California's SB-41: A New Era for Plan Sponsors and Pharmacy Benefit Managers
The Role of PBMs in the Drug Supply Chain
Pharmacy Benefit Managers (PBMs) play a pivotal role as intermediaries within the complex drug supply chain. They have long assisted employee benefit plan sponsors; however, some cost-inflating PBM tactics have strained these relationships. California’s SB-41 signifies a watershed moment, aiming to overhaul these dynamics for the better.
Unpacking SB-41: The Need for Change
Historically, PBMs have been characterized by opaque practices such as spread pricing and hidden rebates that often inflate drug costs. According to Buchanan Ingersoll & Rooney PC, these clandestine practices place undue financial burden on both employers and plan beneficiaries. The emergence of SB-41 addresses this head-on, with mandates for transparency and imposing fiduciary duties on PBMs.
Key Provisions That Will Shift PBM Operations
SB-41 ushers in transformative changes in how PBMs operate, specifically in California:
- Transparency Mandates: Detailed disclosure of drug pricing and administrative fees is now essential. Plan sponsors will receive accessible reports, providing a clear view of their drug costs and rebates.
- Fiduciary Duties: PBMs must prioritize the financial well-being of plans over profit motives, which fosters an alignment of interests between PBMs and plan sponsors.
- Restrictions on Spread Pricing: By prohibiting PBMs from charging exorbitant fees beyond the drug costs, SB-41 intends to halt unnecessary cost inflation.
These changes obligate PBMs to veer towards transparent, equitable business practices, likely resulting in a shift to pass-through pricing models.
Leveraging SB-41 for Cost Savings
SB-41 opens the door for plan sponsors to regain control over prescription drug spending. With mandated transparency, plan sponsors can now effectively audit PBM reports to pinpoint inefficiencies and negotiate fare more favorable contract terms. The law encourages a recalibration of PBM-sponsor interactions, with the aim of lowering prescription drug expenses and optimizing outcomes for beneficiaries.
The Path Forward
In light of SB-41’s enactment, plan sponsors must seize this opportunity. By being proactive in auditing and renegotiating PBM relationships, they can capitalize on transparent practices to benefit their plans and beneficiaries. Our legal experts stand ready to assist in this transition, offering defense, contract services, and insights into PBM auditing and regulation compliance.
Plan sponsors should embrace SB-41’s provisions, acknowledging it as a tool not only for cost reduction but also to ensure the delivery of quality healthcare benefits to employees.
Contributors:
- DAE Y. LEE
- ADAM C. FARKAS
Related Services:
- PBM Audit Defense & Contract Services
