Big legislative fight remains over pharmacy benefits bill

Senate Speaker Randy McNally (R-Oak Ridge) presides over the chamber on June 1, 2020. (Erik Schelzig, Tennessee Journal)

As part of last week’s budget bill, House and Senate leaders set aside $3.8 million in recurring funding to pay for changes to state law regarding pharmacy benefits and pharmacy benefit managers, or PBMs. But securing funding is only part of the challenge for sponsors. Now they have to get their colleagues to actually vote to pass the bill.

The Tennessee Business Roundtable is one of the interested parties hoping to persuade lawmakers not to enact the measure. Patrick Sheehy, the group’s president, in a letter urges senators to vote against the bill sponsored by Sen. Shane Reeves (R-Murfreesboro) because it constitutes “unnecessary government regulations that could increase the already-rising costs of employer-provided health care plans.”

UPDATE: The House Finance Committee advanced the bill to a full floor vote after House Speaker Cameron Sexton (R-Crossville) attended committee meetings to speak forcefully on the bill’s behalf.

Here’s the full letter from the Tennessee Business Roundtable:

Dear Senators:

Over the last several weeks, you likely have heard and read much from pharmacy, pharmacy benefit manager (PBM) and insurer interests, and from bill sponsors, about SB1617, legislation which proposes numerous new regulations on PBMs operating in Tennessee. We write to provide a perspective from many of the Tennessee employers who play a pivotal role as the ultimate payors in our state’s health care system on this legislation, and to outline why our organization does not support this bill in its current form.

We share some of the concerns of the bill sponsors and proponents because in the American health care system, employers, directly or indirectly, pay 100% of the costs of health care — by paying for the health benefits they provide to employees, paying corporate taxes which fund government-provided care, and paying compensation to employees, who in turn use those earnings to pay part of their health care expenses, as well as taxes of their own. This matters a great deal because over 50% of Tennesseans — about 3.5 million people — receive their health coverage through employer-sponsored health benefit plans.

At the same time, the ultimate payors — employers — lack effective control over many of that system’s structures and cost drivers. As Tennessee business operators have undoubtedly told you, the costs of employer-sponsored coverage continue to rise at unmanageable and unsustainable rates, and a primary driver of these cost increases is spending on prescription drugs. Employers and their plan administrators in Tennessee continue to struggle to understand, administer, and effectively manage these unsustainable cost increases; despite these difficulties, thousands of our state’s employers continue to offer health benefits because they truly value their employees.

At its core, SB1617 is a government mandate which would impose major restrictions on the few critical tools Tennessee employers do have to manage their employer-sponsored health plan designs and costs.

This bill’s “any willing pharmacy” provisions threaten to increase costs for employers, and for employee plan participants, by eliminating critical tools to manage the ever-escalating costs of pharmacy benefits, especially specialty drugs — which account for a very small percentage of total prescriptions, but typically consume the overwhelming majority of employer-sponsored plans’ pharmacy expenses. In order to afford to provide crucial health coverage to millions of Tennesseans, employers simply must be able to use plan design, employee incentives and preferred vendors to effectively manage their pharmacy costs.

IE The anti-competitive price floors in this legislation encourage additional cost inflation. By mandating that they pay a pharmacy’s “actual cost”, this bill would unfairly force plan sponsors (employers) to foot the bill for cost factors they can’t control, including manufacturer pricing, administration costs, and retail vendor profit margins. Tennessee employers don’t deserve a new “actual cost” headache from a maze of contract confidentiality requirements, price concessions, discounts, and rebates which they don’t control.

By effectively eliminating these critical tools, SB1617 seems to undermine Tennessee’s commitment to limiting private-sector regulations and mandates — a broadly-shared value which our organization views as a critical foundation of our state’s business climate. Every incremental dollar which Tennessee employers must invest in ever-increasing health plan costs and navigating increasingly-complex regulations is a dollar that is no longer available to invest in employee wages or business expansion. Employers — especially those utilizing self-funded, ERISA-based plans in which they directly absorb the vast majority of plan costs — must remain able to choose how to create uniform. efficient. cost-effective pharmacy benefits that deliver for their valued employees.

We appreciated Senator Reeves’ letter of April 27 to the Tennessee business community regarding SB1617. Vertical integration, rebate retention, and spread pricing certainly do affect employers’ health benefit plan costs. While we sincerely appreciate the Senator’s desire to reassure the business community about the motivations and objectives of his bill, SB1617 cannot and does not address vertical integration, and while its provisions on rebates and spread pricing will affect PBMs, it’s unclear to us how those would actually benefit Tennessee’s employer payors. Further, it remains unclear whether SB1617 applies to the self-insured, ERISA-based employee health benefit plans utilized by so many Tennessee companies.

We also share the concerns held by many about the costs of this legislation. While the bill’s revised fiscal note estimates a first-year cost to the State of $4.4 million and of over $3.75 million per year recurring, we believe that those projections might grossly underestimate the bill’s true total costs to the State. Moreover. many of the bill’s potential impacts on the private sector and to Tennesseans also appear negative or remain unclear:

As implied by the “impact to commerce” section of the revised fiscal note to SB1617, as amended, this bill will effectively transfer money from payors (including private sector employers, but also, significantly, the state of Tennessee) and PBMs to pharmacies. We believe that our State should avoid setting public policy which effectively mandates fiscal transfers from one business sector to another.

The “impact to commerce” section also indicates that “due to multiple unknown factors, such as negotiated rates with PBMs and 340b entities, current rebate amounts, and specific drug prices, additional impacts to commerce and jobs cannot be reasonably determined.” Certainty is another fundamental element of Tennessee’s quality business climate; if our state’s Fiscal Review professionals cannot even guess how much the bill will cost Tennessee employers, we question the prudence and fairness of imposing such uncertainty on our private-sector job-creators and health-benefit payors.

Also unclear is how much this legislation will cost millions of Tennesseans, who could face higher premiums, deductibles and co-pays, or even the loss of their employer-provided health coverage, if this bill increases the costs and complexity of their employers’ health plans to unsustainable levels.

Tennessee’s business operators want to provide their employees high quality health plans with good pharmacy benefits. The costs of these benefits continue to increase unsustainably. In our view, the proposed mandates in SB1617 as amended constitute unnecessary government regulations that could increase the already-rising costs of employer-provided health care plans, add to the complexity and uncertainty faced by Tennessee employers striving to sustain health care coverage for their employees in spite of those daunting costs, and potentially hurt millions of Tennesseans who depend on employer-sponsored health plans to provide coverage for them and their families. For those reasons, we ask you to oppose SB1617 in its current form.


Patrick J. Sheehy, President

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