Can you imagine that pharmacies and pharmacists have been restrained from providing information about the cost to insured individuals of prescribed medicines, from suggesting more affordable alternatives and selling those alternative medicines? Following the adoption of HB 943 (“Act 67”) and federal legislation, pharmacies and pharmacists in Pennsylvania may provide cost information to insured individuals and suggest alternatives and sell more affordable medications than those requested by a Covered Individual. The restraint on pharmacies and pharmacists is caused by in “gag clauses” appearing in contracts drafted by pharmacy benefits managers (each, a “PBM”) and accepted by Pharmacy Services Administration Organizations (each, a “PSAO”). Act 67 and federal legislation further prevent PBMs and PSAOs from imposing such a “gag clause” in those contracts.
What is a Pharmacy Benefit Manager? A PBM is a third-party administrator of prescription drug programs for insurance plans. Health insurance providers hire PBMs to manage price negotiations, insurance claims and distribution of prescription drugs. Consequently, PBMs have knowledge of and control the economics underlying prescription drugs purchased by an individual covered by insurance or a health plan.
HB 943, in the form of Printer’s No. 1587, defined PBMs expansively, by reference to performance of pharmacy benefits management, that is, any of the following: (1) procurement of prescription drugs at a negotiated rate in Pennsylvania to covered individuals; (2) administration or management of prescription drugs benefits for a contract holder or policy holder providing pharmacy benefits under a health insurance policy (each, a “Covered Entity”); and (3) administration of pharmacy benefits including (a) operating a mail-service pharmacy, (b) claims processing, (c) retail pharmacy management, (d) paying claims to pharmacies, (e) developing and managing a clinical formulary, utilization management and quality assurance programs, (f) rebate contracting, (g) managing patient compliance, therapeutic intervention and generic substitution programs, (h) operating a disease prevention program; or (i) setting pharmacy reimbursement pricing and methodologies, including maximum allowable cost, and determining single or multiple source drugs. Under Act 67, the affected consumers are those who insurance is through a Covered Entity (each, a “Covered Individual”).
The final form of HB 943, Printer’s No. 4053, limits the scope of PBMs. First, the PBM must undertake pharmacy benefit management for Covered Entities. Second. Act 67 excludes from the definition of a PBM “an entity that holds a valid license by the Insurance Department with accident and health authority to issue a health insurance policy and governed under any of the following: (1) [the Insurance Company Law of 1931,] (2) [the Health Maintenance Organization Act, and] (3) [Hospital Plan Corporations and Professional Health Services Plan Corporations]” (each an “Excluded PBM”). The Commonwealth otherwise regulates Excluded PBMs but not with specific reference to “gag clauses.” Thus Act 67 limits by related definitions its “gag clause” benefits to those Covered Individuals whose Covered Entities are not related to Excluded PBMs.
The three largest PBMs are Express Scripts, CVS Health and OptumRx, but they and others operate broadly within integrated health care systems, retail pharmacies and insurance
companies. PBMs use the buying power of the covered individuals to negotiate lowered pharmacy prices for drugs on the formulary, a list of specific drugs that will be covered by the insurer or healthcare plan. Drugs not appearing on the formulary are not covered by insurance and the consumer must pay full “sticker” price (full public price). But PBMs can receive manufacturer rebates to include drugs on the formulary. Covered individuals pay an insurance co-payment on the cash price, not the negotiated price of a drug. That co-payment could exceed the cash price of the drug. If a consumer knew that a cash price is less than the insurance co payment, the consumer would want to pay cash and not submit an insurance claim. But the pharmacist or pharmacy could not disclose that fact under the “gag clause” imposed by the PBM.
What is a Pharmacy Services Administration Organization? PSAOs represent independent pharmacies coordinate administration, including PBM contract management and negotiations, accounts receivable collection and cash management reporting. According to Act 67, a PSAO performs any of the following “on behalf of their pharmacy members”: (1) negotiates and contracts with managed care organizations or PBMs, (2) negotiates reimbursement rates, payment and audit terms, or (3) payment collection or reconciliation services.
Act 67 specially provides “[a] pharmacy or pharmacist shall have the right to provide a covered individual with information concerning the cost of a prescription drug, including the individual’s cost share.” Section3(a). The insured individual does not have to request the cost information but consumers should be aware that they may request this information. Further, Act 67 provides, “[a] pharmacy, pharmacist or contracting agent may not be prohibited from or penalized by a pharmacy benefits manager or pharmacy services administration organization for discussing the information under [Section 3(a) above], disclosing the availability of therapeutically equivalent alternative medications or selling to the covered individual a more affordable alternative if an affordable alternative is available.” Section 3(b). Accordingly, a pharmacist, pharmacy or contracting agent may provide a more affordable prescription drug at a cash price or under insurance. Further, the insured individual does not have to ask for the less costly alternative but consumers should know that they may request this information. These Covered Individuals do not include insured individuals whose Covered Entity has insurance managed by an Excluded PBM.
The final form of HB 943, Printer’s No. 4053, removed certain prohibitions against PBMs and PSAOs. Earlier Printer’s No. 1587 in Section 4 would have prohibited PBMs and PSAOs from (1) prohibiting, limiting or restricting written or oral disclosure of contract information by a pharmacist or pharmacy to state, county or municipal governments, or (2) penalizing or restricting a pharmacy or pharmacist for any disclosure under Section 3(a) above. These provisions appeared initially to address complaints that sponsor, Rep. Valerie S. Gaydos (R-44), said that she heard articulated about PSAOs. But these provisions were removed before adoption of Act 67. Regarding deletion of Section 4, Rep. Gaydos states that “[a]llowing for disclosure of PBMs’ reimbursements to pharmacies could lead to collusion within the drug supply chain to fix prices.”
Federal law already prohibits “gag clauses” in private insurance under Pub.L.115-263, effective October 2018 and for Medicare under Pub.L.115-262, effective January 1, 2020. Pub.L.115-263 known as the Patient Right to Know Drug Prices Act amends the Public Health Services Act at Section 2 to add a new section 2729 which requires that “[a] group health plan or
health insurance issuer offering group or individual health insurance coverage shall (1) not restrict…any pharmacy…from informing (or penalize such pharmacy from informing) an enrollee of any differential between [enrollee’s out-of-pocket costs under the insurance for a drug] and the amount an individual would pay ….without using any health plan or health insurance coverage; and (2) ensure that any [PBM under contract with such insurer or plan] does not with respect to that such plan or coverage, restrict …..a pharmacy [from providing the same information as under (1) above].” Accordingly, the insurer or plan is responsible for itself and any contracting PBM from offering information as to the best price for a drug.
Pub.L.115-262 known as the “Know the Lowest Price Act of 2018,” amends the Social Security Act at Section 2 by adding restrictions on Medicare “gag clauses” as follows: “A PDP sponsor and a Medicare Advantage organization shall ensure that each prescription drug plan or MA-PD plan [it offers] does not restrict a pharmacy….from informing, nor penalize such pharmacy from informing, an enrollee in any such plan of any difference between the negotiated price of, or copayment or coinsurance for, the drug or biological to the enrollee under the plan and a lower price the individual would pay for the drug or biological if the enrollee obtained the drug or biological without using any health insurance.” The 2018 act operates only on actions of the PDP or Medicare Advantage Plan.
So why did Rep. Valerie S. Gaydos (R-44) sponsor Act 67 when federal legislation already occupied or was about to occupy the field? Rep. Gaydos states that under these federal laws “pharmacists are not required to disclose information about lower costs but cannot be contractually obligated to remain silent regarding possible cost savings.” That federal legislation does not include limitations inherent in Excluded PBMs. Act 67 approached the “gag clauses” from a slightly different perspective. First, it operates on PBMs and PSAOs, not on the insurers or plans. Second, it gives the right to pharmacies and pharmacists of disclosing cost saving information to Covered Individuals. Third, it reaches PSAOs not just PBMs. Fourth, it prohibits the restraint by PBMs and PSAOs other than Excluded PBMs on pharmacists, pharmacies and contracting agents regarding the disclosure of alternate medications and sale of a more affordable alternative to Covered Individuals.
HB 943 was co-sponsored by 56 other Representatives, both Republican and Democratic. It was signed in the House on July 7, 2020 and in the Senate on July 13, 2020. Governor Tom Wolfe approved HB 943 on July 23, 2020 as Act 67 and it became effective immediately. The Act is important because it addresses specific matters not included in federal legislation or existing state laws regarding PBMs. Further, the Act was supported by many stakeholders, including the Pennsylvania Pharmacy Association, and in its final form by the Pharmaceutical Care Management Association. As a weakness, Act 67 does not assert its prohibitions against Excluded PBMs. Nevertheless, Act 67 should provide encouragement to pharmacies and pharmacists to implement the information sharing begun to be authorized by federal law and to provide cost effective alternative medicines to Covered Individuals.
© 2020 Robert J. Hobaugh, Jr.