PBM Reform

Pharmacy benefit managers were created as middlemen to reduce administrative costs for insurers, validate a patient’s eligibility, administer plan benefits, and negotiate costs between pharmacies and health plans. Over time, PBMs have been allowed to operate virtually unchecked. A lack of transparency in PBM practices has led several states to implement licensure/registration, fair pharmacy audit, or generic drug pricing legislation to try to level the playing field for pharmacies and patients.

PBM licensure and registration
PBMs control virtually every aspect of one of the most critical and costly aspects of the health insurance benefit – prescription drugs – yet the state has little defined oversight authority over PBM operations. This leaves pharmacies, patients, and plan sponsors with little to no recourse against PBM abuses. To combat this, states are beginning to require PBMs become licensed or registered with the state department of insurance or board of pharmacy to provide the state with more defined oversight authority over PBMs.

Fair pharmacy audits
PBMs typically audit pharmacies to detect any improper payment by the PBM on behalf of the plan or consumer and to verify that the patient received the correct medication in the appropriate dose. However, many times PBM auditors go beyond the basic intent of the audit – to detect fraud, waste and abuse – and instead focus on typographical or administrative errors, which they use as the basis to recoup money from the pharmacy. Some of these auditors are even paid based on the number of "discrepancies" found, which creates a conflict of interest.

MAC transparency
A "maximum allowable cost" or MAC list refers to a payer or PBM-generated list of products indicating the maximum amount that a plan will pay for generic drugs and brand name drugs that have generic versions available ("multi-source brands"). No two MAC lists are alike, and each PBM has free reign to pick and choose products for their MAC lists. There is no standardization in the industry regarding criteria for drug inclusion on MAC lists, methodology used to determine maximum price, or methods for updating and changing list information.

This document provides additional background and guidance to states looking to enact MAC transparency legislation or rules.

Map: States That Have Enacted MAC Transparency Laws