Alabama to debate price of prescription drugs, $10.64 fee: Who pays?

A new pharmacy bill, which would add a $10.64 dispensing fee on prescriptions, has gained swift opposition from health insurers and advocates, who called the fee a "tax" on consumers.

But pharmacists are now strongly pushing back, saying the legislation would keep more rural, independent pharmacies from folding – and save Alabamians money in the long run. Pharmacy benefit managers, third party companies that negotiate prescription costs with insurance companies, often reimburse pharmacies less money than it costs to fill a prescription, which hurts the pharmacy's bottom line.

"When PBMs are setting drug prices, what we find throughout the country is that they're usually about the only ones that win," Greg Reybold, a healthcare attorney who helped write the bill, told AL.com this week. "Patients end up paying more at the counter. Payors, employers, state governments end up paying more. And community pharmacies end up getting cut to the bone."

The additional fee should be paid by prescription drug managers, not consumers, Reybold said. But nothing in the current bill appears to protect the fee from being passed along to customers.

HB238, which was approved by the Insurance Committee of the Alabama House of Representatives last week after a lengthy public hearing, would place more regulations on PBMs.

In addition to added oversight and transparency, the bill would ban the practice of spread pricing, which happens when PBMs reimburse pharmacies at a lower cost than they receive from insurance plans, inflating what consumers pay for medication.

The legislation also requires PBMs to pay pharmacies an additional "dispensing fee" of $10.64, which is based on the amount used by Alabama Medicaid.

The bill's sponsor is Rep. Phillip Rigsby, R-Huntsville, who recently sold his independent pharmacy due to financial strain, he told lawmakers. More than 300 pharmacies in Alabama have shuttered since 2018, according to an analysis by Bob Giles of the Alabama Pharmacy Association.

Alabama's bill comes amid national attempts to address spread pricing and curb rising drug costs. In 2022, the Federal Trade Commission launched an ongoing federal study into unfair PBM practices. And in February, 39 state attorneys general urged Congress to hold the companies accountable.

As of June 2023, 43 states have introduced a total of 137 bills on PBMs, according to the National Academy for State Health Policy. Kentucky and West Virginia are currently considering similar legislation.

Supporters of Alabama's bill say the new model would ultimately lower costs because it takes away the ability for PBMs to overcharge insurers and patients. The bill would also allow pharmacists to tell patients about and sell them cheaper alternatives to brand-name drugs.

"The bottom line is, there needs to be scrutiny, oversight and transparency of these companies' practices because it's money that hard working citizens have paid for premiums that is going straight to a publicly traded company instead of being maximized for their own benefit," said Josh Hardin, who co-manages 13 independent pharmacies in central Alabama.

Information on the profits PBMs are making is scarce because the companies prohibit pharmacists and insurers from informing patients of their prescription costs. Some pharmacists shared acquisition costs with AL.com under the condition that the name of the PBM is not disclosed.

In one case, a PBM-owned pharmacy appeared to charge an insurer more than $4,000 each to fill a multiple sclerosis and cancer drug prescription. But the average cost for a pharmacy to acquire the drugs in Alabama, plus the proposed dispensing fee, is actually less than $100 for both of those drugs, according to state Medicaid data.

Patrick Devereaux, president of FMS Pharmacy in Bessemer, shared a list of brand name drug reimbursements paid by one of the largest insurers in the state.

Between January and March, the PBM used by the insurance company reimbursed the pharmacy less than the original drug cost for 760 out of 797, or 95%, of all prescriptions. For some drugs, that difference amounted to hundreds of dollars.

Devereaux said he's had to cut staff, and has started delivering pharmacy orders himself to keep his pharmacy in business.

"That shroud of secrecy there is what they're clinging to and what they're trying to keep hidden," Devereaux said. "They don't want that veil to be lifted. They really want payors to believe that Meloxicam (an arthritis drug) indeed costs $149, which it does not."

But some are skeptical that the bill will truly protect consumers.

"People that make lower incomes, they're always hit the hardest whenever there's additional fees," said Jennifer Harris of Alabama Arise. "Whenever additional things that are applied, we know that it usually comes out somewhere that's going to be passed on as a consumer cost. We just don't know what that's going to look like for those people that are most harmed."

Reybold told AL.com that he could envision some changes to the bill to ensure consumers won't be responsible for paying the dispensing charge. Ultimately he believes the bill will help consumers by encouraging lower drug costs and premiums.

A fiscal note says the legislation will cost the state insurance department, who would be in charge of enforcing the law, an additional $112,000 annually, but does not detail how much money the legislation could save or cost insurers. In a statement to AL.com, Blue Cross and Blue Shield of Alabama, which uses a PBM, said the legislation would make it harder to negotiate costs on behalf of patients.

"Alabamians deserve access to the prescription drugs they need at a price they can afford," a spokeswoman said. "Blue Cross and Blue Shield of Alabama advocates on behalf of our members to keep healthcare costs as low as possible, with a primary focus on rising prescription drug costs. HB 238 would only make it more difficult for Alabamians to access the necessary and even life-saving medications they need at a price they can afford."

Retirement Services of Alabama, which manages health and retirement plans for state employees, has also pushed back against the bill, saying it would change how the organization handles reimbursements.

RSA doesn't use PBMs, according to the Alabama Reflector, and can negotiate drug prices and rebates to help bring the cost of insurance down.

"We are more worried about, if (the fee) is set in statute which you're going to pay on the other end, what's going to be the motivation of manufacturers and wholesalers to negotiate in good faith with the pharmacists on pricing?" Neah Scott, RSA's legislative counsel, told lawmakers last week. "They know the pharmacists are going to be reimbursed for actual acquisition costs, plus a dispensing fee. So we're worried about long-term cost increases because of this."

Scott told AL.com that RSA is still working out a cost analysis to better understand how the legislation will affect the program.

HB238 will have to be approved by the full House before it heads to the Senate.