In February of 2022, Michigan passed the Pharmacy Benefit Manager Licensure and Regulation Act (“Act”) (MI Comp L § 550.811 et seq.). Michigan’s passage of the Act coincided with a deluge of other state laws targeting the abusive and anti-competitive conduct of Pharmacy Benefit Managers (“PBMs”). With the Act taking effect in only a few months, pharmacies operating in Michigan must be aware of their rights and protections prescribed under the Act. The following is a short discussion of the Act’s provisions and the benefits they confer.
Prohibition on Patient Steering
Generally, the term “patient steering” refers to the use of PBM tactics designed to divert patients away from one pharmacy provider to another – often the PBMs own or affiliated pharmacy. While the Act does not mention “patient steering” explicitly, it prohibits conduct that is tantamount to patient steering. For instance, the Act prohibits PBMs from:
- Requiring retail non-payor/PBM affiliated pharmacies to transfer an enrollee’s prescription to retail payor/PBM affiliated pharmacies without the enrollee’s consent;
- Unreasonably restricting a patient from using a particular network pharmacy;
- Imposing limits on an enrollee’s access to retail prescription drugs that differ based solely on whether the PBM owns a pharmacy or the pharmacy has an ownership interest in the PBM; and
- Reversing and resubmitting a network pharmacy’s claim without providing notice and just cause or before attempting to reconcile the claim with the pharmacy.
Good Faith and Fair Dealing
The Act imposes an obligation on PBMs to exercise good faith and fair dealing in the performance of its contractual duties to a health plan or network pharmacy. In most jurisdictions, this means that the PBM cannot exercise its discretion to act under a contract in a way that interferes with the other party’s reasonable expectations or benefit of the bargain. The type of conduct that may run afoul of this obligation is broad, and may include patient steering, unlawful assessment of post-point-of-sale fees, spread pricing, or other conduct that violates the spirit of the parties’ agreement. PBMs found in violation of this requirement risk forfeiting their license to operate in Michigan.
Prohibition on Spread Pricing
The Act defines “spread pricing” as “the model of prescription drug pricing in which a pharmacy benefit manager charges a health plan a contracted price for prescription drugs, and the contracted price for the prescription drugs differs from the amount the pharmacy benefit manager directly or indirectly pays the pharmacist or pharmacy for pharmacist services.” Spread pricing has become quite pervasive in recent years. The Act, however, bans spread pricing entirely. PBMs found to have engaged in spread pricing risk forfeiture of their license.
MAC List Protections
The Act introduces certain Maximum Allowable Cost (“MAC”) list protections. Our office has seen PBMs create MAC lists that are supposedly available to non-affiliated pharmacies, but in reality, the drugs listed on the MAC list(s) are only available to affiliated pharmacies or pharmacies receiving preferential treatment. The Act does away with such gamesmanship by requiring that drugs appearing on MAC lists must be (a) available for purchase from distributors; (b) not obsolete; and (c) a multiple source drug.
Anti-Retaliation
Perhaps most importantly, the Act prohibits PBMs from terminating any pharmacy that exercises any right or remedy provided under the Act. We have seen PBMs wield their unchecked market power to terminate pharmacies who challenge the PBMs conduct. Termination of a pharmacy from network participation not only harms the pharmacy, but also its loyal patients who rely on the pharmacy’s services. The harmful effects of unwarranted termination are exacerbated in rural communities, where the next nearest pharmacy may be a long distance away. Therefore, the value of this anti-retaliation provision cannot be overstated.
Other Notable Protections
In addition, the Act prohibits PBMs from discriminating against non-affiliated pharmacies and introduces audit protections that require PBMs to base findings of overpayment on the actual overpayment, rather than relying on extrapolation methods. Furthermore, PBMs cannot base an auditor’s compensation on the amount of discrepancies the auditor finds. Finally, PBMs may not prohibit retail pharmacies from offering delivery of prescriptions drugs through mail or common carrier as an ancillary service.
How Frier Levitt Can Help
Frier Levitt is a premier boutique law firm. Our attorneys are leading practitioners providing an array of services to healthcare and life sciences clients nationally. For more than 20 years, the Firm has been and continues to be a leader on PBM contracts and applicable law. Firm attorneys are at the forefront of disputing PBM-imposed DIR fees and have successfully challenged DIR fees against major PBMs. For more information, contact us to speak with an attorney.
