As the regulatory agency for the insurance industry in Montana, we are tasked to review health insurance rates offered by commercial plans, like Blue Cross or Pacific Source. One clear and unchanging trend is that health insurance plans spend a tremendous amount of money paying for prescription drugs for enrollees.

CMS, the Centers for Medicare and Medicaid Services, has projected that spending on retail prescription drugs is growing faster than any other health category and will continue to do so for the remainder of this decade. During the last legislative session, the Montana Commissioner of Insurance attempted to use oversight of health plans to reduce pharmacy costs with Senate Bill 71. This passed the legislature and was vetoed by Governor Bullock. SB 71 did a great job of educating the legislature of the problems with PBMs, but a recent Supreme Court ruling allows us to go further in compelling transparency directly from PBMs.

The obvious part of the Rx drug supply chain starts with the manufacturer and ends with your pharmacist. Your insurance company pays your pharmacist and you pay any co-payments. What you may not know is what happens in between. There are several other players between the manufacturer and the pharmacy who add cost and operate with little to no oversight.

A pharmacy benefit manager, or PBM, is one of the middlemen between your health plan and your pharmacy. The PBM uses bulk buying power to negotiate lower payments to pharmacies and lower acquisition prices from manufacturers. Arguably, these savings should be passed along to the health plans to lower your premiums. Common concerns are related to the complexity of how PBMs are compensated, including a complex system of manufacturer rebates that, in some cases, may never see the light of day regarding the plans or the insureds. The concern is that these rebates don’t always make it to the health plan to reduce premium prices.

PBMs are paid by the health plan to create a formulary, which is a list of drugs that the health plan will cover. If a drug does not make it onto a particular formulary, the manufacturer loses money by not selling drugs under that plan. In order to entice PBMs to add their drugs to a formulary, drug manufacturers use rebates and other fees and bonuses. These rebates don’t always get passed along to the health plan to reduce premiums or the consumer.

Another issue: PBMs sometimes reimburse a pharmacy for a prescription at an amount much lower than the PBM is paid by the health plan for that prescription and sometimes below pharmacy acquisition costs. There are two sides to this- On one side, the pharmacy should be incentivized to find lower wholesale prices if available. This helps keep prices low. Having no incentive could be problematic. On the other hand, we all care deeply about preserving our local pharmacies and the thought that a PBM may not be reimbursing for the cost of a drug is equally problematic. In our bill, we are pursuing transparency to better understand the intricacies of where the money is going and the effects of rebates in the entire supply chain.

Our office has met with health plans, pharmacists, doctors, hospitals, PBMs, and drug manufacturers to get the most information possible to draft legislation to shed light on drug pricing and the effects of a complicated system of rebates, fees, and other remuneration. Our big question is, “how much of this money can be used to reduce consumer prices?" Senate Bill 395, sponsored by Senator Greg Hertz, is our agency's attempt to force transparency in PBM practices by requiring all PBMs to report the rebates, fees, and other monies they receive. We want to understand how many of those rebates are passed along to health plans reducing costs, and thereby premiums.

PBMs will be required to obtain a license from CSI to operate in Montana. Currently, we have no way of regulating PBM practices. Regulating PBMs gives us insight into how they reimburse pharmacies for prescription drugs or ensure that pharmacists can provide their patients with accurate information on their drug plan.

Finally, allowing the health plans to see behind the curtain gives them the information necessary to negotiate reasonable PBM contracts. If it’s simply a black box, it is harder for plans to negotiate for better service and lower prices. This bill provides the plans with vital information that should help negotiate better contracts.

The Office of the Montana Commissioner of Securities and Insurance is committed to lowering prescription drug prices, lowering health insurance costs, and promoting transparency. This legislation will do all of the above by creating transparency in pricing and providing our agency with the information we need to ensure consumers are getting the lowest possible prices for their prescription drugs.

Troy Downing is the Commissioner of Securities and Insurance, Montana State Auditor. Commissioner Downing is a two-tour combat veteran, businessman, and entrepreneur