Glossary of terms commonly found in PBM state legislation and statutes.
Cost-disclosure and Gag-clause Restrictions
Contracts between a pharmacy and a PBM are a common feature in the prescription drug distribution and sales chain. The terms of these arrangements are often proprietary and not disclosed to consumers and some purchasers, like employers. Contractual terms may include a “gag clause,” restricting pharmacists from informing consumers of lower cost options; e.g., if a consumer purchases a prescription out of pocket rather than using the drug benefit through their insurance plan.
A fiduciary is a person or entity who holds a legal or ethical responsibility to act in the best interests of their clients. PBM clients are typically health plans whose primary stakeholders are plan enrollees. While some states impose fiduciary responsibilities on PBMs, others require PBMs to exercise good faith and fair dealing while performing their contractual duties.
Maximum Allowable Cost (MAC) Lists
PBMs may choose to establish an upper limit or maximum amount they will reimburse a pharmacy for generic and multi-source drugs. PBMs develop maximum allowable costs (MAC) lists using a variety of data, resources and information, and these lists may consist of thousands of products. A state may choose to regulate the frequency MAC lists are updated, such as every seven days.
A pharmacy network is a list of pharmacies or pharmacists that a health plan or PBM has contracted with to provide prescription drug services to their members. Pharmacy network adequacy is often defined as the distance between a patient’s residence and where pharmacy services can be physically accessed. States may set adequacy and eligibility standards for network participation.
PBMs may require contracted health plan enrollees to visit affiliated pharmacies, or pharmacies in which they have an ownership interest including retail, mail order or specialty. States may then require PBMs to allow enrollees the option of going to a pharmacy of their choosing.
Pharmacy Auditing Standards and Appeals Process
Audits on pharmacies by PBMs to detect fraud, waste and abuse are routine; however, some states have implemented laws to ensure pharmacies are audited fairly. Another approach is to allow a process for pharmacies to appeal the audit findings. States may also consider allowing an appeals process for pharmacies to dispute the amount they were reimbursed.
Pharmacy Reimbursement and Claw Backs
States may provide reimbursement standards for pharmacies with which the PBM contracts. For example, a state might prohibit a PBM from denying or reducing the amount they reimburse to a pharmacy or pharmacist for a claim.
States may also opt to prohibit retroactive payments or clawbacks. Clawbacks occur when a health plan enrollee’s copayment exceeds the total cost of the drug to their insurer, and the PBM recoups, or “claws back,” some, or all, of the overpayment from the pharmacy.
Registration and Licensure
States may require PBMs to register or obtain licensure to conduct business, often through the state department of insurance or board of pharmacy.
Regulatory Agency and Enforcement
States that require PBM registration or licensure may opt to give regulatory oversight of PBM business practices to a specific state agency. In turn, that agency may have the authority to promulgate rules, establish and assess fines, impose civil penalties, and suspend or revoke a license of a PBM found to be noncompliant.
Transparency and Reporting Requirements
States may implement laws that require PBMs to disclose certain pricing and cost data such rebate amounts, payments and fees collected from drug manufacturers, insurers, and pharmacies. Another option is to require reporting to insurers and payers.
Spread Pricing Restrictions
Health plans choose contracts with PBMs that commonly use either a spread pricing reimbursement model or pass-through pricing model. In a spread pricing model, the PBM keeps a portion of the amount, or spread, between what the health plan pays the PBM, and the amount the PBM reimburses the pharmacy for a patient’s prescription. With a pass-through contract, the PBM passes through the amount charged by the pharmacy to the health insurer. Since no spread is collected, PBMs typically charge an administrative fee. States may choose to limit or restrict the use of spread pricing contracts.
Utilization Management Tools (e.g., Prior Authorization, Step-Therapy, Non-Medical Switching, Copay Adjustment Programs)
Utilization management tools are used by payers to manage the use and mix of drugs covered under the benefit. States may impose restrictions or allow their use.
- Prior authorization—when a provider is required to gain prior authorization or approval for a specific treatment before it can be administered.
- Step therapy—also called “fail first,” is when a patient is required to try certain treatments or prescription drugs before switching to a more expensive or non-generic alternative.
- Non-medical switching—when a patient who is stable on one medicine is switched to another for reasons other than clinical purposes.
- Copay adjustment programs—when a PBM or health plan restricts the use of manufacturer copay coupons from being applied to annual cost-sharing amounts, like deductibles.
States have pursued other activities related to PBM reform not highlighted in the above categories. Examples include:
- Reverse auctions—where PBMs compete to provide pharmacy benefit services for state health plans (i.e. state employees, retirees, etc.) and the lowest offer receives the contract.
- Protections for 340B covered entities—such as restricting PBMs from reimbursing covered entities at lower rates, precluding PBMs from assessing additional fees on covered entities, or requiring that covered entities be included in the PBM’s pharmacy network.
- Rebate pass-through—when discounts obtained by manufacturers are passed along to plan sponsors or consumers at the point of sale.
- White-bagging—when a PBM requires a clinician-administered drug to be dispensed by an affiliated specialty pharmacy.