Legislation concerning pharmacy network designs that could lead to an increase in healthcare costs for both employers and employees is scheduled for a hearing today by the Senate Judiciary Committee.
The California Chamber of Commerce is opposing Senate Bill 41, introduced by Senator Scott Wiener of San Francisco, unless amendments are made. The Chamber argues that the bill will disrupt pharmaceutical benefit designs and financial incentives, potentially increasing drug costs for patients and raising healthcare costs for employers.
Currently, employers, pharmacy benefit managers (PBMs), insurers, and health plans collaborate to design pharmacy networks that stabilize rising drug costs. These designs aim to reduce costs while giving consumers the option to choose their medication sources within the network, such as mail orders, pharmacy chains, or independent pharmacies. SB 41 could undermine these preferred networks, likely leading to increased drug costs.
The bill also intends to ban the use of spread pricing, a pricing model that allows employers to anticipate drug spending by setting a fixed price for prescription drug payments to pharmacies. This model provides employers with protection against unexpected pharmaceutical spending and aligns the interests of PBMs, pharmacies, and plan sponsors to achieve the lowest possible costs. Although the desire for more transparency is cited as a motivation for this ban, there are alternative methods available that do not require restricting this cost-control tool.
Furthermore, the California Chamber of Commerce opposes SB 41 for its impact on performance-based payments, which are arrangements between employers, health plans, and PBMs. These payments incentivize PBMs to secure competitive pricing on prescriptions. The Chamber argues that limiting these payments will not reduce drug costs for consumers, as it does not address the rising costs set by drug manufacturers.
Health plans spent approximately $12.1 billion on prescription drugs in 2022, an increase of nearly $1.3 billion from 2021, according to the Department of Managed Health Care (DMHC). Prescription drug costs have risen by $3.4 billion since 2017, with drugs making up 14.2% of total health plan premiums in 2022.
The DMHC's findings show that although specialty drugs make up only 1.6% of all prescriptions dispensed, they account for 64% of total annual spending on prescription drugs. Generic drugs, while constituting 88.9% of prescriptions, accounted for only 14.4% of total spending. Employers and health plans rely on the ability to direct plan participants on where to fill prescriptions, a strategy that helps manage rising drug costs.
Moreover, according to the 2023 Kaiser Family Foundation Employer Health Benefits Survey, the average premiums for employer-sponsored family health coverage have reached $23,968 in 2023, with workers contributing an average of $6,575. Maintaining benefit design tools is crucial for controlling these rising costs for California's employers and employees.