State Lawmakers Shift from PBMs to PSAOs in Fight Against High Drug Costs

State Lawmakers Shift from PBMs to PSAOs in Fight Against High Drug Costs

For a while now state legislators have targeted pharmacy benefit managers, or PBMs, for contributing to the high cost of prescription drugs.

But recently lawmakers have set their sights on a new culprit: pharmacy services administrative organizations, or PSAOs, which help independent pharmacies negotiate with drug wholesalers.

An October 2024 study by the pharmacy chain CVS found that “PSAOs representing independent pharmacies consistently negotiated for and received the highest prices among all pharmacies in Caremark’s national network between 2018 and 2022, holding each of the top seven spots for ‘most expensive pharmacy’ each year.”

In March, Virginia Gov. Glenn Youngkin (R) signed HB 2375, which regulates PSAOs. A month later, the Arkansas legislature passed SB 475, which also regulates PSAOs. Pending PSAOs legislation in Mississippi, New York and Oregon has also received attention.

Indeed, the LexisNexis® State Net® legislative database shows that since the beginning of the year more than 80 bills dealing with PSAOs have been introduced in 26 states.

It’s still early in the year, of course, but PSAOs seem as though they could become the new PBMs, that is, a primary target for legislators looking to make a dent on high drug costs.

PSAO Bills Introduced in Over Half of States

Bills dealing with pharmacy services administrative organizations (PSAOs) have been introduced in at least 26 states this year, according to the LexisNexis State Net legislative database. Four of those states have enacted such measures.

Conflicts of Interest Baked into Some PSAOs

Many of the bills identified by State Net® as dealing with PSAOs also address PBMs, as they seek to regulate the opaque world of pharmaceutical costs, where little-known third parties can play an important role, and power is often found in numbers.

Health insurers and employers contract with PBMs to manage their prescription drug benefits. These intermediaries are largely unknown to the public, yet have taken a lot of the blame for driving up the costs of prescriptions.

PSAOs are similarly situated. Independent, community pharmacies, “mom and pop” proprietors, band together into PSAOs to leverage their numbers for negotiating pharmaceutical supply contracts with wholesalers.

According to a 2013 report by the U.S. Government Accountability Office, however, three of the five largest PSAOs are owned by the three largest wholesalers, AmerisourceBergen, Cardinal Health, and McKesson.

As pointed out by the Affordable Healthcare Coalition of North Carolina, a nonprofit organization trying to lower healthcare costs, that dynamic “creates a conflict of interest where PSAOs may favor the business interest of the wholesaler who owns them over the pharmacy they represent.”

“For example, in exchange for its services, the PSAO could require pharmacies to purchase drugs from the wholesaler even if less expensive options are available,” the coalition writes on its website.

It goes on to say: “Higher acquisition prices will eventually be passed back to the consumer in the form of higher prescription costs.”

So, you can see why legislators are starting to take an interest in PSAOs. In fact, the Affordable Healthcare Coalition of North Carolina suggests that lawmakers’ interest in PBMs may have been misplaced, that the middleman they should have been looking at all along was PSAOs.

PBMs Call for Greater Scrutiny of PSAOs

The relationship between PSAOs and independent pharmacies can vary. Some PSAOs merely focus on networking contracting while others license business models, including procedures and branded products, to small pharmacies.

These models can place PSAOs in direct contact with PBMs, as PSAOs can execute PBM contracts with independent pharmacies.

In other words, PSAOs and PBMs are often at opposite ends of business deals, and PBMs, as mentioned before, have faced a lot of the blame in the past for high drug costs.

So it should come as no surprise that PBMs have lobbied for greater scrutiny of PSAOs. A report by the Pharmaceutical Care Management Association, a national association representing PBMS, labels PSAOs as little-known middlemen who have had “almost no federal or state oversight” and explicitly calls for policymakers to “consider applying reporting requirements to PSAOs as they do for other entities in the health care ecosystem.”

With drug costs remaining a high priority for policymakers nationwide, it’s safe to assume both PSAOs and PBMs will continue to draw the attention of state lawmakers.

—By SNCJ Correspondent BRIAN JOSEPH

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