New Requirements Of Alabama Pharmacy Benefit Manager and Regulation Act Seek to Limit Anti-Competitive Patient Steering and Reimbursement Tactics by PBMS

Alabama has recently enacted numerous additional restrictions and requirements to the conduct of pharmacy benefit managers (“PBMs”) providing claims processing services or other prescription drug or device services for health benefit plans in the state under the Alabama Pharmacy Benefit Manager Licensure and Regulation Act enacted on July 1, 2021 (hereinafter “the Act”).[1]  The Act was originally enacted in 2019 to “promote, preserve and protect the public health, safety and welfare through effective regulation and licensure of PBMs” by granting the Alabama Department of Insurance (“DOI”) the power to oversee compliance with and assess fines and penalties against PBMs for violations of the Act.[2]  The requirements, standards and restrictions imposed on PBMs are extensive, ranging from licensure, annual reporting, rebates, reimbursement and prohibitions on certain conduct directed to covered individuals, pharmacies and pharmacists.

Under the Act, a PBM cannot mandate that patients fill prescription drug claims at PBM affiliate providers, defined as pharmacies and pharmacists that are, directly or indirectly, owned or controlled by a PBM, or impose monetary penalties for use of certain providers or otherwise limit patient choice of provider meeting the terms and conditions of an in-network pharmacy.[3] These portions of the Act prevent patient steering tactics by PBMs to their own wholly owned pharmacies. In the current drug supply chain, most PBMs directly or indirectly have ownership interest in affiliated pharmacies. All too often, PBMs administer  the pharmacy plan benefits to restrict competition, resulting in an increase of pharmacy services market share to PBM affiliates, to the detriment of independent pharmacies. Some PBMs will even release HIPAA protected information,  solely shared to the PBM for the purposes of claims processing, to PBM affiliates so that these pharmacy providers can, in turn, directly solicit prescriptions from covered individuals. This patient steering tactic is also expressly prohibited under the Act.[4]

With respect the reimbursement of prescription drug claims, the Act incorporates both the concerns of plans and providers. Independent pharmacies have no negotiating power when contracting with PBMs; these pharmacies must often agree to take-it-or-leave-it contracts to be part of a PBM’s pharmacy network to keep serving the pharmacy’s patients. PBMs contracts with providers  contain unsustainably low reimbursement rates for independent pharmacies, which, paired with various post point of sale fees, has resulted in a trend of independent pharmacy closures throughout the nation. In attempt to restrict these tactics, the Act expressly prohibits reimbursement of an in-network pharmacy or pharmacist in the state an amount less than the amount that the PBM reimburses a similarly situated PBM affiliate for providing the same pharmacist services to covered individuals in the same health benefit plan.[5] In addition, the Act prohibits post point-of-sale reimbursement recoupments or audit fees of any kind, unless conducted in accordance with the Pharmacy Audit Integrity Act.[6] Notably, among other carveouts, the Act does not apply to specialty drugs, which are often the most expensive drugs and constitute a significantly higher proportion of the pharmacy benefit expenditure compared to most prescription drug claims.[7] On the other hand, many plans, contracted with PBMs for the administration of pharmacy benefits, have legitimate concerns about reimbursement strategies of PBMs, including but not limited to spread pricing.[8] To increase transparency between PBMs and plans, the Act requires the preparation annual reports, if requested by the PBM client, disclosing the monies retained by the PBM under spread pricing models, as well as reporting of manufacturing rebates received by the PBM and ultimately passed through to the client.[9]

Further, under the Act, PBMs operating in Alabama are now subject to licensure requirements and any PBM found to have not complied with the requirements of the Act or “the insurance laws of this state or any other jurisdiction, or has had an insurance or other certificate of authority or license denied or revoked for cause by any jurisdiction.”[10] On or before December 31, 2021, PBMs seeking initial licensure in the state must submit an application form, application fee and a copy of the licensee’s corporate charter, articles of incorporation or other charter document.[11] Thereafter, a licensed PBM must submit an application for license renewal, under the new PBM application, reporting and licensure requirements  established by the Commissioner of Insurance by January 1, 2022, to avoid license expiration on or before April 22, 2022.[12]  While the extent of DOI enforcement activities against PBMs for violations of the Act in the near future remain to be seen, the amendments to the Act certainly demonstrate increasing scrutiny to oppressive and anticompetitive PBM conduct with respect to independent pharmacies, plans and patients.

How Frier Levitt Can Help

Frier Levitt represents numerous pharmacies across the United States and has extensive knowledge on all aspects of PBM contract with pharmacies and plans.  Frier Levitt regularly leverages state and federal laws against PBMs conduct on behalf of pharmacy and plan clients. If you have a dispute with an PBM, contact us today to speak with an attorney. 



[1] See Ala. Code 1975 § 27-45A-1, et seq.

[2] Ala. Code 1975 § 27-45A-2.

[3] Ala. Code 1975 § 27-45A-8(1)-(3); see also Ala. Code 1975 § 27-45A-3(10)(defining PBM affiliate).

[4] Ala. Code 1975 § 27-45A-8(4)(a).

[5] Ala. Code 1975 § 27-45A-10(1).

[6] Ala. Code 1975 § 27-45A-10(6),(7).

[7] Ala. Code 1975 § 27-45A-6(a)(2); see also Ala. Code 1975 § 27-45A-3(12)(defining specialty drugs as “[p]rescription medications that require special handling, administration, or monitoring and are used for the treatment of patients with serious health conditions requiring complex therapies, and that are eligible for specialty tier placement by the Centers for Medicare and Medicaid Services pursuant to 42 C.F.R. § 423.560”).

[8] When a PBM engages in spread pricing, the PBM receives a contracted price for the reimbursement of prescription drugs and keeps the difference between the plan reimbursement and monies paid to pharmacies for filling the same prescription drug claims.

[9] Ala. Code 1975 § 27-45A-9(b)(1)-(3).

[10] Ala. Code 1975 § 27-45A-4(e).

[11] Ala. Code 1975 § 27-45A-4(b).

[12] Ala. Code 1975 § 27-45A-4(m).

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