Federal legislation concerning prescription drug prices, including the regulation of drug manufacturers, health insurance companies, or pharmacy benefit managers (PBMs), has gained no momentum amidst partisan bickering and pharmaceutical company lobbying. In response, some states are moving ahead with their legislation to rein in prescription drug prices. Whether these bills will reduce costs or create burdens remains unclear. If enacted, however, they could significantly impact plan sponsors and similar legislation nationwide.
Arkansas House Bill (HB) 1150
The Arkansas legislature recently passed a bill that fundamentally changes the relationship between PBMs, insurance companies, and pharmacies. Under the new law, PBMs and insurance companies may no longer own, directly or indirectly, retail pharmacies licensed in Arkansas. If enacted, the bill will take effect January 1, 2026, but is likely to face legal challenges from PBMs operating retail pharmacies nationwide.
The law aims to eliminate conflicts of interest, prevent anticompetitive practices, and establish a level playing field for independent pharmacies. Legislators in Indiana, New York, and Texas have also introduced similar bills.
California Senate Bill (SB) 41
SB 41 is an updated version of a previous PBM reform bill that Governor Gavin Newsom vetoed. The newly revised bill places more emphasis on transparency, rebate mechanisms, and network management. More specifically, 100% of any rebates must be passed through to the health care service plan, insurer, or program. To reduce costs, SB 41 requires PBMs to report compensation and relationships with group purchasing organizations. The bill also strictly regulates PBM practices, such as favoring affiliated pharmacies over others, and ensuring reimbursement for "any willing" pharmacies. These restrictions would fundamentally overhaul the most common practices in the PBM industry.
Illinois HB 3705 seeks to curb PBMs' anticompetitive practices, primarily by mandating a minimum reimbursement for pharmacies. The reimbursement system is based on the national average drug acquisition cost (NADAC), plus $15.55 for critical access pharmacies in underserved areas. This provision may impact plan sponsors on its intended effective date of January 1, 2026, in that PBMs are likely to pass on this cost to plan sponsors.
HB 3705 also bans spread pricing, in which the PBM reimburses the pharmacy for less than 90% of what they collect from the plan sponsor. Another provision requires that at least 90% of rebates or payments from pharmaceutical manufacturers go back to plan sponsors.
Alabama Senate Bill (SB) 252
Alabama's governor recently signed SB 252 into law, which attacks PBMs' steering practices. Under the law, which is designed to promote patient choice, PBMs may no longer influence an individual's choice of pharmacy or require the usage of a mail-order pharmacy or PBM affiliate. Furthermore, SB 252 bans spread pricing and some PBM rebate practices. PBMs also would be required to reimburse independent pharmacies at the state Medicaid rate, which is the average acquisition cost plus a $10.64 dispensing fee.
SB 252 has staggered implementation dates. Some provisions take effect immediately, but others will not take effect until October 1, 2025.
New Jersey A4953/S3842
A pending bill in New Jersey represents an attempt to regulate Administrative Services Only (ASO) plans, which are governed by the Employee Retirement Income Security Act (ERISA). If successful, the bill could be a frontrunner in establishing state influence over ERISA plans, which federal ERISA preemption has historically prohibited.
Furthermore, the bill prohibits PBMs from preferring higher-cost drugs over lower-cost generic alternatives and requires out-of-network reimbursement parity. A controversial provision of the bill establishes a fiduciary duty requirement for PBMs.
These bills represent a collective effort by state lawmakers to take any measures necessary to reduce prescription drug costs for their constituents. The initiatives outlined in this bill directly target the most commonly vilified practices of the PBM industry, including vertical integration, patient steering, and unequal reimbursement for pharmacies.
While state-level efforts to keep down drug costs are laudable, differing regulatory requirements in each state make it challenging for plan sponsors with members in multiple states. These bills are also likely to have a financial impact on employers, who may choose to pass on cost increases to employees.
HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees.
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