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F I S C A L I M P A C T R E P O R T

SPONSOR Feldman

DATE TYPED 3/7/05

HB

SHORT TITLE Pharmacy Benefit Management Company Oversight SB SM 32

ANALYST Hanika-Ortiz

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$0.1

Recurring

General

Fund

Duplicates HJM 98

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of Bill

Senate Memorial 32 requests the New Mexico Health Policy Commission (HPC) to convene a

task force to study the need for regulation and oversight of Pharmacy Benefit Managers (PBMs).

Significant Issues

PBMs are largely unregulated, except for regulations governing pharmacy businesses, and ad-

minister and manage the purchase, dispensing and reimbursement of prescription drugs for pub-

lic and private insurance plans. PBMs handle prescription drug benefits for an estimated ninety-

five percent of all patients with prescription drug insurance. Many PBMs own and operate their

own mail order pharmacies.

The State relies on the services of PBMs to negotiate discounted prices for prescription drugs,

develop formularies of covered drugs, establish and maintain adequate networks of pharmacies

and manage utilization of drugs through prior authorization or utilization reviews. Prescription

drug pricing involves many different prices, rebates and discounts and involves many different

parties in the purchasing and dispensing of the product.

Senate Memorial 32-- Page 2

PERFORMANCE IMPLICATIONS

The HPC will lead the task force that will study the extent to which PBMs interact with covered

individuals and the value and propriety of those interactions. The task force will also evaluate the

positive and negative aspects of disclosure of financial and utilization information. The study

will include a complete listing of the approaches other states have taken in regulating the PBM

business, including the status of current legal actions.

FISCAL IMPLICATIONS

The cost of prescription drugs in New Mexico is estimated to be $804 million in 2004. The State

government pays for prescription drugs for more than 500 thousand people covered through

Medicaid programs, incarcerated in state prisons and for state employees and retirees.

The memorial suggests a task force study to study if it is in the best interest of the state to have

full knowledge of the pricing structure, negotiated discounts and supplementary payments that

PBM’s receive from prescription drug manufacturers in order to ensure that the lowest possible

prescription price is passed along to beneficiaries.

The memorial will also address disclosure of financial arrangements, conflicts of interest and the

sharing of data about utilization management generally covered in contracts between entities.

Agencies are being asked to participate with existing staff and resources.

ADMINISTRATIVE IMPLICATIONS

The findings and recommendations of the study will be presented to the interim legislative

Health and Human Services Committee in October of 2005.

OTHER SUBSTANTIVE ISSUES

Recent state and federal lawsuits have been filed alleging the possibility of serious conflict of

interest, understated savings from deals with prescription drug manufacturers and the use of in-

formation about utilization and prescribing patterns for marketing purposes rather than for bene-

fiting patient health.

AHO/yr