The trend of increasing scrutiny of Pharmacy Benefit Managers continues as state legislatures have entered the fray in a big way in recent years.

Nine states and the District of Columbia have seen fit to enact laws since 2002 that define and regulate PBM practices, and at least 22 others have bills under consideration.

A 2002 Georgia law, for instance, provides for the licensing and inspection of PBMs. In Kansas, a 2006 law requires PBMs to register with the Commissioner of Insurance.

In Maine, a law passed in 2003 has survived legal challenges and requires full disclosure of contracted activities, including financial terms that exist between PBMs and drug manufacturers.

Bills in California, Hawaii and other states seek public disclosure of rebates, discounts and other revenue that PBMs receive from manufacturers. Others seek to define or disclose perceived conflicts of interest, to regulate mail-order practices, and to prohibit drug substitutions not approved by the prescriber.

These regulatory activities are happening as the industry seeks to set standards for PBMs. Arxcel’s CEO Chris Robbins was part of an industry team that developed draft certification standards last fall. These standards address organizational integrity, clinical areas, operations and marketing and communications, and are expected to be released in final form this summer.

With approximately three-fourths of all Americans in health plans that include a pharmacy benefit and healthcare costs continuing to rise, scrutiny and regulation of PBM practices is likely to expand.

The U.S. House of Representatives is considering a bill that would provide collective bargaining rights for independent community pharmacists and health plans to allow them to negotiate drug prices collectively. The legislation would require an exemption of certain antitrust laws.

The National Community Pharmacists Association (NCPA) says the legislation will level the playing field for independent pharmacists, which are essential to keeping prescription drugs accessible to communities across the country. NCPA represents 24,000 independent pharmacists in the United States.

The Pharmaceutical Care Management Association (PMCA), whose members include the nation’s largest prescription benefit managers (PBMs), released a study in May indicating adoption of the collective bargaining measure would increase health care costs by as much as 11.8 percent or $29.6 billion over five years. The study predicts that cost increases resulting from collective bargaining would be passed through to insurers, and ultimately consumers, and suggests the increases may cause employers to drop employee health plans altogether.

PCMA says that independent pharmacists already have a number of legitimate avenues to negotiate with PBMs.

Calling the study “bogus,” NCPA counters saying the legislation will allow independents to compete more effectively and help to combat the PBM industry’s “anticompetitive business practices.” An example of these practices, according to the NCPA, is PBMs’ “underpayment” under Medicare Part D benefits, which they claim has resulted in many pharmacies having to close their businesses. The measure seeks to remedy the low Medicare reimbursement rate that is pushing many independent pharmacies to consider dropping out of the program. NCPA also says the bill would reduce insurance plan red tape and streamline drug formularies.

The results of the sixth-annual Arxcel Prescription Benefit Research Survey will be released this summer and the big question is: how do customers like their PBMs?

Each year, Arxcel underwrites an independent research study to examine company executives’ perceptions regarding causes of high prescription benefit costs, potential solutions for slowing continuing cost increases, and premium and co-payment price points.  This year’s survey will also measure perceptions of the prescription benefits management (PBM) industry as a whole, as well as respondents’ individual PBM companies. Respondents consist of employers with more than 1,000 employees. Only companies that use an external PBM qualified to participate in this year’s survey.

Already, The New York Times, Wall Street Journal, Forbes, Financial Times, Pharmaceutical Commerce, Pharmaceutical Executive, Financial Week, Drug Topics, Drug Benefit Trends and other leading publications have expressed interest in the survey findings.

Arxcel will share the results of the 2007 Prescription Benefit Research Survey with its clients and friends through special e-mail correspondence in advance of the public release.  The results also will be shared through this newsletter and at www.arxcel.com.  Look for details in the coming weeks.