Legislation that will have a negative impact on pharmacy network designs and increase health care costs for employers and employees is scheduled to be considered today by the Senate Judiciary Committee.
The California Chamber of Commerce is opposing unless amended SB 41 (Wiener; D-San Francisco) because it will disrupt the use of carefully balanced pharmaceutical benefit designs and financial incentives, leading to increased drug costs for patients and higher health care costs for employers.
Employers, pharmacy benefit managers (PBM), insurers and health plans work together to design pharmacy networks to stabilize increasingly high drug costs. The designs aim to reduce pharmaceutical costs while allowing consumers to choose how best to access their medications within the network — whether through mail order, a pharmacy chain, or independent pharmacy.
SB 41 would weaken these preferred networks, eliminating cost-efficient benefit design approaches, likely resulting in increased drug costs for patients.
Bans Cost Control Tool
The bill also bans the use of spread pricing, a model that allows employers and plan sponsors to anticipate drug spending by giving them a specified price for prescription drug benefit payments to pharmacies. This model reduces the employers’ risk of higher pharmaceutical spending because it holds the employer harmless for their enrollees’ pharmacy shopping choices and aligns the interests of the PBM, pharmacy, and plan sponsor to achieve the lowest possible cost.
With this model, even if drug prices increase, employers have contracted for a locked-in price point and the PBM then accepts the risk and potential loss if a drug transaction costs more than anticipated.
If SB 41’s ban on spread pricing is motivated by the desire for more transparency, there are alternative methods that can be utilized which would avoid forbidding a cost control tool.
Limits Performance-Based Payments
The CalChamber also opposes SB 41 because it will limit performance-based payments arranged between benefit designers (employers), health plans, and PBMs. Specifically, SB 41 abolishes performance-based payments to PBMs while ignoring ever-rising drug costs set by drug manufacturers.
Typically, employers compensate PBMs based upon the savings they provide on prescription drugs. PBMs also are incentivized to obtain competitive pricing when entering these arrangements. SB 41’s limitation on performance-based payments will not lower drug costs for the consumer.
Health plans paid about $12.1 billion for prescription drugs in 2022, an increase of almost $1.3 billion or 12.3% from 2021, according to the Department of Managed Health Care (DMHC). On a per-member-per month (pmpm) basis, health plans paid $79.82 in 2022 — an increase of $8.36 pmpm or 11.7% from 2021.
Prescription Drug Costs
Since 2017, prescription drug costs paid by health plans have increased by $3.4 billion or 39%. Prescription drugs accounted for 14.2% of total health plan premiums in 2022, an increase from 13.3% in 2021.
The DMHC found that although specialty drugs accounted for only 1.6% of all prescription drugs dispensed, they accounted for 64% of total annual spending on prescription drugs. Generic drugs accounted for 88.9% of all prescribed drugs but only 14.4% of the total annual spending on prescription drugs.
These figures demonstrate how important it is for employers and plans to retain the right to tell plan participants where they can fill certain prescriptions. This network model helps keep ever-rising prescription drug costs manageable for everyone.
Furthermore, the 2023 Kaiser Family Foundation Employer Health Benefits Survey indicated that the average annual premiums for employer-sponsored family health coverage reached $23,968 in 2023, with workers on average paying $6,575 toward the cost of their coverage. It is imperative that California’s employers and employees retain benefit design tools to attempt to keep these costs from rising.
