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Senate committee advances bill to force PBM transparency, ban spread pricing and require rebate pass-throughs
Summary
The Senate Insurance Committee voted to report House Bill 264 with amendments after extended testimony and negotiations that tightened reporting, defined terms such as "local pharmacy" and "spread pricing," and directed the Department of Insurance to collect annual transparency reports from pharmacy benefit managers (PBMs).
A Senate Insurance Committee on June 4 voted to report House Bill 264 — a package of amendments aimed at pharmacy benefit manager transparency — after lengthy debate and testimony from pharmacists, unions and regulators.
The measure, carried in the House by Representative Edmonds Echols and amended in the Senate by Senator Mike Bass, requires licensed PBMs to file annual transparency reports with the Department of Insurance and includes new definitions, limits on spread pricing and a requirement that manufacturer rebates be passed to plan sponsors rather than retained by PBMs. "That provides for transparency compensation practices relative to pharmacy benefit managers," Representative Echols said when introducing the bill.
Why it matters: PBMs act as intermediaries between drug manufacturers, insurers and pharmacies; committees and advocates say opaque PBM practices have contributed to rising prescription costs and the decline of independent local pharmacies. Supporters told the committee the bill will let regulators "shine sunshine" on flows of rebates, fees and reconciliations so dollars intended to reduce consumer costs actually reach plan members or consumers.
What the bill does: The amendment set adopted (identified in committee as 28-22 and 28-24) adds statutory definitions, including "local pharmacy" (a Louisiana-domiciled pharmacy with fewer than 10 retail outlets by NAICS classification), "effective rate pricing," "specialty drug" (modeled on a Texas statutory definition) and a statutory definition of "spread pricing." It requires PBMs to submit an annual transparency report to the Department of Insurance (LDI) with data on each PBM's contracts with insurers or plans, total rebates passed to enrollees at point of sale, total fees, and other reconciliation information. Senator Bass said some provisions authorize the commissioner to examine PBM books and records to verify reports.
On rebates and fees: The amendments say a PBM "may negotiate but shall not retain any portion of rebates received from a drug manufacturer; all manufacturer rebates shall be passed through to the plan sponsor." The package also requires PBM management fees to be disclosed in writing in contracts with plans and requires an annual certification signed by the PBM CEO or CFO that the firm complied with the law; false statements would be subject to existing enforcement authority under insurance law.
Support and opposition: Don Caffer of the Louisiana Independent Pharmacy Association told the committee independent pharmacies "serve 63 of our 64 parishes" and supported NADAC-based local reimbursement and the ban on spread pricing. "Moving to a model like NADAC . . . ensures that we change the system of how a pharmacist is paid," Caffer said. Representatives of unions and some plan fiduciaries, including Josh Sonia of Ironworkers Local 623, raised concerns that returning all rebates to plan sponsors could alter the way a self-funded plan is administered and shift costs to premiums. Deputy Commissioner Franco Belka of the Department of Insurance told the committee that federal ERISA preemption is not dispositive in this context and cited the U.S. Supreme Court decision Rutledge v. PCMA as supporting states' ability to set pharmacy rate floors in certain cases.
Committee action and next steps: The committee adopted the amendment sets 28-22 and 28-24 on voice votes after debate and reported House Bill 264 with amendments to the Senate floor. The bill as amended gives the Department of Insurance authority to receive and audit PBM transparency reports and to examine PBM books and records; it also establishes an advisory board to review PBM policy and reduces the size of that board in committee amendments. Supporters and staff said additional drafting and regulatory rules will be needed if the bill advances to the floor.
Context and caveats: Committee members and witnesses emphasized the bill focuses on reporting and prohibitions on certain PBM practices; it does not require LDI to "approve" PBM compensation models, only to receive reports and examine records. Several committee members urged continued work between chambers and stakeholder groups to refine technical language and monitoring procedures. Roll-call votes were not requested in committee for the adopted amendments; both amendment sets passed by voice vote.
