First-In-Nation Montana Bill Would Regulate PBMs Through Insurers

Published by Inside Health Policy

A bill that takes a unique, aggressive strategy to require pharmacy benefit managers pass drug rebates through to plans was passed out of a Montana Senate committee with only Republican support Thursday (Feb. 14). The Montana insurance commissioner designed the bill to survive legal challenges, but it could be vetoed by Montana’s Democratic governor.

While the bill would effectively regulate PBMs, it would be the first in the nation to do so indirectly through the insurance commissioner’s authority.

Supporters of the drug maker-backed bill say it would complement the Trump administration’s plan to require manufacturer rebates be passed through to beneficiaries in Medicare Part D and Medicaid managed care, but with one key difference: The Trump administration wants plans to share rebates at the point of sale, instead of using rebates to lower premiums, and the Montana bill requires plans in the individual market to use the rebates to lower premiums.

“Ultimately, health insurance and health care policy change will need to happen at the federal level, and we would need multiple acts of Congress to make changes to the broader market. We are doing what we can at the state level with our jurisdiction,” said Kyle Schmauch, a spokesman for Montana Commissioner of Securities and Insurance Matt Rosendale.

Although Democratic lawmakers in the U.S. Congress and in several state legislatures typically support tighter regulation of drug-channel middlemen, Montana Democratic lawmakers opposed the bill. The bill is one of more than a dozen being pushed by Rosendale, a Republican who lost a close U.S. Senate race to Sen. Jon Tester (D-MT). State Democrats say they have concerns with the entire legislative package.

Republicans control both chambers of the state legislature, but it’s not a veto-proof majority and the governor is a Democrat.

Gov. Steve Bullock’s office said he would consider SB 71 if it came to his desk. Bullock is backing a different, more limited bill to prohibit PBMs from including clauses in pharmacy contracts that would prevent pharmacists from telling patients if they can buy drugs more cheaply without insurance.


Marilyn Bartlett, a special projects coordinator in the commissioner’s office, is a key author of Senate Bill 71. Bartlett helped save the state-employee health plan an average of $16 per prescription in 2017 by switching to Navitus Health Solutions, a PBM that passes through all rebates to the state-employee plans and does not use “spread pricing,” the practice of pocketing the difference between what PBMs charge a health plan and reimburse a pharmacy.

SB 71, which was introduced by state Sen. Albert Olszewski (R), would eliminate spread pricing, and would require rebates from drug manufacturers to be passed through to plans and used to lower premiums. It also would crack down on conflicts of interest on boards that determine formulary status in the individual insurance market.

David Balto, an antitrust attorney and frequent PBM critic, testified in support of the bill.

“It is a unique approach, but similar changes at Montana’s health plan for state employees have worked,” Balto said.

Legal Challenges

While the bill would in effect regulate PBMs, the phrase “pharmacy benefit manager” does not appear in the bill text.

The bill was designed to avoid lawsuits like Rutledge v. Pharmaceutical Care Management Association, a challenge to an Arkansas law regulating PBMs that has been petitioned to be heard by the Supreme Court. The U.S. Court of Appeals for the Eighth Circuit struck down Arkansas’ law regulating PBMs’ generic-drug reimbursement rates to pharmacies, holding that it was pre-empted by the Employee Retirement Income Security Act of 1974.

“Because of the complexity of the system, PBMs have been able to hide behind ERISA, and when states have tried to regulate them directly, there are no teeth in their bills. We took a unique model by not regulating PBMs directly, but regulating insurance companies because we have full authority through [the] insurance commissioner,” Olszewski said.

Attorneys general from 32 states filed an amicus brief supporting Arkansas in Rutledge and asked the Supreme Court to hear the case.

“The court of appeals’ decision invalidating Arkansas’s PBM statute has created confusion and uncertainty regarding states’ power to regulate these significant market participants,” the attorneys general wrote.

Even if SB 71 were to face legal challenges if enacted, Rosendale’s office says it is confident the bill would withstand them.


Although Olszewski said there is bipartisan interest in the bill, Democrats are wary of SB 71 in part because the drug industry backs it.

State Sen. Frank Smith (D) said he voted against SB 71 in committee because the Democratic caucus opposes it and other bills in the legislative package Rosendale is pushing.

Montana Democrats said after evaluating more than a dozen of Rosendale’s bills, they have concerns about overall changes that would be made to the insurance commissioner’s regulatory authority.


Retail pharmacists also support the bill. Proponents of the bill at a Feb. 1 hearing included a local pharmacy association, Pharmaceutical Research and Manufacturers of America, GlaxoSmithKline, Navitus and a couple citizens and providers. Insurer groups America’s Health Insurance Plans, Montana Health Co-op and PacificSource Health Plans and PBM Express Scripts oppose it.

“The PBMs are here, and they have significant lobbyists. But we are citizen legislators and so we all work different jobs. The most important thing, if we do anything this session, is to decrease the costs of our health care,” Olszewski said.

The PBM lobby Pharmaceutical Care Management Association opposes SB 71.

“SB 71 is a big government mandate that would increase prescription drug costs for patients in Montana,” a PCMA spokesman said.

Olszewski said he expected that the bill could receive a senate floor vote as soon as this week. — Rachel Cohrs (

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