Senate Bill 257 aims to protect local pharmacies from spread pricing

On Sept. 20, Gov. Roy Cooper signed legislation that will impose tighter regulations on pharmacy benefit managers and protect local pharmacies and consumers from extra or unknown pharmaceutical fees. 

Senate Bill 257 — entitled the Medication Cost Transparency Act — is set to take effect Oct. 1. 

“In the pharmaceutical world, there is a middle man between the insurance company and the patient called a pharmacy benefit manager — a PBM,” said State Sen. Jim Perry, R- Lenoir, Wayne. 

Perry said pharmacy benefit managers control something called a formulary — a list of specific drugs on someone's insurance plan. With this control, PBMs are able to take advantage of local pharmacies.

“There is a real big issue called spread pricing," Perry said. "This is where the PBMs negotiate with the insurance companies to pay, say $10, and then when it comes to the pharmacy to dispense it, they will only pay the pharmacist $5 and then keep that spread."

Under the new law, PBMs must now apply and obtain a license from the Commissioner of the Department of Insurance, who now has more authority and a greater ability to regulate spread pricing. 

Pharmacy benefit managers are required to pay an initial application fee of $2,000 and annual renewal fees of $1,500 to maintain this license. In addition, they can no longer prevent pharmacies from allocating a certain drug. 

Additionally, the legislation allows the Commissioner of the Department of Insurance to petition a court order at any time to request that PBMs pay restitution to pharmacies if they violate the order. 

“PBMs are hammering local pharmacists,” Perry said. “In many instances, they were reimbursing the pharmacist less than what the pharmacist paid for the drug.”

Malli Habimani, pharmacy manager and owner of Tarheel Town Pharmacy, said that PBMs have repeatedly taken advantage of spread pricing.

“I fulfilled a prescription this morning and they reimbursed me less than $40 below the cost of the prescription for me," Habimani said. “I am losing money, even though I fulfill such prescriptions.”

Habimani hopes the new legislation will address a long-standing problem in the pharmaceutical world. 

“Small businesses like mine — we don’t have the power to negotiate," Habimani said. “There is oversight on them now."

Under this new measure, pharmacy benefit managers know they are subject to greater regulation. Habimani believes this oversight could facilitate a more honest medical landscape in North Carolina.  

“This forces more transparency because the Commissioner of Insurance has the ability to audit their business practices and understand what they are charging on spread pricing,” Perry said. 

First-year student and biology major Jonathan Fasciana believes it is critical for the medical world to be transparent about pricing. 

“It’s not like another business — it is a necessary enterprise for people to get care," Fasciana said. "Everyone should know what is going on with prices.”

Fasciana said medical transparency is an issue that should always be enforced. He's glad to hear Senate Bill 257 is taking proper steps toward a more honest industry. 

“It is always important for big firms to be transparent about their prices so people are not tricked into spending more than they think they are,” Fasciana said.

Perry hopes the legislation will force PBMs to act more candidly.

“We believe competition is good for the consumer and we wanted to force some of these practices into the bright light of sunshine," Perry said. “We think they will clean up their act immediately.”

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