Colorado legislators appear poised to pass a pharmacy-benefit-manager reform bill that would require PBMs to be paid by flat fee rather than via the percentage of drug costs they lower — a move sponsors say will discourage their focus on pricey brand-name drugs and ultimately will save money for consumers.
Those targeted PBMs, however, say that taking away a prime source of income will reduce their resources and inhibit their ability on behalf of insurers to negotiate downward pricing on the products of drug manufacturers. That will raise the costs of drugs to insurers, which in turn will filter down to premium prices and increase health plan costs by $3 to $5 per person per month, estimated Amanda Massey, lead director of government affairs for CVS Health, which operates a large PBM.
The debate around House Bill 1094 shows the intricacies involved in any bill that seeks to bring down the cost of health care for consumers, which has been a primary focus for Gov. Jared Polis throughout his six-plus years in office. When public officials attempt to pull one lever that they believe will reduce the cost of pharmaceuticals, hospitals or some other cost driver, they often find themselves met by blowback showing such a move could boost spending somewhere else in the health system.
Why supporters calling for PBM reform
One of the biggest things that HB 1094 has going for it right now is bipartisan sponsorship, as rural Republicans who believe the bill could help their local pharmacies are teaming with Democrats to advance it. After passing the House by a vote of 48-15 on March 17, the bill cleared the Senate Health and Human Services Committee 7-2 on April 24 and received preliminary approval in that chamber on Friday, leaving it just a few steps from landing on Polis’ desk.
“We, I think, are zeroing in on a bill as amended now where not everybody is happy,” cosponsoring Sen. Dylan Roberts, D-Frisco, told the committee before its vote. “But I think it’s a goal that they can live with.”
The goal, Roberts explained, is to slow the jump in cost of pharmaceutical drugs, which have gone up 151% in the past 10 years despite the number of prescriptions being filled rising by only 10%. While PBMs were formed some 50 years ago to negotiate lower prices for insurers with drug makers, the three largest PBMs now control 80% of the prescriptions filled in this country, and the profit-driven sector needs reform, he said.
HB 1094 — whose sponsors also include Democratic Rep. Kyle Brown of Louisville, Republican Rep. Dusty Johnson of Fort Morgan and GOP Sen. Byron Pelton of Sterling — seeks to do that by limiting a PBM revenue source that critics worry is being abused. The bill would do so by letting PBMs earn income only through flat fees from insurers rather than their existing pay-for-performance systems, in which they keep a percentage of the savings they negotiate and return the rest to insurers, which use it to keep premiums down.
Looking to stop “profiteering”
The bill also prohibits PBMs from earning income based on the cost of prescription drugs, prohibits a PBM from designing a formulary that favors certain branded drugs and requires PBMs to disclose certain prescription-drug cost information to the health benefit plan. Also, it contains a rurally favored provision that sets the amount shall reimburse an unaffiliated pharmacy or specialty pharmacy for drugs, addressing concerns that PBMs underpay many of those businesses currently.
All of this should curb what Bridget Dandaraw-Seritt, who works with medically complex and rare-disease patients, called PBM “profiteering” in which PBM formularies favor high-cost drugs that make more money for the benefit manager. Some PBMs now report 35% profits, said Healthier Colorado Senior Director of Policy Christina Walker, and the patients they are supposed to be helping end up paying more out of pocket each year for medicine.
“This bill is about putting patients over profits,” said Rebecca Gillett of the Chronic Care Collaborative, which represents Coloradans with at chronic conditions. “We need to find more ways to reduce the out-of-pocket expenses for those who need it the most.”
Pushback from pharmacy benefit managers
Opponents — including PBMs, major pharmacies and employer groups — say that HB 1094 will have the exact opposite effect as intended, however. Rather than reducing costs, the bill will interfere with PBMs’ tactics to bring down prices for their clients, which will raise drug prices in covered plans, raise the costs of those plans and leave only pharmaceutical manufacturers with more money, they said.
PBMs must make money off of their negotiations in order to stay in business, and eliminating their ability to get paid more by forcing bigger discounts hurts their bottom lines and hurts their ability to cut drug costs, said Rachel Lee, a contract lobbyist for CVS Health. Restricting the payment models that insurers can employ with PBMs is interfering with contracts, and it does nothing to force lower prices from drugmakers, added Karlee Tebbutt, regional director for government affairs for America’s Health Insurance Plans.
Lee said PBMs support the provision barring formularies that favor brand-name drugs, as she believes this alone could offer the transparency and accountability that bill backers seem to be seeking. It’s the contractual interference they don’t back.
Massey estimated the increased costs to insurers that will be passed along in the form of premium hikes could reach $240 a year for a family of four — in addition to standard annual premium hikes that have been averaging between 5% and 10% a year. Kevin McFatridge, executive director of the Colorado Association of Health Plans predicted this will boost commercial premiums by an aggregate $118 million a year in Colorado — in addition to the $74 million in additional costs from the new reimbursement rate the bill would set with independent pharmacies.
Could required pharmacy payments also impact premiums?
“If you reduce our ability to negotiate with pharma, prices go up,” said Jonathan Buxton, senior director of state affairs for the Pharmaceutical Care Management Association.
Roberts added an amendment at the behest of PBMs that more narrowly defines how they could not earn income based on the price of a prescription drug, and also nixed a provision that the PBM must pass any income earned this way onto health-plan beneficiaries. But it’s clear that PBM backers continue to be upset at HB 1094, as Sen. Mark Baisley, R-Woodland Park, unsuccessfully tried to add several amendments to the bill during floor debate on Friday that would have gutted its most essential provisions.
If HB 1094 officially passes the Senate and gets reapproved by the House in the coming days, as expected, it’s likely that Polis will sign the bill into law. If he does, it will be the ninth bill in the past seven sessions that has passed to restrict PBM operations, Lee noted.