RxAdvocate June, 2025 — Newsletter

State Legislation – Key Impacts on Plan Sponsor

1. Loss of Cost-Effective PBM Payment Models
Most of the proposed bills (e.g., California SB 41/AB 910, Connecticut SB 11, Louisiana SB 194, Texas SB 1122) prohibit price-based compensation and spread pricing—two common PBM models that allow plan sponsors to manage drug spend predictably and efficiently. If banned:

• Plan sponsors may be forced to adopt less cost-efficient, flat-fee models, potentially increasing administrative complexity and cost.
• Loss of spread pricing limits negotiating leverage and the ability to reinvest savings into benefit design or lower member cost share.

2. Restricted Access to Preferred and Specialty Pharmacy Networks
Bills in Illinois, Iowa, Missouri, New Jersey, North Carolina, Texas, and others restrict plan sponsors’ ability to use narrow or exclusive pharmacy networks, including:

• Mail-order and home-delivery services, which are often lower-cost and convenient.
• High-quality specialty pharmacies, which are often required for managing complex, high-cost conditions.
• These changes:
• Reduce plan sponsor flexibility in benefit design.
• Increase pharmacy reimbursement costs by mandating access to non-preferred retail pharmacies.
• May reduce clinical oversight and medication safety for specialty drugs.

3. Mandatory Pharmacy Reimbursement and Dispensing Fees
Bills like Indiana SB 140, North Carolina HB 163, and Illinois SB 709 require fixed dispensing fees ($10–$15+) to pharmacies, regardless of the market or negotiated rates:

• Plan sponsors will bear higher per-prescription costs, undermining negotiated savings.
• These mandates also distort market-based pricing models.

4. ERISA Preemption Risk
While ERISA generally preempts state regulation of self-funded plans, many of these bills are drafted ambiguously or intended to test ERISA preemption boundaries (e.g., CA SB 41, IL SB 709, TX SB 1122):

• If interpreted broadly, self-funded ERISA plans may be forced into compliance, setting dangerous precedents.
• Could lead to patchwork compliance requirements across states, undermining administrative efficiency and increasing legal risk.

5. Reduced Care Management and Oversight Tools
Restrictions on prior authorization, step therapy, and formulary control (e.g., Texas SB 1122) directly limit a plan sponsor’s ability to manage drug utilization:

• Potential increase in inappropriate prescribing or non-evidence-based treatment pathways.
• Higher costs and increased risk for adverse drug events.

Strategic Considerations for Plan Sponsors

• Advocacy Is Critical: The wave of legislation reflects growing scrutiny of PBMs but lacks understanding of how plan sponsors use tools to manage cost and care. Engaging policymakers directly—especially through employer groups—can help reshape legislation or secure exemptions for self-funded plans.
• Legal Review: Work with legal counsel to review potential ERISA preemption challenges if state mandates affect your self-funded plan.
• Modeling Impact: If bills pass, work with your PBM (e.g., CVS Health) to model financial impacts under mandated fee or network rules.
• Flexibility Loss: Prepare for possible loss of customized benefit design options, especially in restrictive states (e.g., Arkansas, Illinois, Texas).

Highest Concern: Arkansas HB 1150
HB 1150 represents a worst-case scenario for plan sponsors:

• Bans all PBM-affiliated pharmacies, including mail and specialty pharmacies.
• Directly dismantles access and affordability strategies.
• Plan sponsors will lose key cost controls and member access channels, and patients may experience service disruption and higher out-of-pocket costs.