State lawmakers unveil bill to change the way pharmacy benefit managers are awarded state contracts

Prescription medications
Posted at 5:46 PM, Mar 17, 2021
and last updated 2021-03-17 19:46:29-04

DENVER — A group of Colorado lawmakers unveiled a bill Wednesday to change the way the state negotiates with pharmacy benefit managers for health insurance contracts.

It’s one in a series of bills the legislature will consider in an attempt to reign in drug costs. Earlier this month, lawmakers introduced a bill to create a first ever prescription drug affordability board. That bill faced its first committee test on Wednesday.

They’re also making quick work of a bill to expand a program that would allow Colorado to import some of the highest-priced medications from other countries. That program is still awaiting federal approval.

The latest bill, would create a reverse auction process for pharmacy benefit managers to bid for state contracts.

As a reminder, pharmacy benefit managers act as an intermediary between drug manufacturers and health insurance companies to set the price of medications.

To do so, they negotiate for rebates on medications. The rebates help determine where on an insurance company’s formulary the medication is placed. A formulary is a list of prescriptions your insurance company covers; the higher the tier, the less the patient pays out of pocket.

However, they also make a profit for negotiating those rebates and have been criticized for not passing all of the savings on to the consumer. There’s also criticism of the negotiation process since state lawmakers say it happens behind closed doors without any transparency.

The new bill will create a reverse auction process for these companies to compete with one another to earn state contracts.

“Normally when the state would put out a bid we might only get one bid back. We don’t necessarily know if we’re getting the best price,” said Sen. Barbara Kirkmeyer. “In a reverse auction, instead of getting one bid, the PBM providers would continue to bid against themselves until we get to a really good cost.”

The lawmakers estimate this new program would save the state between $6.7 million and $8.9 million annually.

“Our bill introduces dynamic competition to the PBM bidding process, deploying cutting edge technology to enable apples-to-apples comparison of the cost to the state of each PBM’s pricing proposal,” said Rep. Susan Lontine.

Nationwide, three other states, New Hampshire, New Jersey and Maryland, have enacted laws to perform a similar process. New Jersey, which passed the law in 2017, estimates that the reverse auction program will save them $2.5 billion over five years.

If passed, the bill would only apply to health insurance plans for state employees, but lawmakers say eventually there is potential for more.

“We hope overtime counties, municipalities and private employers will also be able to take advantage of this reverse auction process,” said Rep. Janice Rich.

In a statement sent to Denver7, the Pharmaceutical Care Management Association, which represents PBM’s across the country, said these groups are the only members of the prescription drug supply chain working to lower drug costs for patients.

The statement went on to say that over 10 years, PBM’s will save health plans and patients in Colorado nearly $16 billion on medications. Assistant vice president of strategic communications for the group worries new limits could hamper the ability for these groups to negotiate costs.

“While the state, as the purchaser of PBM services, has the final say on the type of pharmacy benefit model used, it is vitally important that the tools used by PBMs to lower prescription drug costs, such as home delivery of medications and pharmacy networks, are not restricted. When PBM tools are restricted, drug costs increase,” Lopes said in the statement.

The bill is expected to be formally introduced to the legislature this week.