Provider Enforcement of State Fair Pricing Laws as a Means to Secure Reasonable and Sustainable Reimbursement Rates

Fair pricing laws are statutes enacted by state legislatures to ensure pharmacies are paid sufficient reimbursement by Pharmacy Benefit Managers (“PBMs”) or other payors to allow them to continue to operate within the state.  Generally, state regulation of PBM reimbursements involve the following requirements and limitations: (1) PBM reimbursement at or above certain pricing benchmarks (such as the National Average Drug Acquisition Cost (“NADAC”) or Wholesale Acquisition Cost (“WAC”)) for a particular drug product; (2) when a PBM utilizes Maximum Allowable Cost (“MAC”) pricing lists to reimburse pharmacies, a requirement that the PBM permit appeals of those prices, and to provide the National Drug Code (“NDC”) readily available to the pharmacy at or below the PBM’s MAC price; (3) PBM reimbursement is at least as much as the PBM reimburses its affiliated or wholly owned pharmacies; and (4) limitations on PBM reimbursements based on effective rate methodologies. While these statutes are laudable efforts by states to ensure fair pricing to some extent, lack of transparency and enforcement by the states can reduce the value of such laws.  However, pharmacies have some tools available to them to make sure these laws are followed.

In this article, we discuss some of the laws available to ensure fair pricing, including their relative strengths and weaknesses. We then discuss some of the strategies—political and legal—that pharmacies may consider to enforce these state laws to curb underwater PBM reimbursement practices.  Pharmacies and various pharmacy associations have fought long and hard to see this legislation enacted; it is long past due that these laws be enforced.

Prescription Drug Pricing Benchmark State Laws

Several states have enacted laws that set a floor price for reimbursement for prescription drug products based on national pricing sources like NADAC or WAC. By way of example, Delaware law prohibits a PBM from “reimbursing a pharmacy or pharmacist for the ingredient drug product component of a pharmacist services less than the national average drug acquisition cost, or if the national average drug acquisition cost is unavailable, the wholesale acquisition cost.”  Delaware Ins. Code § 3372A(7). Similarly, in Arkansas, a PBM is prohibited from paying or reimbursing a pharmacy or pharmacist for the ingredient drug product component of pharmacist services less than the national average drug acquisition cost or, if the national average drug acquisition cost is unavailable, the wholesale acquisition cost. AR ST § 23-92-506(b)(5)(A).  These laws ensure that pharmacies can at least recoup their costs for purchasing drug products; however, it should be noted that lacking a “reasonableness” standard for reimbursement, pharmacies may still not be fairly compensated for their overhead and dispensing costs. 

State Laws Regulating Maximum Allowable Cost Pricing

The majority of states regulate, in varying degrees, PBMs use of Maximum Allowable Cost (“MAC”)pricing to reimburse providers dispensing multi-source generic drugs. Generally, state laws regulating MAC pricing: (1) detail which prescription drugs may be placed on PBM MAC lists and subject to MAC pricing; (2) require that PBMs make available its MAC lists to participating providers; (3) require PBMs to identify the data sources used to determine the MAC for drugs on MAC lists; (4) require that PBMs update their data sources and MAC pricing within a certain period, typically seven to fourteen days; and (5) require that PBMs have a clearly defined process to appeal MAC prices and establish requirements for that appeals process, such as responding within seven to fourteen days.

State Laws Prohibiting PBMs from Favoring their Affiliated Pharmacies

Some states have passed laws generally prohibiting a PBM from paying its own affiliated pharmacies (and in some cases chain pharmacies/mail order pharmacies not affiliated with any PBM) at higher rates than those used to reimburse non-affiliated and/or independent pharmacies. For example, in Oklahoma, a PBM is precluded from reimbursing a pharmacy “an amount less than the amount that the PBM reimburses a pharmacy owned by or under common ownership with a PBM for providing the same covered service.” 36 OK Stat. § 36-6962B. Numerous other states, including but not limited to, Texas, Delaware, Colorado, Maryland, New Mexico, Arkansas and Virginia have enacted similar limitations on PBM’s paying their own pharmacies better than independent pharmacies.

Louisiana has particularly strong protections for independent pharmacies through its prohibition on PBM’s from paying a “local pharmacy,” defined to be an independent (non-chain pharmacy), “less than the amount it reimburses chain pharmacies, mail order pharmacies, specialty pharmacies, or affiliates of the pharmacy benefit manager for the same drug or device or the same pharmacy service.” La. Rev. Stat. 40:2870(8).

State Laws Prohibiting Effective Rate Reimbursement Methodologies

Laws prohibiting effective rates, often known as “Generic Effective Rates” (“GER”) or Brand Effective Rates (“BER”) on their face prevent PBMs from enforcing an overall rate for all generic or brand drugs within a network.  Effective rate methodologies are often included as part of a PBM’s contractual terms and conditions and permit PBMs to reconcile point of sale reimbursements to providers at the end of the year, which can result in PBM “true-ups” of their reimbursements well after the point of sale (i.e. BER/GER fees). Some states seek to end this practice.

For example, Arkansas law states that “A PBM shall not . . . make or permit any reduction of payment for pharmacist services by a pharmacy benefits manager . . . to a pharmacy under a reconciliation process to an effective rate of reimbursement, including without limitation generic effective rates, brand effective rates, DIR fees, or any other reduction or aggregate reduction of payment.” A.C.A. 23-92-506(b)(6). See also Del. Code. tit. 18, Chap. 33A-3372A(8); M.D. Code 15-16.1628(b); N.J.S.A. 17B:27F-7.  Unfortunately, some pharmacies do not know when they are subject to these rates or even to which networks these rates apply.  In particular, providers enrolled in Pharmacy Services Administrative Organizations (“PSAOs”) should request all of their network-specific contracts from their PSAO, so they can know and understand which networks have GER or BER applied to them.

How Frier Levitt Can Help

Frier Levitt is at the forefront of litigation and PBM negotiations.  Our attorneys are experienced in disputing PBM practices that violate state and federal law, and can work with your pharmacy and PSAO to help you understand your many PBM contracts, and whether they are in compliance with the law.  Contact Frier Levitt today to learn more.