an impossible task, yet Alabama Medicaid does both. They achieve this by excluding the involvement of a PBM.”
From Hardin’s perspective, the bill's primary focus is to crack down on the massively un-scrutinized practices of PBMs while allowing payers to see how much profit PBMs make on their end.
“Our position is not that the PBMs need to pay more so that we can be paid fairly,” Hardin told 1819 News. “Our position is that they are likely already paid more than enough by the ultimate payers out of dollars that are earmarked by the plan to care for the patient, and a significant portion of that is already going into the PBM’s pockets. So, of primary importance in this bill is the transparency."
He continued, “The payers will be able to actually check the PBM’s math when the PBM says, ‘We’re saving money for your plan overall.’ But as it stands, none of the payers can check the PBM’s math. If we could have that transparency, there’s nothing but inherent savings for the ultimate payers because then they can check and see how much of this value is leaving the healthcare system and going straight into the pocket of an out-of-state entity.”
Despite the support of Hardin and other pharmacy owners, Robin Stone, the executive director of The Alabama Healthcare Alliance, said the bill would inevitably lead to higher costs for health plans and their consumers. According to Stone, the restrictions and provisions in the bill would ultimately lead to an estimated increase of $800 million in state health care costs.
The alliance also produced the following fact sheet on the bill.
See below:
Fact Sheet by Craig Monger on Scribd
“The last thing that employees, employers, and consumers need right now is an increase in their healthcare costs,” Stone told 1819 News. This legislation is absolutely unprecedented. It will guarantee a profit for pharmacists on their core business, which is, of course, dispensing prescription drugs, on every sale. No other healthcare provider has a deal like this. There’s not another business in Alabama that is guaranteed a profit. This would be precedent-setting. I’ve never seen anything like this.”
He continued, “They may say [the bill] is going to enhance disclosure but show me where it says that in the bill. What the bill does say is, ‘We will make more money on every prescription.”
HB238 would place all the cost-cutting at the feet of the PBM, which Stone says will inevitably lead to higher premiums.
“The PBMs will definitely pass this cost along,” Stone continued; they don't have any choice. It’s in the legislation that this has to be passed on. They’re not going to just consume this cost. That’s not how people do business. So it’s going to go directly to the employers. The employers use PBMs as a tool to help negotiate drug prices and to help keep the cost of pharmaceuticals controlled. The highest cost in healthcare benefits right now is pharmaceutical drug companies. But this bill doesn’t do anything to address the core issue of those costs, which is the drug manufacturers themselves. Under this bill, if they are able to pass on their drugs to pharmacists with no regard to cost, there’s no incentive for them to try and find new and innovative ways to reduce the cost of drugs.”
Hardin claims the revenue of PBMs should indicate that policy premiums would not have to increase.
“Keep in mind, United Healthcare Group alone, that’s the owner of Optum RX, posted revenues in 2023 to outdo the GDP of Alabama by $70 billion. So, how much value have they billed those ultimate payers for? And that’s one PBM alone,” Hardin said.
For Stone, using the cost-plus $10.64 in private health care instead of state-funded Medicaid is “apples and oranges” since Medicaid has a very different structure and restrictions than the private sector.
For Rigsby, however, the state’s Medicaid pricing system's success indicates a functional model.
Rigsby told 1819 News that the “misinformation” surrounding the bill was deliberate in an attempt to kill the bill, specifically the perceived insinuation that the cost-plus $10.64 charge would fall on the consumer, akin to a co-pay.
“Most of the opposition around this has been misleading at best, and false is actually more like it,” Rigsby told 1819 News. “When they first came out, they called it a tax, and that’s on purpose because any citizen that hears the word ‘tax’ is immediately going to think that the government is going to be imposing and collecting money on a prescription.”
“Most citizens that I’ve talked to interpret that as, ‘when I go to the pharmacy and have a $10 co-pay, then this tax will be added on to my co-pay.’ And that’s not what the legislation says," he added.
“Another thing that’s gone around is that this bill was my creation," Rigsby continued. "I am the sponsor of the bill, but this bill was brought to me by the industry, and I carry this bill because I understand it. I understand the language because I am a pharmacist. It would be no different than a banker carrying a banking bill or a farmer carrying a farming bill. So I’ve been ridiculed. I’ve been attacked, not only politically but also personally and professionally. So it’s just been one of those things that I think has been a lot of misinformation for citizens.”
To connect with the author of this story or to comment, email craig.monger@1819news.com.
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