Panel hears testimony on bill to license and regulate PBMs; funding and ERISA risk debated

At a meeting of the Legislature’s Government Operations Division, members heard an extended hearing on House Bill 1584, a measure that would license pharmacy benefit managers and give the state insurance commissioner authority to enforce PBM practices in North Dakota.

The bill’s supporters told the panel they seek accountability and enforcement mechanisms after years of limited transparency in the PBM market. "One thing we haven't done…is looking for accountability, oversight and enforcement of the laws that we've been passing," said Mike Schwab, a representative of the North Dakota Pharmacists Association, who testified in support of the bill. Schwab described market concentration, rebate practices and spread pricing and cited audits and investigations in other states as examples of harms PBM critics contend justify regulation.

Supporters pointed to state history and existing funding that could help stand up oversight. Schwab and Mark Hardy, executive director of the North Dakota State Board of Pharmacy, said the 2021 drug pricing transparency law created a drug pricing fund funded by Board of Pharmacy license fees. Schwab said the fund currently holds about $1.6 million and that another roughly $600,000 is expected later in the biennium; the bill would make that funding available to support insurance‑department regulation.

John Arnold, deputy insurance commissioner, described the bill’s fiscal implications and staffing needs to the committee. "In the 25-27 biennium, the general fund we are projecting an $8,000,000 reduction" in transfers if the bill’s continuing appropriation language remains, Arnold said, and he summarized the department’s rough cost estimate of roughly $2,250,000 in expenditures to staff an enforcement unit (he said the estimate is based on about seven full‑time positions, including attorneys, examiners and a pharmacist). Arnold said the department was neutral on the policy but asked for flexibility to hire experienced staff if the Legislature assigns enforcement responsibility to the insurance commissioner.

Opponents told the committee that parts of HB1584 risk being preempted by the federal Employee Retirement Income Security Act (ERISA) and that passage could invite litigation paid for by taxpayers. "We are opposed…our primary concern is the potential for a taxpayer funded ERISA lawsuit," said Megan Ruby of Blue Cross Blue Shield of North Dakota. Ruby and other opponents argued some contract, network and reporting requirements in the bill resemble provisions struck down or enjoined in other states on ERISA grounds; they recommended waiting for federal court resolution in related cases before North Dakota imposes similar statewide rules.

Bill Kalanick of the Pharmaceutical Care Management Association submitted coalition opposition materials and told the committee a letter from business and industry groups was on file. Mark Hardy, the Board of Pharmacy executive director, said his agency would support the insurance commissioner with subject‑matter expertise if requested and described the existing drug transparency funding source that the bill would repurpose.

Committee members asked detailed fiscal and legal questions. Senators pressed both proponents and insurance‑department staff about the continuing appropriation language and whether the bill should create a standalone PBM enforcement fund rather than use the broader insurance regulatory trust fund. Arnold said that renaming or separating the fund would be administratively possible but likely insufficient to cover anticipated costs and that additional state resources might still be needed.

The committee closed the hearing on HB1584 after receiving testimony from supporters, insurers, trade groups and state officials. No committee vote on the bill was recorded at the hearing; members discussed follow-up options and the potential for amendment.

What HB1584 would do

- Create a PBM licensing and registration regime administered by the insurance commissioner, including application fees; - Require disclosure and reporting aimed at clarifying rebate flows and the role of rebate aggregators; - Place enforcement authority and civil penalties with the insurance commissioner and allow assistance from the Board of Pharmacy and the Department of Health and Human Services; - Authorize time‑limited hires to implement and enforce the chapter for the coming biennium and provide that related funds be available to the insurance regulatory trust fund (the bill language includes continuing appropriation language that department staff said would change how year‑end transfers occur).

Where the debate stands

Supporters said the bill fills accountability gaps found in state audits and in other states where PBMs did not provide information. Schwab pointed to past North Dakota actions — he said removing a PBM from Medicaid expansion saved the state $17 million in the next biennium — and to federal and state investigations that, he said, show large spread‑pricing and rebate retention. Opponents said the bill risks ERISA preemption and could lead to costly litigation; they urged caution and possible further amendment to reduce legal exposure.

Next steps

Committee members did not take a final vote during the hearing. Members indicated they would consider amendments and follow up with the insurance department and other stakeholders before acting further on HB1584.