The Pennsylvania Senate overwhelmingly passed a bill on Wednesday to regulate pharmaceutical industry middlemen known as pharmacy benefit managers. The regulations are intended to help community pharmacists who say the practices of pharmacy benefit managers have directly led to the closure of dozens of pharmacies across Pennsylvania this year alone.
“Standing before us are much-needed measures to ease the burden on our local pharmacies and the constituents who rely on them,” said Sen. Christine Tartaglione (D-Philadelphia).
More than 120 independent and small chain pharmacies have closed across Pennsylvania since 2023. Pharmacies are often on the front lines of health care, providing services such as vaccinations and free medical advice to patients.
Recent News A survey by public media station WVIA found that 27 percent of rural Pennsylvania residents live in so-called “pharmacy deserts.”
And pharmacists say that unless pharmacy benefit manager reforms are passed, more and more pharmacies will close at a rapid pace.
The bill passed the Senate on Wednesday with overwhelming bipartisan support, with only one vote against, Sen. Doug Mastriano (R-Franklin).
Tartaglione co-sponsored a separate bill to regulate pharmacy benefit managers, which was effectively folded into the current bill.
The bill contains many of the provisions requested by Pennsylvania pharmacists, who say it will help keep their pharmacies open, but it also contains notable exceptions to those rules and doesn’t address what the state’s pharmacy industry association calls its most pressing problems.
““This isn’t everything we were hoping for,” said Victoria Elliott, CEO of the Pennsylvania Pharmacists Association, “but we have something.”
Pharmacy benefit managers will be monitored
Pharmacy benefit managers are intermediaries in the pharmaceutical supply chain. They are employed by insurance companies to manage prescription drug transactions for health insurance plans. In their role, pharmacy benefit managers negotiate discounts with pharmaceutical companies and often receive kickbacks in exchange for placing expensive drugs on the insurance plan’s approved drug list.
When a pharmacist fills a prescription for an insured patient and receives only a copayment, it is also the pharmacy benefit manager’s job to reimburse the pharmacist for the full cost of the drug.
But pharmacists say that for the most expensive drugs they dispense, pharmacy benefit managers typically pay them less than it costs to just keep the drugs on the shelves.
Pharmacy benefit managers (PBMs) have also come under fire from federal lawmakers and regulators. Just this week: The FTC released its interim report. It accuses the largest pharmacy benefit managers of engaging in anticompetitive practices that harm community pharmacies.
The three largest pharmacy benefit managers operate under parent companies that also own major health insurance companies and pharmacy chains. The nation’s three largest pharmacy benefit managers — CVS Caremark, OptumRx, and ExpressScripts — administer the prescription drug benefits for roughly 70% of Americans’ health insurance plans.
CVS Health, for example, is one of the most profitable healthcare companies in the United States, ranking sixth largest by revenue. Latest Fortune 500 Listand It will earn more than $357 billion in 2023 alone.CVS Health owns the nation’s largest pharmacy chain and pharmacy benefit management company CVS Caremark, as well as Aetna, one of the largest health insurers in the United States.
What does the invoice say?
The current bill, introduced in April, underwent significant changes during negotiations with Gov. Josh Shapiro’s office, Senate Republicans, House Democrats, the Pennsylvania Pharmacists Association and a trade group representing pharmacy benefit managers.
The bill would ban a number of practices that pharmacists have told lawmakers they are making it difficult for them to stay in business.
This includes known Known as “patient inducements,” pharmacy benefit managers (PBMs) offer discounts to patients who pick up their prescriptions at preferred pharmacies, which are often owned by the same parent company as the PBM.
The bill would also ban a practice known as “spread pricing,” in which pharmacy benefit managers pay a fixed price for a drug and then reimburse pharmacies at a lower price, making a profit on the difference.
Pharmacy benefit managers would also be prohibited from reimbursing independent pharmacies for drugs at a lower rate than pharmacies owned by their parent companies, so, for example, CVS Caremark would have to reimburse Walgreens or independent pharmacies the same amount that it reimburses CVS Pharmacy for a particular drug.
The bill also gives the Department of Health Services new authority to regulate drugs that pharmacy benefit managers can define as “specialty drugs” — drugs that require special handling or precautions, such as those that require refrigeration or frequent dosage adjustments, or that are prescribed for chronic or complex conditions.
But pharmacists blame pharmacy benefit managers for classifying a variety of particularly profitable drugs as specialty drugs.
Prescribing trouble: Pennsylvania pharmacists say PBMs are driving pharmacy closures
This is because specialty drugs have lower reimbursement rates for pharmacists, and pharmacy benefit managers can direct patients to preferred pharmacies that can dispense those drugs. Many of the larger pharmacy benefit managers have partner pharmacies that dispense those drugs.
The Pharmaceutical Care Management Association, a trade group that represents many of the nation’s largest pharmacy benefit managers, opposes the bill.
“This bill poses serious risks to health care costs in Pennsylvania,” Greg Lopez, spokesman for the Pharmaceutical Care Management Association, a trade group for pharmacy benefit managers, said in an email to the Capital Star. “By significantly limiting the tools PBMs can use to lower drug costs and requiring disclosure of information that could give drug companies the power to raise prices, the bill will result in skyrocketing drug costs for health plans and patients in Pennsylvania.”
The state’s Department of Insurance would be responsible for enforcing the bill. During a Senate Appropriations Committee meeting early Wednesday, Sen. Scott Martin (R-Lancaster) estimated that enforcement efforts could cost the department $2 million in personnel and other operating costs.
Some of that would be offset by fees levied on pharmacy benefit managers, who must register with the state.
The Department of Health also will have the power to impose fines on pharmacy benefit managers who do not comply with the new regulations, up to a maximum of $100,000 per violation, as long as the fines do not exceed $1 million in any one year.
The bill would also require pharmacy benefit managers to disclose information about their profits and revenues to the Department of Health, primarily to show whether bribes received from drug companies are actually being used to reduce health care costs for insured patients.
Rob Frankil, president of the Philadelphia Association of Retail Pharmacists, hopes the transparency requirements will lead to stricter regulations in the future, or at least better conditions for pharmacists.
“The federal government will know where that money is going,” Frankil said. “Hopefully that will lead to a fairer contract.”
Missing Pieces
The bill is notable for its absence of what many pharmacists consider to be the most important part of pharmacy benefit manager reform: requiring pharmacy benefit managers to reimburse pharmacists for at least the costs of stocking and dispensing medications.
“We will continue to pursue a refund resolution,” Frankil said.
Both Frankil, the head of Pennsylvania’s largest pharmacists’ trade association, and Elliott said the reimbursement rate floor was ruled out because it could add hundreds of millions of dollars in costs to state-funded coverage.
However, the bill also directs the Department of Health Insurance to conduct a study, the costs of which would be borne by pharmacy benefit managers, on the impact that a future bill establishing standard reimbursement rates, if enacted, would have on overall health care costs.
“There will be more to come,” Frankil said.
The bill also provides an important exemption for pharmacy benefit managers, and does not apply to drugs dispensed by all health insurance plans.
The bill would not restrict plans that are subject to a federal regulation known as the Employee Retirement Income Security Act (ERISA), which includes many employer-sponsored health plans.
The Pennsylvania Department of Insurance did not immediately respond to a question about how many Pennsylvanians would be exempt from the restrictions set out in the bill.
How many of a pharmacy’s patients would be subject to the bill’s restrictions could vary widely by region, Frankil said.
This is determined by the number of people enrolled in employer-sponsored health insurance plans. ERISA is primarily intended to regulate health insurance plans in the health insurance arena.
The bill now heads back to the House, which initially passed it in June by a vote of 198 to 4. House members must agree to any amendments made by the Senate.
Shapiro then has to sign the bill, which he has been a vocal supporter of and whose office is involved in the negotiations.
