Highlights of Senate Bill 5

Since Senate Bill 5 was amended in the House, there have been some questions as to what it does and also its effectiveness in addressing issues with pharmacy benefit managers.  Below is a breakdown of Senate Bill 5’s components and some additional context.

First, Senate Bill 5 will be the most comprehensive regulation of pharmacy benefit managers passed by a state legislature in the country.  In 2016, Kentucky’s Legislature passed Senate Bill 117 that allowed the Department of Insurance to license and regulate pharmacy benefit managers and adjudicate appeals between pharmacists and PBMs.  Since that time, some other states have followed suit with similar Legislation, but no state has passed legislation like Senate Bill 5.

We initially began discussion of a carve-out for the following reasons:

  • To take the ability to set reimbursement rates away from PBMs.
  • To ensure that PBMs could not use arbitrary contract terms to play games with pharmacists.
  • To put the Kentucky Medicaid Department in charge pharmacy benefits instead of PBMs.
  • To increase dispensing fees.

Below are some critical components of Senate Bill 5:

  • Beginning July 1, a PBM serving managed care Medicaid no longer can set reimbursement rates for Kentucky pharmacies.  That power lies with the Kentucky Medicaid Department.
  • Additionally, once those reimbursements are set, a PBM must provide 30 days’ notice of any suggested change to a drug reimbursement.  The Cabinet will have 30 days to not approve of the suggested change.  This effectively kills a PBM using maximum allowable cost as a reimbursement scheme.
  • Beginning July 1, the Kentucky Medicaid Department must approve of any contract between an MCO and a PBM or a PBM and a PSAO.  If MCOs or PBMs try to set contract terms that create an uneven playing field for Kentucky pharmacists, the Medicaid Department will have the power to stop that before it starts.  Also, Kentucky Medicaid must approve of the following before a PBM can implement:
    • Any contract change.
    • Any new fee imposed on a pharmacy or pharmacist.
    • Any change in fee on a pharmacy or pharmacist.
    • Any proposed suspension or cancellation of a contract between a PBM and a pharmacy or pharmacist.
    • On August 15, a PBM and a managed care organization must report to the Cabinet for Health and Family Services the total amount of money they kept out of the state’s previous year spend on pharmacy benefits.
    • On August 15, a PBM that owns a pharmacy chain (CVS Caremark) must report the total average reimbursement to a pharmacy it owns, the total average reimbursement to a chain pharmacy and the total average reimbursement to an independent pharmacy.
    • On August 15, A PBM must report the type and total amount of fees it charges on a pharmacy it owns, a chain pharmacy and an independent pharmacy.
    • As the Cabinet sets it reimbursement rates, Senate Bill 5 says that it should consider information it gets from the above reporting when it sets those rates.
    • Lastly, Senate Bill 5 allows both the Medicaid Department and the Department of Insurance to penalize a PBM for failure to comply with the provisions of Senate Bill 5.

A pharmacy benefit manager has never been forced to operate in a state where they are required to:

  • Report how much of a state’s Medicaid money they are keeping.
  • Report how much they are paying their own pharmacy, including a mail order pharmacy versus other pharmacies.
  • Report the total amount of fees they assess on their own pharmacy versus other types of pharmacies.
  • Operate in a state where they do not control reimbursement rates to pharmacies.
  • Operate in a state where they must have contracts approved by the state.

There are questions as to whether one PBM, CVS Caremark would even be interested operating in a state where they are required to report that information or lose their authority to control reimbursements.  In fact, some PBMs are threatening to sue over Senate Bill 5 because they now envision other states passing similar legislation.

A common question about Senate Bill 5 is whether the Cabinet will actually police PBMs.  A key component of Senate Bill 5 is knowing that the Legislature, who has been a friend to pharmacists, has direct oversight over the Cabinet.  That is a key component that we have been missing for years.  There has been no accountability for PBM actions.  Now both the Cabinet, the MCO and the PBM will be responsible for their activities and have to report annually on their profits.

We continue to work with members of the House and Senate as well as Cabinet officials to get an increase in dispensing fees.  That is proving a difficult task because since the Cabinet refuses to realize any savings by either a carve out or by requiring PBMs to report profits, the Legislature is forced to budget new money for any increase in dispensing fees.  The budget the Legislature passes this year will be the most cash strapped budget in recent history due to the ongoing pension crisis.  That said, at this point, the Senate has appropriated $12 million for increases in dispensing fees.  That language is opposed by the Medicaid Department.  We are working to ensure that language stays in but we are also exploring options to get a higher number.

By Patrick Jennings, KIPA Lobbyist