The Florida Senate
BILL ANALYSIS AND FISCAL IMPACT STATEMENT
(This document is based on the provisions contained in the legislation as of the latest date listed below.)
Prepared By: The Professional Staff of the Committee on Appropriations
BILL: SB 1476
INTRODUCER: Senator Wright
SUBJECT: Prescription Drug Coverage
DATE: February 25, 2022 REVISED:
ANALYST STAFF DIRECTOR REFERENCE ACTION
1. Johnson Knudson BI Favorable
2. Sanders Betta AEG Recommend: Favorable
3. Sanders Sadberry AP Favorable
I. Summary:
SB 1476 revises provisions of the Florida Insurance Code (code) relating to the oversight of
pharmacy benefit managers (PBMs) by the Office of Insurance Regulation (OIR). Specifically,
the bill:
Authorizes the OIR to conduct market conduct examinations of PBMs to determine
compliance with applicable provisions of the code;
Requires a health insurer or health maintenance organizations (HMO), and any entity acting
on their behalf, including a PBM, to comply with the pharmacy audit provisions;
Authorizes an audited pharmacy to appeal certain final audit findings made by health insurers
or HMO, or PBM acting on their behalf; and
Provides a person who fails to register with the OIR while operating as a PBM is subject to a
$10,000 fine for each violation.
The bill has an indeterminate, yet negative impact to state revenue and expenditures. The OIR
estimates contracting with a pharmacist to provide oversight of PBM market conduct
examinations and respond to complaints involving pharmacy audits will cost $125,000 to
$200,000 annually.
The Division of State Group Insurance program may experience an indeterminate, yet negative
fiscal impact relating to administrative costs of any market conduct examination of its PBM by
the OIR. To the extent such examination occurs, such costs are passed down to participants of
the program.
The bill is effective July 1, 2022.
BILL: SB 1476 Page 2
II. Present Situation:
National Health Care Expenditures in 20201
Health care spending in the United States increased 9.7 percent to reach $4.1 trillion in 2020, a
much faster rate than the 4.3 percent increase experienced in 2019. Gross Domestic Product
declined 2.2 percent in 2020, leading to a sharp increase in the share of the overall economy
related to health care spending—from 17.6 percent in 2019 to 19.7 percent in 2020. The
acceleration in national health spending in 2020 was primarily due to a 36.0 percent increase in
federal expenditures for health care that occurred largely in response to the COVID-19
pandemic.
In regards to retail prescription drugs, spending increased 3.0 percent to $348.4 billion in 2020, a
slower rate than in 2019 when spending increased 4.3 percent. The slowdown was a result of a
4.2 percent decline in out-of-pocket expenditures, which resulted from slower overall utilization
and an increased use of coupons, which lowers point-of-sale expenditures for consumers.
The Prescription Drug Supply Chain
In recent years, the affordability of prescription drugs has gained attention, resulting in pharmacy
benefit managers (PBMs) and drug manufacturers coming under scrutiny as policymakers have
attempted to understand their role in the drug supply chain. Many stakeholders (drug
manufacturers, drug wholesalers, pharmacy services administrative organizations, pharmacy
benefit managers, health plans, employers, and consumers) are involved with, and pay different
prices for, prescription drugs as they move from the drug manufacturer to the insured.
Due to a lack of transparency in the marketplace, it can be difficult to determine the final price of
a prescription drug. The final price of a drug may include rebates and discounts to insurers,
health maintenance organizations (HMOs), or pharmacy benefit managers that are not disclosed.2
Market participants, such as drug wholesalers, may add their own markups and fees, and drug
manufacturers may offer direct consumer discounts, such as prescription drug coupons that can
be redeemed when filling a particular prescription at a pharmacy.3
Some independent pharmacies may contract with pharmacy services administrative organizations
(PSAO) to interact on their behalf with other stakeholders, such as drug wholesalers and third-
party payers, such as large private and public health plans and their PBMs.4 The PSAOs develop
networks of pharmacies by signing contractual agreements with each pharmacy that authorizes
them to negotiate with third-party payers on the pharmacy's behalf. Drug wholesalers and
independent pharmacy cooperatives owned the majority of PSAOs in operation in 2011 or 2012.5
Health insurers, HMOs, or self-insured employers may contract with PBMs to manage their
1
Centers for Medicare and Medicaid Services, National Health Expenditure 2020 Highlights,
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/NationalHealthAccountsHistorical (last visited Jan. 28, 2022).
2
Annu. Rev. Public Health. 1999. 20:361–401.
3
Reynolds, Ian, et. al., The Prescription Drug Landscape, Explored (Mar. 2019). The Pew Charitable Trusts.
4
General Accounting Office, The Number, Role, and Ownership of Pharmacy Services Administrative Organizations
(GAO-13-176) (Feb 28, 2013), https://www.gao.gov/products/GAO-13-176 (last visited Jan. 28, 2022).
5
Id.
BILL: SB 1476 Page 3
prescription drug benefits. The interaction among key entities involved in the distribution and
payment of prescription drugs is depicted below:6
A Study of 15 Large Employer Plans7
In response to concerns about rising drug costs, a recent study evaluated drug utilization from
plan sponsors to estimate savings from reducing the use of high cost, low-value drugs and
described some of the cost concerns and challenges relating to the drug supply chain, as follows:
PBMs negotiate with pharmaceutical manufacturers for price discounts,
which are typically paid as rebates based on sales volumes driven by
formulary placement. Rebates can reduce the final net price to the plan
sponsor and may be passed on to patients. However, in exchange for low
administration fees, plan sponsors allow PBMs to keep a portion of the
negotiated rebates and other fees. Contracts between PBMs and plan
sponsors contain rebate guarantees, perpetuating the demand for high-
rebate drugs by encouraging PBMs to maximize rebate revenue, giving
preference to some drugs over others on formularies based on rebate
revenue rather than their value and final cost to the patient or plan sponsor.
Additionally, PBMs earn revenue from “spread” pricing, which is the
difference between what PBMs pay pharmacies on behalf of plan sponsors
6
Id.
7
Vela, Lauren, Reducing Wasteful Spending in Employers’ Pharmacy Benefit Plans (Aug. 2019) the Commonwealth Fund,
https://www.commonwealthfund.org/publications/issue-briefs/2019/aug/reducing-wasteful-spending-employers-pharmacy-
benefit-plans (last viewed Jan. 28, 2022).
BILL: SB 1476 Page 4
and what PBMs are reimbursed by the plan sponsor. This also encourages
PBMs to prioritize higher-cost drugs to allow for a larger spread.
The report further describes additional factors that may increase costs for employers and
insureds:
[P]lan sponsors often allow broad formularies that include wasteful drugs
because they are concerned that employees will be disappointed if their
prescribed drugs are not covered. Doctors prescribe these drugs because
they are often unaware of drug costs. Pharmaceutical manufacturers
contribute to these patterns by promoting their products through
“detailers” — pharmaceutical salespeople calling on doctors — when less
costly alternatives may be clinically appropriate for patients. Plan sponsors
have addressed the resulting high spending by increasing patient cost-
sharing on lower-value drugs. Manufacturers counteract cost-sharing and
formulary management tools by flooding the market with copayment
coupons that undermine the benefit structure put in place by plan
sponsors.8
Pharmacy Benefit Managers
Many public and private employers and health plans contract with PBMs to help manage drug
costs.9 Some of the services provided by the PBMs include processing pharmacy claims;
providing mail-order pharmacy services to their customers; negotiating rebates (discounts paid
by a drug manufacturer to a PBM), developing pharmacy networks, creating drug formularies;
reviewing drug utilization; and providing disease management.10 Generally, a contract between a
PBM and a health plan or an employer specifies the amount a plan or an employer will pay a
PBM for brand name and generic drugs and specify certain savings guarantees.11 A recent report
found that PBMs passed through 78 percent of manufacturer rebates to health plans in 2012 and
91 percent in 2016.12 For the same period, the report noted manufacturer rebates grew from
$39.7 billion to $89.5 billion, and played a growing role in partially offsetting increases in list
prices, which the study noted have risen more quickly than overall retail prescription drug
spending.13
In recent years, significant consolidations in the PBM industry have occurred. Further, many
health insurers are acquiring PBMs. Many entities have cited reducing drug cost as a factor for
many of the acquisitions.14 In 2020, three PBMs, CVS Health (including Caremark and Aetna),
8
Id.
9
Commonwealth Fund, Pharmacy Benefit Managers and Their Role in Drug Spending (Apr. 22. 2019),
https://www.commonwealthfund.org/publications/explainer/2019/apr/pharmacy-benefit-managers-and-their-role-drug-
spending (last visited Jan. 28, 2022).
10
Id.
11
Policy Options To Help Self-Insured Employers Improve PBM Contracting Efficiency, Health Affairs Blog,
(May 29, 2019). DOI: 10.1377/hblog20190529.43197.
12
Supra note 3.
13
Id.
14
Barlas, Stephen, Vertical Integration Heats Up in Drug Industry: Will Medication Price Hikes Cool Down as a Result? P &
T: a peer-reviewed journal for formulary management vol. 43,1 (2018): 31-39.
BILL: SB 1476 Page 5
the Express Scripts business of Cigna, and the OptumRx business of the Unitedhealth Group,
were estimated to process about 77 percent of all equivalent prescription claims.15 The remaining
estimated 22 percent was processed by Humana Pharmacy Solutions (eight percent), Medimpact
Healthcare Systems (six percent), Prime Therapeutics (four percent), and all other PBMs and
cash pay (four percent). In 2018, three PBMs processed about 76 percent of all equivalent
prescription claims: CVS Health (including Caremark and Aetna), Express Scripts, and
OptumRx (UnitedHealth). 16
Reimbursement of Pharmacies by PBMs
Generally, the maximum allowable cost (MAC) price represents the upper limit price a plan will
pay or reimburse for generic drugs and sometimes brand drugs that have generic versions
available (multisource brands).17 A PBM can maintain multiple MAC lists, each tied to the
requirements of a particular employee benefit plan or other payer.18 A MAC pricing list is a cost
management tool that is developed from a proprietary survey of wholesale prices existing in the
marketplace, taking into account market share, inventory, reasonable profit margins, and other
factors.19 One of the goals of the MAC pricing list is to ensure the pharmacy or their buying
groups are motivated to seek and purchase generic drugs at the lowest price.20 If a pharmacy
procures a higher-priced product, the pharmacy may not make as much profit or, in some
instances, may lose money on that specific purchase.21
Retail Pharmacies
Independent pharmacies are a type of retail pharmacy with a physical store location—often in
rural and underserved areas—that dispense medications to consumers, including both
prescription and over-the-counter drugs. 22 Nationwide, the number of independent pharmacies in
the United States continues to decline. In 2010, there were 23,106 independent pharmacies; by
2017, that number had dropped to 21,909.23 As of June 2021, there were 19,397 independent
pharmacies.24
15
Drug Channels, Drug Channels: The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation
(Apr. 6, 2021) (last visited Jan. 7, 2022).
16
Drug Channels, CVS, Express Scripts, and the Evolution of the PBM Business Model (May 29, 2019) at
https://www.drugchannels.net/2019/05/cvs-express-scripts-and-evolution-of.html (last visited Jan. 28, 2022).
17
Academy of Managed Care Pharmacy, Maximum Allowable Cost (MAC) Pricing (Oct. 28, 2021),
https://www.amcp.org/policy-advocacy/policy-advocacy-focus-areas/where-we-stand-position-statements/maximum-
allowable-cost-mac-pricing (last visited Jan. 28, 2022).
18
Hyman, David, The Unintended Consequences of Restrictions on the Use of Maximum Allowable Cost Programs
(“MACs”) for Pharmacy Reimbursement (Apr. 2015), at https://www.pcmanet.org/wp-content/uploads/2016/08/hyman-mac-
white-paper-april-2015.pdf (last visited Jan. 29, 2022)
19
Id.
20
Supra note 17.
21
Id.
22
Arnold, Karen, Independent Pharmacies: Not Dead Yet, (Jan. 12, 2019, vol. 163, issue 1) Drug Topics, Voice of the
Pharmacist, https://www.drugtopics.com/view/independent-pharmacies-not-dead-yet (last visited Jan. 28, 2022).
23
Id.
24
Chain Drug Review, NCPA releases 2021 NCPA Digest Report (Oct. 11, 2021) NCPA releases 2021 NCPA Digest report
- CDR – Chain Drug Review (last visited Jan. 28, 2022). The store count in previous years’ Digest reports was based on an
NCPA analysis of NCPDP data and NCPA research, which most recently produced a store count of 21,683 in 2019.
BILL: SB 1476 Page 6
The decision of employers, HMOs, or insurers to contract with PBMs may shift business away
from smaller, local retail pharmacies that are also known as independent pharmacies.
Historically, independent pharmacies were important health care providers in their communities
and their pharmacists had long-term relationships with their patients.25 However, many
independent pharmacies have closed in recent years because of the competition resulting from
the proliferation of large, chain retail pharmacies26 that can negotiate with PBMs at deeply
discounted reimbursement levels based on large volume sales.
Further, innovations and greater competition in the pharmacy marketplace are occurring. In
2018, Amazon acquired PillPack, a mail-order pharmacy, which has pharmacy licenses in all
50 states.27 Further, many digital pharmacies are entering the marketplace and focus on certain
strategies, such as:
Home delivery of individual prescriptions;
Operating at least one brick-and mortar retail location (so that the pharmacy can remain in a
PBM’s network);
Dispensing 30-day prescriptions, not 90-day maintenance prescriptions;
Offering a mobile application so consumers can manage their account, order prescription
refills, and schedule delivery; and
Providing telehealth consultations with prescribers.28
Federal Oversight of Health Insurance
On March 23, 2010, the Patient Protection and Affordable Care Act (PPACA) was signed into
law.29 Among its significant changes to the U.S. health insurance system are requirements for
health insurers to make coverage available to all individuals and employers, without exclusions
for preexisting medical conditions and without basing premiums on any health-related factors. 30
The PPACA imposes many other requirements on qualified health plans offered by individual
and group plans, including required benefits, reporting of medical loss ratios, and internal and
external appeals of adverse benefit determinations.31
Medical Loss Ratios, Rebates, and Spread Pricing
If an insurer or HMO spends less than 80 percent in the individual or small group market
(85 percent in the large group market) of premium dollar on medical care and efforts to improve
the quality of care, the HMO or insurer must refund the portion