Efforts to protect consumers and independent pharmacies, and lower pharmaceutical costs continue

Following the unanimous passage of legislation in 2021, the Delaware Department of Insurance was given regulatory authority over Pharmacy Benefit Managers (PBMs) and has been building an investigation and enforcement program in order to address the multi-billion-dollar industry that has played a key role in increasing total cost of care and consolidating the pharmacy market. Today, Insurance Commissioner Trinidad Navarro announced the department has completed some of the nation’s first examinations of PBMs, with more exams in progress.

“Protecting consumers from unjustified pharmaceutical costs and pharmacy monopolies is a key method of addressing the rising total cost of care in Delaware, and across the country. Creating transparency and accountability around PBMs is vital, and we are working hard to investigate and improve compliance with Delaware law,” said Commissioner Navarro.

PBMs act as intermediaries for prescription drug plans, influencing what medications will be covered and the costs of those drugs for both consumers and pharmacies. These companies bring in billions through manufacturer rebates, limiting generic drug offerings, and retaining negotiated savings, while costs for consumers continue to rise. The largest PBMs operate their own pharmacy chains, and their consolidated market power has allowed them to pay unaffiliated pharmacies unsustainably low reimbursement rates – rates lower than it costs the pharmacy to dispense the drug to a consumer. PBMs’ movement toward monopolization has contributed to waves of independent pharmacy closures across the nation, especially in rural, inner city, and under-served areas that already crave access.

When implementation of PBM enforcement began, baseline data showed that net of rebates, Delaware prescription spending increased annually an average of 4.9% per insured person, and an average of 5.5% per prescription. Rebates paid by the state’s largest PBMs to insurers or plan sponsors equaled nearly 23.5% of the cost per prescription, indicative of the cyclical nature of this issue.

The department has regulatory authority over any PBM entity operating in the state for any claim or pharmacy transaction that is dispensed or delivered to a patient in this state, regardless of the pharmacy’s location. Several PBMs have incorrectly argued regulation does not apply to their Delaware business and limiting the application of the law by excluding certain contracts, locations, chain pharmacies, mail order pharmacies, and specialty pharmacy claims. In turn, these entities have been found to be not compliant with the law.

As expected, exam reports uncovered a variety of issues regarding the operations of PBMs, and their effect on pharmacies and consumers. Issues regarding limited access and unequal treatment of pharmacies are common findings, including imposing inappropriate credentialing requirements. These direct violations of the law have severely limited the ability of pharmacies in Delaware to dispense commonly prescribed medications, and adversely affect the operations of these pharmacies, especially independent and regional establishments, by pushing consumers to fill prescriptions for maintenance, short-term, and non-specialty drugs via PBM mail order, affiliates, or specialty pharmacies.

Further, as part of their influence and control of drug formularies and preferred drug lists, the department has found that PBMs and carriers have included many drugs on formularies and insurer-owned Specialty Drug Lists to restrict their dispensation to affiliated pharmacies, when these drugs should be available to, and dispensed by, all retail pharmacies. Restrictive dispensing criteria that are unrelated to FDA labeling or other specialty manufacturing limitations significantly hamper the ability of Delaware pharmacies to operate under the full scope of their licenses.

Although restricted access for pharmacies to dispense commonly prescribed medications to consumers has had the most significant negative impact on pharmacies operating in Delaware, several other concerns and noncompliant activities have been identified through the exams, including: use of the Maximum Allowable Cost (“MAC,” a reimbursement model developed by a PBM versus a single unmodified pricing source), appeals, PBM pharmacy fees and charges, pharmacy audits, network enrollment and credentialing, spread pricing, and pharmacy reimbursement issues.

The department continues to work with PBMs to ensure all pharmacies operating in Delaware are accessible and are treated fairly even when not an entity owned by a PBM or their related companies. Pharmacies operating in Delaware are encouraged to contact the Delaware Department of Insurance if they suspect or have been a victim of a PBM violation pursuant to Title 18 Chapter 33A.

In market conduct examinations under new regulatory authority, the department first completes an introductory exam where required corrections are noted but the entity does not receive financial penalties. These examinations began in 2021 often take more than 6 months to complete due to their in-depth nature. Exams occur on a regular schedule but also can be initiated outside of that schedule due to consumer or entity reports of noncompliance, and PBMs who have completed their exams will be re-examined in short order to ensure they have complied with mandated corrections. Future exams noting noncompliance will result in financial penalties, which go into the state’s General Funds. Expenses of exams are paid by the entities.

To date, there are currently 42 active PBMs registered in Delaware. 3 large examinations have been fully completed, and 5 exams are currently in progress.

The department’s Office of Value-Based Health Care Delivery also monitors and reports on prescription drug spending and rebates in Delaware, including a baseline report published publicly in 2022 and reported to various groups like the Delaware Health Care Commission and the Primary Care Reform Collaborative.

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