Summary:

 Senate Bill 503 (SB 503) amends the Pharmacy Benefits Manager Regulation Act to prohibit certain practices by pharmacy benefits managers (PBMs). The bill expands definitions to include patient steering and spread pricing, prohibits PBMs from engaging in these practices, and imposes transparency requirements on PBM contracts. It also strengthens protections for pharmacies and pharmacists by ensuring they are not penalized for mailing prescriptions, providing cost information to patients, or disclosing relevant data to state regulators. SB 503 takes effect on July 1, 2025.
 

Legislation Overview:

 Senate Bill 503 (SB 503) revises the regulation of Pharmacy Benefits Managers (PBMs) by expanding definitions and prohibiting specific practices that impact pharmacies, pharmacists, and consumers. The bill defines “patient steering” as the act of directing patients to specific pharmacies through mandatory mail-order requirements, restricted networks, or copay differentials. It also defines “spread pricing” as a PBM practice in which the amount reimbursed to a pharmacy for a prescription is less than the amount billed to an insurer or employer.

The bill prohibits PBMs from requiring pharmacies to participate in multiple contracts as a condition of inclusion in one, ensuring that pharmacies receive clear, written contracts at least 30 days before execution. It mandates that PBM contracts specify the reimbursement methodology and prevents PBMs from invalidating contract provisions that contradict the Pharmacy Benefits Manager Regulation Act. The bill further prohibits PBMs from requiring unnecessary pharmacy validation processes, restricting mail-order prescription services, or preventing pharmacies from disclosing cost information to patients. It also prohibits PBMs from preferring generic drugs over generic therapeutic equivalents and from limiting pharmacists’ ability to share pricing information with state regulators.

SB 503 specifically bans PBMs from engaging in patient steering and spread pricing, reinforcing the state’s regulatory authority over PBM practices. The bill also prohibits PBMs and health benefit plans from imposing fees on pharmacies based on scores or performance metrics, although they may offer incentives based on these metrics if available to all in-network pharmacies. The bill ensures that clerical or recordkeeping errors in pharmacy audits do not automatically constitute fraud unless they result in overpayment or incorrect medication dispensing.

PBMs and pharmacy services administrative organizations must provide contracts, agreements, claim appeals, price lists, and other relevant documents upon request by the Superintendent of Insurance or contracted pharmacies. PBMs must also submit a network adequacy report to the Superintendent of Insurance, detailing their pharmacy networks and accessibility. The bill grants the Superintendent of Insurance authority to examine PBM records for compliance, with PBMs responsible for covering the costs of such examinations. At the request of an individual providing information in response to a complaint, investigation, or examination, the Superintendent may classify the information as confidential.

Implications

SB 503 strengthens protections for pharmacies and consumers by limiting PBM practices that restrict patient choice, impose hidden costs, and create financial disadvantages for independent pharmacies. By banning patient steering, the bill ensures that consumers are not forced into using specific PBM-affiliated pharmacies or mail-order services. This provision supports independent pharmacies, particularly in rural areas, by preventing PBMs from consolidating prescription services into their own networks. The prohibition on spread pricing increases transparency in drug pricing and ensures that insurers and employers are not overcharged while pharmacies are undercompensated.

The bill enhances transparency in PBM contracts by requiring clear reimbursement methodologies and preventing PBMs from invalidating regulatory protections through contract language. It also protects pharmacists from penalties for mailing prescriptions or providing pricing information to patients. The requirement that PBMs submit network adequacy reports ensures that patients have access to in-network pharmacies statewide, reducing the likelihood of pharmacy deserts.

Financially, the bill may reduce PBM profit margins by eliminating spread pricing and patient steering while increasing compliance costs due to expanded reporting and regulatory oversight. Insurers and employers may see cost savings from more transparent PBM pricing structures. However, PBMs may attempt to offset losses by renegotiating reimbursement rates or adjusting formulary management practices, potentially impacting drug costs for consumers. The bill also increases administrative responsibilities for the Superintendent of Insurance, who must review network adequacy reports, audit PBM practices, and enforce compliance. 

Current Law:

 Under current law, PBMs operate with broad discretion in setting pharmacy reimbursement rates, determining network participation, and structuring pricing models. PBMs often require pharmacies to accept multiple contracts, limit patient access to non-affiliated pharmacies, and engage in spread pricing practices. The existing Pharmacy Benefits Manager Regulation Act provides some oversight but does not explicitly prohibit patient steering or spread pricing. Current law allows PBMs to restrict pharmacists from mailing prescriptions and disclosing pricing information to patients.