Asked and Answered . . .

Mark Lezotte on legislation to prohibit drug ‘gag clauses’ in contracts

By Steven Thorpe
Legal News

Two bills have been introduced in the U.S. Senate to prohibit insurers and pharmacy benefit managers from putting “gag clauses” in contracts. The clause prevents a pharmacy telling customers they can buy a drug cheaper out of pocket instead of going through their insurance plan. The rise of high-deductible health plans has put pharmacists in a position to unwillingly collect these inflated copays. Mark Lezotte is a shareholder practicing in Butzel Long's Detroit office, experienced in corporate, health care, tax, and exempt organization matters, hospital-physician ventures, regulatory investigations and medical staff governance.

Thorpe: Give us background on this issue. I understand a Michigan Senator is a cosponsor.

Sen. Debbie Stabenow from Michigan is a co-sponsor of a couple companion bills in the U.S. Senate—the “Know the Lowest Price Act” (dealing with Medicare Advantage and Medicare Part D plans), and  the “Patient Right to Know Drug Prices Act” (dealing with private health plans and plans on the health exchanges).

There are several players involved: health insurance plans (public and private); pharmacists; individual patients/pharmacy customers; and “pharmacy benefit managers” (PBM), which are entities that are often contracted to administer the drug-coverage portion of health insurance plans.

The issues being addressed are referred to as “gag rules” and “clawbacks.” Clawback is the term used to describe a portion of the difference between a drug’s cost and the price charged that can be kept by the PBM. Gag rule refers to provisions in a pharmacist’s contract with a PBM or health plan that prohibits the pharmacist from disclosing the actual cash price of a drug to the patient.

The legislation seeks to prohibit gag rules and allow pharmacists to share more price information with the patient/customer. The concern is that sometimes the cash price of a drug can be less than the patient’s co-pay of using the health plan benefit, and if pharmacists can’t tell someone it might be cheaper just to pay the cash price and not use the insurance to cover a drug, then the cost might be higher and the PBM benefits from the higher price and the clawback.

This is somewhat related to the use of generics rather than name-brand drugs, but even in the case of name brands there can be some confusion about prices and different results for cash vs. insurance-paid.

Thorpe: A California study, based on 2013 pharmacy claims data, showed that customers overpaid for their prescriptions 23 percent of the time. A 2016 national survey of 640 found that 59 percent of pharmacists had encountered “gag clause” restrictions at least 10 times in the previous month. How big is this problem?

Depends on whom you ask. As you indicate some studies point to this being an issue, and pharmacists (especially independent pharmacies and their associations) say they have been faced with this and that it interferes with their ability to counsel and assist their customers as best they can.

The national trade association for PBMs, called the Pharmaceutical Care Management Association, issued a statement pushing back on this a bit. They refer to some of the reports as “anecdotal” and maintain that this isn’t a big issue. In their statement they tout the work of PBMs and try to establish their result is effective management of drug costs and negotiation of prices overall.

But it’s attracted the attention of both sides of the aisle in the Senate, so it’s enough of an issue that legislators want to address it. And it fits in with overall efforts to address healthcare costs.

Thorpe: Where do pharmacists, insurance companies, PBMs, and drug manufacturers stand on the issue?

The PBM group pushed back a little, but even their statement indicates they would oppose contacts that prohibit pharmacies from sharing cash-cost information. At least one large PBM, ExpressScripts, released a statement specifically supporting these bills, and in doing so pointed the finger at drug manufacturers and their pricing as being the cause of high drug costs.

A health plan trade group called AHIP (America’s Health Insurance Plans) similarly supported the legislation, and similarly took aim at drug pricing and manufacturers. Independent pharmacists and their trade groups support it as well. In their view the independence, professional judgment, and direct patient relationships are all something they value and want to encourage.

I haven’t seen as much from the pharmaceutical manufacturers, especially as some other groups try to point to them as a source of high costs.

One thing that’s interesting, though, is that the players don’t always fit into neat, separate categories. For instance, CVS announced the acquisition of Aetna (a health insurer), and CVS also has PBM contracts as well as operating pharmacies. Sometimes health plan insurers operate the pharmacy benefit, sometimes they contact with separate entities. There will likely be other combinations and acquisitions, so the players — and their positions — may change.

Thorpe: Patients are urged to take more control of their health care, at least partly to make them aware of the costs. Do they require more information and transparency to take that control? Does this legislation address that?

I think that’s the idea behind it. If an overall goal is patient involvement, and making patients aware of and responsible for costs, it seems to me that only works if patients have access to reliable and complete information. That can be information about the cost of urgent care centers vs. ED’s, or information about the costs of certain tests that might be recommended, and information like this about drug costs. Patients, more and more, have high deductibles and co-pays to manage. But they need clear information to be able to make decisions and choose less-costly alternatives.

Thorpe: Until legislation like this becomes law, what measures can consumers take?

Ask questions. Talk to the physician about what drug is needed, if a cheaper or generic alternative is available. And then ask the pharmacist what the real cost of the drug is, if it’s cheaper to simply pay for it out of pocket and not use insurance, and again if generics are available.

Under various state laws there are provisions requiring pharmacists to provide full and accurate information if patients ask, so if you have concerns about not getting all the information because of restrictions, come right out and directly ask to speak to the pharmacist at the drugstore, and discuss what cheaper alternatives there might be to getting the drug you need.

Also, if your employer benefits include a health savings account or a flexible savings account, make sure you understand those and take advantage of them. Even if you pay cash rather than use your insurance benefit, you may be able to pay for it out of your HSA or FSA account.

Thorpe: Are there other laws that are needed to rein in similar practices? What, if anything, might happen at the state level?

Some states have looked at the issue, but not many—only a dozen or so have laws in place or proposed. So it may be more likely to get some attention at the federal level with this proposed legislation.

The overall idea of requiring information to be provided to patients is getting traction in other areas. For instance, it was reported just recently that Medicare regulations propose requiring hospitals to post standard list prices on the Internet, and there has also been discussion on how to crack down on surprise out-of-network charges.

The overall “theme” of providing information to patients comes up again and again, but I think one caution is there may be a lot of information provided without necessarily much analysis or understanding: for example, will information be provided in plain language, in an easily comparable format, accessible to seniors, people with disabilities, or someone who may not have Internet access at home? Sorted in useful ways by facilities that people can get to with limited transportation?

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