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Three More States Enact Reverse Auction Laws to Reduce Prescription Drug Spending

Colorado, Louisiana, and Minnesota enacted laws this session enabling reverse auctions to procure a pharmacy benefit manager (PBM) for their state employee health plans (SEHPs).

This approach to PBM procurement, first used by New Jersey, aims to achieve savings by encouraging PBMs to be more competitive on pricing in their bidding for contracts without reducing drug benefits for the state’s public employees.

In the reverse auction procurement model, states design their own drug formulary for their SEHP, and a PBM’s participation in the auction is contingent on agreeing to the terms of the proposed state drug benefit plan. This eliminates the need for states to compare bids based on specific services provided and instead allows states to focus solely on price.

To conduct a reverse auction, states must first procure a third-party technology vendor through a request for proposal (RFP). PBM procurement is then initiated through a second RFP and managed through the vendor’s technology platform. The reverse auction platform allows each PBM to see how its bid compares against the highest bid in an anonymous fashion, giving bidders the opportunity to improve their offers over several rounds of bidding. This process forces vendors to compete more aggressively on price alone while still offering the same services and benefits to SEHP beneficiaries.

Colorado, Louisiana, and Minnesota enacted legislation in June 2021 to authorize reverse auction procurement of PBM services for their SEHPs and are in the early stages of implementation. Minnesota released an RFP for a technology platform with bids due in early August. Colorado is in the process of developing their technology vendor RFP, while Louisiana’s law went into effect on August 1.

New Jersey became the first state in the nation to authorize and implement reverse auction procurement of PBM services in 2016 – the state reports a savings of $2 billion over five years without cutting drug benefits for State Health Benefits Program and School Employees’ Health Benefits Program enrollees. Maryland followed in 2019, tasking the state’s Prescription Drug Affordability Board (PDAB) with evaluating whether to pursue this model of procurement. In the meantime, Maryland moved forward with an RFP for a technology platform to support the reverse auction with bids due early July. New Hampshire’s Employee Benefits Plan secured a contract with a technology platform in January. Initial responses to their RFP for PBM services were due in June, and bidders are being evaluated on price and a point system based on the technical questionnaire. Their proposed PBM contract terms contain few major changes from their existing PBM contract, though the state is switching to a pass-through model.

Other states continue to express interest in this approach to achieving prescription drug savings. Looking ahead, NASHP will continue to monitor reverse auction proposals and compile resources useful to states considering and implementing reverse auctions such as enacted laws, RFPs, and contracts. On July 28, 2020, NASHP hosted a webinar featuring New Jersey’s experience implementing a reverse auction model. State officials interested in viewing the webinar recording or learning more about reverse auctions should contact Amanda Attiya.


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