California Senate chamber interior
The California Senate passed legislation to bar drug manufacturer conditions on covered entities’ 340B drug purchases and to bar pharmacy benefit manager (PBM) discrimination against 340B covered entities and their pharmacies.

In What Would Be the Only Second State to Enact Such Legislation, Calif. Senate Votes to Shield 340B Providers from Manufacturers and PBMs’ Actions

The California Senate passed legislation yesterday to prohibit drug manufacturer conditions on covered entities’ 340B drug purchases and to prohibit pharmacy benefit manager (PBM) discrimination against 340B covered entities and their pharmacies.

The Senate voted 24-9 in favor of SB-939 and sent it to the state Assembly for consideration.

The prospects for its final passage and enactment are unknown. The state’s covered entities and their associations are advocating for its adoption. California however is a biopharmaceutical hub and Amgen and Gilead, two of the 16 manufacturers that restrict 340B pricing when entities use contract pharmacies, are headquartered there. The state also has politically strong healthcare payers.

Bills were filed in California, Connecticut, Maine, Mississippi, Missouri, and Utah this year to address manufacturer restrictions on 340B contract pharmacy. Bills were filed in about a dozen states addressing payers’ discriminatory payment and other contract terms affecting entities.

Footsteps of Arkansas Law

Arkansas is the only state that indisputably has a law addressing drug manufacturer conditions in 340B pharmacy. Pharmaceutical Research and Manufacturers of America (PhRMA) is challenging it in federal court. Michigan entities say a bill signed into law in February focused mainly on payer discrimination against entities has language that effectively creates protections against manufacturer policies comparable to those in Arkansas’s law. Legislation in Connecticut addressing manufacturers’ 340B contract pharmacy actions and payer and PBM discrimination died earlier this month at the end of this year’s legislative session. 

As of July 2021, at least 16 states had passed laws since 2019 targeting payer and PBM discrimination against entities.

California’s Bill

Covered entity representatives tracking state 340B legislation say California’s SB-939 is one of the best written.

Its preamble says:

  • Congress created the 340B discount drug purchasing program to enable safety net providers to “stretch scarce federal resources as far as possible” and to expand services for low-income and underserved patients.
  • The 340B program is an essential part of California’s health care safety net.
  • Some pharmacy benefit managers, drug manufacturers, and other for-profit entities are taking actions to undermine the benefits of the 340B program. These actions harm safety net providers and the vulnerable patients they serve.
  • It is the intent of the legislature to ensure continued access to the benefits of the 340B program without discrimination and interference from pharmacy benefit managers, drug manufacturers, and other payers.

The bill would stop PBMs from discriminating against entities and their pharmacies based on payment terms, dispensing, network participation, audits, claims identification, and an individual’s choice of pharmacies. Medi-Cal, the state’s Medicaid program, and the federal Medicare program are exempt from the bill’s 340B anti-discrimination provisions but not “entities that contract with Medi-Cal or Medicare if they meet the definition of a payer and have discretion to negotiate or establish rates of payment for drugs.”

Regarding drug manufacturers, SB-939 says they “shall not impose any preconditions, limitations, delays, or other barriers to the purchase of covered drugs that are not required” under the 340B statute “or any rules or regulations adopted thereunder.”

Prohibited arrangements include:

  • Implementation of policies or limitations that restrict the ability of covered entities or specified pharmacies to dispense covered drugs, including restrictions on the number or type of locations through which covered drugs may be dispensed by or on behalf of a covered entity.
  • Conditioning the sale of covered drugs for covered entities on enrollment with third-party vendors or on the sharing of claims information or other data.
  • Charging covered entities for covered drugs at amounts above the federal ceiling price, including policies that condition discounts on rebate requests.
  • Delays in shipping covered drugs compared to drugs that are not discounted.
  • Retaliation against a covered entity or specified pharmacy based on its exercise of any right or remedy under this article.
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