02/10/2026
This morning, Jake sent the following email to Kansas state senators to clear up confusion over Senate Bill 360, which has been introduced to:
1. Lower prescription costs
2. Help control prescription copays
3. Stop pharmacies from closing
Insurance companies have been spreading lies that this bill will increase costs, so Jake provided ample data that proves this to be incorrect.
We need your help to combat the lies that big insurance are spreading about this bill - see the comments for how you can help!!
Dear Senator,
After having the opportunity to discuss SB 360 with several senators, it has become clear to me that many misconceptions exist about this bill. As a pharmacy owner, I can offer unique and valuable insight into this important topic. I understand this email is longer than ideal, and I have tried to condense it as much as possible. Unfortunately, PBMs have intentionally built an extremely complex and confusing system, which makes it challenging to fully explain this legislation’s implications in only a few paragraphs. I appreciate your time and attention to this issue.
The largest misconception with SB 360 is that it will raise costs (and therefore insurance premiums) for employers and patients. However, ample evidence exists that bills like SB 360 lead to LOWER overall prescription costs. It seems the true point of contention with this bill is the mistaken belief that struggling pharmacies are simply asking to be paid an extra $10 for every prescription. Because so many pharmacies across the state are currently struggling to keep their doors open, I can understand why it might appear that we are asking for $10 handouts to stay afloat. PBMs realize that this misconception exists and have readily fed into it.
Contrary to what the insurance industry would have you believe, this exact “cost plus” reimbursement model (including $10 dispensing fees) has been used for nearly a decade across the country with unparalleled success. Over this period, this payment model has become the industry standard for transparent pharmacy claims. And since its inception, no one has come up with a better payment model that prevents PBMs from manipulating the system and overcharging everyone.
In case you’re not familiar with the methodology of this reimbursement calculation, the National Average Drug Acquisition Cost (NADAC) is a federal drug pricing benchmark determined by randomly polling all pharmacies (from giant chains to small independents) across the country each week. These pharmacies submit their invoices to a neutral third party, who then establishes an average pharmacy purchase cost for every prescription drug. This average acquisition cost is publicly posted by CMS and updated on a weekly basis. NADAC is the only pricing benchmark available for generic drugs and it’s also the only pricing benchmark that can be used for both brand-name and generic drugs alike.
Since no business can survive by selling a product at acquisition cost, an accurate dispensing fee is the other essential part of this “cost plus” reimbursement equation. This $10.50 dispensing fee is not estimated. This fee represents the measured operational costs to run a pharmacy in Kansas, and covers essential components like employee wages, rent, computer software, and electricity.
It’s been well-documented that PBMs overcharge payors (health plans and employers) in numerous ways, such as:
-Retaining portions of rebates and fees from pharmaceutical manufacturers. Just last month, West Virginia announced that a PBM named Navitus failed to pass on $540,000 worth of manufacturer rebates to payors in their state, despite a state law requiring this. Considering that Navitus is generally viewed as a transparent PBM, this really makes you wonder what other PBMs are doing in states like Kansas that don’t have such rebate requirements.
-By paying their own, PBM-affiliated, pharmacies at higher rates. The FTC’s recent interim reports on PBMs found that the three largest PBMs (OptumRx, Express Scripts, and CVS Caremark) reimbursed their own pharmacies at higher rates on nearly every specialty generic drug that was investigated. Specifically, in two highlighted case studies, PBMs often paid their own pharmacies 2,000% to 4,000% of NADAC.
-Through spread pricing, the act of charging a payor more than the PBM pays the pharmacy. In the above-mentioned interim reports, the FTC found combined spread pricing for the three largest PBMs of $1.4 billion for just 51 studied drugs over a five-year period
While spread pricing overcharges payors, it also directly affects every pharmacy that isn’t PBM-owned. PBMs have a financial incentive to drive down reimbursement (often below pharmacy costs to purchase and dispense medications), as spread pricing ensures that every dollar withheld from pharmacies will wind up in PBM pockets. PBMs are simultaneously underpaying pharmacies and overcharging payors for the same prescriptions. Just the other day, a PBM paid our pharmacy $0.22 for a prescription for 30 tablets of generic Lipitor. And that wasn’t an isolated incident. Every pharmacy in the state is dealing with shockingly low payments like this.
More spread pricing examples:
-In 2018, the Ohio Auditor of State found that PBMs overcharged the state’s Medicaid program by more than $224 million in just a 12 month period.
-Also in 2018, the Ohio Attorney General alleged that OptumRx overcharged the Ohio Bureau of Workers’ Compensation by $16 million through spread pricing.
-A 2019 state audit showed that PBMs overcharged Michigan Medicaid by $64 million in spread pricing.
-A 2019 study by Three Axis Advisors found that PBM spread pricing in New York Managed Care Medicaid increased from 10% of total generic drug spending in 2016 to 39% in the fourth quarter of 2017. During this exact period, these same Managed Care Medicaid PBMs cut pharmacy gross profit margins by 83%.
While many documented examples of PBM spread pricing involve state Medicaid agencies, this should not be interpreted as a fault in Medicaid policy. Instead, it’s important to realize that state resources allow PBM spread pricing to be identified, publicized, and legally addressed. Overcharging through spread pricing is rampant throughout the entire PBM industry, but most payors simply do not have the knowledge or ability to do anything about it.
Over the last decade, the most powerful weapon against PBM spread pricing has been required transparency through a single, mandated reimbursement formula based on NADAC and a reasonable dispensing fee. Unlike every other pricing methodology that PBMs utilize, there is simply no way for PBMs to manipulate this payment model. This forced transparency results in enormous savings. Some concrete examples:
-A 2018 Massachusetts Health Policy study found that PBM spread pricing increased managed care Medicaid prescription costs by an average of $15.97 over the standard NADAC + dispensing fee model. As the Massachusetts dispensing fee in 2018 was $10.02 in the NADAC + model, extrapolating the numbers from this study shows that SB 360 will decrease costs by an average of $15.49 per prescription.
-In 2021, Kentucky moved its managed care Medicaid program from traditional PBM payment contracts to a NADAC + dispensing fee model. Over the first two years, Kentucky lowered overall prescription drug costs by $282 million.
-In 2022, Ohio made a similar move for its managed care Medicaid program to a NADAC + dispensing fee model. Over the first two years, Ohio estimates that it lowered prescription costs by $140 million.
-As Joylynn Fix from the West Virginia Offices of the Insurance Commissioner recently testified to the Kansas Senate Committee, West Virginia has comprehensive PBM regulations that are extremely similar to those proposed in SB 360 (including reimbursement at NADAC + $10.49). In her testimony, Ms. Fix mentioned that the insurance industry claimed that these PBM reforms would increase costs. Not only has this not happened, but these PBM reforms have helped decrease the rates at which insurance premiums have risen in recent years.
-A couple of years ago, Butler County transitioned its employee prescription drug coverage from one of the big three PBMs to Oread Rx, a transparent PBM located in Kansas. Our pharmacy is located in El Dorado, the county seat of Butler County. Over the last two years, Oread Rx has reimbursed our pharmacy at a rate slightly higher than NADAC + $10.50. In addition to paying our pharmacy fairly, Oread Rx charges Butler County a flat rate of $8 per prescription claim. Despite all of this, Butler County has saved so much on prescription benefits that they have been able to hold their healthcare premiums flat for the last two years. Even while medical claim costs have driven premiums up, the savings from prescription claims have been enough to counteract this.
From logistics to construction to attorney fees, cost plus pricing is extremely common in numerous industries. As these other industries have found, this pricing methodology facilitates transparency and accountability. The PBM industry is no different. In fact, big insurance companies and PBMs are only able to argue so convincingly against the cost-plus model because their practices have been so opaque for so long. It’s easy to lie about cost increases when almost no one really knows what the actual costs are.
I have heard some concerns that SB 360 seems like government overreach by requiring a $10 payment between two private companies. Alternatively, I would encourage you to view this not as a $10 transaction, but as a mandated pricing structure that has become a necessity through years of PBM abusive behavior. PBMs have earned their way to this required pricing structure through their actions over the last two decades. Nearly one-third of states agree and have already passed such pricing methodology requirements for PBMs.
Every attempt of any state to regulate PBMs has been met with the scare tactic of increased insurance premiums and costs. Despite these false warnings, this simply never happens. If you receive communication from any businesses or industries (other than the PBM industry) about increased costs from SB 360, I encourage you to ask them which side of the argument sounds more believable:
1. The Kansas Insurance Commissioner and local pharmacies who have first-hand experience with the increased costs and abuses associated with PBMs. This side of the argument has actual evidence proving that this bill won’t raise costs and will benefit everyone in our state.
2. An insurance industry that desperately wants to hold onto an opaque method that allows them to manipulate a system, resulting in billions in profit every year.
Once again, I would like to thank you for your time and attention to this issue. If you have any further questions, please feel free to contact me. I would be happy to provide you with any additional information that you would like.
Sincerely,
Jake Milbradt, PharmD
Owner
El Dorado TrueCare Pharmacy
El Dorado, KS
