Recently, media, pharmacy groups, and policy makers have been focusing on so-called “gag clauses” in PBM contracts, which prevent pharmacies from discussing cheaper payment alternatives with their patients. Watch NBC’s coverage here.
So what exactly is a gag clause? As applicable to pharmacy, a gag-clause is a provision in a PBM contract that prohibits contracted pharmacies from disclosing cheaper cash prices to patients covered by PBM plans. For example – as described in SF Chronicle “Gag Clause, Keeping Pharmacies From Revealing Lower-Cost Drug Options” – a typical co-pay for amoxicillin 100mg is $20, the cost to the pharmacy, however, is $1.97. The patient’s overpay (clawback) in this example is $18.03. Considering that PBMs manage millions of claims, the profit is enormous.
A recent study prepared by USC Schaeffer “Overpaying for Prescription Drugs: the copay clawback phenomenon.” determined that
“In 2013, almost one quarter of filled pharmacy prescriptions (23%) involved a patient copayment that exceeded the average reimbursement paid by the insurer by more than $2.00. Among these overpayment claims, the average overpayment is $7.69. Overpayments are more likely on claims for generic versus brand drugs (28% vs. 6%). In 2013, total overpayments amounted to $135 million in our sample, or $10.51 per covered life. With over 200 million Americans commercially insured in 2013, these findings suggest the practice of overpayments may account for a nonnegligible share of overall drug spending and patient out-of-pocket costs.”
The proponents of anti-gag and anti-clawback laws, argue that if a pharmacy informs a patient of these cheaper alternatives, the pharmacy risks losing a contract with a PBM because many PBM contracts prohibit disclosure of such information to a patient. For example, National Community Pharmacists Association argues in its March 22, 2018 Issue Brief that the following provisions in PBM contracts are violated if a pharmacy discusses alternative payment methods with a patient:
“Confidentiality: Provider acknowledges and agrees that in the performance of services hereunder, Provider will comply with the Confidentiality provisions set forth in the Provider Manual and as set forth in this Agreement.
Contacting Sponsors or Media. Provider hereby agrees (and shall cause its affiliates, employees, independent contractors, shareholders, members, officers, directors and agents to agree) that it shall not engage in any conduct or communications, including, but not limited to, contacting any media or any Sponsor and/or Sponsor’s Members or other party without the prior consent of [PBM].”
However, as a transactional attorney who reviews, drafts, and often litigates contractual provisions, the above clauses do not prohibit pharmacy personnel from discussing alternative payments with a patient. First, payment options do not fall into the definition of confidential and proprietary information (cash prices are not supplied or generated by a PBM. In fact, such information is publicly available). Second, discussing payment options with a patient does not fit within “Contacting Sponsors or Media” description because usually payment conversation occurs while a patient is in the pharmacy during the provision of pharmacy services. And very often a patient initiates such conversations.
Before writing this post, I have reviewed many recent PBM contracts and none has an express prohibition stating that a pharmacy shall not discuss alternative payment options with patients. I also have not heard of any PBM terminating a contract with a pharmacy for discussing payment options. If you know of any, please share below.
However, even if there is no express prohibition, discussing such options is not in the best interest of a PBM and therefore it is possible that PBMs may terminate a pharmacy based on providing such information.
To prevent such terminations and in attempt to curb ever-rising drug prices, many states have passed prohibitions on pharmacy gag-clauses and clawbacks. At least a dozen states have such legislation pending. California’s AB-315 is one of them. If passed, AB-315 would require PBMs to:
register with the Department of Managed Health Care;
exercise a duty of good faith and fair dealing in the performance of the contractual duties to a plan sponsor;
periodically disclose to a plan certain information such as drug acquisition cost, rebates, and pharmacy negotiated rates.
The bill would also prohibit PBMs from:
sending a pharmacy termination notice to beneficiaries until the required notice has been provided to the pharmacy.
including in a pharmacy contract provisions that prohibit the pharmacy from informing consumers of alternative medication options or from dispensing a certain amount of prescribed medication.
Reading some of the legislative history of the bill and working in this area, I am not convinced that requiring PBMs to perform the above would change pharmacy market and would help lower the prescription drug prices. (Contact me to know why). But it is definitely a step in the right direction. It would also be interesting to see whether similar laws in other states will reshape the industry and in which direction.