House Bill 2021, currently pending in the Texas House Insurance Committee, would authorize the Texas Department of Insurance (TDI) to regulate the activities of pharmacy benefit managers (PBMs) associated with private employer-funded health plans.
In 2020, the US Supreme Court handed down a unanimous decision that found the Employee Retirement Income Security Act (ERISA) did not preempt a state’s ability to establish a statutory minimum and other standards for PBM payments to network pharmacies.
ERISA established minimum standards for self-funded plans by private enterprises in order to protect employees’ health benefits. Last session, Texas passed HBs 1763 and 1919, which contain a number of protections aimed at prohibiting anti-competitive practices among PBMs.
Before committee members on March 21st, Rep. Tom Oliverson (R – Cypress) said HB 2021 would not impose new health coverage mandates or requirements that impact the cost to employer health plans but would seek to regulate ERISA plans with respect to PBM practices.
However, Matt Abel, vice president of policy at the Texas Association of Business (TAB), told State of Reform that placing regulations on a marketplace where many of the state’s largest employers are already offering quality, low-cost insurance may not help.
“Large employers right now are the ones that are selecting their PBM to administer the benefits that they want to administer,” Abel said. “And what we’ve found is about 98% of the large employers provide health insurance to their employees at levels of benefits that are more comprehensive than what is required by the [state].”
TAB is opposed to the bill on the grounds that it could negatively impact employers’ ability to offer affordable healthcare benefits. TAB’s top legislative priority is to preserve ERISA health plan benefits by opposing any attempt to erode the state’s pro-business environment.
“If we start applying some mandates in Texas that aren’t in other states, that’s going to be additional costs for the employers because they’re going to have different plans for different states,” Abel said. “And the more that they’re spending on the cost to administer the plan, [the more] it takes away from what they could be paying to reduce out-of-pocket [expenses] for their employees or cover more of the premium.”
According to a report by the Drug Channels Institute, three of the nation’s top PBMs also own three of the top specialty pharmacies, which made up 65% of the specialty drug market and 80% of the prescription drug market in 2021.
Smaller pharmacies claim this market structure is blocking their entry into the specialty drug market by steering patients to PBM-owned specialty pharmacies.
“Because PBMs have traditionally operated with little to no oversight, they’ve been allowed to create an opaque prescription drug reimbursement system that provides them with many ways to profit,” said Debbie Garza, CEO of the Texas Pharmacy Association, testifying in support of the bill. “PBMs can make money in many ways, which include demanding rebates from drug manufacturers in exchange for flavor favorable formulary placement. They also profit by steering high-cost drugs, which they coin as specialty drugs, to the pharmacies they themselves own.
All of these practices result in higher [costs for] plan sponsors as the PBMs take money out of the system for themselves to pad their profits.”
Garza referred to the PBM reimbursement system as a “black box” lacking transparency and competitiveness. Local pharmacies say PBMs are creating barriers to fair competition in the specialty drug market by imposing expensive accreditation requirements for dispensing the medications.
One local pharmacist told the committee his business was never given the opportunity to join the formulary network despite having completed the accreditation.
“It wasn’t about costs—we would have been happy to accept the same terms of their own specialty pharmacies,” said Rannon Ching, a pharmacist at Tarrytown Pharmacy in Austin. “But we were never given the opportunity to compete. We ended up abandoning the business and have to close it down and our patients continue to be forced to use these big three PBM-owned specialty pharmacies.
Ching cited his own personal account when dismissing the argument that regulating specialty pharmacies would increase costs.
“We were willing to accept the same reimbursement rates, but we were never given the opportunity to compete in the market by the PBMs,” he said.