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HF 2401 – Regulation of Pharmacy Benefit Managers (LSB5093HV.1)
Staff Contact: Xavier Leonard (515.725.0509) xavier.leonard@legis.iowa.gov
Fiscal Note Version – As amended and passed by the House
House File 2401 relates to pharmacy benefits managers (PBMs), pharmacies, prescription drug
pricing, appeals and disputes process between PBMs and pharmacies; pharmacy services
administrative organizations (PSAOs), wholesale distribution of prescription drugs, and the
reporting of each; and PBM reverse auctions.
Division I — Pharmacy Benefits Managers
Description
Division I relates to PBMs, pharmacies, and prescription drug pricing; provides applicability
provisions; and provides protections for pharmacies and pharmacists, contract requirements for
prescription drug pricing, and requirements for the appeal and dispute process between PBMs
and pharmacies.
The Bill applies to PBMs who manage a prescription drug benefit in the State on or after July 1,
2024.
Background
Iowa Code chapter 510B defines “pharmacy benefits manager” as a person who, pursuant to a
contract or other relationship with a third-party payor, either directly or through an intermediary,
manages a prescription drug benefit provided by the third-party payor.
As defined in Iowa Code chapter 510B, “third-party payor” means any entity other than a
covered person or a health care provider that is responsible for any amount of reimbursement
for a prescription drug benefit. “Third-party payor” includes health carriers and other entities
that provide a plan of health insurance or health care benefits. Exceptions to the definition can
be found in Iowa Code section 510B.1(22).
A maximum allowable cost (MAC) list is a list of prescription drugs that includes the MAC for
each prescription drug and that is used by a PBM. The MAC is the maximum amount for which
a pharmacy will be reimbursed by a PBM or health carrier for a drug and may be measured via
multiple methods, including but not limited to average acquisition cost, national average
acquisition cost, average manufacturer price, average wholesale price, and wholesale
acquisition cost.
Assumptions
• Neither the spread pricing nor the pass-through pricing, as required by the Bill, will represent
a meaningful change from current practices for the State’s health plans.
• The MAC requirements in the Bill may, in some cases, increase the amount reimbursed per
unit for filling prescriptions.
• State of Iowa Plan and the Board of Regents Insurance Plans prescription drug spending
may increase between 0.2% and 2.0% as a result of the MAC requirements.
Fiscal Note
Fiscal Services Division 2
• Potential offsetting pricing changes by PBMs may decrease the overall effect of increased
prescription drug spending, making the lower end of the above range more likely.
Fiscal Impact
Division I is estimated to increase annual costs to the State of Iowa Insurance Plan ranging
between $223,000 and $2.2 million and the Board of Regents Insurance Plans between
$283,000 and $2.8 million, as shown in Figure 1, beginning in FY 2025.
It is estimated that the lower end of this range is more likely to occur, since offsetting price
changes by PBMs, as a result of pharmacy reimbursement rates changing, will decrease the
overall effect of MAC requirements in the Bill.
Figure 1 — Annual Fiscal Impact Summary
Sources
Iowa Insurance Division, Department of Insurance and Financial Services
Board of Regents
Wellmark
Legislative Services Agency
Division II — Pharmacy Services Administrative Organizations and Wholesale
Distribution — Report
Description
Division II requires the Insurance Commissioner or the Commissioner’s designee to review
PSAOs and the wholesale distribution of prescription drugs and submit a report to the General
Assembly before January 1, 2025, containing findings and recommendations based on the
review. The report must include each of the following:
• A description and analysis of the prescription drug wholesale distribution supply chain,
including focuses on the concentration of, margins in, and availability of competition in the
market.
• A description of the role that PSAOs serve in the prescription drug supply chain.
• A description and analysis of the relationships between PSAOs, prescription drug
wholesalers, and retail pharmacies, including standard contracting terms, fees charged to
pharmacies, and contractual restrictions to retail pharmacies.
Background
PSAOs are collective bargaining groups that leverage their membership to negotiate contracts
with other parties in the pharmaceutical supply and payment chain. PSAOs provide a range of
business services to pharmacies. Pharmacy Spend
Low Estimate of
Increased
Pharmacy Costs
High Estimate of
Increased
Pharmacy Costs
State University of Iowa 106,100,000$ 212,000$ 2,123,000$
Iowa State University 29,200,000 58,000 585,000
University of Northern Iowa 6,400,000 13,000 128,000
University Total 141,700,000$ 283,000$ 2,836,000$
State of Iowa 111,700,000 223,000 2,233,000
Total 253,400,000$ 506,000$ 5,069,000$
Amounts may not total due to rounding. 3
Assumptions
The Iowa Insurance Division (IID) of the Department of Insurance and Financial Services (DIFS)
will need to hire a contractor to conduct the report required by this Division.
Fiscal Impact
The IID estimates the cost of hiring a contractor in FY 2025 to complete the report required by
Division II of the Bill to be approximately $225,000.
Source
Iowa Insurance Division, Department of Insurance and Financial Services
Division III — Pharmacy Benefits Manager Reverse Auctions
Description
Division III relates to PBM reverse auctions and group insurance and annual reporting by
PBMs and does the following:
• Requires the Department of Administrative Services (DAS) to enter into a contract for the
services of a PBM for the administration of benefits of self-funded public sector health plans
in compliance with the Division and Iowa Code section 8A.311.
• Requires the DAS, prior to November 1, 2024, to procure a technology platform to conduct
PBM reverse auctions and related services from the operator of the platform with the
minimum capabilities and restrictions described in the Bill. The Division also includes
requirements for the DAS to reconcile electronically adjudicated pharmacy claims with PBM
invoices.
• Requires the first PBM reverse auction to be completed and the services contract to be
awarded to the winning PBM with an effective date beginning July 1, 2025. Additionally, the
DAS is required to implement a no-pay option that obligates the winning PBM, rather than
the State, to pay the cost of the technology platform by assessing a per-prescription fee.
The Division includes additional requirements for participant bidding agreements and PBM
services contracts.
• Permits self-funded private sector health plans to conduct a PBM reverse auction utilizing
the platform and services selected by the DAS three years after the first service contract is
awarded, provided additional requirements are met, including payments from the
participating private sector health plans.
• Permits the DAS to vacate the outcome of a PBM reverse auction if the lowest-cost PBM bid
is not less than the projected cost trend for the incumbent PBM services contract.
The Division applies to group benefit plans under Iowa Code chapter 509A and does not apply
to nonprofit, nongovernmental health maintenance organizations (HMOs) with respect to
managed care plans that provide a majority of covered health care services through a single
contracted medical group.
Background
Iowa Code section 8A.311 establishes requirements for the DAS in following competitive
bidding guidelines when selecting the services of a PBM for the administration of benefits of
self-funded public sector health plans. Currently, the State of Iowa Insurance Plan is
administered by Wellmark.
A “self-funded public sector health plan” refers to any group benefit plan under Iowa Code
chapter 509A, which deals with group insurance for public employees.
“Pharmacy benefits manager reverse auction” is defined in the Bill as an automated,
transparent, and competitive bidding process conducted online that starts with an open round of 4
bids and allows qualified PBM bidders to counter-offer a lower price for as many rounds of
bidding as determined by the DAS for a multiple health plan prescription drug purchasing group.
Assumptions and Fiscal Impact
The Legislative Services Agency (LSA) has not received a response to requests for information
from the DAS. Without additional information regarding the changes to the Department’s
processes, the LSA cannot estimate any potential fiscal impact.
Source
Legislative Services Agency
/s/ Jennifer Acton
April 18, 2024
Doc ID 1448410
The fiscal note for this Bill was prepared pursuant to Joint Rule 17 and the Iowa Code. Data used in developing this
fiscal note is available from the Fiscal Services Division of the Legislative Services Agency upon request.
www.legis.iowa.gov