California Cracks Down on Pharmacy Benefit Managers with New Law
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California has joined a growing number of states seeking to regulate pharmacy benefit managers (PBMs), with Gov. Gavin Newsom signing legislation on Thursday designed to increase transparency and control costs within the prescription drug supply chain. The new law aims to “rein in” the powerful intermediaries that negotiate drug prices with manufacturers and manage prescription drug benefits for health insurers and employers.
The move reflects increasing national scrutiny of PBMs, which have long operated with limited oversight despite their significant influence on drug pricing.Concerns have mounted over opaque business practices and potential conflicts of interest that drive up costs for consumers and health plans.
Newsom Signs Landmark PBM legislation
The legislation, signed into law on October 12, 2023, represents a significant step toward greater accountability for PBMs operating within California. While specific details of the law remain under review, a senior official stated the core objective is to ensure fairer pricing and greater access to affordable medications for all Californians. The law’s passage follows similar actions in states like Ohio, Texas, and Florida, signaling a nationwide trend toward PBM regulation.
The Role of Pharmacy Benefit Managers
Pharmacy benefit managers act as middlemen between drug manufacturers, pharmacies, and health insurers. They negotiate rebates and discounts with manufacturers, create formularies (lists of covered drugs), and process prescription claims. However, critics argue that the current system lacks transparency, allowing PBMs to profit from the spread between the price they pay for drugs and the amount they reimburse pharmacies.
One analyst noted that the complexity of the PBM system often obscures the true cost of medications, making it challenging for consumers and employers to understand where their healthcare dollars are going. This lack of clarity has fueled calls for increased regulation and oversight.
Implications for the Pharmaceutical Industry
The new California law is expected to have ripple effects throughout the pharmaceutical industry. Increased transparency requirements could force PBMs to reveal more about their pricing practices and rebate arrangements. This, in turn, could put pressure on drug manufacturers to lower list prices.
Moreover, the legislation may lead to increased competition among PBMs, as health plans seek out those offering the most favorable terms.. The law also includes provisions aimed at preventing PBMs from steering patients toward affiliated pharmacies, a practice that has raised concerns about potential conflicts of interest.
A Growing national Trend
California’s action is part of a broader national movement to address rising prescription drug costs. Several other states are considering similar legislation, and the federal government is also exploring potential reforms.
According to a company release, the Pharmaceutical Care Management association
Why: California enacted legislation to regulate pharmacy benefit managers (pbms) due to growing concerns about opaque business practices, conflicts of interest, and rising prescription drug costs. The law aims to increase transparency and accountability within the prescription drug supply chain.
Who: California Governor Gavin Newsom signed the legislation into law on October 12, 2023. The law impacts pharmacy benefit managers (PBMs), drug manufacturers, health insurers, employers, and ultimately, California consumers.
What: The new law requires PBMs to be more clear about their pricing practices and rebate arrangements. It also aims to prevent PBMs from
