Pharmacy Benefit Manager Reform Legislation Before the Alabama Legislature

February 19, 2025 – MONTGOMERY, AL - Introduction

Pharmacy Benefit Managers (PBMs) play a critical role in the healthcare system, acting as intermediaries between insurers, pharmacies, and drug manufacturers. Their primary function is to manage prescription drug benefits on behalf of health insurers, Medicare Part D drug plans, large employers, and other payers. However, over the years, concerns have risen about the practices and transparency of PBMs. In response, the Alabama Legislature has introduced reform legislation aimed at increasing accountability and fairness within the PBM industry.

The Role of Pharmacy Benefit Managers

PBMs negotiate with drug manufacturers for discounts and rebates, establish formularies, and determine the amount pharmacies are reimbursed for medications. These entities were initially created to control drug costs and improve efficiency in the pharmaceutical distribution chain. Yet, the increasing consolidation and lack of transparency in PBM operations have drawn criticism from various stakeholders, including independent pharmacies, patients, and policymakers.

Key Concerns with PBMs

Several concerns have been raised regarding the functioning of PBMs:

• Lack of Transparency: The opaque nature of PBM contracts and rebate structures often leaves payers and patients in the dark about the true cost of medications and the savings generated.

• Reimbursement Rates: PBMs have been accused of reimbursing pharmacies at rates lower than the cost of acquiring the drugs, particularly affecting independent and rural pharmacies.

• Spread Pricing: This practice involves PBMs charging insurers more for a drug than they reimburse the pharmacy, pocketing the difference as profit.

• Formulary Management: Decisions about which drugs are covered and at what tier can be influenced more by rebate arrangements than by clinical efficacy, potentially impacting patient care.

Alabama's Reform Efforts

In response to these issues, Alabama legislators have introduced several bills aimed at reforming PBM practices within the state. The proposed legislation seeks to address transparency, fair reimbursement, and the overall accountability of PBMs. State Senator Larry Stutts (R-Lineville) is the sponsor of Senate Bill 99 (a bill widely supported by independent pharmacists in Alabama. Senator Andrew Jones (R-Centre) is the sponsor of Senate Bill 93 – competing legislation.

Both bills have been assigned to the Senate Banking and insurance Committee which held a public hearing on the legislation on Wednesday.

Key Provisions of the Reform Legislation

1. **Transparency Requirements:** PBMs will be required to disclose rebate amounts, formularies, and the criteria used to determine drug coverage. This measure aims to provide greater visibility into the financial arrangements between PBMs, insurers, and manufacturers.

2. **Fair Reimbursement:** The legislation proposes minimum reimbursement rates for pharmacies to ensure they are not paid below their acquisition costs. This provision is particularly crucial for independent and rural pharmacies struggling to remain financially viable.

3. **Ban on Spread Pricing:** The practice of spread pricing will be prohibited, ensuring that PBMs cannot profit from the difference between what they charge insurers and what they pay pharmacies.

4. **Oversight and Accountability:** A state regulatory body will be established to oversee PBM activities, investigate complaints, and enforce compliance with new regulations. This body will also have the authority to impose penalties for violations.

Support for the Legislation

The reform efforts have garnered broad support from various stakeholders:

• Independent Pharmacies: These entities have been vocal advocates for reform, asserting that current PBM practices threaten their financial stability and ability to serve patients, especially in rural areas.

• Patient Advocacy Groups: Advocates argue that increased transparency and fairer practices will lead to better patient outcomes and more affordable medications.

• Lawmakers: Legislators supporting the reform believe that the new regulations will bring much-needed oversight to an industry that has operated with minimal scrutiny.

Opposition to the Legislation

Despite widespread support, the proposed PBM reform legislation faces opposition from some quarters:

• PBMs and Insurers: These stakeholders argue that the reforms could lead to increased operational costs, which may be passed on to consumers in the form of higher premiums or drug prices.

• Large Chain Pharmacies: Some large pharmacy chains oppose certain provisions, fearing that increased regulation could limit their negotiating power and impact their profit margins.

Implications of the Reform

The passage of PBM reform legislation in Alabama could have significant implications for the state's healthcare landscape:

• Improved Transparency: Greater visibility into PBM operations could lead to more informed decision-making by payers and consumers, potentially driving down drug costs.

• Enhanced Pharmacy Viability: Fair reimbursement rates might help sustain independent and rural pharmacies, ensuring broader access to medications and pharmacy services for Alabama residents.

• Patient Outcomes: With formularies potentially based more on clinical efficacy than financial arrangements, patient care could see marked improvements.

Conclusion

The PBM reform legislation before the Alabama Legislature represents a significant step towards addressing longstanding concerns about the practices and transparency of PBMs. By increasing oversight, ensuring fair reimbursement, and banning spread pricing, the proposed reforms aim to create a more equitable and efficient pharmaceutical landscape. As the debate continues, the outcome of this legislative effort will be closely watched by stakeholders across the healthcare spectrum, both within Alabama and beyond.

(Brandon Moseley contributed to this report.)