The fight to regulate pharmacy benefit managers

Democrats say it’s a practical way to get prescription drug costs under control.

Richard Gottfried

Richard Gottfried Ali Garber

Politicians in both major parties talk a lot about lowering the prices of prescription drugs. Understanding how that can be done, however, can get a little complicated.

So imagine the world of prescription drugs as having three rival kingdoms: drug manufacturers, pharmacies and insurance companies. They all want to maximize profits, and a key way to do that is by controlling what happens with pharmacy benefit managers – the intermediaries between pharmacies and insurance companies.

Democratic lawmakers in both houses of the state Legislature passed legislation last year that would regulate pharmacy benefit managers in New York for the first time. Independent pharmaciescheered. Insurers and manufacturers – who own some PBMs – not so much. Huge sums were at stake, and Gov. Andrew Cuomo ended up vetoing the bill last December. But the governor left the door open for lawmakers to send a new bill this year if it addressed five concerns he had in the original legislation. That could happen in the coming months, according to Assembly Health Committee Chairman Richard Gottfried, who sponsored the original bill.

City & State caught up with Gottfried to hear what comes next in the fight for control over PBMs and the wider world of prescription drugs. This interview has been edited for length and clarity.

How do pharmacy benefit managers fit into the prescription drug supply chain?

A PBM is an entity that administers prescription drug benefits in that they decide what drugs to cover. They take money from manufacturers. They take money from drugstores and get paid money by the insurance.

So why do they need to be regulated?

Our bill is very carefully written. It doesn't say anything about what an insurance company can do. It only says what a PBM can do and it says something like you can't steal from your clients. You have to disclose what you're doing to your client. You have to use care and professionalism – all words that would govern a lawyer.

So what does this all have to do with something called ERISA?

The Employee Retirement Income Security Act is federal legislation that prohibits states from passing any law that relates to any employment benefit plan. The governor has argued that because our bill tells a PBM how to behave, that therefore we are violating ERISA. That's not a totally wacko thought in that there are a lot of people who believe that. I think it's a completely erroneous line of thought. For example, if I tried to represent an ERISA plan in court, and I wasn't licensed to practice law, New York wouldn’t be preempted from saying, “If you want to practice law for anybody, you need a license.”

The governor also had concerns about how the legislation would affect administrative costs, undermine market competition and invite scrutiny from general agencies like the U.S. Department of Justice. What is your take?

The duties are to use reasonable care, professionalism and act in the best interest of your client. If that is an unfair burden, that is pretty scary. PBMs get big rebates from a drug company, don't tell their clients, and instead pocket the money. I don't understand how cracking down on that is anticompetitive and why that would offend the (Federal Trade Commission). The extent to which the governor tried to really gut the bill is pretty strange. 

What's your take on the political alliance between insurance companies and drug manufacturers over PBMs? 

I've never understood why insurance companies are not up in arms about the PBM industry robbing them right and left. You know, at various times some of the biggest PBMs have been owned by drug companies and of course one of the biggest PBMs is owned by the CVS chain. Why an insurance company would want to do business with a PBM that was owned by a drug company, when the PBM is supposed to be helping the insurance company get lower prices for drugs, I don't understand.

What comes next for the bill? 

We are reintroducing the bill with technical changes. We will work to pass the bill again and try to get the governor to talk with us. There will also be more advocacy by consumer groups and pharmacists. That may help things get worked out better.