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How big an issue is the cost of prescription drugs? So big that the 2019 Minnesota Legislature actually managed to pass a bill addressing it

The bill sets up regulations on Pharmacy Benefit Managers, which serve as a middlemen between drug makers and insurance companies. 

State Sen. Scott Jensen
State Sen. Scott Jensen, the bill's prime sponsor: “This shines a bright light on a piece of the (drug) supply chain that needed a bright light shined on it.”
MinnPost photo by Peter Callaghan

Legislators looking for bipartisan wins in the divided Minnesota Legislature are having to look pretty hard. Only a handful of items appear to be moving toward passage.

That makes a conference committee’s recent agreement on a bill to adopt first-ever regulation of the business known as Pharmacy Benefit Managers all the more notable. A six-member committee that included all four of the Legislature’s medical doctors reached rare agreement Wednesday on the bill, Senate File 278. The full Senate approved the agreement soon after, passing the bill 67-0, while the House approved it 130-2. The bill now goes to Gov. Tim Walz for his expected signature.

So now a business that began life five decades ago as a “fledgling little industry” only to become something one lawmaker compared to an unstoppable robot will be regulated by the state Department of Commerce. “This shines a bright light on a piece of the (drug) supply chain that needed a bright light shined on it,” said the bill’s prime sponsor, Sen. Scott Jensen, R-Chaska.

Jensen is a physician, and after the bill passed the Senate unanimously, he said he thought the legislation was going to be a tough sell to the Senate GOP “because it smacks of regulation.”

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“But I think the caucus is also saying this is an industry that we can’t let be like the wild, wild west,” he said. “My caucus said, ‘Hey, Doc we get it. We’re gonna have to do some of these things even if it’s a little uncomfortable.’”

Jensen was hardly the only lawmaker employing metaphors during Senate debate Thursday, though. “The PBMs and their ever-growing power are kind of like those science fiction movies where the little robot monster has been sucking up power plants and gets stronger and stronger and is suddenly unstoppable,” said Sen Jim Abeler, R-Anoka. He also compared them to a secret society, said Jensen has “cracked the code,” and that those who had tried to rein them in before had “run into a brick wall.”

The 411 on PBMs

Pharmacy Benefit Managers are private businesses that were created to help insurance companies and businesses that self-insure deal with the complexities of prescription drug coverage. Serving as a middlemen between drug makers and insurance companies, they negotiate prices, create formularies of drugs covered by a given health plan and process claims.

The once obscure businesses have become targets for politicians and policy makers trying to respond to increasing and unpredictable prices for prescription drugs. At the state level, bills are being debated to make pricing more transparent, cap increases and generally expand regulation of the industry.

The PBMs, for example, negotiate deals that have drug makers charge a set price but rebate a large share of that price to insurance companies. The rebates may or may not reach the consumer, and they are not available to patients who don’t have insurance and are asked to pay list prices.

Three large PBM companies control 85 percent of the market. Express Scripts is owned by Cigna; OptumRx is owned by UnitedHealth; and CVS Caremark — part of the company that also includes the CVS drugstore chain — is in the process of purchasing Aetna. A fourth PBM, Prime Therapeutics, is a limited liability partnership that was started by several non-profit Blue plans.

“There are things they do that we need and we need to keep in the marketplace,” Stephen Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota, told a House committee earlier in the session. “But with that influence they’ve also grown as big as any other player, bigger than the drug companies; they’re bigger than the physician groups and pharmacists and other providers; bigger than the hospitals.”

Rep. Alice Mann, DFL-Lakeville, is also a medical doctor and the lead in the Minnesota House on the issue. She said while PBMs may have served a positive purpose initially, that’s changed “as the industry has become monopolized.”

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Mann said drug makers have to pay rebates to get onto formularies — the lists of medicines that may be prescribed under different health plans — and often to keep competitive drugs off the same formulary.

“The problem is they are doing this without any oversight,” Mann said. “They can do whatever they want, get as much rebate as the want and keep as much profit as they want and no one knows about it. What our bill does is blow that up, open it up, and see what kind of rebates are you getting from the manufacturer, what fees are you getting as incentives, what are you charging the plan sponsor, how much profit are you actually making — because the profit you are making is getting pushed down to the patient.”

State Rep. Alice Mann
State Rep. Alice Mann
The industry has been involved in discussions about the bill. David Root, the vice president of government affairs for Prime Therapeutics, said the company, “shares the Minnesota Legislature’s concerns over the high cost of drugs and the negative impact those high costs can and do have on patients health across the state,” Root said in a statement. “While we don’t agree with everything in the legislation, we look forward to continuing to work with the Minnesota Legislature to better understand the vital role Pharmacy Benefit Managers have in the process of providing an affordable and sustainable drug benefit. We anticipate working closely with the Commissioner of Commerce and others during the rule process.”

Drug prices have become such an issue among voters that legislators of both parties and from all parts of the state have made it a priority. One of the Legislature’s most-conservative Republicans, Rep. Jeremy Munson of Lake Crystal, voted for the final bill in the conference committee. “This whole bill in general has me conflicted because I’m typically not someone who likes more regulation,” Munson said. “But the pharmaceutical industry has kind of run amok, and it’s crony capitalism vs. capitalism. I don’t know what the answer is but we need to look into this.”

Sen. Michelle Benson, a Republican from Ham Lake who chairs the Health and Human Services committee, said she has grown tired of “the finger pointing between plans and manufacturers and pharmacy benefits managers, each blaming the other for the high cost of drugs.”  The bill will let the state see into the drug supply chain that had previously been shrouded, she said.

The bill would require PBMs operating in Minnesota to be licensed and to pay an annual fee of $8,500. The money would cover the costs of regulation by the state. The companies, of which there are between 30 and 40 that work in Minnesota, would have to submit reports that show what prices they negotiate with drug makers; how much is returned via rebates; and what they charge insurance companies and drug stores.

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While the state would get highly specific data, insurance companies and self-insured employers would be entitled to more general information that wouldn’t identify drug purchases by individual customers. The bill also blocks PBMs from using pricing and other incentives to steer business to their own mail-order pharmacies or brick and mortar drug stores.

It also lets drug stores to dispense equivalent drugs that aren’t on a policy’s drug formulary and prohibits a practice used by some PBMs, that of having pharmacists tell a patient that they could save money not using their insurance and paying cash.

A doctor bill

Jensen, who operates medical clinics in Chaska and Watertown, joked that he thinks this is the first time in legislative history that a new chapter of law was crafted by a committee that was 67 percent medical doctors: Jensen, Mann, DFL Rep. Kelly Morrison of Deephaven; and DFL Sen. Matt Klein of Minneapolis.

“The four physicians were pretty used to being data-driven,” Jensen said. “As a rule, we’re not usually too excitable. We had three Democrats and one Republican and we were able to work together well.”

Mann was one of a number of suburban DFLers who defeated GOP incumbents last November to give Democrats control of the House. Health care costs were the main reason she left her clinical practice to run for office. “I quit essentially because of this issue,” Mann said. “Every single day patients are in my office because they can’t get their medications. They are really struggling because our system is quite flawed, we have a lot of players in the system who game the system and take advantage of it. The people who end up paying the price are the patients.”

She said she figured she could either “come home angry” or do something about it, and the PBM bill was exactly the type of bill she wanted to work on when she got to the House. “This was it,” she said. “This was why I came here.”


Correction: CVS is purchasing Aetna. This story had reported that Aetna is purchasing CVS.