Watch CBS News

'Gag Clause' Keeping Pharmacies From Revealing Lower-Cost Drug Options

SACRAMENTO (KPIX 5) -- Obscure rules that cost patients money when they're buying prescription drugs have been a pharmaceutical industry standard for years, and now a bill in the state Assembly is targeting the practice.

Currently, pharmacy staffers are not allowed to tell customers about cheaper alternatives to the medication they are buying because of contracts with pharmacy benefit managers and insurers.

In virtually every pharmacy in America, buried deep in the fine print is a powerful, profitable, and widely used tactic known as a "gag clause."

"The clauses that we're speaking about are really non-disclosure clauses, or as we call them gag clauses, which prevents the pharmacist from disclosing to a patient when the cash price for a medicine may be less than the copay on their insurance," said Jon Roth, CEO of the California Pharmacists Association.

For example, take amoxicillin, one of the cheapest and most widely used antibiotics.

"The cost to the pharmacy is $1.97 for 100 mg suspension liquid. A typical copay for an insurance plan would be $20," said Roth. "So in this example, the pharmacy would be required to charge the $20 copay, so the patient is really overpaying for that amoxicillin around $18.03. And you multiply that by the 180 million lives that [pharmacy benefit managers] cover and you see how profitable it would be for PBMs."

Pharmacists could save patients money by telling them to pay for some prescriptions out-of-pocket rather than through their insurance, but they risk breach of contracts with insurers and PBMs.

The three largest PBMs - CVS Caremark, OptumRx, and Express Scripts - act as middlemen and negotiate prices with drug companies.

Roth said since the 70s, PBMs have grown into unregulated, 800-pound gorillas, pressuring pharmacies into lopsided contracts for one singular purpose.

"They do so for one reason: money," said Roth. "These profits go directly to their bottom line and enriching their profits and harming consumers."

So California lawmakers have taken notice. Assemblymember Jim Wood (D-Healdsburg) introduced a bill that, among other things, would ban the gag clauses.

"But I do believe the lack of transparency in their operations is an issue requiring greater information and accountability to purchasers and ultimately to consumers," said Wood.

The Pharmaceutical Care Management Association, which represents PBMs, sent us a statement saying "we support the patient paying the lowest price available at the pharmacy counter."


View CBS News In
CBS News App Open
Chrome Safari Continue
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.