Push lends more scrutiny to pharmacy benefit managers

New Jersey will move to cap prices on insulin, asthma inhalers, and devices like EpiPens in a bid to slow ever-growing drug prices, Gov. Phil Murphy announced Monday alongside a group of legislators.

“With these efforts, we will join the growing number of states that are saying ‘enough is enough’ when it comes to rising drug costs by taking a long look under the hood of the entire process and then fixing what needs to be fixed,” Murphy said at the Willingboro Township Senior Center.

The governor’s proposal includes a measure that would place a maximum on some out-of-pocket expenses for residents enrolled in a state-regulated health plan or certain public-sector insurance programs. Direct costs for a month’s supply of insulin would be capped for consumers at $35. The cost of an EpiPen would be set at no more than $25, and asthma inhalers would cost a maximum of $50.

An October 2021 Kaiser Family Foundation poll found 26% of American adults had trouble affording their prescribed medicines, and 29% said they replaced their prescription with an over-the-counter drug, cut pills in half, skipped doses, or did not fill a prescription to save costs.

“In the richest nation in the world, and one of the richest states in that nation, we should never have this Hobson’s choice of choosing between our medicine and our food or our rent or any of our expenses,” said Sen. Troy Singleton (D-Burlington). “No one should go to the poorhouse because they got sick, and it’s our obligation as policymakers to do something about it.”

The price controls won’t affect every insured New Jerseyan. Many employers run their own health plans. Such self-insured plans leave more risk with the employer but are subject to less stringent regulation than fully-insured plans managed by carriers.

The New Jersey Association of Health Plans, an insurance industry nonprofit, estimates fewer than 20% of New Jersey residents were enrolled in a state-regulated plan. The price controls would extend to the State Employee Health Benefits and School Employee Health Benefits Plans, which cover public-sector workers across the state.

In a separate proposal, Murphy called for greater scrutiny over pharmacy benefit managers — which negotiate with drug manufacturers on behalf of insurance carriers — and said his administration would seek to prohibit practices that drive up drug prices.

Pharmacy benefit managers’ role in the growth of drug prices has drawn increasing scrutiny from lawmakers and advocates in recent years. They are the subject of a separate bill that advanced in the Senate Thursday.

While such firms negotiate discounts and rebates off list prices for pharmaceuticals, it’s not clear the savings they win do much to reduce consumers’ out-of-pocket costs. A 2020 white paper drafted by University of Southern California researchers found average list prices rose by $1.17 for every $1 increase in rebates.

“Those discounts are no longer going to go to profits. They’re going to go where they should — back to the consumer, back to us. Because otherwise, it’s unsustainable,” said Assemblyman John McKeon (D-Essex), chair of the chamber’s Financial Institutions and Insurance Committee.

As part of the reforms, the state will create a new system to analyze drug prices across the supply chain, a practice that could allow it to spot the additions of steep costs as pharmaceuticals move from manufacturers to the pharmacy counter.

Murphy’s fourth proposal would allow NJ FamilyCare, the state’s publicly-funded health insurance program, to pool its purchasing power with other states to negotiate lower drug prices.

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