Independent pharmacy owner Tom DePietro is relieved that Pennsylvania has approved legislation to increase transparency and accountability of pharmacy benefit managers.
He's also among those who feel Gov. Josh Shapiro's signing of Act 77 is an important first step — but only a first step — in the battle to address PBM practices that are widely faulted for making it harder for drugstores like his Dunmore-based DePietro's Pharmacy to stay in business.
"Drug pricing has long been controlled and manipulated by these large corporations who are operating unregulated," DePietro said. "It is time for our federal government to act."
The state lawmaker who led the fight for Pennsylvania's new law agrees.
"We're limited in what we can do at the state level, when we're talking about PBMs that cross state lines," said Rep. Jessica Benham (D-Allegheny County). "One of the things we're waiting on is additional federal action."
She noted that the Federal Trade Commission recently released a report on issues related to PBMs nationwide, as has the U.S. House Committee on Oversight and Accountability, and U.S. Sen. Bob Casey (D-Scranton), is backing legislative action.
Casey and Sen. John Cornyn (R-Texas) last year introduced a bill known as the Protecting Seniors from High Drug Costs Act. According to a summary of the legislation, the bipartisan bill would help bring down drug costs by prohibiting health plans and PBMs from charging Medicare Part D beneficiaries more in cost-sharing than the net cost of the drug.
“Corporate profiteering by pharmacy benefit managers is making it harder for people across Pennsylvania and the nation to afford and access the prescription drugs they need,” said Casey, who serves as chairman of the U.S. Senate Special Committee on Aging.
Still, the state's Act 77 — which received bipartisan support in both houses of the legislature — does give the Pennsylvania Insurance Department new tools to regulate and investigate PBM practices.
PBMs and the new law
PBMs act as intermediaries between insurance providers, drug manufacturers and pharmacies.
They have come under fire for practices including "spread pricing," in which PBMs overcharge insurers and underpay independent pharmacies, pocketing the difference; "claw backs" that artificially inflate copays for consumers; as well as "patient steering,” in which PBMs push customers to use their corporate pharmacies or mail-order services through incentives such as lower copays.
One of the biggest criticisms has been a lack of transparency in the contracts PBMs sign with pharmacies. Strict language has made it nearly impossible for lawmakers and the public to see how much PBMs are paying pharmacies, and how much they reap from manufacturers through rebates. Those contracts also make it harder for pharmacists to tell their side of the story.
As a result, lawmakers and pharmacy industry experts say, many pharmacies are going out of business: Over 140 have closed across Pennsylvania since January, of which more than 70 were independently run. Such closures are increasing the growth of "pharmacy deserts" across the state, where nearest drugstore is at least five miles away.
Act 77 includes the following patient steering prohibitions:
- Banning "claw backs." For example, if a consumer copay is $20 but the drug’s actual cost is $5, PBMs “claw back” the $15 difference as profit.
- Prohibiting PBMs from unilaterally altering the terms of a contract with a pharmacy or pharmacy services administrative organizations.
- Requiring PBMs to submit specific data annually to the insurance department about rebates, costs and other metrics.
- Giving the insurance department power to examine or audit financial records of any PBM operating in the state.
- Giving the department the power to revoke a PBM’s registration to operate in the state, and/or fine PBMs a penalty of up to $1 million per calendar year for non-compliance with the law.
- Requiring the insurance department to issue an annual report on key metrics associated with regulating PBMs.
The law has a staggered effective date, officials said, but all provisions will be applicable to health insurance policies approved and pharmacy contracts issued, renewed, or amended after Nov. 14, 2024.
The first of the newly required PBM reports will become due in 2026, after a full year of data is available. The first annual Network Adequacy Reports will be filed on April 1, 2026, and the first annual Transparency Reports will be published by Aug. 30, 2026.
Reactions to Act 77
Pennsylvania Pharmacists Association (PPA) CEO Victoria Elliott said that overall her organization is pleased with the law.
In addition to contract transparency and regulations related to patient steering and pharmacy reimbursements, the law also provides network adequacy requirements that ensure all Pennsylvanians have a pharmacy within a reasonable distance of their home, Elliott said.
"Shifting authority for oversight of PBM practices to the Pennsylvania insurance department, with a mechanism for pharmacies to report issues and have them investigated, is another big win," Elliott said.
She acknowledged that advocates were not successful in securing a minimum reimbursement rate for pharmacies, but felt that the reporting requirements would shed light on the issue.
Eric Pusey, owner of Better Health Pharmacy & Wellness in Olyphant, Lackawanna County, also noted the lack of a price floor, adding that the final bill also lacks a prohibition on spread pricing.
He called the bill "generally good" for community retail pharmacies and "generally bad" for PBMs. Pusey also said any relief won't come until 2025, and fears that may be too little, too late for many independents.
"There is still hope," he said, but "many more community pharmacies in Pennsylvania and the entire country will not survive through the end of 2024."
One of the key challenges for pharmacies has been how much PBMs reimburse them for dispensing drugs above the actual cost of the drugs themselves.
Pusey reiterated what he explained for a previous story: that low reimbursement rates for brand name drugs are a significant problem for independent pharmacies, and the new law does nothing to change that.
Dushore Pharmacy owner Melissa Keller, who operates the only pharmacy in Sullivan County, previously told WVIA News that her negative margins on PBM orders are rising, sometimes translating into losses of $50 to $100 on a prescription.
"I am elated to hear news that our legislature has taken action on PBM reform," Keller said, praising lawmakers and those who lobbied for the law.
"Also worth mentioning, just this year, PA Medicaid for the first time recognizes pharmacists as medical providers, allowing us the ability to bill for specialty services. These two actions alone level the playing field for the independent pharmacy sector and bring me hope that the tides can change," she said.
"I took a very big leap a year ago by buying an independent pharmacy and this news brings peace of mind that I will be able to stay open to provide services to my community," Keller added.
Like Pusey, she is sorry it didn't come sooner, however.
"I would be remiss if I did not mention that this news also feels bittersweet. Many independent pharmacies have had to close their doors due to unfair PBM practices," Keller said.
Bipartisan effort
In a state with a divided legislature, Act 77 became law through the approval of both chambers — the Republican-controlled Senate and Democrat-controlled House — and the Democrat governor, who had called for PBM reform in his 2024-25 budget address.
"I think the most impressive outcome is the level of bipartisan support that we enjoyed and the desire of so many legislators to get this legislation over the finish line," Pennsylvania Pharmacists Association's Elliott said.
Republican Sen. Judy Ward, from Blair County, was prime sponsor of the Senate version of the bill. Shapiro's signing ceremony was held at Thompson’s Pharmacy in Ward's hometown of Hollidaysburg.
“Bill Thompson was the first to bring the unfair business practices of PBMs and the urgent need for reform to my attention," Ward said. "This legislation will provide critical relief to pharmacies across Pennsylvania and help them to continue to offer high-quality care to the countless people that depend on them.”'
Rep. Benham said that the law accomplished most of what she had hoped for, but "it certainly was not everything."
"And you know, even though we've won this fight in the war against corporate greed, there will be many, many fights to come," she added.
Dunmore pharmacist Tom DePietro agreed, saying he was glad to hear of PBM executives being questioned before the U.S. House Committee on Oversight and Accountability.
"Keep the heat on," DePietro said.
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