Everyone agrees that the high cost of prescription medications is a huge issue, but there hasn’t been a serious attempt to solve the problem in Montana. We’re changing that by bringing forward legislation we estimate will save Montanans about $8 million in the first year alone.
Allow us to explain.
Prescriptions make up about 20 percent of health care costs, and they’re one of the fastest-growing cost drivers in health care. While there are many reasons for this, a primary one is the middlemen who control the process between the manufacturer creating a medication and the consumer buying it.
A major middleman is a type of company called a pharmacy benefit manager, or PBM. Insurance companies contract with PBMs to perform important functions of administering complex pharmaceutical transactions. Besides doing what they were formed to do, PBMs have also devised ways to dramatically increase their profits through secretive and manipulative behavior. Major PBMs have become some of the biggest companies in the world, with hundreds of billions of dollars in revenue.
The shady practices PBMs engage in include price gouging, where they charge insurance companies drastically more for a prescription than they reimburse to the pharmacy, increasing the cost of insurance. They keep kickbacks from drug manufacturers instead of passing savings onto consumers. They claw back additional money from pharmacies, and sometimes even put gag clauses into contracts that prevent pharmacists from telling Montanans it would be cheaper to buy medication with cash rather than through their insurance plan.
Health insurance companies enable this racket being perpetuated on their customers by passing the blame onto PBMs even though they are the ones selling plans to consumers. Insurers continue to use PBMs that engage in bad practices instead of contracting with better ones, and we’ve discovered that sometimes they don’t even know what’s in their own contracts. Health insurers should be fighting to lower drug costs for their customers, but they’re not.
Hence our legislation. Senate Bill 71 will be heard in the Montana Legislature on February 1st. It’s a unique, made-in-Montana approach written by the State Auditor’s office after extensive investigation. SB 71 will hold insurance companies accountable to their customers by prohibiting price gouging, ensuring all manufacturer rebates are used to lower consumers’ costs, and requiring other changes to the way the industry operates in Montana. We know our strategy can work because similar changes at Montana’s health plan for state employees saved $7.4 million in the first year.
Federal law creates problems for states directly regulating PBMs and for making these reforms apply outside of our limited jurisdiction. For that reason, SB 71 only applies to health insurance plans sold on the individual market, but it will also provide a roadmap to establishing best practices and be a great starting point to enacting reform more broadly.
To reduce health insurance rates, we must address the costs of health care itself. Senate Bill 71 does just that, and we urge the Legislature and Governor Bullock to support it.
Matt Rosendale is Montana’s State Auditor. State Senator Al Olszewski is an orthopedic surgeon in Kalispell and the sponsor of SB 71. Kristin Hansen is the State Auditor’s chief legal counsel and a former state senator from Havre.