Trump Signs Bills to Eliminate Pharmacy Gag Orders

The bills allow pharmacies to tell patients about cheaper drugs than what are covered by their plans
October 10, 2018 Updated: October 11, 2018

Insurance companies and pharmacy benefits managers (PBM) will no longer be able to strong-arm pharmacies into keeping quiet when customers pay more than they need to for drugs, thanks to two bills President Donald Trump signed on Oct. 10.

The bills, Know the Lowest Price Act and Patients Right to Know Drug Prices Act, target an industry practice of insurers and PBMs, which manage drug benefits for health care plans, putting “gag orders” in contracts with pharmacies that prevent them from telling patients if the cost of their copay is more than the cost of the drug if they had paid out of pocket.

The Know the Lowest Price Act, sponsored by Debbie Stabenow (D-Mich.), addresses Medicare Part D providers and goes into effect in 2020. The Patients Right to Know Drug Prices Act, sponsored by Sen. Susan Collins (R-Maine), covers all health insurance companies and PBMs and goes into effect immediately. Both passed the House and the Senate last month with bipartisan support.

Drug prices were one of the first issues Trump addressed as president, and increasing transparency in drug pricing has been one of the Trump administration’s major health-related goals, as outlined in its American Patients First blueprint.

Already, the Centers for Medicare & Medicaid Services (CMS) has created a policy that Medicare Part D sponsors must require the pharmacies they contract with to let a patient know if there is a cheaper and equal alternative to a drug covered under their plan. CMS has also put Part D sponsors on notice that it considers gag clauses “unacceptable.”

In a response to the administration’s blueprint, the American Association of Pharmacists said it supported the administration’s position on gag clauses.

“For years pharmacists have been frustrated by their inability to help their patients who they knew were struggling with high co-payments. In addition, prohibitions of ‘gag clauses’ will make the drug pricing system more transparent,” the letter reads.

Ronna Hauser, vice president of payment policy and regulatory affairs at the National Community Pharmacists Association told Kaiser Health News that pharmacists could be fined for violating their contracts and even dropped from insurance networks if they tell a patient the drug they are buying would be cheaper if paid out of pocket. She also said that many members of her group have reported PBMs calling them with a warning if they learn they are telling customers about the difference.

In a 2016 survey of more than 600 pharmacies, the National Community Pharmacists Association found 59 percent reported having gag clauses in their contracts that prevented them from disclosing the price differential at least 10 times in the past month.

Some states already have taken action against gag clauses. As of August, 26 states have passed laws against them, according to the National Conference of State Legislatures. Another 15 legislatures have considered or were in the process of considering similar legislation.

Copay Clawbacks

Another way that PBMs make money off of customers is through their copay amount. Instead of having the copay match the amount the PBM has negotiated with the pharmacy, PBMs sometimes require pharmacies to charge customers more than that amount, which they then pocket. This practice is known in the industry as “copay clawback.”

Some pharmacists report PBMs taking over 90 percent of the copay in clawbacks, according to the National Community Pharmacists Association. One pharmacist, who the association didn’t name, reported a PBM getting a $400 clawback on a $1,010 copay.

“The ones that make me the most upset is the Champ/VA claims. Seeing our disabled veterans families paying more than they should is horrific,” one pharmacist told the association.

A University of Southern California study released in March estimates that in 2013, consumers overpaid for drugs 23 percent of the time. The study defined overpayment as any time a person’s insurance copayments were more than $2 over what the drug cost the PBM, for reimbursements below $20. The study is limited in showing the real picture of overpayments, however, because it uses an estimated cost based on the National Average Retail Price determined by the Centers for Medicare & Medicaid Services and not the real price.

In another study, the National Community Pharmacists Association found that 83 percent of over 600 pharmacies reported witnessing this at least 10 times in the past month. Some 67 percent said that the practice is limited to only certain PBMs.

While no federal legislation has yet addressed this practice, at least nine states have laws banning it.