Banning Pharmacy Gag Clauses a Good Start in Tackling Drug Prices

It was not long after President Donald Trump waved to those assembled in the White House Rose Garden and promptly headed back into the Oval Office without taking media questions that the criticism of what had been hailed as the “most sweeping action” to lower drug prices in the nation’s history began.

While many said the announcement had no teeth, as there was no reference to giving Medicare broader bargaining authority and because much of the plan would require congressional approval anyway, one key element will, if implemented, have the ability to dramatically alter the present health care landscape: the banning of pharmacy benefit manager gag clauses.

These gag clauses prevent your local pharmacist from telling you that you could save money simply by paying the retail price for a medication rather than a co-pay. The PBMs — the so-called middlemen who operate between the drug manufacturer and the pharmacy under a contract with the health plan — do not want you to have this information because, in many instances, they make more money when you don’t.

If we, as a nation, are serious about lowering health care costs, then one sure step is to make certain that patients always get the lowest out-of-pocket cost at the pharmacy. Those individuals who work for companies that self-insure often get this benefit, because those companies negotiate it with their PBM; there is no reason why consumers in a traditional health plan should not get the same benefit.

The gag clauses, however, go far beyond preventing a pharmacist from sharing cost information with a customer. They prevent pharmacies from talking about any facet of their relationship with the PBMs — and have largely stifled any opposition from the pharmacy community about PBM practices.

Those pharmacists who throw caution to the wind and decide to speak out about their contracts often get a quick lesson in the power of the PBMs. They face removal from the PBM’s network, and if enough of the pharmacy’s customers are covered by that particular PBM, it could spell the end of the road for the pharmacy. This is not an abstract concept; it happens more often than you might think.

The gag clauses serve no purpose other than to help PBMs maximize profits and control market share. Yet the businesses on the other end of the PBMs’ gag clauses — independent pharmacies — are forced to eke out even the smallest of margins. Independent pharmacies, which lack the leverage of the big box chains, actually lose money on some prescriptions based on the reimbursement formulas that the PBMs establish. Margins for most independent pharmacies are in the low single digits.

It is not the PBM, though, that must help patients understand why they are paying so much for a medication or that provides the drug at no cost when the patient cannot afford to pay. The PBM does not have a line of customers waiting to pick up medications, yet must further hold up the line to explain to a patient why the “prescription is not going through with the insurance.”

The PBMs fail the transparency test. They operate out of sight of consumers, even though they are a key driver in the cost of the medications that consumers purchase. They tell their business “partners” – the pharmacies – to remain silent or lose the ability to serve a large segment of the pharmacy’s customers.

Thirteen states, most recently Ohio, have passed legislation to ban the gag clauses, because they recognize them as anti-pharmacy, anti-consumer and a force behind higher health care costs.  These states realize that drug pricing should be out in the open.

Supreme Court Justice Louis Brandeis once said, “Sunlight is said to be the best of disinfectants.” Bringing sunlight to the practices of PBMs will only result in more fairness for consumers, a level playing field for pharmacies, and lower drug prices for all.

Whatever may happen to the bulk of the president’s proposal, let’s hope that PBM gag clauses are eliminated either through fiat, legislation or by the PBMs finally realizing that the optics are horrible around such practices.

After months of negative media coverage, PBMs are just now finally being held accountable for their role in high drug prices. They could help themselves immediately by vowing a new, fully transparent approach to the way they do business.


Ernest P. Gates Jr., R.Ph, is president & CEO of Gates Healthcare Associates, a national pharmaceutical and health care consulting firm based in Massachusetts.

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