Iowa Gov. Kim Reynolds signs drug pricing bill into law

Third-party health care companies will face new restrictions designed to constrain prescription drug costs and protect rural pharmacies under legislation signed into law Wednesday by Gov. Kim Reynolds.

Senate File 383 places limits on pharmacy benefit managers — companies that function as intermediaries between insurance providers and drug manufacturers.

It seeks to eliminate "spread pricing," where PBMs keep the difference between what they pay the pharmacy and what they charge the insurance company.

Under the legislation, all prescription drug contracts in Iowa would be required to use a "pass-through" pricing model. In a pass-through model, the amount paid by the PBM to the pharmacy is passed through to the plan sponsors — employers, insurers, government agencies or managed care organizations — and the PBM is compensated through administrative fees.

Reynolds, in a statement, said she signed the bill "in an effort to continue improving our health care system by bringing greater accountability to the role" of PBMs. The governor said the legislation builds on her rural health care bill passed and signed into law earlier this year, and provides a "fairer, more transparent and accessible health care system for all."

Iowa joins Texas, Georgia, Indiana and Montana that passed similar laws this year.

Pharmacies and other health care organizations support the legislation, which they say will help protect pharmacies from closure.

Last year, more than 30 pharmacies closed in Iowa, affecting both rural and urban communities, according to the Iowa Pharmacy Association. Since 2014, more than 200 Iowa pharmacies have closed, creating pharmacy deserts and limiting access to care.

The Iowa Pharmacy Association said SF 383 aims to protect patient choice, level the playing field and ensure fair reimbursement for pharmacies.

"For too long, PBMs have put profits over patients," Kate Gainer, CEO of the Iowa Pharmacy Association, said in a statement.

Iowa business and banking groups warn the legislation will lead to higher health care costs.

The pharmacy association contends concerns that health insurance premiums will increase have not proved true in states with similar legislation.

Reynolds administration will monitor for 'unintended consequences'

Reynolds said the law will aid independent community pharmacies that have struggled because of PBM practices she and lawmakers argue are contributing to rising overall health care costs through "opaque, one-sided" pricing and rebate strategies.

PBMs play a central role in the pharmaceutical supply chain, Reynolds said, by negotiating drug prices, determining which pharmacies will be included in a prescription drug plan's network and how much those pharmacies will be paid for their services. PBMs also regulate which drugs are covered under a specific plan and set co-pays, negotiate rebates with drug manufacturers and process prescription medication claims, for a fee, for insurance companies, among other roles.

Three of the companies — CVS Caremark, Express Scripts and Optum Rx — collectively control about 80 percent of the market.

"This vertical integration gives them outsized power over which medication patients receive and what they pay — often resulting in unaffordable drug costs, difficult choices for families, and reimbursement below pharmacy acquisition cost," the governor said in her statement.

Reynolds, though, said the legislation is not the end. She said her administration will closely monitor implementation "to mitigate and ensure that any unintended consequences for private employers are addressed."

"The complexity and lack of verifiable data made signing this bill a difficult decision," she said.

The governor said her office also will be launching a reverse auction — where sellers bid against each other to offer the lowest price for a product or service to a single buyer — to keep costs as low as possible for the state and its employees.

Rep. Jeff Cooling, a Democrat from Cedar Rapids, argued on the House floor requiring PBMs to pay a $10.68 dispensing fee to small pharmacies will lead to higher costs for plan customers.

In a joint statement urging Reynolds to veto the bill, the Iowa Association of Business and Industry, Iowa Bankers Association, the Iowa Business Council and the National Federation of Independent Business also expressed concern about the dispensing fee, asserting the bill would cost Iowans $340 million more annually.

"As Congress and the President work to reduce the cost of prescription drugs, the Iowa Legislature has taken a different path and voted to significantly increase costs," the groups said in their statement. "(The bill) is believed to be the most expensive health care mandate ever passed in Iowa history. This is a step in the wrong direction for Iowans, employers, and the state economy."

What the bill will do

In addition to being required to pay small pharmacies a dispensing fee, PBMs will be prohibited from:

Limiting or disincentivizing an individual from selecting a pharmacy or pharmacist of their choice;Designating a prescription drug as a specialty drug to prevent a person from accessing the prescription;Requiring a customer to purchase prescription drugs or other services through a mail order pharmacy, or from charging more for prescription drugs or other services than if they were purchased from any other pharmacy;Or reimbursing small pharmacies less than the national or Iowa average drug acquisition cost.

The bill also requires PBMs to provide an appeals process for pharmacies to challenge reimbursement rates for specific prescriptions and would allow pharmacies to decline to dispense a prescription to a person if the pharmacy would be reimbursed less for the prescription than the cost to the pharmacy.

It also prohibits PBMs from discriminating against pharmacies or pharmacists regarding participation, referrals, reimbursements of a covered service, or indemnification if the pharmacist is acting within its scope of practice.