Richard B. Davis, Associate

Publications & Media

New Wisconsin Law Regulates PBM and Other Stakeholders Involved in Drug Pricing

Health and Life Sciences Roger N. Morris, Edward D. Rickert, William (Bill) J. Toman, Richard B. Davis

Doctor writing out RX prescription selective focus

On March 26, 2021, Wisconsin enacted 2021 Wisconsin Act 9 (the "Act"), which, among other items, requires a pharmacy benefit manager ("PBM") to obtain licensure from the Office of the Commissioner of Insurance ("OCI"). The Act passed overwhelmingly via rare bipartisan support and generally, with a few exceptions, becomes effective on January 1, 2022. Such bipartisan support reflects the increased interest that state governments are taking in the PBMs' role in the drug supply chain. This Alert will break down a few of the key provisions of the Act as well as provide some insights as to what may come next for effected stakeholders.

PBM Licensure

The Act requires a PBM to obtain a license from OCI under the licensure framework that currently applies to employee benefit plan administrators (hereinafter referred to as "administrators").

The Act specifies that a PBM must comply with many of the licensure requirements that apply to administrators. An applicant for a PBM license must do all of the following: pay an annual fee of $100; supply a bond; show that the entity intends to act in good faith and that each officer is competent and trustworthy; and designate an individual to administer the plan. A PBM is subject to OCI’s authority to examine or audit its records.

What is a PBM?

Under the Act, a PBM is defined to mean an entity that contracts to administer or manage prescription drug benefits on behalf of an insurer, another entity that provides prescription drug benefits, or a health care cooperative. In practice, private commercial contracts typically delineate the specific role of a PBM. A PBM will often negotiate drug prices and rebates, create a pharmacy network, create and operate a drug formulary, and/or handle claims payments.

If a PBM also performs services as an administrator[1], only an administrator license is required. Specifically, if a PBM’s responsibilities include collecting premiums or charges, effecting coverage, or settling claims, the PBM must obtain licensure under current law as an administrator.

New PBM Reporting Requirements

The Act specifies that a PBM must submit an annual report to OCI that contains the aggregate rebate amount that the PBM received from all pharmaceutical manufacturers but retained and did not pass through to health benefit plan sponsors and the percentage of the aggregate rebate amount that is retained rebates. The Act specifies that the reports are a trade secret under the Uniform Trade Secret Act under Wisconsin law and information required to be included in the report is limited to contracts held with pharmacies located in this state. Nonetheless, such reporting requirements provide OCI with vital information in determining the PBM's responsibility for potentially high drug prices, which may result in even more regulation of PBMs.

Disclosure of Drug Substitutions

The Act requires a health insurance policy or governmental self-insured health plan, or a PBM that provides services under the policy or plan, to provide enrollees with written notice 30 days in advance of a formulary change that removes the enrollee’s prescription drug from the formulary or that reassigns the drug to a benefit tier that has a higher deductible, copayment, or coinsurance. The notice must include information on the procedure for the enrollee to request an exception to the formulary change.

Notice of a drug substitution is not required in either of the following circumstances:

  • The U.S. Food and Drug Administration (FDA) no longer approves the drug, has issued a warning or other similar statement regarding the drug, or has approved the drug for use without a prescription.
  • One of the following is added to the formulary at the same benefit tier or at a benefit tier that has a lower deductible, copayment, or coinsurance:
    • A generic prescription drug that is approved by the FDA for use as an alternative to the prescription drug.
    • A prescription drug in the same pharmacologic class or with the same mechanism of action.

When a PBM is not required to give notice of a drug substitution due to a generic prescription drug being approved by the FDA as an alternative, or a prescription drug being added in the same pharmacologic class or with the same mechanism of action, a pharmacist must notify an enrollee of the formulary change at the time the enrollee attempts to fill or refill the prescription.

Lastly, the Act specifies that if an enrollee has had an adverse reaction to the generic prescription drug or the substituted prescription drug, a pharmacist may fill one 30-day supply of the originally prescribed drug at the cost-sharing amount that applies to the drug at the time of the substitution.

"Gag Clause" Prohibition

The Act specifies that a health insurance policy or governmental self-insured health plan, or a PBM that provides services under the policy or plan, may not restrict or penalize a pharmacy from informing an enrollee of the difference between the out-of-pocket cost of a drug under the policy or plan and the amount the person would pay without using the policy or plan coverage.

Likewise, a health insurance policy or governmental self-insured health plan, or a PBM that provides services under the policy or plan, may not require an enrollee to pay at the point of sale an amount that is greater than the lower of either the cost-sharing amount for the drug under the policy or plan or the amount that a person would pay without using the policy or plan coverage.

PBM Network Notices

The Act requires a PBM to provide written notice to a pharmacy of any certification or accreditation requirements used by the PBM as a determinant of network participation within 30 days of a receipt of a written request from the pharmacy for that information. A PBM may change its accreditation requirements no more frequently than every 12 months. This language is no doubt intended to prevent PBMs which own their own pharmacies from imposing arbitrary network standards to limit or prevent other pharmacies from reaping the benefits of the PBM's network.

Audit Standards

The Act specifies detailed audit procedures that apply when a health insurance policy or governmental self-insured plan, or a PBM that provides services under a policy or plan, audits a pharmacy or pharmacist. The Act defines an “audit” to mean a review of the accounts and records of a pharmacy or pharmacist by or on behalf of an entity that finances or reimburses the cost of health care services or prescription drugs.

PBM Recoupment Parameters

The Act states that a PBM must:

  • Refrain from subjecting a pharmacy to a recoupment or recovery for a clerical or recordkeeping error in a required document or record, including a typographical or computer error, unless the error resulted in an overpayment to the pharmacy.
  • Refrain from assessing a recoupment or other penalty on a pharmacist or pharmacy until the appeal process is exhausted and the final report delivered to the pharmacist or pharmacy.
  • Refrain from accruing or charging interest between the time the notice of the audit is given and the final report has been delivered.
  • Exclude dispensing fees from calculations of overpayments.

Additionally, the Act specifies that a PBM may not retroactively deny or reduce a pharmacy’s claim after adjudication of the claim except in the following circumstances: the original claim was submitted fraudulently; the payment for the original claim was incorrect; the services were not rendered by the pharmacy; the pharmacy violated state or federal law in making the claim or performing the service that is the basis for the claim; or the reduction is permitted in a contract between a pharmacy and a PBM and is related to a quality program.

Requirements for Pharmacies

Lastly, the Act imposes certain requirements specifically related to pharmacies. These requirements include the following:

  • A pharmacy must post a sign that describes a pharmacist’s ability to substitute a less expensive drug product equivalent or interchangeable biological product.
  • The Pharmacy Examining Board must create a list of the 100 most commonly prescribed generic drug product equivalents and provide the list to each pharmacy on an annual basis. Each pharmacy must make available to the public, information on how to access the list. Each pharmacy must also make available for the public, information on how to access FDA lists of all currently approved interchangeable biological products.
  • Each pharmacy must have available for the public, a listing of the retail price, updated at least monthly, of the 100 most commonly prescribed prescription drugs. The list must include brand name and generic equivalent drugs and biological products and interchangeable biological products that are available for purchase at the pharmacy.

The Act also repeals a provision under current law that requires a mail order plan to allow coverage of a prescription drug when filled at a pharmacy selected by the enrollee at the same cost as covered under the plan.

Impact and What's Next

As indicated in the introduction, this Act represents a significant step in regulating PBMs in Wisconsin, which previously were largely unregulated. The reporting requirements outlined above are particularly significant in that they represent a clear attempt by the State to better understand the impact of PBM retention of manufacturer rebates on drug passing as passed on to the consumer. Notably, unlike other recent PBM legislation, the Act does NOT contain any provisions related to 340B Drug Pricing. We discuss some examples of state regulation of PBM 340B Drug Pricing discrimination in another article.

Moving forward, entities which operate in this space should carefully review the definitions of "PBM" and "administrator" to understand if the Act will affect their operations. As we understand that many entities have operations which contain both "administrator" and "PBM" elements, this Act may have material impacts on both licensure and operational requirements.


[1] “Administrator” means a person who directly or indirectly solicits or collects premiums or charges or otherwise effects coverage or adjusts or settles claims for a plan, but does not include the following persons if they perform these acts under the circumstances specified for each:

(a) An employer on behalf of its employees or the employees of a subsidiary or affiliated employer.

(b) A union on behalf of its members.

(c) A creditor on behalf of its debtor, if to obtain payment, reimbursement or other method of satisfaction from a plan for any part of a debt owed to the creditor by the debtor.

(d) A financial institution that is subject to supervision or regulation in performing these acts by federal or other state authorities.

(e) A company that issues credit cards and provides advances for, or collects premiums or charges from, its credit card holders, if the company does not adjust or settle claims.

(f) An attorney who adjusts or settles claims in the normal course of practice or employment as an attorney, if the attorney does not collect charges or premiums.

(g) An agent licensed in this state whose activities are limited to the sale of insurance.

(h) An insurer authorized to do an insurance business in this state if the insurer performs these acts in the normal course of its insurance business. Wis. Stat. Ann. § 633.01(1).

If you have any questions about this Act and how it might affect your current operations, please contact your Quarles & Brady attorney or: