New Idaho law to regulate pharmacy benefit managers. Will it reduce prescription drug costs?

An Idaho lawmaker says a new bill requiring pharmacy benefit manager (PBM) reform will reduce prescription drug costs — but a PBM trade group says it will do the opposite. (Joe Raedle/Getty Images)

In January, a new Idaho law will take effect requiring reform of business practices by pharmacy middlemen — in search of tamping down prescription drug costs.

The new law targets pharmacy benefit managers, known as PBMs, which are essentially middlemen in the process of delivering pharmaceutical drugs to patients. They are meant to save costs by working with health insurance companies, pharmacies, drug manufacturers and others. 

But recently, PBMs have been under scrutiny. A recent report by federal regulators said PBMs drive up costs. U.S. Sen. Mike Crapo, R-Idaho, has pushed for federal PBM reform that has stalled in Congress.

Idaho’s new law, passed through House Bill 596 in 2024, mandates more transparency from PBMs, bans some of their practices and — hopefully — saves money on drug costs for consumers.

“Pharmacy benefit managers (were) to make sure there wasn’t misuse from the pharmacist to the patient and the providers prescribing. However, that has been completely perverted into just a business that just is able to harvest money without showing any kind of transparency there,” bill sponsor Rep. Jordan Redman, R-Coeur d’Alene, told the Idaho Capital Sun in an interview. “And that’s what’s driven to the exorbitant cost of pharmaceuticals throughout the entire nation.”

But an industry group representing PBMs that opposed the bill says the law will only drive up prescription costs even more.

“If there’s legislation that’s going to lower the cost for the payer and the patient, then we’re going to be for it. But if you’re going to have legislation that, at the end of the day, is going to increase what patients pay at the counter for their drugs, or increase their premiums, of course we’re going to oppose that. Because that’s not the direction we should be moving,” Pharmaceutical Care Management Association Assistant Vice President Bill Head said in an interview.

Tasked with implementing the law, the Idaho Department of Insurance is gearing up by hiring a new employee and seeking a contractor. That’s because the agency, which regulates insurers, doesn’t have much expertise in PBMs, insurance department Market Oversight Bureau Chief Shannon Hohl told the Sun in an interview.

In July, the Federal Trade Commission released a report saying that PBMs are driving out competition in the pharmacy sector and appear to be increasing prices in the process, the Ohio Capital Journal reported. 

The three biggest PBMs together are handling nearly 80% of prescription-drug transactions on behalf of insured Americans, the FTC report said. The largest six PBMs manage nearly 95% of all such prescriptions in the United States, the report said.

The president of the Pharmaceutical Care Management Association, which represents PBMs, at the time said that the FTC had treated the PBM industry unfairly.

Following that report, the state of Vermont filed a lawsuit against PBMs — part of a broader trend of states suing PBMs as part of efforts to lower prescription drug costs, Stateline reported. 

In Congress, Crapo has pushed for federal PBM reform. Last year, two bills seeking PBM reform cleared the Senate Committee on Finance, but they haven’t advanced further.

“There has been no further movement on our PBM bill, but we are still looking for ways to get it over the finish line,” Crapo’s communications director, Amanda Critchfield, told the Sun in an email.

U.S. Sen. Mike Crapo, R-Idaho, talks with attendees of the Idaho GOP election night watch party at the Grove Hotel in Boise, Idaho, on Nov. 8, 2022. (Otto Kitsinger for Idaho Capital Sun)

Critchfield said Idaho’s bill shares many of the federal legislation’s goals: “to enhance PBM oversight and transparency, strengthen Americans’ access to the pharmacies of their choice, and combat harmful practices that undermine market competition and drive up prescription drug costs.”

Redman told the Sun he worked with Crapo’s office on his Idaho bill. But Critchfield said Crapo was not involved in the Idaho bill. 

“Our office is in contact with state legislators regularly and communicate on shared problems at the state and federal level, but Senator Crapo was not involved in the drafting of the state legislation,” Critchfield said in a statement. 

The Idaho law requires a range of reporting — publicly and to health care entities — and bans and requires certain practices starting Jan. 1, 2025.

Here’s some of what the law will do.

PBMs licensed in Idaho must report the following to the Department of Insurance by Jan. 1:

The difference between amounts PBMs pay to each pharmacy, on behalf of insurance plans;
Reasons why any drugs are moved or reassigned formulary tiers with higher costs, copayment, coinsurance, deductibles or lower reimbursement to pharmacies; and
Differences in reimbursement, fees or other price affiliation that PBMs that own, control or are affiliated with a pharmacy provide to other pharmacies.

The PBMs must:

Pass through 100% of manufacturer rebates to PBMs, including payments and discounts;
Include “network adequacy requirements” at or above Medicare Part D standards, including not limiting a network to only affiliated pharmacies or requiring mail-in prescriptions, “unless the prescription drug cannot be acquired at any retail pharmacy in the” PBMs’ “network for the covered person’s pharmacy benefits plan or program.”

To each health insurance plan, payer, and pharmacy that a PBM works with, PBMs must fully disclose:

Cost, price and reimbursement of prescription drugs;
Fees, markups and discounts charged or imposed by PBMs; and
All rebates, discounts, administration fee or other payment or credits PBMs receive from drug manufacturers.

And the law bans “spread pricing,” defined as a practice in which PBMs charge pharmacy benefit plans “a different amount for pharmacist services than the amount the (PBM) reimburses a pharmacy.” 

Though the bill’s fiscal impact didn’t estimate consumer drug cost savings, Redman says it’s likely patients will be passed down savings to the tune of hundreds of millions. 

And he was skeptical about health industry projections that the law would raise costs, noting that there’s often common ownership between insurance companies and PBMs.

“When they’re being forced to provide more data and transparency, as well as pass through that rebate to the patient that is a profit generator for them, they’re going to be unhappy with that, right?” Redman said. “So to say that it’s just a misrepresentation is probably putting it lightly.”

Some of the bill’s provisions might cost the state of Idaho almost $11 million in drug expenses in the first year, and that would grow to $126 million over the next decade, the Pharmaceutical Care Management Association estimates.

“The proposed Idaho legislation will seriously undermine the ability of PBMs to control drug costs and manage their pharmacy networks, and as a result drug spending in Idaho will soar,” the association said, adding that its projection factored in the bill’s provisions on restricting using preferred pharmacy networks, mail-in pharmacies and mandating a dispensing fee.

But the association says that PBMs, over 10 years, will save Idahoans $5.2 billion in all insurance markets. Over 1.6 million Idahoans are covered by PBMs, the association estimates.

Head said no state PBM law has reduced drug costs for consumers. He said Idaho’s bill went “much further than what we typically see in other states.”

Head says the Pharmaceutical Care Management Association, which he said represents over a dozen PBMs, doesn’t oppose transparency. But he questioned the focus on PBMs.

“The focus on prescription drugs in general is the right focus. But I think it’s incredibly short sighted to think that just looking at one entity in the supply chain. And by the way, we have no impact on what pharma charges for a drug,” Head said. “… All we do is try to negotiate them to get a lower cost for the payer.”

Redman, who owns several pharmacies, said he got involved after seeing how PBM practices affected his businesses, and he said he consulted rural pharmacists across the state. In legislative debate, Redman said he disclosed his ownership of pharmacies and said his first-hand experience was helpful.

“I think the beauty of being a citizen Legislature, from folks from all walks of life, … and a part-time Legislature, is that we can kind of come up with things we see in our direct sphere, or what constituents are reaching out to us about,” Redman told the Sun. “… If you’re somewhat of a subject matter expert in a field, you probably have more knowledge and you’re able to inform the whole body better than if you didn’t. It’s the same we see with … cattlemen or dairy farmers bring in legislation.”

Redman anticipates the Idaho Legislature will consider more PBM legislation in the future.

“Because of the complications, and truthfully, how slick the PBMs are — they hire the best lawyers in the world to try to create loopholes in contracts — I think this is going to continue to come back. I think this is like a maintenance bill every year to keep these in check,” Redman said. “But again, at the end of the day, this is big pharma trying to create a monopoly, to squash little guys, to create, again, a one-payer system that they can control completely and drive cost to the moon.”

Rep. Jordan Redman, R-Coeur d’Alene, on the Idaho House floor on March 25, 2024. (Kyle Pfannenstiel/Idaho Capital Sun)

The Department of Insurance already licenses PBMs, as required under a recently passed Idaho bill. And the insurance department is open to accepting complaints related to PBMs, which Hohl said the agency hasn’t seen. 

But “that’s been the extent” of the Department of Insurance’s involvement with PBMs, she said. PBMs aren’t health insurers, so they aren’t the kind of entity that the Idaho Department of Insurance typically deals with, Hohl said.

Now, the agency will manage reporting required by the new law. To help, the Department of Insurance is seeking out PBMs experts to help.

Hohl said the agency has hired a pharmacy benefit market examiner, which she says will work with a contractor that Idaho is accepting bids for. The new employee will also help the agency plan fine details about the new reporting, like timelines and giving guidance to PBMs, she said.

Some of what the law requires “is outside of our expertise,” Hohl told the Sun.

“We need help from professionals who know this world to develop what needs to be. The law says what needs to be in the reports, but … what are the details of what needs to be in the reports? And how does that make sense to a PBM? And how can we make sure that we’re getting what, what’s required by the law?” she said.

But she says the agency is under a tight timeline to plan for the new law.

“Frankly, this first year may be a little bumpy. We’re going to do our best to help the industry be compliant, by giving them the guidance that we can give them in as timely a manner as we can to make sure they have enough time to meet those deadlines, and then we get what we need, and we’re compliant with the law,” Hohl said.

The Legislature gave the Idaho Department of Insurance more funds for the new job. 

Along with the new law, the Legislature passed a trailer bill, approving one new position in the Department of Insurance, and appropriating $132,400 to the agency for personnel costs for Idaho’s fiscal year 2025, which started July 1 and ends in June 2025.

But the contractor that the Department of Insurance hopes to also help with the law’s implementation is coming from the agency’s base budget, Hohl said. Costs are unclear for the contract, which Idaho has out for bid through a request for proposal.

One request for the contractor, Hohl said, is to survey dispensing fees across the state to help the agency to get a sense of what’s “reasonable.”

The contract’s initial term would be for two years, subject to renewals, with a four year total term anticipated, according to a draft of the request for proposal as of Tuesday afternoon. But details in the request are subject to change, Idaho Department of Administration spokesperson Kim Rau told the Sun.

The Department of Insurance might not keep contracting out the work long-term, Hohl said, but it made sense to start.