Klimesh’s Corner: PBM reform

By Senator Mike Klimesh

In this week’s newsletter I am going to discuss the first PBM reform bill that passed the Iowa Senate. I was fortunate enough during the 2022 session to be the floor manager of Iowa’s first significant PBM reform legislation. The bill focused on giving pharmacies protection from three of the worst predatory practices used by PBMs: the claw-back, MAC list manipulation, and lastly it prevents contract reimbursement differentials.

Claw back

The term ‘claw-back’ refers to the practice that PBMs use to recover money from pharmacies without giving them the ability to challenge the recovery. Claw backs occur when a patient’s copay is higher than the price of the medication. The pharmacy collects the patient’s copay, and the PBM “claws back” the money over and above the contracted reimbursement and keeps that money as profit. The claw-back typically occurs as an unscheduled adjustment on a future payment due to the pharmacy, and often can occur months after the original prescription was filled. Many times, taking much needed operating funds away from the pharmacy with no forewarning.

MAC list manipulation

Maximum Allowable Cost or MAC list manipulation – PBMs keep a MAC list, the Maximum Allowable Cost they will cover of any drug prescribed on their pre-approved formulary. The PBMs would change this list constantly making it impossible for small retail pharmacies to keep track of their reimbursement rate. If a pharmacy bought 20 doses of Drug A for $10 a dose, know that currently the MAC list allowed them $12 for that drug which would allow the pharmacy to make $2 per prescription. PBMs would change the MAC list price from $12 to $8, forcing the pharmacy to lose $2 per prescription without giving any notice to the pharmacy and without any consideration for pre-acquired stock. Our bill required the PBMs to make those changes to the MAC list in a transparent fashion giving pharmacies time to react to changing parameters.

Contract reimbursement rates

Contract reimbursement rates are another way PBMs try to manipulate the system to their advantage. This occurs when the PBM provides a higher reimbursement rate to one of the pharmacies they own and operate. For example, CVS Caremark is the parent company, also a PBM, for the brick-and-mortar CVS pharmacy chain. The PBM would provide a higher reimbursement rate to their own pharmacy when compared to a private pharmacy thus putting the private pharmacy in a position to make even less on an already thin margin.

The bill also allowed the Insurance Commissioner of Iowa to receive and process complaints that Iowa based pharmacies filed with their PBMs for any of the above-mentioned occurrences. 2023 marked the first full year for the implementation of this bill and in that time frame over 70,000 complaints were filed, and as a result of those complaints, Iowa pharmacies received almost $400,000 in fees returned to them. This year I will be floor managing a bill brought by the Insurance Commissioner adding further clarity and strengthening provisions of the original bill. The bill is SSB 3079, if you are interested in checking out this update.

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