Joining Idaho, Oklahoma, and Florida, Kentucky Governor Andy Bashear signed SB 188 into law earlier this year, which is new legislation impacting pharmacy benefit managers (PBMs). This new law aims to level the playing field between commercial PBMs and independent pharmacists and protect the right of patients to choose their own pharmacies and pharmacists. This new law impacts group health plans providing prescription drug coverage to participants in Kentucky, described further below.
SB 188 Overview
Effective for PBM contracts issued, renewed, extended or amended on or after January 1, 2025, SB 188 applies to insurance carriers and plan sponsors of self-insured plans who offer prescription drug coverage in Kentucky, including both carved-in and carved-out drug coverage, with very limited exceptions. Although most provisions apply only to internal PBM operations and their interactions with pharmacies, there is impact on employer-sponsored prescription drug benefits, including:
- A minimum pharmacy reimbursement mandate that requires PBMs to reimburse a pharmacy or pharmacist at least the national average drug acquisition cost for each specific drug or service dispensed (or the wholesale acquisition cost if the national average cost is unknown). Practically, this could increase costs to group health plans.
- A plan cannot require or incentivize a participant to use mail order delivery of prescription drugs. However, mail order can be available as a choice so long as it is offered on the same terms as retail (i.e., without penalty such as additional cost-sharing or lower quantity limits).
- Pharmacy networks must include an adequate number of non-mail order pharmacies within 30 miles from each participant’s residence (applicable only if there are actually pharmacy services available in such area).
- PBMs and insurers are required to submit annual reporting with method and timing details forthcoming.
Employer Action
It is important to note that state insurance laws generally do not apply to self-insured group health plans due to ERISA preemption. Interestingly, while SB 188 expressly states that it applies to self-insured plans, the phrase “to the extent permitted under federal law” is also in multiple provisions. That said, it is yet to be seen if SB 188 will be preempted by ERISA for self-insured group health plans. If preempted, SB 188 would not apply to self-insured plans.
With the above in mind, employers with Kentucky participants should take the following action depending on their funding type:
- Fully insured employers should ensure their carrier is complying with these new requirements, effective for contracts issued, renewed, extended or amended on or after January 1, 2025.
- Self-insured employers should work with their PBM vendors and legal counsel to determine if SB 188 will impact coverage (or if they will rely on ERISA preemption). If SB 188 is applicable, employers should review PBM contracts covering Kentucky residents to comply with the new requirements for contracts issued, renewed, extended or amended on or after January 1, 2025, make plan amendments (as needed) and disclose these changes to plan participants.
Additional Resources
Connect with a Sequoia consultant to learn how Sequoia’s compliance services are integrated in our benefits services and tailored solutions. And if you’re already a Sequoia client, stay on top of your employer obligations with your Compliance Checklist that highlights important compliance dates, action items, and resources.
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