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Karen Owen Gibbs joined McDermott in 2014 after serving as Vice President and Senior Counsel at CVS Health (formerly CVS Caremark), a Fortune 20 integrated pharmacy company. Karen advises a wide variety of health care companies, investors and lenders on operational, regulatory and enforcement issues related to all aspects of the pharmacy distribution chain. Her practice also covers synergistic areas such as substance abuse/behavioral health, physician and veterinarian office dispensing, evolving requirements related to opioid prescribing and dispensing, and a wide variety of prescription reimbursement issues. Read Karen Owen Gibbs' full profile.

On October 10, 2018 President Trump signed two bills that ban “gag clauses” in pharmacy contracts. Congress passed the two bills—one for Medicare prescription drug plans (“Know the Lowest Price Act”) that will go into effect in January 2020, and another for commercial employer-based and individual policies (“Patient Right to Know Drug Prices Act”) effective immediately—by almost unanimous vote in September 2018.

While many states have already prohibited the use of these clauses, this is the first such action on a federal level.

Gag clauses are sometimes found in contracts between pharmacies and insurance companies, pharmacy benefit managers or group health plans and bar pharmacists from telling customers that they could save money by paying cash for their prescriptions rather than using their health insurance. If pharmacists violate the gag rule, they risk penalties and/or contract termination. Under the new legislation, pharmacists are not required to tell patients about the lower cost option, but they also cannot be contractually prohibited from engaging in the cost conversation.

The legislation is consistent with the position of the Centers for Medicare & Medicaid Services (CMS), which, in May of this year, issued guidance stating that “gag clauses” are unacceptable in the Medicare Part D program.

Specialty pharmacy is not going away any time soon – by 2020, it’s expected that the pharmacy industry’s revenue will exceed $483 billion, with almost all growth as a result of specialty drugs (high-cost medications used to treat chronic conditions, such as cancer). It’s also estimated that the next generation of pharmaceutical “blockbusters” will be primarily specialty products. As the make-up of the pharmaceutical market shifts, we’re also seeing changes with the role of pharmacy benefit managers and other medical groups in the process. How are these shifts in specialty pharmacy impacting the health care system as a whole?

We asked Karen Gibbs, McDermott partner and former VP and Senior Counsel at CVS, to share her expertise on the subject and her thoughts on what’s to come.

Q.  Investments in niche sectors of pharmacy services, specialty pharmacy and pharmacy benefit management have gained huge traction recently. What’s driving the shift away from more traditional pharmacies?   

A.  Traditional pharmacies are retail establishments and have been suffering from the same earnings pressure that all retail establishments have endured. Pharmacy benefit managers (PBMs) typically own mail and specialty pharmacy operations, which generate revenue in a manner complementary to that derived from the pharmacy benefit management services. The margin on specialty pharmacy and PBM services is significantly more than retail pharmacy. Continue Reading Q&A: Shifting Trends in Specialty Pharmacy to Continue in 2018