An End to Pharmacy Gag Clauses

Prescription Drug Price Transparency Becomes Federal Law


Employee Health & Benefits National Compliance Leader
+1 214 991 0550
December 3, 2018

Author: George Thompson, Director of Compliance for the Employee Health & Benefits practice in Marsh & McLennan Agency's New England Region.

It has been estimated that nearly 1 in 4 Americans pay more for their prescription drug coverage than necessary.[1] A significant contributing factor is the lack of price transparency in prescription drug plans caused by pharmacy benefit managers (PBMs) contractually prohibiting pharmacists from sharing information with participants about other options for purchasing prescription drugs that may be cheaper than purchasing them through the participant’s health plan. These contractual prohibitions are known as “gag clauses.”A potentially cheaper alternative may include the participant paying for a prescription out-of-pocket using an available rebate from the drug’s manufacturer.

President Trump pledged to lower drug prices earlier this year which proved popular with voters and received bipartisan support from Congress. Congress passed both the Patient Right to Know Drug Prices Act and Know the Lowest Price Act which were signed into law by the President on October 10, 2018. The Patient Right to Know Drug Prices Act is effective immediately and prohibits insurers and PBMs from restricting a pharmacy’s ability to provide drug price information to a plan enrollee when there is a difference between the cost of the drug under the plan and the cost of the drug when purchased without insurance. The Know the Lowest Price Act becomes effective January 1, 2020 and provides the same protection for individuals who are covered by Medicare Advantage and Medicare Part D plans.

While the liability for complying primarily falls on insurance carriers and PBMs, health plan sponsors may wish to consider confirming its insurance carriers and/or PBMs are no longer using gag clauses. Time will tell if the new legislation will significantly lower prescription drug coverage cost for health plans and their participants.

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