California Law Aims to Increase Transparency for Prescription Drug Pricing

By Timothy J. Stanton and Christopher C. Guthrie © Ogletree Deakins October 23, 2018
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Employers that are looking for greater transparency on prescription drug pricing and pharmacy benefit manager (PBM) services will soon have a powerful new tool from an unlikely source: California lawmakers.

Under AB 315, which was signed into law by Gov. Jerry Brown late in September, employers should have access to more information from PBMs regarding drug costs and economic ties between PBMs and both pharmacies and pharmaceutical manufacturers. Employers may be able to use this information to negotiate better prices with PBMs or to otherwise control plan costs. The relevant provisions of AB 315 take effect with respect to PBM contracts entered into or renewed on or after Jan. 1, 2019. Employers will be able to request the information from PBMs quarterly.   

The statute defines a "pharmacy benefit manager" as an entity that provides services to state-licensed insurers and health plans but gives rights to "purchasers" of PBM services. Those purchasers include health benefit plan sponsors and other third-party payers.

To get access to the eight types of information outlined in the statute, employers will have to make requests and execute written confidentiality agreements. Absent a written confidentiality agreement, PBMs are only required to provide certain prescription drug utilization information upon request. Additionally, PBMs may not impose any kind of premium or charge or offer any incentive to deter an employer from requesting this data.

AB 315 lists eight types of information to which health plan sponsors will now have access. Among them are:

  • Aggregate rebates received by a PBM by certain therapeutic category of drugs (including any utilization discounts received from a manufacturer or labeler).
  • Any administrative fees received from a manufacturer or labeler.
  • Aggregate payments made or other equivalent economic benefits offered by a PBM to pharmacies that the PBM owns or controls.

These disclosure requirements apply to retail, mail order, specialty and compound prescription products.

Another interesting provision in AB 315 requires PBMs to notify their employer customers of any conflicts of interest the PBM has that will interfere with its responsibility to exercise good faith and fair dealing. Absent regulatory guidance, the "good faith and fair dealing" standard is ambiguous, which could result in little, if any, reporting by PBMs to employers in this regard.

We anticipate that regulations will help clarify the conflict of interest terms and whether any limitations apply to these PBM disclosure rules based on the location of an employer, its employees, or the drug claims.

Timothy J. Stanton is an attorney with Ogletree Deakins in Chicago. Christopher C. Guthrie is an attorney with Ogletree Deakins in Atlanta. © 2018 Ogletree Deakins. All rights reserved. Reposted with permission. 

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