HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: CS/CS/CS/HB 1509 Prescription Drugs
SPONSOR(S): Health & Human Services Committee, Appropriations Committee, Healthcare Regulation
Subcommittee, Chaney and others
TIED BILLS: IDEN./SIM. BILLS: CS/CS/SB 1550
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Healthcare Regulation Subcommittee 16 Y, 0 N, As CS Poche McElroy
2) Appropriations Committee 28 Y, 0 N, As CS Helpling Pridgeon
3) Health & Human Services Committee 20 Y, 0 N, As CS Poche Calamas
SUMMARY ANALYSIS
Americans spend more on prescription drugs each year – about $1,300 per person – than any other country,
with prescription drug prices in the U.S. more than 2.5 times as high as those in other similar high-income
nations. Total spending on prescription drugs in the United States is also growing, rising to $603 billion in 2021,
of which $421 billion was on retail drugs. The ever-increasing number of high-cost specialty drugs fuels the
increase; specialty drugs account for 55 percent of medication spend, up from 28 percent in 2011.
Prescription drug benefit plans – health insurers, self-insured employers, union health plans, and government
purchasers – contract with pharmacy benefit managers (PBMs) to manage drug costs. PBMs establish
pharmacy networks, pay claims, and negotiate drug manufacturer rebates, among other things. PBMs earn
profits through a combination of revenues, including administrative fees charged to health plans, retention of
drug rebates paid by pharmaceutical manufacturers, and fees charged to network pharmacies. Until recently,
PBMs operated largely in the absence of federal or state regulation. In the past five years, a plurality of state
legislatures passed laws to prohibit specific PBM practices in response to industry and consumer complaints.
In Florida, PBMs must register with the Office of Insurance Regulation (OIR), but are otherwise unregulated
(except to the extent their functions are regulated through the regulated health plan).
CS/CS/CS/HB 1509 establishes a PBM regulatory program in Florida. Specifically, the bill:
 Amends the PBM regulatory structure from registration to a certificate of authority as an insurance
administrator under part VI of ch. 626, F.S., regulated by OIR.
 Requires PBMs to submit to examinations and investigations, make available certain documents and
records, and comply with recordkeeping requirements.
 Regulates PBM contracts with pharmacy benefit plans and programs (insurers, HMOs, self-insured
employers, etc.).
 Regulates PBM contracts with pharmacies, including claims payment requirements, and prohibits many
current practices.
 Imposes specific pharmacy network standards on PBMs.
 Requires drug manufacturers and nonresident drug manufacturers to notify the Department of Business
and Professional Regulation and the Agency for Health Care Administration of drug price increases and
submit forms and reports for public availability.
The bill provides an appropriation of $980,705 in recurring funds and $146,820 in nonrecurring funds from the
Insurance Regulatory Trust Fund, and 10 full-time equivalent positions with an associated salary rate of
644,877, to OIR to implement the provisions in the bill. OIR may see an increase in revenue from imposing
fines established in the bill. See Fiscal Analysis and Economic Impact Statement.
The bill provides an effective date of July 1, 2023.
This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives .
STORAGE NAME: h1509f.HHS
DATE: 4/24/2023
 FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Background
Prescription Drug Spending
Americans spend more on prescription drugs – about $1,300 per person – than any other country1, with
prescription drug prices in the U.S. more than 2.5 times as high as those in other similar high-income
nations.2 Total spending on prescription drugs in the United States is also growing, rising to $603
billion in 2021, of which $421 billion was on retail drugs. 3 The ever increasing number of specialty
drugs fuels the increase; specialty drugs account for 55 percent of medication spend, up from 28
percent in 2011.4 The federal Centers for Medicare and Medicaid Services projects national
prescription drug expenditures of approximately $6.8 trillion dollars for the 10-year period of 2021-
2030.5
Although prescription drug prices account for only roughly 10 percent of overall healthcare spending,
Americans pay more out-of-pocket for prescription drugs than for hospital care or health insurance. In
the past decade, drug prices have risen three times faster than inflation and patient out-of-pocket costs
have risen 53 percent.
The following chart details the increase in prescription drug average price, utilization, and spending
from 2016 to 2020.6
1 Robert Langreth, Why Prescription Drug Prices in the US Are So High, Bloomberg News-Business QuickTake (July 19, 2022),
available at https://www.bloomberg.com/news/articles/2022-07-19/why-prescription-drug-prices-in-the-us-are-so-high-quicktake (last
viewed on March 26, 2023).
2 U.S. Dept. of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, Office of Science & D ata
Policy, Issue Brief-Trends in Prescription Drug Spending, 2016-2021, page 1 (September 2022).
3 Id.
4 Id.
5 Centers for Medicare and Medicaid Services, CMS Office of the Actuary Releases 2021-2030 Projections of National Health
Expenditures, March 28, 2022, available at https://www.cms.gov/newsroom/press-releases/cms-office-actuary-releases-2021-2030-
projections-national-health-expenditures (last viewed on March 26, 2023).
6 Health Care Cost Institute, 2020 Health Care Cost and Utilization Report, May 2022, pg. 3, figure 4, available at
https://healthcostinstitute.org/images//pdfs/HCCI_2020_Health_Care_Cost_and_Utilization_Report.pd f.
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 There are two competing ideas about what is driving the increase in list prices. Some argue that
manufacturers are solely to blame, because they unilaterally set list prices,7 and manipulate patent
protection to achieve financial advantages. Others argue that PBMs share the blame for increasing
drug costs because their demands for higher rebates drive manufacturers to raise list prices to maintain
profit margins net of those higher rebates.8 Despite dramatically increasing rebates, prescription drug
costs have risen three times faster than inflation over the past decade, even after the discounts
provided to PBMs.9 From 2010-2016, prescription drug list prices increased 129 percent for 14
medications with the highest drug expenditures.10 At the same time, patient out-of-pocket costs
increased 53 percent and insurance payments to PBMs for those drugs increased 64 percent after
rebates and discounts.11
The following chart shows the cumulative change in prescription drug spending by category of drug
from 2016 to 2020.12
7 A. Roy, Drug Companies, Not “Middlemen”, Are Responsib le for High Drug Prices, Oct. 2018, available at
https://www.forbes.com/sites/theapothecary/2018/10/22/drug-companies-are-responsible-for-high-drug-prices-not-
middlemen/#1ac50c254947.
8 J. Shepherd, Pharmacy Benefit Managers, Reb ates, and Drug Prices: Conflicts of Interest in the Market for Pres cription Drugs, Yale
Law Policy Rev., January 2019 1(38).
9 Jeff Lagasse, Drug prices rose three times faster than inflation over the last decade, even after discounts , Healthcare Finance (March
4, 2020), available at https://www.healthcarefinancenews.com/news/drug-prices-rose-three-times-faster-inflation-over-last-decade-
even-after-discounts.
10 Id.
11 Id.
12 Supra, FN 7 at pg. 20, figure 36.
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 Pharmacy Benefit Managers
Pharmacy benefit managers (PBMs) represent health insurers, self-insured employers, union health
plans, state government employee plans, and government purchasers in the plan design, plan
administration, selection, purchase, and distribution of pharmaceuticals, acting as third-party
administrators of prescription drug benefits for more than 266 million people nationwide.13
Acting as intermediaries between insurers and other members of the health care system, PBMs are
primarily responsible for negotiating prescription drug prices with pharmaceutical manufacturers,
processing drug claims, managing drug formularies, and negotiating reimbursement rates.14 PBMs earn
profits through a combination of revenues, which may include administrative fees charged to health
plans, retention of drug rebates paid by pharmaceutical manufacturers, and fees charged to network
pharmacies, among others.
Drug pricing and benefit management involve complex and opaque industry activities. The following
table contains some common terms that are used in the drug cost and benefit discussion. 15
13 National Conference of State Legislatures, Summary–Pharmacy Benefit Manager Reform , June 1, 2022, available at
https://www.ncsl.org/health/pharmacy-benefit-manager-reform (last viewed on March 26, 2023).
14 Report from the New York Senate, Committee on Investigations and Government Operations, Final Investigative Report: Pharmacy
Benefit Managers in New York , May 31, 2019, pg. 7.
15 U.S. Pharmacist, 2012;37(6), Generic Drug Review Supplement, pgs. 40-45, available at
https://www.uspharmacist.com/article/understanding-drug-pricing (last viewed on March 26, 2023).
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 Until recently, PBMs operated largely in the absence of federal or state regulation. In the past 5 years,
a plurality of state legislatures has passed laws to prohibit specific practices by PBMs. In 2018, the
Legislature created a registration program for PBMs, within the Office of Insurance Regulation (OIR).
Since 2019, PBMs operating in the state are required to register with OIR by submitting a completed
application form and fee for registration. The Legislature also prohibited the use of “gag clauses” by
PBMs that prevent pharmacies from providing drugs to patients at the lowest applicable prices.
A recent study of PBM profits found that, overall, gross profit increased by 12 percent, from $25 billion
in 2017 to $28 billion in 2019.16 The study also broke down the sources of PBM gross profit and tracked
the change from 2017 to 2019.17 Gross profit from:
 Retained rebates paid by manufacturers decreased 61 percent from $4 billion to $1.6 billion.
 Retained administrative fees paid by manufacturers increased by 51 percent, from $3.8 billion to
$5.7 billion.
 PBM-owned mail order and specialty pharmacies increased by 14 percent from $8.9 billion to
$10.1 billion.
 Other sources increased 26 percent from $8.5 billion to $10.7 billion.
PBMs negotiate with drug manufacturers, on behalf of health plan sponsors, in an effort to purchase
drugs at reduced prices or with the promise of additional rebates. This often involves the development
of drug formularies, which are tiered drug lists that incentivize the use of some drugs over others.18
PBMs simultaneously negotiate with pharmacies to organize pharmacy networks and establish
reimbursements for dispensing prescription drugs to patients. The Pharmaceutical Care Management
16 PBM Accountability Project and 3 Axis Advisors, Understanding the Evolving Business Models and Revenue of Pharmacy Benefit
Managers, December 2, 2021, pg. 4, available at https://www.3axisadvisors.com/projects/pbm-accountability-project-report-120221.
17 Id.
18 Academy of Managed Care Pharmacy (AMCP), Formulary Management, https://www.amcp.org/about/managed-care-pharmacy-
101/concepts-managed-care-pharmacy/formulary-management (last viewed on March 26, 2023). See also, Pharmaceutical Care
Management Association (PCMA), Pharmacy Contracting & Reimb ursement, Available at https://www.pcmanet.org/policy-
issues/pharmacy-contracting-reimbursement/ (last viewed on March 26, 2023).
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 Association indicates that PBMs save 40 percent to 50 percent on prescription drugs, an average of
$962 per person per year.19
The U.S. pharmaceutical supply system is complex, and involves multiple organizations that play
differing, but sometimes overlapping, roles in drug distribution and contracting. PBMs generally do not
take physical possession of prescription drugs when performing their core pharmaceutical management
functions, but they play an integral role in determining how much a health plan sponsor and a patient
will pay for a given drug.20 The following graphic offers a simplified glimpse of the prescription drug
supply chain.
The three largest PBMs – CVS Caremark, Express Scripts, and Optum Rx – own their own
pharmacies, while also controlling 80 percent to 85 percent of the PBM market. 21 Smaller PBMs also
own their own pharmacies.
PBMs have become major participants in the pharmaceutical supply chain. These entities first emerged
as claims processors in the late-1960s and early 1970s, but began to assume much more complex
responsibilities in the 1990s in concert with advancements in information technology. 22 Currently, PBMs
are responsible for managing the pharmacy benefits of about 270 million Americans. 23 The top six
PBMs nationwide handled more than 95 percent of total U.S. prescription claims.24 The following graph
shows the PBM market structure for 2020, based on total adjusted claims.25
19 Bloomberg Law, Health Law & Business, The Driver Dictating Prescription Drug Benefits: PBMs Explained, March 3, 2022, available
at https://news.bloomberglaw.com/health-law-and-business/the-driver-dictating-prescription-drug-benefits-pbms-explained (last viewed
on March 26, 2023).
20 Henry J. Kaiser Family Foundation, Follow the Pill: Understanding the U.S. Commercial Pharmaceutical Supply Chain , March 2005,
available at https://www.kff.org/other/report/follow-the-pill-understanding-the-u-s/ (last viewed on March 26, 2023).
21 Adam J. Fein, The Top Pharmacy Benefit Managers of 2021: The Big Get Even Bigger, Drug Channels Institute, April 5, 2022,
available at https://www.drugchannels.net/2022/04/the-top-pharmacy-benefit-managers-of.html (last viewed on March 26, 2023).
22 “The ABCs of PBMs: Issue Brief.” National Health Policy Forum. October 27, 1999, https://www.nhpf.org/library/issue-
briefs/IB749_ABCsofPBMs_10-27-99.pdf (last viewed on March 26, 2023).
23 Pharmaceutical Care Management Association (PCMA), The Value of PBMs, https://www.pcmanet.org/the-value-of-pbms (last
viewed on March 26, 2023).
24 Adam J. Fein, The Top Pharmacy Benefit Managers of 2020: Vertical Integration Drives Consolidation , Drug Channels Institute, April
1, 2021, available at https://www.drugchannels.net/2021/04/the-top-pharmacy-benefit-managers-pbms.html (last viewed on March 26,
2023).
25 The Commonwealth Fund, Controlling Health Care Costs, Are Pharmacy Benefit Managers the Next Target for Prescription Drug
Reform, April 20, 2022, available at https://www.commonwealthfund.org/blog/2022/are-pharmacy-benefit-managers-next-target-
prescription-drug-
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 Smaller PBMs are growing as well, and rising drug prices cause health plans to increase their reliance
on PBMs. The global PBM market is projected to increase from $495 billion in 2022 to $740 billion by
2029, a 50 percent increase.26
PBM Revenue Streams
PBMs generate revenue from:
 Administrative fees from their clients (insurers, self-insured employers, union health plans, and
government) for the administration of claims and drug dispensing;
 Rebates negotiated from drug companies–in some cases, the rebates are shared between the
PBM and the health insurer or plan sponsor; and,
 Fees charged to pharmacies, which may include per prescription fees from network pharmacies
and/or fees associated with participating in a PBM’s network. 27
Each PBM generates revenue from all or some combination of these sources.
Some PBMs also generate revenue using spread pricing arrangements. A pricing spread occurs when
a PBM is reimbursed by a plan sponsor at one price for a given drug, but pays a dispensing pharmacy
a lower price for that drug. In other words, the PBM retains some portion of the plan sponsor
reimbursement as earned income.28 PBM critics contend that these practices increase costs for health
plan sponsors, or alternatively, results in lower reimbursements to pharmacies. 29
PBMs also use direct and indirect remuneration (DIR) fees to supplement revenue. Such fees were
originally conceived as a way for Centers for Medicare and Medicaid Services to track the amount of
rebates and price adjustments negotiated by PBMs. 30 Over time, DIR fees became payments or
pay