Pressure to reduce the cost of medications has built up for years, and pharmacist trade groups, patient rights advocacy groups, drug manufacturers, pharmacy benefits managers, and local governments all have a unique perspective, and their own interests, in mind when approaching this growing issue.
But recent regulations and court decisions in Oklahoma show how good intentions can sometimes lead to unintended consequences — and the importance of staying informed to avoid confusion for your clients. No matter what state your benefits advisor firm operates in, it is important to pay attention to what is happening in Oklahoma.
A state of confusion
In 2019, Oklahoma passed the Patient’s Right to Pharmacy Choice Act. It was one of the earlier states to regulate PBMs more aggressively, especially when it comes to network design and steering practices. It quickly became subject to litigation in the federal courts in PCMA vs Mulready. The Pharmaceutical Care Management Association argued that ERISA insurance plans should be exempt from the Patient’s Right to Pharmacy Choice Act, which prohibits PBMs from engaging in certain steering activities, including restricting the preferred, in-network pharmacy choices of their clients and their members. In the past, state laws like this were only considered enforceable against fully insured and self-funded non-ERISA plans.
Fast forward to April 2022, when an order comes down from the Federal District court in the PCMA v. Mulready case. The judge ruled that the law is enforceable against ERISA plans. Also in April, SB 737 came through the state legislature and was signed by the governor, which updated the Patient’s Right to Pharmacy Choice Act to prohibit spread pricing in Oklahoma. SB 737 passed as an emergency measure – meaning it went into effect immediately.
This led to confusion for plan sponsors, benefits advisors, and PBMs, which took various positions on whether SB 737 could be enforced against ERISA plans and the financial consequences for plan sponsors.
Unintended consequences
While these regulations are meant to rein in the PBMs, they can have unintended consequences such as increasing a plan sponsors’ costs. Legislation like this is often introduced and/or supported by local pharmacists, and their perspective is certainly needed to hold PBMs accountable. But another important voice in these discussions is the self-funded plan sponsor who will pay for the cost of their members’ medications.
For example, Oklahoma’s regulation against spread pricing could lead to increased costs for the plan sponsor in some cases. When comparing a traditional PBM contract to one with pass-through pricing, there are times that greater savings can be achieved for employers on the traditional PBM contract. Similarly, the prohibiting on steering to PBM-owned or affiliated pharmacies could lead to less favorable pricing guarantees when it comes to expensive drugs in the mail-order or specialty channels.
Private employers who sponsor their health plan want to give a generous offering to their employees in a way that’s economically feasible, and letting the employer choose the pharmacy networks and pricing models they want to use can help them find the right balance for their business. However, as the PBMs become more restricted in their ability to design networks, there may be fewer options available to employers.
Keep your eye on local legislation that could impact your clients
The trend in Oklahoma and beyond is that the PBMs are subject to more and more state regulations and are losing key court battles. There has been an uptick in negative media coverage on PBMs. It seems on every front that the winds are blowing against the PBMs in favor of other voices. Everyone agrees that PBMs should have oversight as a key player in the prescription drug supply chain, but one question left unanswered is how these laws impact the economics of employers’ health plans.
As of now, the PCMA v. Mulready case is on appeal in the Tenth Circuit, and a central issue on appeal will be whether ERISA preempts certain provisions of Oklahoma’s Patient’s Right to Pharmacy Choice Act. Oklahoma has the support of 35 state attorneys general in the case, signaling broad support by states to protect their ability to regulate PBM practices.
Regardless of your view of these new regulations, when they come to your state, your clients may need to change their plan design, their pharmacy programs, and other elements of their benefit offering to comply with new laws. In some cases, these changes may lead to increased costs, and programs your clients like could be prohibited.
There’s a lot going on in Oklahoma, beyond what we’ve covered in this article. The lesson from the confusion and scrambling to adhere to regulations in Oklahoma is: Don’t ignore incoming legislation in your area. Your clients may need guidance when it comes to newly passed laws, and whether they should speak up on how it impacts their health plan.
Update as of September 25, 2023
A surprising victory for PBMs in Oklahoma. Learn more about the latest court decision.
Disclaimer: Interpretation of laws will vary by PBM, state, and a variety of factors beyond the scope of this post. Nothing herein should be construed, or relied upon, as legal advice. Each plan sponsor is responsible for determining the legal requirements applicable to its group health plan. Each plan sponsor should consult with its legal counsel regarding applicable legal requirements.
