How Pharmacy Gag Clauses Profit Private Insurers

Pharmacy gag clauses are provisions in contracts between pharmacies and insurance companies that prohibit pharmacists from informing patients that paying for their prescription medication directly may be cheaper than using their insurance. Critics argue that these clauses reduce transparency and medication affordability for patients. In response to the backlash, the bipartisan Patient Right to Know Drug Prices Act was introduced in Congress to ban the practice. This legislation aims to give patients more power over their healthcare costs by making prices transparent and allowing them to choose the most cost-effective option for their prescriptions. While some argue that eliminating gag clauses will not significantly impact high drug prices, others believe it is a step towards reducing what patients pay for their medications.

Gag clauses prevent pharmacists from informing patients about cheaper payment options

In the United States, gag clauses in contracts between insurance companies or their pharmacy benefit managers (PBMs) and pharmacies prohibit pharmacists from voluntarily informing patients that their prescription medication may cost less if paid for directly by them instead of through their insurance. This means that gag clauses prevent pharmacists from informing patients about cheaper payment options.

By concealing the least expensive way to purchase medication, critics state that gag clauses reduce transparency and medication affordability for patients. This seems counterintuitive to one of the major activities of a PBM—the negotiation of drug pricing.

A 2016 survey involving over 600 pharmacies found that approximately 39% of respondents stated that a gag clause prevented them from informing patients about other payment options between 10 and 50 times in the last month. Greater than 19% stated that these clauses prevented them from informing patients of a lower price over 50 times in the preceding month.

In response to the uproar surrounding this issue, the bipartisan Patient Right to Know Drug Prices Act was introduced in Congress to effectively ban the practice. The Act prohibits insurers and PBMs from restricting a pharmacy’s ability to provide drug price information to a plan enrollee when there is a difference between the cost of the drug under the plan and the cost of the drug when purchased without insurance.

Gag clauses reduce transparency and medication affordability for patients

Gag clauses, found in contracts between insurance companies or their pharmacy benefit managers (PBMs) and pharmacies, prohibit pharmacists from voluntarily informing patients that they may be able to get their prescription medication for a lower price if they pay directly, rather than through their insurance. Gag clauses reduce transparency and medication affordability for patients, and they also seem to go against one of the main activities of a PBM, which is to negotiate drug pricing.

In a 2016 survey of over 600 pharmacies, around 39% of respondents said that a gag clause had prevented them from informing patients about other payment options between 10 and 50 times in the previous month. More than 19% said that these clauses had prevented them from informing patients of a lower price over 50 times in the same period.

By forcing pharmacists to remain silent about alternative pricing options for medications, PBMs can "`clawback` the difference between the insurance copay and the lower cash price of the medication". This means that patients are not aware that they could be getting their medication for a lower price, and it also means that insurance companies can negotiate a price for a medication that is higher than what a consumer would pay out of pocket.

Critics argue that gag clauses reduce transparency and the affordability of essential treatments for patients. In response to the backlash, the bipartisan Patient Right to Know Drug Prices Act was introduced in Congress to effectively ban the practice. This legislation was supported by the Pharmaceutical Care Management Association (PCMA), the national association that represents PBMs. With this response from PCMA, along with the proposed federal legislation in Congress, gag clauses may soon be a thing of the past, and pharmacists will be able to openly advise patients on the least expensive method to pay for their prescription medications.

The Patient Right to Know Drug Prices Act bans the use of gag clauses

The Act was introduced in response to the uproar surrounding the use of gag clauses in contracts between insurance companies or their pharmacy benefit managers (PBMs) and pharmacies. These clauses prohibit pharmacists from informing patients about the lowest drug prices and prevent them from providing advice on the least expensive method to pay for their prescriptions.

The bipartisan Patient Right to Know Drug Prices Act was introduced in Congress by Senator Susan Collins of Maine in March 2018. The Act amends the Public Health Service Act to prohibit a health insurance plan or pharmacy benefits manager from restricting a pharmacy from informing an enrollee of any difference in the out-of-pocket cost of a drug under the plan and the cost of the drug without health insurance coverage.

The Act ensures that pharmacies are not restricted from disclosing drug price information to plan enrollees when there is a difference between the cost of the drug under the plan and the cost of the drug when purchased without insurance. This legislation was unanimously approved by the Senate Committee on Health, Education, Labor, and Pensions on July 25, 2018, and continues to make its way through Congress.

The Act is supported by the Pharmaceutical Care Management Association (PCMA), the national association that represents PBMs. They released a statement expressing that PBMs will "ensure America's patients always pay the least cost for their medications at the pharmacy counter, whether it's the cash price or the copay."

Pharmacy Benefit Managers (PBMs) are responsible for negotiating drug prices

PBMs' ability to negotiate larger rebates from manufacturers has helped lower drug prices and slow the growth of drug spending. However, they have also been criticised for driving up prices for patients. PBMs' revenue is often tied to rebates and fees based on a percentage of a drug's list price, so they receive larger rebates for expensive drugs. This creates an incentive to favour high-priced drugs over more cost-effective alternatives, leading to higher out-of-pocket costs for patients with high-deductible plans or copays based on the drug's list price.

The complex and opaque nature of the drug pricing process involving PBMs has led to scrutiny and criticism. In response, there have been legislative efforts to increase transparency and ban certain practices, such as "gag clauses" that prohibit pharmacists from informing patients about cheaper payment options. The "Patient Right to Know Drug Prices Act" aims to ban these clauses and ensure patients are aware of the most affordable options for their prescription medications.

The Federal Trade Commission (FTC) has also taken action against PBMs, suing them for creating a "perverse drug rebate system" that artificially inflates the cost of insulin. The FTC alleges that PBMs' practices have resulted in higher insulin prices and billions of dollars in rebates and fees for themselves, while patients struggle with affordability.

To address these issues, experts and policymakers have proposed reforms such as requiring greater transparency around rebates, banning spread pricing, and mandating that PBMs pass through a certain percentage of rebate savings to payers or patients. These changes aim to reduce drug costs, improve transparency, and ensure that patients have access to affordable medications.

Gag clauses are prohibited in contracts between pharmacies and insurance companies

In the United States, gag clauses in contracts between pharmacies and insurance companies or their pharmacy benefit managers (PBMs) have been prohibited by the bipartisan Patient Right to Know Drug Prices Act. This legislation was introduced in response to the growing use of gag clauses, which prohibit pharmacists from voluntarily informing patients that they may be able to obtain their prescription medication at a lower price if they pay directly, rather than through their insurance.

Gag clauses were seen to reduce transparency and medication affordability for patients, and they appeared to be counterintuitive to one of the major activities of a PBM—the negotiation of drug pricing. In a 2016 survey, approximately 39% of respondents stated that a gag clause prevented them from informing patients about other payment options between 10 and 50 times in the last month. Additionally, over 19% stated that these clauses prevented them from informing patients of a lower price over 50 times in the preceding month.

The Patient Right to Know Drug Prices Act amends the Public Health Service Act to state that a group health plan or a health insurance issuer:

> shall not restrict, directly or indirectly, any pharmacy that dispenses a prescription drug to an enrollee in the plan or coverage from informing an enrollee of any differential between the enrollee’s out-of-pocket cost under the plan or coverage with respect to acquisition of the drug and the amount an individual would pay for acquisition of the drug without using any health plan or health insurance coverage.

This legislation was supported by the Pharmaceutical Care Management Association (PCMA), the national association that represents PBMs. They described the use of gag clauses as an "outlier practice" and stated that PBMs will "ensure America's patients always pay the lowest cost for their medications at the pharmacy counter, whether it's the cash price or the copay."

While the legislation removes gag orders, it doesn't address how patients who pay the cash price outside their insurance plan can apply that expense toward meeting their policy's deductible. Additionally, under the new legislation, pharmacists are not required to proactively inform patients about the lower-cost option. It is up to the customer to inquire about alternative pricing.

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