Will Michigan's State Legislators Micromanage PBMs? | Citizens Against Government Waste

Will Michigan's State Legislators Micromanage PBMs?

The WasteWatcher

The Council for Citizens Against Government Waste (CCAGW) has been following the Michigan legislature’s HB 4348, the Pharmacy Benefit Manager (PBM) Licensure and Regulation Act.  It is another example of states trying to micromanage the vital role PBMs play in pharmacy benefit management for the customers they serve, like businesses, unions, state and local governments, insurers, associations, and other organizations that provide health insurance to employees or members.

The Michigan Senate is due back in session on August 31 and HB 4348, which passed the House of Representatives in March, is now under consideration by the Senate Health Policy and Human Services Committee.   This legislation, should it become law, would allow the Michigan Department of Insurance and Financial Services (DIFS) to insert itself into many aspects of pharmacy benefit management and allow the government to interfere with privately negotiated contracts.

Unlike when people purchase insurance to provide protection for their car or house and get to decide how much risk to take and what premium to pay, most Americans get their health insurance through their employer.  According to the Congressional Research Service, 2019 data showed that 68.5 percent of the U.S. population had private health insurance, with 55.4 percent getting it through their employer.  PBMs work for their clients, like employers or unions, to manage the drug benefit plans chosen for employees. 

HB 4348 would seriously harm the ability of PBMs to use a variety of tools and policies that help their clients manage their pharmacy benefits and lower drug costs.  For example, HB 4348 would allow the DIFS to restrict the ability of PBMs to manage their networks and essentially implements an “any willing pharmacy” option.  PBMs create networks that encourage price competition and increase volume that lower drug costs for their clients.  Their networks include mail order pharmacies and specialty pharmacies that dispense drugs for rare conditions that require special handling, which most pharmacies are not qualified to undertake.  Allowing a patient to use any pharmacy but receive the same discount negates the purpose of the network and will drive drug costs up.  It will also make it more difficult for specialty drugs to be dispensed safely and effectively.

PBMs utilize their networks to help with patient adherence, reduce dispensing errors, and conduct audits to make sure a pharmacy is working within the standards required by the network, including investigating potential fraud.  These activities help protect their clients’ assets and their patients, while reducing costs.  But HB 4348 would inhibit the PBMs from implementing these important policies, particularly audits, by requiring a PBM to provide a specified notice date and scheduling requirements.  This defeats the purpose of these audits.  While the legislative analysis states the audit provisions would not apply to an “audit conducted to investigate fraud, misrepresentation, or abuse,” other inspections would still need to be able to occur to find potential problems that may need further review.

Currently, the Michigan House and Senate are controlled by Republicans, who ostensibly understand the importance of free markets and comprehend the damage that price controls do in disrupting and distorting market dynamics.

Yet, HB 4348 requires a PBM, or a carrier, to not reimburse a pharmacy or a pharmacist for a prescription drug or service that is an amount less than the national average drug acquisition cost.  This is a price control.  The bill would allow the DIFS to review and approve a network pharmacy reimbursement that is “fair and reasonable.”  But pharmacies are not uniform.  Each purchase different drugs at different times and pricing on a certain drug will vary depending on volume and rebates a pharmacy may receive.

Additional restrictions on PBMs include controlling access to medications, like quantity refills or frequency limits, which will drive up costs.  For example, a PBM may dispense medications for a three-month supply, instead of monthly, to save their sponsor pharmaceutical healthcare costs.  This not only saves money; it also helps to reduce dispensing errors and many find it convenient not to worry about frequent refills.

CAGW agrees that a patient should know what a drug will cost at the pharmacy counter and any co-pays or co-insurance they may have to provide.  Insurers provide tools that allow patients to find this vital information.  But HB 4348 would impose significant government transparency requirements on PBMs, which would do nothing to drive down drug costs but could be used by competitors to discover the proprietary pricing negotiations among pharmaceutical companies, pharmacy benefit managers, and pharmacists.  Again, these are private negotiations and not all that different than the negotiations a Big Box store or supermarket has with any of their suppliers.

A July 2015 Federal Trade Commission policy paper, “Price Transparency or TMI,” pointed out that while it is good for consumers to have information about the healthcare services they utilize, “Too much transparency can harm competition in any market, including in health care markets.”  The authors wrote, “transparency is not universally good.  When it goes too far, it can actually harm competition and consumers.  Some types of information are not particularly useful to consumers but are of great interest to competitors.  We are especially concerned when information disclosures allow competitors to figure out what their rivals are charging, which dampens each competitor’s incentive to offer a low price or increases the likelihood that they can coordinate on higher prices.”

The Senate analysis of the legislation states that HB 4348 would have a significant fiscal impact on state government and no fiscal impact on local units of government.  CAGW is not sure about the latter, as local units of government may see a cost increase for the drug benefits provided to their employees.  However, the analysis estimates at least three individuals would have to be hired by the DIFS to implement and administer the licensing program at a probable cost of $110,000 each.  But considering the large volume and complexity of the data the employees will be required to gather and analyze, expect that figure to be much higher.

In the end, the legislation would save little or no money for taxpayers and be costly to patients, especially those who need specialty drugs.  Let’s hope the Senate Health Policy and Humans Services Committee will understand the vital roles PBMs play in the intricate process of providing pharmaceutical benefits to employees by rejecting HB 4348.  Doing so will help businesses, unions, and others keep drug costs down for their employees and members while keeping them healthy.

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