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By: Amber Ray

Often the true impact of legislation on our day-to-day lives can be difficult to understand, especially when it comes to health care. Because of the piecemeal nature of our health care system, woven together with various chains and linkages, things that affect one piece of the chain can cause rippling effects throughout the entire system.

Lawmakers in North Carolina are considering a bill – Senate Bill 432 – that would fundamentally change the way pharmacy benefit managers (PBMs) conduct business in the state. It would also impact pharmacies, pharmacists, patients, health insurers, businesses and others. While many of the proposed features of the bill would level the playing field for small community pharmacies by increasing transparency, many would also likely result in increases in State and consumer spending on prescriptions drugs. This emphasizes just how connected and complicated our health care system really is.

The Birth Center & Pharm Benefits Mgr. Licensure., S432, would increase state regulation of PBMs, establish consumer, pharmacy, and pharmacist protections, as well as impose restrictions on certain PBM business practices. After passing overwhelmingly in the House (94-9), followed by a unanimous rejection by the Senate (0-49), the bill is now under negotiation by members of both houses. So, what is at stake for North Carolinians?


Why PBMs?

Pharmacy benefit managers, often referred to as “drug middlemen,” manage prescription drug benefits for health insurance plans. This means that they process claims, negotiate drug prices with drug companies, build lists of covered drugs, build pharmacy networks, collect patient co-pays, and reimburse pharmacies, all on behalf of health insurance companies or employers that self-fund health insurance.

In recent years, independently owned community pharmacies have complained that PBMs use unfair and nefarious business practices to drive out competition and maximize profits. As seen in many anecdotes, certain pharmacies assert that PBMs inadequately reimburse smaller pharmacies, impose unfair fees and penalties, or leave smaller pharmacies out of networks altogether. Overall, independent pharmacies criticize lax regulations, claiming that they allow PBMs to work in the shadows with nontransparent policies and business operations. This has been contributing to the ever-shrinking margins and increases in small pharmacy closures.

Pharmacy benefit managers, on the other hand, claim to save billions of dollars across the health care system as one of the only entities with enough leverage to negotiate lower prescription drug costs. As advocates for both business and patients, PBMs believe their business strategies enable them to better monitor pharmacy quality and better manage drug utilization. Further, pharmacy closures can be credited to the inability of certain pharmacies to meet the demands of a changing health care system that is based on quality and not quantity.

Legislation that would regulate PBMs has been proliferating throughout the US, and as of December, 125 bills have been introduced in 2019 that attempt to regulate PBMs in some form. Here are four of the most obscure parts of the NC PBM bill explained.


Pharmacy and Pharmacist Protections:

A patient can fill (almost) any prescription drug at any in-network and accredited/credentialed pharmacy

Surprisingly, this is perhaps the most significant feature of the bill that could end up costing the state of North Carolina and state employees upwards of nine million dollars per year. This bill would, in effect, prevent PBMs from requiring that high-cost medications (specialty drugs) be filled at a limited number of so-called specialty pharmacies. In other words, PBMs would not be able to limit the dispensing of expensive drugs to only a few pharmacies in the network so long as the other pharmacies are willing, capable and appropriately licensed. So, why does this matter?

Specialty pharmacies are pharmacies that handle drugs that require greater attention – drugs that cost a lot, require special handling, or require special patient administration. Specialty pharmacies may also offer additional services around patient education. PBMs often require patients to use a select number of specialty pharmacies to fill their specialty drug prescriptions because the use of a limited number of specialty pharmacies allows PBMs to negotiate lower prices and better regulate quality. However, the specialty drug market has become lucrative business, and “as the specialty drug distribution market has grown, so has the number of organizations competing to distribute or dispense specialty drugs, such as PBMs, health plans, wholesalers, health systems, physician practices, retail pharmacy chains, and small, independent pharmacies.” In response, there has been an emergence of specialty pharmacies owned by PBMs, so that not only do PBMs build and control which pharmacies are in the networks, but PBMs are now also competitors in the networks. Some believe that given this advantage, PBMs are using this leverage to force patients to use the specialty pharmacies that the PBMs own, restricting patient access to other specialty pharmacies in the area and making the PBMs richer.

Senate Bill 432 would prevent PBMs from “coercing, steering, or enticing” patients to use specialty pharmacies that are owned by the PBMs. It would also prohibit PBMs from stopping pharmacies that want to dispense specialty or any other type of drug, even if the pharmacies are not given the label of “specialty pharmacy”.

Pharmacy benefit managers are firmly against this proposal, believing that their current controls and restrictions promote quality assurance, “consistent care management and access to specialty medications while promoting affordability ….” They believe that this bill calls for reduced competition and would reduce the incentives that pharmacies have to continuously improve performance because pharmacies would be able to get around the proofs of excellence PBMs now require pharmacies to have. If enacted, this bill would limit PBM quality oversight and interfere with the PBMs ability to ensure patients are receiving the best care.

In addition to quality implications, disallowing PBMs from funneling consumers to specific pharmacy providers would cost the health care system a lot of money. An actuarial analysis of the bill conducted for the North Carolina General Assembly found that this provision alone would cost $2.2 million in FY 2019-20 and $9.6 million in FY 2020-21. This additional cost would likely result in increases in healthcare costs for teachers, health care workers, and other state employees.

Independent community pharmacies who welcome this legislation believe that PBMs create conditions that unnecessarily limit smaller pharmacy participation in networks and limit the ability of these pharmacies to dispense drugs they are legally allowed to dispense. They also claim that the tools PBMs use to promote quality are not applied consistently to all pharmacies and question whether quality control is the true intent. They believe that this proposal is necessary to prevent PBMs from unfairly competing by driving business to their wholly-owned specialty pharmacies, which ultimately reduces patient access to local pharmacies.


Any willing pharmacy can join a PBM network

A pharmacy network is a group of pharmacies that has contracted with an insurer to offer pharmacy services. Usually an insurer will pay more for a prescription that is filled at an in-network pharmacy than at an out-of-network pharmacy. As a result, in-network pharmacies have special access to patients in the health plans they work with.

Pharmacy benefit managers create pharmacy networks because this allows them to negotiate lower prices and better manage prescription drug use; to be included in the networks, pharmacies must compete on price, service, convenience, and quality. However, some pharmacies feel that the terms and conditions for network participation are not applied consistently for similar types of pharmacies; some pharmacies must jump through extra hoops and hurtles. Independent pharmacies, specifically, often feel targeted, claiming that PBMs create unrealistic barriers to entry for them.

Pharmacy benefit managers will often manage multiple networks within a contract, for example, a broad pharmacy network, a preferred pharmacy network, and a specialty pharmacy network. While this bill would allow for different networks to have different terms and conditions, it would require that within a given network, requirements of participation are applied consistently and not biased against certain pharmacies, like independent retail pharmacies. The bill specifies that any pharmacy can join a PBM network as long as they agree to meet the same terms and conditions as the other pharmacies in the network.

Pharmacy benefit managers claim that pharmacy networks allow them to negotiate lower prices and better manage utilization. Thus, this bill would limit the formation of cost-effective networks, result in less competition, weaken negotiating power, and result in worse contract terms. This would ultimately raise prices for consumers in the form of higher copays, deductibles, or other cost-sharing.

Independent pharmacies claim that PBMs have unfairly kept them out of pharmacy networks, which ultimately restricts patient access to convenient pharmacies. They believe that PBMs create narrow networks by unfairly throwing out “bad apples” for small technical glitches, and using unreasonable terms and conditions that serve as barriers to network entry to independent pharmacies. They also believe that PBMs force them to obtain costly accreditations and certifications, which many smaller pharmacies can’t afford. Finally, PBMs may occasionally mandate the use of a particular accrediting body, while not accepting other nationally recognized accreditations. This can create unrealistic expectations for pharmacies to obtain multiple accreditation certificates, which all but ensures that smaller pharmacies cannot achieve network participation. This provision of the bill seeks to even the playing field and remove obstacles for participation so that pharmacies can fairly compete on the things that matter most to patients.


Licensing and Enforcement:

Pharmacy benefit managers working in the state must obtain a license from the State Insurance Commissioner

This requirement may seem insignificant, but could also have far-reaching effects. This bill would require that PBMs working in the state meet certain requirements and obtain a license through an application process. Through this licensing process, the Insurance Commissioner would have full access to contract details between PBMs and insurers, including all incentives, discounts, and rebates. The Commissioner would also have the power to audit PBMs and would have broad authority to refuse to issue, suspend or revoke a license if she determined it warranted based on the protocol outlined.

Community pharmacies and other stakeholders in support of this bill believe that PBM licensing is necessary to increase transparency and accountability for PBMs, while stakeholders in opposition to this bill fear that this process could result in highly prized trade secrets being leaked, thereby weakening PBM’s negotiation position and increasing prices for consumers.


Consumer Protections:

Ban on the use of accumulator adjuster programs (AAPs)

Patients who have very costly drugs or very high deductibles sometimes use drug co-pay cards or other forms of co-pay assistance to help them afford their medications at the pharmacy counter. In so-called “accumulator adjuster programs”, PBMs allow patients to use the co-pay assistance to reduce their out-of-pocket costs at the pharmacy, but will not credit that amount towards their deductible or maximum out-of-pocket costs. The deductible is the amount the patient is required to pay before insurance kicks in, and overtime patients end up paying the full deductible even though the manufacturer has been paying on behalf of the patient.

This bill would require cost-sharing paid on behalf of the patient to count towards their total requirement. While this would lower patient expenses, it would be expected to increase costs for the health insurance plans, which could then be passed to consumers as higher insurance premiums.

These four provisions are just a few included in a very comprehensive bill. Although one of the most hotly lobbied bills this session, few people understand the rippling and significant effects this bill would have on state health care costs. In January we will have a clearer picture of what will ultimately be included in this consequential piece of legislation.







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