Health Plans, Pharmacy Middlemen Push Back Against California Drug Pricing Bill

A bill that aims to regulate drug price negotiations between pharmacies and middlemen working on behalf of health plans in California is headed to Gov. Jerry Brown after a contentious battle and some late-session drama.

Asm. Jim Wood’s AB 315 would more heavily regulate pharmacy benefit managers, or PBMs. These private companies strike deals for cheaper drugs on behalf of health plans.

In theory, PBMs pass the cost-savings on to patients. But consumer advocates say they’re really just holding onto the profits.

Wood’s bill could require PBMs to disclose information about those negotiations to the health plans they work with and to the Department of Managed Health Care. He floated it in session last year but ultimately held it so he could work out the details with Brown’s administration.

Now it’s headed to the governor, but health plans are strongly opposed. Mary Ellen Grant, spokesperson for the California Association of Health Plans, said it puts an unnecessary burden on insurance companies, who would have to deliver information about the PBMs they work with to the state under the bill.

“It makes health plans liable for business relationships between PBMs and other parties that the plans aren’t privy to,” Grant said.

Grant said the plans feel PBMs are working as they should, and that cost-savings are trickling down to consumers. She said her organization has been opposed to AB 315 since its inception. But Wood seemed taken aback by their opposition earlier this month.

“We thought we had addressed all concerns that could be addressed while still maintaining the intent of the bill,” he said in a statement. “After all this work, and now in the final weeks of this year’s legislative session, health plans won’t do what’s right for their customers.”

Wood accused the plans of having a conflict of interest, citing that some have launched their own PBMs.

PBMs are already regulated by a slew of state and federal codes, as well as contracts with the health plans they negotiate for.

But supporters of AB 315, including the California Pharmacists Association, say those rules don’t go far enough.

“This lack of oversight coupled with a lack of corporate transparency regarding business practices has generated numerous questions and concerns about the PBM industry and its ownership, control or influence on the prescription marketplace,” the association states on a website about the bill.

But PBM representatives say confidentiality is necessary for a healthy market. Bill Head, senior director of state affairs for the Pharmaceutical Care Management Association, said more transparency in these negotiations would disrupt the market and increase drug costs, not lower them.

“If entity A knows what the terms are and entity B knows as well, you’ve eliminated the ability of PBMs to compete with each other,” he said. “The health plan is going to shop around based on what their needs are and what they want to spend, they want to get the best contract they can from the PBM.”

Both Head’s organization and the California Association of Health Plans say they support other efforts to bring down drug prices, such as last year’s SB 17. The law, enacted in January, requires manufacturers to give 60-day notice about price increases. Health plans also have to be transparent about what they spend on purchasing.

Some experts called it the most comprehensive drug pricing policy in the nation. The drug industry fiercely opposed it, and their first attempt to overturn the law was dismissed this week.