Vermont Introduces New PBM Regulations

On May 30, 2024, Vermont Governor, Phil Scott, signed into law a bill amending Vermont’s existing Pharmacy Benefit Manager (“PBM”) regulations and introducing new requirements for PBMs. The bill, H233, includes a variety of new restrictions on PBMs to promote fairness in the administration prescription drug benefits and to protect public health. The following is a summary of the bill’s major provisions.

I. Licensure and Reporting Requirements

H233 requires PBMs transacting business in Vermont to be licensed with the Commissioner of Financial Regulation. The Commissioner is permitted to deny any applications for licensure if the Commissioner determines that the PBM engages in unfair business practices or has violated the laws of any jurisdiction. Once licensed in Vermont, PBMs must comply with any reporting requirements established by the Commissioner.

II. Prohibited Practices

H233 introduces several restrictions on PBMs intended to protect pharmacies and patients. For instance, no contract between a PBM and participating pharmacy may include terms prohibiting pharmacies from disclosing to patients:

1. The nature of treatment including risks and alternatives
2. The availability of alternate therapies, consultations, or tests
3. The decision of utilization reviewers or similar persons to authorize or deny services
4. The process that is used to authorize or deny healthcare services; or
5. Information on financial incentives and structures used by the health insurer.

Additionally, H233 outlaws gag clauses in pharmacy contracts which prohibit pharmacists from disclosing to patients the true cost of their medications including, but not limited to, disclosing the cash price to the patient (an amount often cheaper than if the patient submitted a claim to their insurer). The bill goes even further by prohibiting PBMs from terminating a pharmacy for reporting PBM misconduct to the Commissioner, law enforcement, or State and federal government officials. However, pharmacies must take reasonable precautions to prevent public disclosure of the PBMs proprietary and/or confidential information.

The bill includes other notable prohibitions including provisions that bar PBMs from:

1. Requiring pharmacies to pass through any portion of beneficiary co-payments to the PBM
2. Reimbursing a pharmacy less than the amount the PBM reimburses its own affiliated pharmacy for providing the same services
3. Imposing requirements on a pharmacy or pharmacies that exceed the requirements set forth by the Vermont Board of Pharmacy
4. Changing its formulary without providing notice to all participating pharmacies
5. Reimbursing 340B covered entities for pharmacy-dispensed drugs less than it reimburses non-340B covered entities for providing similar services
6. Discriminating against 340B covered entities in a manner that prevents or interferes with the patient’s choice to receive their prescription drugs from the 340B covered entity; and
7. Engaging in direct solicitation of beneficiaries or altering a patient’s prescription or the pharmacy chosen by the patient without the patient’s consent.

III. Enforcement

The Commissioner of Financial Regulation is charged with the responsibility to enforce these provisions. Upon request by the Commissioner, PBMs must allow the Commissioner to review or audit the PBM’s books and records to ensure compliance with H233. To protect patients’ and consumers’ interests, Vermont’s Office of Health Care Advocate is authorized under H233 to review any reports prepared by the Commissioner, along with filings made by PBMs in response to any such reports. Violation of any provisions outlined in H233 carries an administrative penalty.

IV. Rights for Insurers

Beyond introducing protections for pharmacies and patients, H233 also provides certain rights to insurers who contract with PBMs. In particular, H233 saddles PBMs with a fiduciary duty to health insurers with which they contract. This duty requires that the PBM act in the best interests of the plan, and to perform its duties with care, skill, prudence and diligence. This includes providing the plan all financial and utilization information necessary to audit the PBMs activities, disclosing any conflicts of interests, and disclosing certain payments received by the PBM by third parties (e.g., payments by drug manufacturers for formulary placement). Notwithstanding this fiduciary duty, plans still remain responsible for administering health benefits in accordance with its written policy and applicable law.

V. Private Right of Action

While state laws governing PBMs offer strong protections, the vast majority of those laws lack a private right of action for pharmacies and pharmacists injured by PBM practices. Vermont’s H233 does not expressly provide for a private right of action. However, the bill does require the Department of Financial Regulation to report to the Vermont legislature whether it recommends providing a private right of action. The Department must provide its recommendation on or before January 15, 2025. If allowed, pharmacies and pharmacists may bring an action against PBMs in Superior Court to obtain monetary damages for injuries caused by a PBMs violation of H233. Frier Levitt urges Vermont pharmacies and pharmacists to contact the Department of Financial Regulation and advocate for this private right of action.

How Frier Levitt Can Help

Frier Levitt represents pharmacies across the United States in challenging PBM audits, network access and reimbursement practices and policies. Frier Levitt has also partnered with numerous state-based organizations to help in legislative efforts aimed at regulating PBM conduct. Contact us today to speak with an attorney about how your pharmacy or state may leverage the various federal and state laws that have been enacted to protect pharmacies and to learn the latest information about this important case.