In summary
Governor Newsom vetoed regulations for pharmacy benefit managers and health care hedge funds and said his administration is working to protect consumers in a variety of ways.
California will not join the ranks of more than 20 states that regulate drug intermediaries, which advocates and economists say drive up prescription drug prices. Governor Gavin Newsom today vetoed a bill aimed at curbing their influence.
The bill, authored by Sen. Scott Wiener, a Democrat from San Francisco, would require state health departments to license pharmacy benefit managers. It would also require pharmacy benefit managers to disclose the prices paid to drug companies and require that 100% of negotiated discounts be passed on to consumers.
It was one of two bills Newsom vetoed today aimed at cracking down on the health care industry.
He also vetoed a hotly contested bill by Ukiah Democratic Rep. Jim Wood that would have given the state the power to block the sale of health care companies to commercial investors such as hedge funds and private equity firms. did.
In his veto message, Newsom said his administration has already taken steps to lower health care costs through other programs and that existing government agencies have a duty to consider the market impacts of health care consolidation. said.
He wrote that he wants more “detailed information” about the influence of pharmaceutical benefit managers before signing new legislation to regulate them.
“Without a doubt, the public and Congress need a clearer understanding of the extent to which (pharmaceutical benefit managers') practices are driving up prescription drug costs,” he wrote.
Pharmacy benefit managers, also known as PBMs, act as intermediaries between insurance companies and pharmaceutical companies. They process claims and negotiate drug prices using a complex rebate system. It also maintains the list of medicines covered by your health insurance plan, also known as a formulary. They are also regulated in many other states, including Florida and Texas.
This is the second time Mr. Newsom has opposed regulation of drug intermediaries. In 2021, he vetoed a law that would have prohibited a practice known as “patient steering,” in which pharmacy benefit managers force patients to use only designated pharmacies. Pharmacy benefit managers say the practice can lower costs by allowing them to negotiate better deals with specific pharmacy networks. Research shows that much of the time patients have to use a pharmacy is also owned by intermediaries.
The law would also have prohibited “patient manipulation.”
“PBMs are driving up health care costs, destroying neighborhood pharmacies, and preventing Californians from receiving health care at their local pharmacies. “This is a huge missed opportunity to protect consumers from behavior,” Wiener said in a statement regarding Newsom's veto.
Consolidation of the pharmaceutical industry
Pharmacy benefit managers argue that Wiener's bill would actually stop them from saving money for patients and insurance plans. Their ability to negotiate on behalf of millions of patients gives them greater leverage over drug companies, and most contracts already include requirements to pass on a large portion of discounts. they say.
Over time, three pharmacy benefit managers came to dominate the industry through mergers and acquisitions. CVS Caremark, Express Scripts, and OptumRx control over 80% of the market.
Research increasingly suggests that consolidation increases prescription drug prices. The largest player, CVS, has grown through its merger with Aetna to include familiar pharmacy retail stores, pharmacy benefit management services, and health insurance.
Their actions have come under intense scrutiny from Congress and federal agencies. Earlier this month, the Federal Trade Commission accused CVS Caremark of artificially inflating the price of insulin, a life-saving drug that nearly 3 million Californians and 37 million Americans depend on to regulate their blood sugar levels. announced lawsuits against , Express Scripts, and OptumRx.
The complaint alleges that pharmacy benefit managers are demanding higher discounts from drug manufacturers to include insulin in the list of eligible drugs available to patients. A portion of that discount is retained as profit. This strategy has eliminated the inclusion of low-cost generic insulin in the insurance plans of most commercially insured patients.
Hedge fund buys California healthcare state
Another health care bill Mr. Newsom vetoed would have created California's first regulation of private equity and hedge funds in the health care sector.
Private equity and hedge funds can be a lifeline for health care companies on the brink of bankruptcy, providing large amounts of capital to keep their doors open. It also helps fund new facilities and research.
But there are downsides to these investments, consumer advocates say, if shareholders cut services and leave health care providers in debt. Nationally, there is growing evidence to suggest that private equity acquisitions also make health care more expensive.
Learn more about the legislators mentioned in this article.
The failed bill would have given the attorney general the power to review transactions between these investors and health care providers such as surgery centers, nursing homes and large medical practices. The attorney general could have imposed conditions for approval, such as barring the new owner from removing the service. Nonprofit hospitals have been subject to similar rules for decades.
Private equity deals in California increased from $1 billion to $20 billion annually from 2005 to 2021, according to a recent policy document from the California Health Care Foundation.
With many facilities still struggling to recover from the coronavirus pandemic and economic inflation, business interests have lobbied against the bill, saying it would curb investment in health care. It cost more than $583,000.
In an unusual move, the Federal Trade Commission submitted a letter supporting the state's law. Commissioner Lina M. Khan said in a letter that the Federal Trade Commission and the U.S. Department of Justice are investigating private equity mergers and acquisitions in the health care sector that violate antitrust laws. Khan said state regulations like California's could “multiply the federal government's enforcement power.”
“I write this letter to support California's efforts to more closely monitor mergers and acquisitions in the health care sector and prevent deals that undermine the availability and affordability of quality health care,” Khan said. I am writing,” he said.
Supported by the California Healthcare Foundation (CHCF). The foundation works to ensure people have access to the care they need, when they need it, at an affordable price. For more information, please visit www.chcf.org.
