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California Passes Pharmacy Benefit Management Bill

California has joined a number of other states, including Vermont and Washington, in requiring pharmacy benefit managers (PBMs) to register with a state department. Assembly Bill 315 (AB 315), Pharmacy Benefit Management was signed by California Governor Jerry Brown on September 29, 2018 and became effective January 1, 2019. The bill includes several new requirements detailed below. A complete list of legislation affecting PBMs across the country can be found here.

Pharmacy benefit managers ostensibly exist as middlemen seeking to reduce prescription drug prices and to negotiate contracts on behalf of their clients. PBMs are now responsible, among other things, for administering the various pharmacy benefits for health plans, conducting drug utilization reviews, and negotiating rebates and reimbursement amounts. Although professionals in PBM positions, as the California Assembly analysis writes (available as PDF download here), “have one of the most prominent roles in determining coverage and payment for drug products, despite never taking physical possession of the drug”, they have largely “escaped scrutiny of regulation and licensure.” With the large purchasing power they wield, their arguably conflicting interests, and the increasingly aggressive stance of PBMs when dealing with those they interact with, it is important that the business dealings of PBMs are transparent and that the managers are held accountable.

This new bill now requires PBMs to register with the California Department of Managed Health Care (DMHC) and to “exercise good faith and fair dealing” by requiring PBMs to provide quarterly disclosures to the purchasers of their services, including revealing both direct and indirect conflicts of interest. Additional disclosures containing certain information can be requested by the purchaser at any time. These disclosures can include information such as rates negotiated with pharmacies, drug acquisition cost, and rebates received from pharmaceutical manufacturers.

In an effort to analyze how the work of PBMs affect the pharmaceutical market, a task force and pilot project have been established, overseen by the DMHC. In addition, a toll-free provider phone number has been created for pharmacies to use to report PBMs in an event that they find a manager to be in violation of this bill or any other relevant legislation.

Pharmacy patients will also benefit from AB 315’s passing. The bill now requires pharmacies to, at the minimum, inform customers if the retail price of a drug is lower than the cost-sharing amount, or even to automatically charge customers the lower amount.

Tensions between pharmacies, PBMs, and the plans that PBMs and PSAOs service have grown exponentially in recent years. The HLP does not anticipate any changes to this growth. The HLP has extensive experience in dealing with the issues/tensions/disputes that arise as these industry players interact.

For more information regarding California’s Assembly Bill 315, or issues related to PBMs, please contact Adrienne Dresevic, Esq. or Clinton Mikel, Esq.

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