Effective January 1, 2025, Kentucky has new law regulating pharmacy benefit managers (“PBMs”). Earlier this year, the Governor of Kentucky signed SB 188 into law, making Kentucky the latest state to pass legislation regulating PBMs. The new law applies to PBM contracts issued, renewed, extended, or amended on or after January 1, 2025.
SB 188 applies to nearly all insurance carriers, HMOs, and plan sponsors of self-insured plans (including governmental plans, church plans, and Multiple Employer Welfare Arrangements (“MEWAs”)) who offer prescription drug coverage in Kentucky. It does not apply to self-insured health plans of a hospital when the hospital or health system owns a pharmacy. Nor does it apply to a plan established by the Kentucky Teachers’ Retirement System, which covers Medicare eligible individuals and their dependents. Other than those exceptions, SB 188 will apply. In addition, the law is written to apply to both carved-in and carved-out drug coverage to close a loophole many had hoped would continue to exist.
What is unknown about the new law is the extent to which it may be preempted by ERISA for self-insured plans. PBM laws in other states have been challenged on preemption grounds with mixed results. The Kentucky law is drafted slightly different than those laws as it states it will apply to the extent of applicable law. This protects the entire law from being upended, but does not expressly include or exclude a preemption challenge. Self-insured employers will want to work with their PBM vendors and legal counsel to determine what, if any, impact this may have on their adherence to this new regulation.
While much of the new law is aimed at transactions between PBMs and pharmacies, many provisions do impact employer-sponsored plans and their prescription drug benefits. The key provisions which impact employer plans include:
- No required mail order: Plans cannot require or incentivize participants to mail order for prescriptions. Mail order is allowed, but it must be offered on the same terms as retail drug pick-up.
- Minimum reimbursements: PBMs are now required to reimburse a pharmacy no less than the national average drug acquisition cost for each drug. If the national average is not known, the PBM must base the reimbursement on the wholesale acquisition cost. This will likely increase the costs to group health plans.
- Pharmacy Distance Requirement: Pharmacy networks must include an adequate number of non-mail order pharmacies within 30 miles from each participant’s residence. This only applies if there are actually any pharmacy services available in that area.
- Annual Reporting: PBMs and other insurers must file an annual report with the Commissioner of the Kentucky Department of Insurance. What is to be reported and when will be provided by the Insurance Commissioner in the future.
An employer with Kentucky residents participating in its health plan should take the following actions to prepare for January 1, 2025:
- Review all PBM contracts for the upcoming year to check for compliance.
- Work with insurers or PBM vendors to make any necessary plan amendments.
- Disclose any changes to participants before the new contract starts.
- Self-insured employers should work with their PBM vendors to determine if they will try to claim an exemption from the law.
If you have any questions about the KY PMB law or your health and prescription benefits in general, please contact any member of Bricker Graydon’s employee benefits team.
