SACRAMENTO—On Saturday, one day before the legislative deadline, Governor Edmund G. Brown Jr. signed AB 315, a bill by Assemblymember Jim Wood (D-Santa Rosa) to uncover the mystery of how pharmacy benefit managers (PBMs) affect escalating pharmaceutical drug prices.
“We worked on this legislation for two years to make sure we got it right,” said Wood. “Drug prices continue to be a major contributor to ever-escalating health care costs and consumers are paying the price – literally – in increasing health insurance premiums. This legislation will help us understand this marketplace so that we can fix it.”
Pharmacy benefit managers play a key role in this marketplace and were initially formed about 40 years ago as a “middleman,” hired by health insurance plans and other payers to manage their prescription drug plans and negotiate prices with drug companies.
Today, after a series of mergers and acquisitions, three PBMs have nearly 80% of the market share with revenues exceeding $270 billion. Some health care companies are continuing that consolidation by merging with drug companies and large pharmacy chains and some have established their own specialty and mail order pharmacies. This practice can lead to PBMs steering patients to their company-owned community or mail-order pharmacies, calling into question their ability to represent, in good faith, the employers, providers and patients they are serving.
“That narrowing of the market is concerning enough,” said Wood, “but combine that with not being regulated, and you get a mysterious black box that is in desperate need of oversight and transparency so that we can understand how their business model works and how it affects consumers.”
Only 14 states license, regulate or require some type of transparency for PBMs. “My bill will allow us to open up this black box and understand how the money flows,” said Wood. “There are rebates that go back and forth among drug manufacturers, pharmacy benefit managers and health plans. We have to make sure that the consumer is the one who benefits from that.”
AB 315 was supported by AARP California, Chronic Care Coalition, California Labor Federation, California Medical Association, California Pharmacists Association, Health Access, Consumers Union, the San-Francisco-based HIV/AIDS advocacy group Project Inform and others. The only opposition came from the PBM industry and the health plans. “Enough said,” said Wood.
Assemblymember Jim Wood (D-Santa Rosa) represents the 2nd Assembly District, which includes all of Del Norte, Trinity, Humboldt and Mendocino counties, plus northern and coastal Sonoma County, including the northern half of Santa Rosa.