New Iowa law targets drug intermediaries in effort to reduce costs, protect pharmacies

DES MOINES — Lowering prescription drug prices and protecting rural pharmacies are the main goals of a new state law that adds regulations of companies that serve as a sort of middleman between pharmacies and insurance companies.

The new provisions were unanimously approved by state lawmakers this session and signed into law last week by Gov. Kim Reynolds.

Pharmacy benefits managers — or PBMs — are third-party companies that administer drug plans on behalf of health insurance providers. The industry says that saves consumers money by negotiating with drugmakers, but critics say consolidation in the PBM industry has actually led to higher prescription drug prices and threatened the existence of rural pharmacies.

The new state law requires PBMs to update weekly their list of reimbursement rates to pharmacies; allows pharmacies to disclose or sell lower-cost prescriptions to covered individuals; and creates a framework for the state insurance commissioner to gather data on PBMs’ activity in the state.

“Drug prices are out of control and Iowans feel it every day. The PBM industry has a large part to do with the increased prices,” said Iowa Rep. Brian Best, a Republican from Glidden who managed the legislative proposal in the Iowa House. “Their practices also continue to put independent pharmacies out of business, harming Iowans’ access to care.

“With nearly nine in 10 Americans living within 5 miles of a community pharmacy, the local pharmacist is oftentimes the health professional Iowans see most often, especially in rural Iowa. In addition, with the primary care provider shortage looming, we need to ensure Iowans continue to have access. If we don’t reform PBMs, pharmacies will continue to go out of business.”

Iowa lawmakers have been working on PBM-related legislation for 15 years. But a 2020 U.S. Supreme Court ruling cleared the way for states to regulate PBMs. Dozens of states have enacted new regulations since that ruling.

Iowa Rep. John Forbes, a Democrat from Urbandale and pharmacist, said dozens of community pharmacies in Iowa have closed over the past decade. He said that is creating pockets of the state where it is difficult for residents to access medication.

Forbes said low reimbursement rates for prescription drugs is one of the main causes, and that the new state law is an attempt to create a more level playing field between pharmacies and PBMs.

“The goal being to make sure pharmacy services were readily available to all areas in the state of Iowa,” Forbes said.

Best said the consolidation of the PBM industry has reduced competition.

Three companies control 80 percent of the PBM market, according to research from Health Industries Research, a nonpartisan health care market research organization. According to the research, CVS/Caremark owns 34 percent of the PBM market, Express Scripts 25 percent and OptumRx 21 percent. The next most prominent company is Humana, which has 8 percent of the market share, according to the research.

“Their power is such that the typical way you are able to negotiate with a business contract is not possible — it’s a system where you as the employer accept their terms or they leave you and instead only include their pharmacy as part of the network,” Best said. “There is no longer a free market in this space. Reform is needed to restore a competitive marketplace that will benefit the consumer.”

CVS Health opposed the new law. In a statement, a company spokesman warned the new law could produce “higher costs at the pharmacy counter” and said lawmakers should instead focus their work on drug prices set by drug companies.

During the legislative process, the Iowa House approved a package that went even further, but it was scaled back in the Iowa Senate. Still, House File 2384 was approved unanimously in both chambers, and Reynolds signed it into law June 13.

Shortly after lawmakers concluded their work for the session in May, Jack Whitver, the Republican Senate majority leader from Ankeny, described how challenging it was to produce the legislation.

“The House passed that bill probably 60 plus days ago,” Whitver said at the time, “and in that time I’ve had probably at least 60 meetings on that bill. It’s a very complicated issue. You have the pharmacist on one hand, you have (pharmaceutical companies) on another, you have the PBMs, you have insurance companies, you have employers. So to try to find a balance to do what we’re trying to do, which is control drug prices, is very difficult. And to try to get all those people on the same page is almost impossible.”

Lawmakers said they hope the legislation is just a first step, and that they can revisit the issue in future sessions after the state insurance commissioner collects more data.

“Hopefully what the bill does is in the short term is give some ability of the local pharmacies to stay strong by preventing some of the clawbacks and some of the practices that the PBMs are doing, but also allow the insurance commissioner to start collecting data that we need to actually make the right decision and the informed decision down the road,” Whitver said.

Comments: (515) 355-1300, erin.murphy@thegazette.com