Prescription drug pricing bill heads to Iowa governor’s desk

DES MOINES — Legislation designed to constrain prescription drug costs and protect rural pharmacies from harmful practices of third-party health care companies is headed to Gov. Kim Reynolds desk.

The Iowa House approved a bill Monday evening that would place limits on pharmacy benefit managers — known as PBMs, the companies that function as intermediaries between insurance providers and drug manufacturers.

Senate File 383 passed 75-15. It seeks to eliminate “spread pricing,” where PBMs keep the difference between what they pay the pharmacy and what they charge the insurance company.

Under the legislation, all prescription drug contracts in Iowa would be required to use a “pass-through” pricing model. In a pass-through model, the amount paid by the PBM to the pharmacy is passed through to the plan sponsors — employers, insurers, government agencies or managed care organizations — and the PBM is compensated through administrative fees.

PBMs also would be required to pay small pharmacies a dispensing fee, and would be prohibited from:

The bill also requires PBMs to provide an appeals process for pharmacies to challenge reimbursement rates for specific prescriptions and would allow pharmacies to decline to dispense a prescription to a person if the pharmacy would be reimbursed less for the prescription than the cost to the pharmacy.

It also prohibits PBMs from discriminating against pharmacies or pharmacists regarding participation, referrals, reimbursements of a covered service, or indemnification if the pharmacist is acting within its scope of practice.

Lawmakers said the bill would aid independent community pharmacies that have struggled because of PBM practices they argue are contributing to rising overall health care costs through opaque pricing and rebate strategies.

Dozens of pharmacies close in Iowa

PBMs administer drug plans for 270 million Americans over several different health care plans. Their role is meant to reduce prescription drug costs and improve the convenience of prescription medications.

However, pharmacists have said they are selling many prescriptions at a loss because PBMs reimburse them less than a pharmacy's cost to acquire the drug.

Last year, more than 30 pharmacies closed in Iowa, affecting both rural and urban communities, according to the Iowa Pharmacy Association. Since 2014, more than 200 Iowa pharmacies have closed, creating pharmacy deserts and limiting access to care.

The Iowa Pharmacy Association, in a statement, said SF 383 aims to protect patient choice, level the playing field and ensure fair reimbursement for pharmacies.

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“Pharmacists are America's most accessible health care providers, and pharmacies are a critical component of our health care infrastructure in both rural and urban communities,” said Rep. Brett Barker, a Republican and pharmacist from Nevada, Iowa.

“One of the most gut-wrenching decisions you can make as a pharmacist is to close the only pharmacy in a community, because you know that this will have a significant impact on the people and communities that you became a pharmacist in order to care for,” Barker said. “For far too long, pharmacy benefit managers — powerful middlemen in the pharmaceutical supply chain — have manipulated a system full of perverse incentives and have stacked the deck against consumers, pharmacies, employers and taxpayers.”

PBMs determine which pharmacies will be included in a prescription drug plan's network and how much those pharmacies will be paid for their services. PBMs also regulate which drugs are covered under a specific plan and set co-pays, negotiate rebates with drug manufacturers and process prescription medication claims, for a fee, for insurance companies, among other roles.

Three of the companies — CVS Caremark, Express Scripts and Optum Rx — collectively control about 80 percent of the market.

“These abusive, anti-competitive practices have created an epidemic of pharmacy closures and rising prescription drug prices nationwide,” Barker said. “… Pharmacists want to care for their communities, and it's time that they get an even playing field to do just that.”

Debate over dispensing fee

The Senate amended the proposal to make the dispensing fee and reimbursement requirement applicable only to smaller pharmacies — those with fewer than 20 pharmacies under common ownership and located in fewer than 20 states.

Rep. Jeff Cooling, a Democrat from Cedar Rapids, argued requiring PBMs to pay a $10.68 dispensing fee to small pharmacies will lead to higher costs for plan customers.

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“Nowhere in the bill does it say that it will be covered by the insurance (company), and my concern with that is … that this dispensing fee is up to … whether the insurer or employer group decide to cover it, and what will happen is the person filling the prescription at the counter has to pay that increased fee,” he said.

Cooling introduced an amendment voted down by Republicans that would have required PBMs to use the National Average Drug Acquisition Cost when determining what price to reimburse pharmacies for dispensing medications. It also would have left it to the discretion of pharmacies to negotiate a dispensing fee less than $10.68 “if they need to stay competitively priced with pharmacies down the road,” Cooling said.

“When folks figure out that they can go to a larger pharmacy and not have to pay that $10.68 at the counter, where do you think they’re going to go to save money?” he asked. “And that’s what I think will happen. I think even with the best of intentions with this bill that it will not fix the problem that we all want to fix. And I think we’re trying our best, I don’t think this bill is going to have the effect that we hope it has.”

The amendment also would have pushed back the effective date of the bill from July to Jan. 1 to provide more time for health plans to make needed adjustments.

In a joint statement, the Iowa Association of Business and Industry, Iowa Bankers Association, the Iowa Business Council and the National Federation of Independent Business also expressed concern about the dispensing fee, asserting the bill would cost Iowans $340 million more annually.

“The business community advocated for a targeted amendment that would have limited the $10.68 dispensing fee to independent pharmacies with less than $250 million in annual revenue — ensuring support for true small businesses without saddling all Iowans with higher costs,” the statement said. “Unfortunately, the Legislature rejected that proposal.”

The vote comes on the heels of President Donald Trump signing a sweeping executive order Monday setting a 30-day deadline for drugmakers to voluntarily lower the cost of prescription drugs in the United States or face new limits over what the government will pay.

The order calls on the health department, led by Robert F. Kennedy Jr., to broker new price tags for drugs over the next month. If deals are not reached, Kennedy would be tasked with developing a new rule that ties the price the United States pays for medications to lower prices paid by other countries.

State Rep. Helena Hayes, R-New Sharon, echoed Kennedy, who last week decried “perverse” financial incentives that lead to inflated costs and a focus on profits.

“Today, no longer will PBMs be able to exploit the perks and the patients, manipulate the system and walk all over our local pharmacies,” Hayes said. “This legislation is such a crucial step.”

The Associated Press and Erin Murphy of The Gazette-Lee Des Moines Bureau contributed to this report.

Comments: (319) 398-8499; tom.barton@thegazette.com