The PBM regulatory landscape continues to evolve rapidly at both federal and state levels, making it critical for our clients involved in the PBM space to stay apprised of developments in the industry. Our team actively monitors these developments to provide you with this quarterly PBM Policy and Legislative Update. This Winter 2024 update builds on prior issues and highlights federal and state activity from October, November, and December 2023. We also highlight a few of the major changes that have already occurred in 2024 in the Since we went to publication... section at the end of the Update. We will provide discussion on these updates and more in the Spring 2024 Update.

FEDERAL LEGISLATIVE ACTIVITY

Five more bills were introduced during the last quarter of 2023, for a total of 23 federal legislative initiatives directly targeting the PBM industry and PBM-related practices introduced in 2023. This is in addition to the many legislative initiatives targeting issues adjacent to the PBM industry such as drug pricing, opioid dispensing practices, and the 340B program, to name a few. In addition to the newly proposed legislation, several bills introduced earlier in the year moved forward through the legislative process, as outlined below. One thing was clear in the last quarter of 2023: lawmakers were firing on all cylinders to advance PBM legislation. But this all came to an abrupt halt in early 2024 with several reports out of Washington that Congress did not include any PBM-related reforms in the proposed federal government funding package. As we will discuss in further detail in our Spring 2024 Update, legislative priorities shift frequently and focus on the PBM industry will likely be renewed later in the legislative calendar. Below is a summary of federal legislative activity from October – December 2023.

  • Delinking Revenue from Unfair Gouging Act ( H.R. 6283). On November 8, 2023, Representatives Mariannette Miller-Meeks (R-IA), Nanette Diaz Barragan (D-CA), Lori Chavez-DeRemer (R-OR), Kathy E. Manning (D-NC), Nicole Malliotakis (R-NY), Bradley Scott Schneider (D-IL), Thomas H. Kean (R-NJ) and Abigail Davis Spanberger (D-VA) introduced the  Delinking Revenue from Unfair Gouging (DRUG) Act, largely a companion bill to S. 1542, which we reported on in our Summer 2023 Update. Taking a slightly different approach to the language, the House DRUG Act would, among other things, prohibit PBMs from deriving "remuneration from any entity for services, benefit administration or any other activities related to prescription drugs." However, the law would permit PBMs to charge flat bona fide services fees that are not directly or indirectly based on drug price, rebates, or other amounts prohibited by the Secretary. Like the Senate bill, the House DRUG Act would further prohibit PBMs from engaging in (i) spread pricing, (ii) paying a PBM-affiliated pharmacy more than an independent or unaffiliated pharmacy for the same service, and (iii) steering patients to PBM-owned, controlled, or affiliated pharmacies. The bill proposes to enforce its provisions by imposing a $10,000 civil monetary penalty for each day during which a PBM violates this law.

  • A bill to require the Secretary of Labor to conduct a study on the fiduciary duties of pharmacy benefit managers ( S. 3330). On November 15, 2023, Senators Mike Braun (R-IN), Margaret Wood Hassan (D-NH), Roger Marshall (R-KS), Ted Budd (R-NC), Tim Kaine (D-VA), and Ben Ray Lujan (D-NM) introduced a bipartisan bill to require the Secretary of Labor to study and report to Congress on the impact of a change in policy whereby PBMs would be considered fiduciaries under ERISA. As fiduciaries under this policy, PBMs would be permitted to retain bona fide service fees, provided such bona fide service fees are not (i) based on drug price or drug benchmark price, (ii) based on discounts, rebates, fees or other remuneration, or (iii) otherwise determined by the Secretary to be unreasonable.

  • Ensuring PBM Competition Act ( H.R. 6844). On December 15, 2023, Representative Claudia Tenney (R-NY) introduced the Ensuring PBM Competition Act, which would prohibit Part D prescription drug plan sponsors from contracting with PBMs that directly or indirectly own, control, or have a financial interest in a pharmacy.

  • Prescription Drug Rebate Reform Act of 2023 ( H.R. 6856). On December 19, 2023, Representative Mike Gallagher (R-WI) introduced a bill that seeks to reform prescription drug pricing and reduce consumer out-of-pocket prescription drug costs at the pharmacy counter. If enacted, the Prescription Drug Rebate Reform Act of 2023 would require group health plans and health insurance issuers to base a member's coinsurance obligations for covered drugs on such drug's net price, which is defined under this bill to mean the list price of the drug net of all prospective and retrospective rebates, discounts, concessions, and other adjustments applied to the amount paid by a PBM or a plan for such drug. As proposed, this bill would go into effect on January 1, 2025.

  • Health Care Prices Revealed and Information to Consumers Explained Transparency Act ( S. 3548). On December 14, 2023, Senators Mike Braun (R-IN), Bernie Sanders (I-VT), Tina Smith (D-MN), and John W. Hickenlooper (D-CO) introduced a bipartisan bill aimed at providing hospital and insurer price transparency. If enacted, the " Health Care PRICE Transparency Act 2.0" would generally impose additional transparency requirements on a variety of health care providers and health plans, including the requirement to make publicly available the rate and payment information for medical and pharmacy services, including, as it pertains to prescription drugs, the in-network rates for drugs, the historical net price paid by health plans for such drugs, and the amount billed or charged by providers for such drugs. Additionally, a small part of the bill specifically addresses PBM transparency under ERISA, proposing for contracts or arrangements between group health plans and other entities (i.e., PBMs) to require the entities to enable group health plan access to all claims and encounter information, and, among other things, not limit (i) access to the claims and encounter information, (ii) disclosure of overpayment and overpayment recovery terms, (iii) disclosure of fees charged to group health plans related to plan administration and claims processing, and (iv) the right of the group health plan to select an auditor or define audit scope or frequency. As proposed, this bill would go into effect on January 1, 2025.

Fourth Quarter Updates on Previously Reported Federal Bills

The Lower Costs, More Transparency Act (H.R. 5378) was passed via a House vote on 12/11/2023. If enacted, the bill would, among other things, increase oversight and transparency of the PBM industry by setting specific reporting requirements for group health plans and PBMs and prohibiting group health plans and PBMs from entering into agreements with third parties (i.e, drug manufacturers, rebate aggregators, and other subcontractors) that include "gag clauses" preventing the group health plans or PBMs from meeting their reporting requirements.

The Modernizing and Ensuring PBM Accountability (MEPA) Act (S. 2973), was amended for small clerical changes and placed on the senate legislative calendar. If enacted, the MEPA Act would, among other things, (i) require that contracts between PDP Sponsors and a PBM meet certain requirements starting in plan year 2026, (ii) require the HHS Secretary to institute standard Part D measures for assessing network pharmacy performance; (iii) ban PBM spread pricing in the Medicaid program; and (iv) require the HHS OIG to investigate the impact of vertical integration between PDP, PBMs, and pharmacies on beneficiary out-of-pocket costs and Medicare spending under the Part D program.

The Medicare PBM Accountability Act (H.R. 5385) was marked up and reported out of the House Committee on Energy and Commerce in December 2023. If enacted, this bipartisan bill would require PDP Sponsors to enter into agreements with PBMs that establish certain PBM reporting requirements designed to enhance transparency regarding pricing guarantees and evaluation of PBM's cost performance (e.g., rebates, discounts).

The Pharmacy Benefit Manager Transparency Act of 2023 (S.127), was amended and reported to the Senate on 12/13/2023. If enacted, this bill would, among other things, prohibit PBMs from (i) clawing back reimbursement payments (amended to exempt situations in which the original claims were fraudulent, in violation of the applicable contract, or based upon services not rendered by a pharmacy or pharmacist), and (ii) increasing fees or lowering reimbursements to pharmacies to offset changes to federally funded health plans. The amendment to the bill also stipulated that its corresponding annual commission report should include an analysis of the Act's effects on PBM mergers, competition, and monopolies in the PBM space.

2023 Federal Legislative Activity

As we noted, there were more than 23 federal legislative initiatives directly targeting the PBM industry and PBM-related practices introduced in 2023. Many of the proposals overlap, with the goal of regulating the industry via transparency requirements, government studies, and targeted requirements for a variety of PBM relationships. The next two charts provide highlights from the proposals being considered at the federal level.

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Enforcement Activity and Litigation

United and Optum Under Increased Scrutiny Related to Antitrust Concerns

As reported by the Wall Street Journal on February 27, 2024, the U.S. Department of Justice launched an antitrust investigation into UnitedHealth Group. According to individuals familiar with the investigation, DOJ conducted interviews of groups in the healthcare industry where UnitedHealth operates. Investigators have purportedly asked about the relationship between UnitedHealthcare insurance unit and its Optum health services arm, which offers several healthcare services including pharmacy benefit management, financial consultation, and mental health support.

This DOJ investigation is in addition to a class action lawsuit filed in December by Osterhaus Pharmacy Inc., an independent pharmacy in Iowa, alleging that OptumRx engaged in an illegal scheme that ties access to its Medicare Part D beneficiaries to the payment of fees for the opportunity to provide prescription services. The Plaintiff's had previously filed a lawsuit in September 2023 against CVS Pharmacy alleging similar claims. The lawsuit is believed to have been part of an effort to pressure government officials to increase scrutiny over PBM relationships and practices.

Elk River Pharmacy Inc et al v. Express Scripts Inc et al. Four retail pharmacies filed an antitrust class action lawsuit in October 2023 claiming that ESI and Prime engaged in price-fixing with respect to reimbursement rates and fees. The complaint argues the two PBMs entered into an agreement in 2019 effectively eliminating competition and reducing quality and convenience of pharmacy services to consumers without economic benefits. The retail pharmacies allege that the PBMs agreed to set reimbursement rates and transaction fees at ESI's more competitive prices while Prime transferred its commercial and Medicaid networks to ESI; however, the pharmacies claim that the transition of Prime's networks to ESI was merely "euphemistic and in name only." The complaint asserts that the product and geographic market power of the PBMs derived from the 2019 agreement violates federal antitrust law under the Sherman Act.

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