California Gov. Gavin Newsom signed into law legislation aimed at "reining in" pharmacy benefit managers, becoming the latest state to implement regulations on the industry.
The bill, signed Friday, would require all PBMs in the state to be licensed by its Department of Insurance and prohibits multiple business practices that have drawn the ire of PBM critics, namely spread pricing arrangements and efforts to steer patients toward affiliated pharmacies.
The legislation also mandates that PBMs pass all rebates through to the payer or patient and bars these companies from making exclusivity deals with drugmakers, according to an announcement from Newsom's office. Under the law, PBMs would not be allowed to make "any untrue, deceptive, or misleading statements" and would be limited in how they charge certain fees.
In the release, the governor's office emphasized the vertical concentration in the PBM space, which is dominated by three firms—CVS Caremark, Express Scripts and Optum Rx—each integrated with a large insurer—Aetna, Cigna and UnitedHealthcare, respectively.
State Sen. Scott Wiener introduced the bill and said in a statement that the broader PBM reform effort builds on a licensing framework state legislators established earlier this year.
“With SB 41, California is standing up for consumers against giant mega corporations trying to rip them off on essential medications,” he said. "I’m grateful for Governor Newsom’s leadership in fighting to ensure neighborhood pharmacies get a fair shot and that no family is ever forced to choose between lifesaving medications and putting food on the table.”
The Pharmaceutical Care Management Association, the leading lobbying organization for the industry, said in a statement that the legislation isn't going to achieve the stated goals of bringing down drug costs for consumers.
“It is a failure of the Newsom administration to fall for Big Pharma’s ploy to blame their high list prices on others and to undermine the very mechanisms that actually lower prescription drug costs," PCMA said. "Nothing in SB 41 will lower drug costs for Californians. In fact, the legislation will increase drug costs for everyone in California.
“This is Big Pharma politics and Californian patients, consumers, employers, unions and plan sponsors will be the ones who pay the higher prices delivered by this misguided legislation," the organization said.
Earlier that week, Newsom had also signed healthcare bills tackling areas like prior authorization and private equity's influence in care delivery.
With SB 41, California joins other states that have chosen to take steps to regulate PBMs as reforms for the industry have repeatedly stalled on Capitol Hill. Newsom's office noted that 15 states had banned spread pricing practices before the Golden State.
The marquee state legislation on PBMs was passed in Arkansas, which bars PBMs from also owning pharmacies and directly targets one of the largest players in this space, CVS Health. A federal judge blocked the bill in July.
Even as Congress has repeatedly kicked the can down the road, some kind of federal reform for PBMs seems inevitable as the cost of prescription drugs continues to rise. PCMA reportedly has made overtures to the Centers for Medicare & Medicaid Services to get ahead of reform, though these conversations have not been confirmed by either side.