A bill placing restrictions on pharmacy benefit managers awaits Iowa Gov. Kim Reynolds’ signature after it passed the Iowa House this week, with local pharmacies and lawmakers saying the move will help keep small, local pharmacies afloat.
The legislation restricts how PBMs, which serve as intermediaries between pharmaceutical manufacturers, insurers and pharmacies, can price drugs to local pharmacies.
It would eliminate “spread pricing,” a practice in which PBMs charge insurance companies a higher amount for a drug than the amount they reimburse the pharmacy and keep the difference. Instead, PBM contracts would be required to use “pass-through pricing,” meaning the insurance providers’ payments are equal to the reimbursements for pharmacies.
The bill also would bar PBMs from requiring customers to purchase drugs through a mail order pharmacy or from using different rates or fees to disincentivize customers from choosing a certain pharmacy or pharmacist.
Additionally, the bill would require PBMs to reimburse pharmacies at the average state or national acquisition cost of a drug, at a minimum, and to pay small pharmacies — those with fewer than 20 locations total or operating in less than 20 states — a $10.68 per-prescription “dispensing fee.”
Earlier this month, the Iowa Senate passed the bill, with Iowa Sen. Mike Klimesh, R-Spillville, serving as floor manager. Iowa Rep. Shannon Lundgren, R-Peosta, helped guide the bill through the House.
Lundgren told the Telegraph Herald on Tuesday that the bill will curb predatory practices from the largest PBMs, which she said are “gobbling up money out of the pockets of employers and businesses” and incentivizing customers to choose large pharmacy chains, leading to the closure of local pharmacies.
“We all know that (local pharmacies) are access points for health care here in Iowa, and when we lose those access points and people start getting their drugs by mail order, there’s nobody in that town to talk to about whether there’s interactions or contradictions in that drug,” she said on the House floor.
According to the Iowa Pharmacy Association, over 200 Iowa pharmacies have closed in the past decade, including more than 30 pharmacies in 2024.
“This bill is a critical step toward protecting Iowa’s local pharmacies and ensuring accountability for PBMs,” said Iowa Pharmacy Association CEO Kate Gainer in a statement following the House’s passage of the bill.
Charlie Hartig, president and CEO of Dubuque-based Hartig Drug, said his business is encouraged by the legislation, which he said will provide protections for local pharmacies.
“Policymakers in states all over the country are sick of pharmacies closing, and so are their constituents,” he said. “This bill will hopefully provide some guardrails for small businesses in Iowa to be able to compete.”
Hartig Drug uses Dubuque-based pharmacy benefit manager MedOne Pharmacy Benefit Solutions, which was founded in 1999 by Dick Hartig. It has since split from Hartig Drug — though it is run by Charlie Hartig’s brother, Wes Hartig — and now has over 60,000 pharmacies in its network, spanning all 50 states, according to Chief Pharmacy Officer Nate Harold, who holds a doctor of pharmacy.
Harold said because MedOne already uses pass-through pricing, the legislation will require no changes to the current MedOne business model.
He said the $10.68 “dispensing fee” incorporates reimbursement for the services provided by local pharmacies to patients, such as education on the use of medications.
“It adds better transparency and understanding of the true cost of drugs and the true cost (for) pharmacies to provide professional services and reimburses fairly for both,” he said.
Opponents of the bill have argued the changes it makes could lead to increases in health insurance costs and prescription drug prices for Iowans as PBMs pass on the increased costs.
“I believe a vote for this is a vote to raise prescription costs per fill by $10.68 if someone fills them at an independent pharmacy,” said Rep. Jeff Cooling, D-Cedar Rapids, on the floor Monday.
Earlier this month, Iowa Association of Business and Industry officials said in a press release that the bill could add $340 million in costs to private-sector health plans statewide and raise costs by approximately $169 per insured Iowan per year.
However, Lundgren, Harold and Hartig said insurance commissions in states that have recently approved similar laws, such as West Virginia and Florida, have not seen significant premium increases since the laws’ passage.
“Under a pass-through, transparent model … we do not anticipate there will be an increase in costs to our customers with this new pricing requirement,” Harold said.
Hartig noted that the reimbursement minimums are not expected to lead to a substantial influx of cash for pharmacies.
“This isn’t a windfall for pharmacies,” he said. “This is a tourniquet to make sure we’re not dispensing products under our costs … and that we have a small margin of profits to keep the lights on, pay our folks and move forward.”