GAO: states enact own regulations to address pharmacy benefit managers

States have implemented their own regulations to address pharmacy benefit manager (PBM) operations, some of which may prove better routes than national legislation, according to a report from the Government Accountability Office (GAO).

Partnering with PBMs is one way health plans can try to minimize prescription drug spending. PBMs process claims, establish pharmacy networks, and negotiate rebates from drug manufacturers. However, PBMs face scrutiny for practices like pocketing rebates and using spread pricing.

To combat uncertain PBM practices, all 50 states have enacted at least one PBM-related law between 2017 and 2023. The GAO report focused on five states that have implemented a wide range of legislation that regulate PBMs serving private health plans: Arkansas, California, Louisiana, Maine, and New York. GAO reviewed the laws and interviewed state regulators, state pharmacy associations, state health plan associations, and national organizations representing the interests of various stakeholders.

All five states except Arkansas have enacted laws imposing a duty of care on PBMs. The regulations vary from imposing a fiduciary duty—a requirement to act in the best interest of the health plan or other entity to which the duty is owed—to lesser standards like requirements to act in good faith and fair dealing.

Most stakeholders thought a duty of care requirement was appropriate for PBMs, but others disagreed. Some state regulators said fiduciary duty laws would help remedy concerns about PBMs violating contracts with pharmacies, not notifying pharmacies of reimbursement errors, and improperly recouping reimbursement from pharmacies. Officials from national advocacy organizations said fiduciary duty would help ensure financial savings are passed on to patients.

Other stakeholders noted that duty of care requirements were unnecessary because good faith and fair dealing standards are already in contracts and expected from PBMs.

The states implemented laws related to drug pricing and pharmacy payments, including those that limit PBMs’ use of manufacturer rebates and their ability to pay pharmacies less than they charge health plans. This practice is known as spread pricing.

The states have enacted transparency laws requiring PBMs to be licensed by or registered with the state and to report certain information, including drug pricing, fees charged, and rebates received and retained. All five states also implemented laws addressing pharmacy networks and patient access, such as laws prohibiting discrimination against unaffiliated pharmacies and limiting patient co-pays charged by PBMs.

Most state regulators, pharmacy associations, and national advocacy organizations supported efforts to regulate PBM drug pricing and pharmacy reimbursement, boost transparency, and increase access to PBM pharmacy networks. In contrast, most health plan associations and PBM trade associations opposed efforts to regulate reimbursement and network design, but some health plan associations supported transparency efforts.

Four out of five state regulators said granting state agencies broad regulatory authority was more effective than specific statutory provisions to regulate PBMs. Relying on regulatory flexibility over statutes has reduced loopholes and industry influence over policy and has allowed states to address problematic practices and issue guidance without going through the legislative process again.

Some state regulators noted that state PBM laws may not be effective without strong enforcement and penalties. Complaints are a significant mechanism to ensure compliance with the laws, and organizations need adequate staff and resources to successfully monitor complaints.

Three state regulators said clear regulation requirements are needed to reduce unintended exceptions that may minimize compliance. Regulators should be clear about the information PBMs must provide and provide definitions for important terms.

Whether through state-specific regulations or national legislation, implementing additional oversight of PBMs may help emphasize the benefits of these partners and minimize the potential problematic side effects.