Study shines light on prescription drug chain

The Pennsylvania Insurance Department (PID) today released a study on pharmacy benefits managers' (PBMs) activities across Pennsylvania's commercial, fully-insured insurance markets. The new PID study delivers important transparency to the prescription drug market and evaluates the potential impact of a uniform approach to pharmacy reimbursement.

In July 2024, Governor Josh Shapiro signed into law the Pharmacy Benefit Reform Act (Act 77 of 2024), a state law that expanded PID's authority over PBMs to increase fairness and transparency of prescription drug coverage in fully-insured plans. As part of this historic reform, Act 77 tasked PID with studying the scope and impact of steering and spread pricing on prescription drug access and affordability in the Commonwealth. The law also specifically charged PID with evaluating a proposal to require pharmacy reimbursement to be based on the national average drug acquisition cost (NADAC) plus a $10.49 professional dispensing fee.

"Just over two years ago, Governor Shapiro called out certain PBM practices that were harming independent pharmacies across the commonwealth and enacted pro-consumer reforms in Act 77. Since that time, and under intense state and federal scrutiny, we've seen PBMs moving away from spread pricing where PBMs kept more money than they paid pharmacies for prescriptions towards more transparent pricing," said Pennsylvania Insurance Commissioner Michael Humphreys. "Reports like this one bring clarity to a market where little existed and open up PBM practices for all to see as Act 77 begin to take shape."

The study is available for review here, and specific findings include:

Limited evidence of steering having a broad effect on prescription drug costs and pharmacy access;

Spread pricing exists but is relatively limited (and decreasing) in the context of overall drug spending;

Requiring reimbursement based on NADAC pricing plus a $10.49 dispensing fee would likely redistribute payments rather than significantly increase total spending, and this change would benefit non-affiliated retail pharmacies and independent (non-chain) retail pharmacies the most, increasing their revenue; and

Adopting NADAC plus a $10.49 dispensing fee solely for independent retail pharmacies would result in an additional $14 million in annual revenue for independent retail pharmacies, which is approximately 0.3 percent of the total prescription drug costs in the fully-insured market in the Commonwealth.

PBMs are the "middlemen" of the pharmaceutical supply chain. They typically negotiate the price of prescription drugs between health insurance companies and drug manufacturers, set compensation formulas for pharmacy payments, and may contribute to how formularies are structured within health benefit plans, which in turn affects drug coverage and shapes what patients pay at the counter. Despite their influence and outsized role in our healthcare system, many Pennsylvanians are unaware of the existence of PBMs.

PID contracted with Freedman Healthcare, LLC, to collect and analyze data on prescription drug utilization, pharmacy reimbursement, dispensing fees, and costs borne by health plans and members in the fully insured market for calendar years 2022 through 2024. The fully insured market accounts for approximately 24 percent of the overall healthcare market.

The analysis is based on data from five PBMs (Caremark, Express Scripts, Navitus, OptumRx, and Prime Therapeutics) which together represent 100 percent of the fully insured individual and small group insurance markets and approximately 84 percent of the total fully insured large group commercial insurance market in Pennsylvania.

The Shapiro Administration is committed to supporting a health care system that works for consumers, and access to pharmacy care and medications are an essential part of this work. In support of this, PID recently launched an online portal for pharmacists seeking to file a complaint against an insurer or PBM or challenge an insurer or PBM's classification of a drug as a specialty drug, which can impact availability and costs of medications.

PBMs and pharmacies looking for more information about Act 77 can visit PID's Pharmacy Benefit Reform Act page.