A 50 State Scan: States Move to Protect Healthcare Consumers by Prohibiting Gag Clauses on Pharmacists

Gag clauses are at the forefront of state policy decisions as state policymakers attempt to reduce the cost of prescription medications. Gag clauses are established in PBM-pharmacy contracts prohibit pharmacists from informing consumers, unless asked, about cheaper ways to purchase prescriptions or access more effective alternatives, i.e., a lower cost generic drug or newer brand name drug with better outcomes. From 2016 to 2018, 22 states enacted legislation to prohibit the use of gag clauses to provide consumers and pharmacists more ability to communicate about cheaper options. Another nine states have legislation still pending. Eight states have legislation regulating pharmacy benefit managers, or PBMs, through audits, licensing and maximum allowable cost statutes that do not directly address gag clauses. More than eight states have Maximum Allowable Cost (MAC) statutes and auditing and licensing procedures enacted, however they also address gag clauses or claw backs specifically in their bill.

The issue revolves around insurance plan co-pays being a higher cost than the cash price for the drug. The PBM is a third-party administrator of prescription drug insurance coverage, employed by insurance providers to keep down prescription drug costs. Commonly, the PBMs collect payments from the pharmacies called “claw backs.” The payments result from the actual retail price of the drug being less than the insurance co-pay that the pharmacy collects directly from the consumer. For instance, a drug may cost $10 to stock in the pharmacy, but the consumer pays the $30 co-pay required by insurance, collected by the pharmacy. The PBM contract establishes how the insurer and the PBM company share the $20 overpayment by the consumer left after the pharmacy is reimbursed its $10 cost. The gag clause prohibits the pharmacist from informing the consumer she could pay for the prescription directly and save $20. The gag clause may also prohibit the pharmacist from advising a consumer to check with their prescribing health professional about a more effective prescription drug that may be available, presumably to avoid a higher cost.  

Many states have taken matters into their own hands as the federal government has not passed legislation regarding gag clauses and claw backs. A University of Southern California study found in 2013, the mean overpayment was around $5 per prescription filled. This issue is of significance to state policymakers as polls show the number one worry of voters is healthcare costs. The table below provides information on states that have successfully enacted legislation regarding the issue or where legislation is still pending.

State

Legislation

Summary

Status

Year

Alabama

SB 383

Requires PBMs to submit documentation regarding expenditures and profits. 

Enacted

2012

Alaska

HB 240

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Pending governor signature

2018

Arizona

HB 2107

Prohibits implementation of gag clauses in PBM-pharmacy contracts and the collection of a copayment more than the pharmacy’s charges. 

Enacted

2018

Arkansas

HB 1010

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Enacted

2018

California

AB 315

Prohibits implementation of gag clauses in PBM-pharmacy contracts, lays out the duties of PBMs in California.

Filed

2017

Colorado

HB18-1284

Enacts a right to informed purchasing. Bill entitles consumer to lower priced drugs relative to their copay. PBMs cannot require a pharmacy to charge or collect a copayment that exceeds the total submitted by the pharmacy. 

Enacted

2018

Connecticut

Public Act No. 17-241

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Enacted

2017

Delaware

HB 425

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Filed

2018

Florida

HB 351

Prohibits PBMs from limiting a pharmacist’s ability to disclose whether the cost-sharing obligation exceeds retail price for a prescription drug and availability of cheaper alternatives. 

Enacted

2018

Georgia

HB 276, SB 103

HB 276 and SB 103 prohibit implementation of gag clauses, limitations of delivery, and collecting payment in excess of the total submitted by the pharmacy in PBM-pharmacy contracts.

Enacted

2017

Hawaii

SB 3104

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Failed

2018

Idaho

SB 1336

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Pending

2018

Illinois

No regulations

No regulations

No regulations

 

Indiana

HB 1317

A pharmacy or pharmacist cannot be proscribed by a third party from discussing information regarding a more affordable alternative. 

Enacted

2018

Iowa

N/A

Requires PBMs to obtain a license from the state and has maximum allowable cost regulations. Established through Iowa Title XIII. 

N/A

 

Kansas

SB 351

Establishes that co-payments applied by a health carrier may not exceed the retail price of the drug and the right of pharmacists to provide information to alternative prescriptions. 

Enacted

2018

Kentucky

HB 463

Prohibits insurers, PBMs or other administrators from requiring payment in excess of retail price. The bill allows pharmacists to discuss information relating to a more affordable drug. 

Enacted

2018

Louisiana 

SB 282, SB 283

SB 282 establishes that consumers will not pay more than the retail price of the drug if the cost is lower than their copay.

SB 283 establishes PBM transparency requirements. 

Enacted

2018

Maine

SP 10

Prohibits insurers, PBMs or other administrators from requiring payment in excess of retail price.

Enacted

2017

Maryland

SB 576

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Enacted

2018

Maryland

SB 576

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Enacted

2018

Massachusetts

SB 2211

Prohibits implementation of contracts promoting PBM specific products unless specifically exempted by the center of health. Bill was a comprehensive 142-page emergency bill. 

Failed

2017

Michigan

HB 5858

Establishes a PBM and pharmacy must provide the current selling price of a drug.

Pending

2018

Minnesota

HF 3024, SF 2836

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

HF 3024 Failed, SF2836 Pending

2018

Mississippi

HB 426

Prohibits implementation of gag clauses in PBM-pharmacy contracts.

Failed

2018

Missouri

HB 1542

Prohibits implementation of gag clauses in PBM-pharmacy contracts. Prohibits PBMs from requiring payment in excess of retail price.

Pending

2018

Montana

N/A

Requires PBMs to submit documentation regarding expenditures and profits, as well as maximum allowable cost regulations. Established through Montana’s code. 

N/A

 

Nebraska

LB 324

Prohibits language in PBM-pharmacy contracts more restrictive than state law, restrictions on sharing pricing information, restrictions on mailing prescriptions, and restrictions on being in preferred network status. 

Failed

2017

Nevada

SB 539

Prohibits language in PBM-pharmacy contracts that place restrictions on sharing pricing information, restrictions on mailing prescriptions, and restrictions on being in preferred network status.

Enacted

2017

New Hampshire

SB 354, HB 1791

SB 354 prohibits claw backs and gag clauses by PBMs.

HB 1791 enables pharmacists to fill prescriptions with lower cost generic drugs charging the consumer the generic price. Allows pharmacists to discuss the lower cost drug with the consumer.

SB 354, Failed

HB 1791 Enacted

2018

New Jersey

A2214, S2438, A3993

A2214 and S2438 prohibit implementation of gag clauses in PBM-Pharmacy contracts.

A3993 prohibits the collection of claw back copayments, as well as prohibiting language restricting pharmacist to be unable to discuss information on lower costs prescriptions. 

Pending

2018

New Mexico

N/A

Requires PBMs to submit documentation regarding expenditures and profits, obtainment of a license for PBMs within the state, and subjects PBMs to MAC regulations. Established through New Mexico’s code.

N/A

 

New York

SB 2541, AB 8781, SB 7191A

S 2541 prohibits charges in excess of the retail price of a drug.

S7191A prohibits gag clauses in PBM-pharmacy contracts.

A8781 prohibits PBMs from restricting access to drug information and collecting certain payments. 

Pending 

2018

North Carolina

HB 466

Prohibits implementation of gag clauses in PBM-pharmacy contracts. Prohibits PBMs from requiring payment in excess of retail price.

Enacted

2017

North Dakota

SB 2258

Prohibits payments in excess of retail price, denial of mailing prescriptions, and gag clauses. 

Enacted

2017

Ohio

HB 479

Prohibits implementation of gag clauses in PBM-pharmacy contracts. Prohibits PBMs from requiring payment in excess of retail price.

Pending

2018

Oklahoma

N/A

Requires PBMs to submit documentation regarding expenditures and profits, obtainment of a license for PBMs within the state, and subjects PBMs to MAC regulations. Established in Title 59 of Oklahoma’s code.

N/A

 

Oregon

N/A

Requires PBMs to submit documentation regarding expenditures and profits, obtainment of a license for PBMs within the state, and subjects PBMs to MAC regulations. Established in Oregon’s code

N/A

 

Pennsylvania

SB 637

Prohibits gag clauses in a farther development of their health insurance laws. 

Pending

2018

Rhode Island

HB 7702

Prohibits gag clauses in a farther development of their health insurance laws. 

Pending-held

2018

South Carolina

HB 5038

Prohibits PBMs from enacting contracts between pharmacists that inhibit them from providing information to patients regarding lower priced alternatives, collecting payments in excess of retail price, and retaliating against pharmacies who exercise their rights including delivery of medicines. 

Enacted

2018

South Dakota

SB 141

Prohibits PBMs from enacting gag clauses on pharmacies and allows pharmacists to exercise their rights to disclose lower priced alternatives. 

Enacted

2018

Tennessee

N/A

Requires PBMs to submit documentation regarding expenditures and profits, as well as maximum allowable cost regulations. Established in Titles 56 and 63 of Tennessee state code. 

N/A

 

Texas

SB 1076

Prohibits claw back payments in forms of copays or purchases of higher priced drugs. 

Enacted

2017

Utah

SB 208

Prohibits implementation of gag clauses in PBM-pharmacy contracts and the collection of a copayment more than the pharmacy’s charges.

Enacted

2018

Vermont

HB 886

Allows pharmacist to disclose the cash price of the drug prescribed. 

Failed

2018

Virginia

HB 1177

Prohibits PBM-pharmacy contracts from including clauses that cause the patient to pay more than the actual retail price of the drug, limiting the ability of pharmacists to disclose information on lower priced alternatives, and limiting the direct delivery service of prescriptions. 

Enacted

2018

Washington

HB 2296

Protects consumers from paying more than retail price for drugs through copays and other payment methods. 

Failed

2018

West Virginia

SB 46

Allows pharmacists to inform customers of lower-cost drug alternatives. The bill also prohibits the charging of an individual a price greater than that of retail through copays. 

Enacted

2018

Wisconsin

AB 621

Established regulations for PBMs and vaguely regulated contracts between providers and PBMs.

Failed

2018

Wyoming

HB 35

Establishes licensing requirements for PBMs while also establishing overpayment through copay regulations. 

Failed

2016

*Table data from original CSG research on legislative action in the states. Data as of 6/18/18.