HARRISBURG — As pharmacy closures have continued across the state, a bipartisan group of lawmakers has questioned how the Shapiro administration is following through on the promises of a 2024 law meant to support these stores.
They’ve also questioned the state’s oversight of corporate middlemen, known as pharmacy benefit managers (PBMs), who manage drug plans for employers and insurance companies. Critics say they harm patients by driving up drug costs and community pharmacies by offering insufficient reimbursements.
State Sen. Lindsey Williams (D., Allegheny) — one of six lawmakers who signed a July letter raising concerns about the enforcement of the bipartisan and much-touted law known as Act 77 — told Spotlight PA she wants pharmacists to feel that PBMs truly are being held accountable.
“That’s what this legislation is trying to do,” she told Spotlight PA. “And I’m hoping that we can push it along to make sure that it fulfills its intent.”
When Democratic Gov. Josh Shapiro signed Act 77, he said PBMs’ “greed and conduct” were primarily to blame for independent pharmacy closures and that they “manipulate and profit off of the pharmaceutical system, screwing over consumers and our community pharmacies along the way.” The law limits practices that critics say PBMs use to unfairly make profits and forces them to disclose key information about rebates and administrative fees.
But the law — for a number of reasons — has not stopped hundreds of pharmacies from closing over the past year.
Now, lawmakers and pharmacists are reckoning with its limits — and the question of whether it will live up to the hopes that surrounded its passage. Earlier this year, the Pennsylvania Pharmacists Association warned closures would continue without further state action.
“Some of the things that we thought would be cleared up with Act 77 are not,” state Sen. Judy Ward (R., Blair) told Spotlight PA in July. “That’s disappointing to me.”
The law’s protections and requirements only apply to some health insurance coverage — about 24% of the state’s market, according to the Shapiro administration. Included are fully-funded commercial plans — the kind people buy on their own or that their employer purchases — though an Insurance Department spokesperson told Spotlight PA the state can only regulate contracts issued in Pennsylvania, citing two court cases. That out-of-state exclusion has concerned some pharmacy advocates.
Despite the limits, Pennsylvania Insurance Commissioner Michael Humphreys said earlier this year that new oversight under the law “brings needed transparency and fairness to our healthcare system for all Pennsylvanians.”
But in a letter dated July 1, Ward and five other state senators told Humphreys that pharmacies “still grapple with unsustainable reimbursement rates, predatory practices, and operational pressures that threaten their ability to serve communities—especially in underserved and rural areas.” Four Democrats and two Republicans signed it.
“Effective policy requires effective implementation and enforcement, and we are concerned that is not occurring,” they wrote in the letter, which Spotlight PA obtained through the state’s open records law.
Closures continue
Shapiro administration officials have pushed back and defended their approach, and they’ve continued to express optimism for the law’s ability to assist pharmacies. In a July response, Humphreys acknowledged “confusion” over the timeline for the law’s rollout. But he said his agency “does plan to avail itself of all the tools in Act 77” to ensure that benefit managers “are complying.”
Insurance Department spokesperson Diego Sandino told Spotlight PA in November that lawmakers wrote a staggered implementation timeline into Act 77 and that the agency “is implementing this law as written and passed.” Most of the law’s major protections aren’t in effect yet, Sandino said.
“Act 77 does have limitations,” he said, “but those limitations are clearly set forth in the language of the legislation and based on principles of state jurisdiction and federal preemption.”
Meanwhile, pharmacies and patients continue to struggle with the impact of closures, as they can force patients to travel farther, wait longer, and even fall through the cracks.
About 1,100 licensed Pennsylvania pharmacies went out of business from early 2020 to early November of this year, according to Department of State records. While some new ones opened, the data showed a net loss of hundreds of pharmacies.
About 500 of those closures appear to have been Rite Aid stores. That company had its own set of financial problems, but Spotlight PA reported in July that its collapse highlighted bigger problems facing the industry.
State data shows hundreds of the closures occurred after Act 77 became law. Many were Rite Aid locations, although the list also includes other big chain stores and smaller operations.
Deron Shultz, CEO of Minnich’s Pharmacy in York County, told lawmakers that customers found his employee-owned business after having trouble filling prescriptions elsewhere.
“They say, ‘We haven’t had our blood pressure medicine in four days. We haven’t had our mental health meds in a week,’” Shultz told lawmakers in September. “How do we fix that? Our community health workers, our pharmacists, our technicians are tracking down one, two, three doctors at a time to get all those prescriptions.”
A spokesperson for an association that represents PBMs says “it makes no sense to blame” them for pharmacy closures in the state. The group says these companies work to reduce drug costs and save money for patients and the broader health care system.
“Independent pharmacies often point the finger at PBMs instead of acknowledging that there are many factors that influence closures,” said Greg Lopes, a spokesperson for the Pharmaceutical Care Management Association.
Those reasons, Lopes said, include high prices from drug companies, customer preferences for online choices, and population declines in rural areas.
New oversight powers
Act 77 was designed to address a number of problems by putting new requirements on prescriptions filled through some insurance plans. It was intended to help level the playing field between pharmacies and PBMs.
Patient steering: Community pharmacists and their advocates say PBMs steer patients to their own pharmacies, making it harder to compete and limiting the ability of patients to make their own choices.
Under the law, insurance plans and benefit managers can’t require patients to purchase prescription drugs exclusively through a mail-order pharmacy or a retail pharmacy affiliated with a PBM. They also cannot use financial incentives for the exclusive benefit of a retail pharmacy affiliated with a benefit manager.
Clawbacks: The Shapiro administration said PBMs artificially inflate copays for patients so they can profit. If a patient paid $20, for instance, but the drug’s actual cost was $5, the benefit managers would “claw back” the $15 difference for profit, the Shapiro administration said. Pharmacists have said gag clauses in contracts have prevented them from telling patients when it would be cheaper to buy the drugs without insurance.
The law puts new limits on clawbacks, saying a pharmacist can’t charge more for a covered prescription drug than what it would cost to buy the drug without insurance.
Spread pricing: Some advocates also say PBMs’ use of “spread pricing” — charging insurers more than they pay pharmacies — hurts both consumers and pharmacies. A version of the bill that became Act 77 would have banned spread pricing, but that language was removed in the GOP-controlled state Senate.
The final version of Act 77 empowers the Insurance Department to review the impact of steering and spread pricing on the cost of prescription drugs and pharmacy access.
Transparency: Some lawmakers, the Shapiro administration, pharmacy industry advocates, and others say much of the work of PBMs is opaque.
Act 77 puts new transparency requirements on them, including requiring an annual report beginning next year that must include information on administrative fees, rebates, and descriptions of any differences in reimbursements for affiliated and nonaffiliated pharmacies. The Shapiro administration said increased transparency requirements will prevent PBMs “from hiding predatory practices that drive up profits.”
Enforcement concerns
But, despite those new powers and restrictions, some lawmakers are concerned with the law’s rollout.
In their letter to the Insurance Department, the six state senators shared detailed questions about the agency’s actions.
They asked about guidance for typically high-cost specialty drugs, appeals received, the status of a study into patient steering and spread pricing, and the department’s interactions with PBMs. They wrote that the legislature did not empower the Insurance Department “for the agency to ignore the primary industry at which Act 77 was intended to address.”
At the same time, they also sent separate questions to the Pennsylvania Department of Human Services about prescriptions filled through the state’s Medicaid program, which is not covered by Act 77 but is overseen by the Shapiro administration. Lawmakers wrote that some reimbursements through Medicaid — intended for low-income people — are “alarmingly low.”
In response, Human Services Secretary Valerie Arkoosh described a number of changes made and enforcement actions taken in recent years, as well as “a significant reduction in pharmacy complaints.”
Lawmakers followed up with a legislative hearing in September and another letter to the Shapiro administration in October — this time signed by a larger group of state senators.
During the September hearing, Humphreys said Act 77 will help create a fairer market for commercially-insured patients and independent pharmacies. He also acknowledged the difficulty of regulating PBMs, comparing the situation to putting pressure on a balloon.
“You push in one side, and it starts popping out the other,” he told lawmakers. “But this legislation, I think, did try to kind of go around that balloon and push it all at the same time.”
Aspects of the bill are expected to roll out in 2026. Many insurance plans covered by the law will begin including Act 77 protections, the first annual transparency reports are due in July, and Humphreys told lawmakers his agency hopes to have results from a study into benefit manager business practices in the new year.
Regarding complaints, Sandino said the department “is in the process of developing a specific webform to help pharmacies and pharmacists navigate the process.”
Even though the law only applies to certain types of insurance, the Shapiro administration has said transparency provisions “will help everyone better understand how PBMs work.” In Sandino’s response, he said the agency has asked benefit managers “to voluntarily provide” data for plans not directly covered by the law.
State Rep. Jessica Benham (D., Allegheny), the lawmaker who was the prime sponsor of the bill that became Act 77, described it as “a good first step,” said it has had a positive impact, and that it will take time to understand the full scope of that impact. She also expressed support for more legislative action at both the federal and state levels.
Additional Insurance Department funding in the recent state budget could resolve some implementation issues, she told Spotlight PA. She wants to see that impact before demanding specific implementation changes.
“Implementation of a complicated bill like Act 77 was always going to take some time,” she said. “And it was going to run into some tangles that would need to be worked through.”