Glossary of terms commonly found in PBM state legislation and statutes which are reflected in the maps.
Contracts between a pharmacy and a pharmacy benefit manager (PBM) are a common feature in the prescription drug distribution and sales chain. The terms of these arrangements are often proprietary and unknown to consumers and some purchasers, like employers. The terms can include a “gag clause,” which restricts pharmacists from informing consumers of lower cost options, such as if a consumer purchases a prescription out of pocket rather than using the drug benefit through their insurance plan. Over two-thirds of states have laws that address this issue.
A fiduciary is a person or entity who holds a legal or ethical responsibility to act in the best interests of their clients. A PBM’s clients typically are 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. More than a quarter of states have this type of legislation in place.
Maximum Allowable Cost (MAC) Lists
Pharmacy benefit managers 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. Another common approach is providing for an appeals process when a pharmacy disputes an amount they were reimbursed. Only a handful of states have not enacted legislation in this area.
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 services can be physically accessed. Existing state laws generally set adequacy and eligibility standards for network participation.
Some PBMs require contracted health plan enrollees to visit affiliated pharmacies, or pharmacies in which they have an ownership interest including retail, mail-order or specialty. Four states – Georgia, Louisiana, Minnesota and Utah – have passed legislation specifically banning this practice.
Pharmacy Auditing Standards/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 and are given a process for appeal. Over two-thirds of states have enacted some form of a fair pharmacy audit bill which provides guidelines on when and how pharmacy audits are conducted by PBMs.
Pharmacy Reimbursement/Claw Backs
State laws 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.
Claw backs occur when a health plan enrollee’s copayment exceeds the total cost of the drug to their insurer, and the PBM “claws back” some, or all, of the overpayment from the pharmacy. Some states have chosen to prohibit these types of retroactive payments and at least 22 states have enacted some form of claw back legislation.
States may require PBMs to register or obtain licensure to conduct business, often through the state department of insurance or board of pharmacy. At least thirty states have this type of law.
Many of the same states that require PBM registration or licensure authorize a specific agency to promulgate rules and regulations. Maine has approached the issue uniquely by requiring insurers that contract with PBMs to monitor the PBM’s activities.
Most states that opt to give regulatory oversight of PBM business practices to a specific state agency also give that agency the authority to establish and assess fines, impose civil penalties, and suspend or revoke a license of a PBM that is found to be noncompliant.
Some states have implemented laws that require PBMs to disclose certain pricing and cost information such as data on rebates, payments and fees collected from drug manufacturers, insurers, and pharmacies.
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 that the PBM reimburses the pharmacy for a beneficiary’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. More than a dozen states bar the use of spread pricing models in PBM and health plan contracts.
Utilization Management Tools (e.g., Prior Authorization, Step-Therapy, Non-Medical Switching)
Utilization management tools are used by payers to manage the use and mix of drugs covered under the benefit. A provider might be 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 occurs when a patient who is stable on one medicine is switched to another for reasons other than clinical purposes. More than half of states have laws that address utilization management policies.
Some states have pursued other activities related to PBM reform not highlighted in the above categories. For instance, in a reverse auction PBMs compete for a state’s business and the lowest offer is awarded the contract. Other actions prohibit discriminatory practices against a pharmacy that participates in the federal 340B program.