Gov. Jared Polis recently rolled out his preliminary annual budget proposal for the next fiscal year. According to early estimates, Colorado will face difficult decisions as one-time federal funds run out, economic outlooks worsen and inflation rises. One of the fastest rising costs for Colorado families is easily the cost of health care – specifically the cost of prescription drugs, which has risen three times faster than inflation during the last 10 years.

However thanks to a bipartisan law we sponsored in 2021, there are some silver linings and opportunities to cash in on some incredible savings. House Bill 1237, The Competitive Pharmacy Benefits Manager Marketplace Act, modernizes how the state buys prescription medications and creates an opportunity for Colorado to save millions of dollars in prescription drug savings. These savings alone could prevent significant cuts to important public services.

Most people have never heard of Pharmacy Benefit Managers (PBMs), which are middleman corporations that negotiate prescription drug prices on behalf of health insurance plans. In this role, PBMs ultimately determine what Coloradans will pay for the prescription drugs they need. PBMs are supposed to negotiate discounts for prescription medicines and pass these savings to consumers. Unfortunately, the drug supply chain is riddled with misalignments that incentivize PBMs to keep drug prices high in order to extract high profit margins, all while Colorado patients, local pharmacies, employee health plans and the state face increasing costs for medicines.

To address this issue, House Bill 21-1237 creates a new, competitive PBM reverse auction process to get the lowest prices possible from the PBM selected to manage prescription benefits for Colorado’s state employees and their families. This transparent, online marketplace – think eBay for prescription drug benefits – compels PBMs to offer lower and lower bids over multiple rounds of transparent bidding as PBMs compete to win the state contract for providing prescription medications.

By creating an online marketplace where PBMs are required to compete transparently, Colorado can drive down out-of-pocket costs for prescription medicines, hold PBMs accountable and save millions of dollars on health care for Colorado. In fact, an initial analysis of data suggests Colorado could save between $6 million and $10 million annually on drug costs without any reduction in benefits for state employees. Moreover, Colorado’s PBM reverse auction for state employees provides a platform that, if implemented successfully, could be expanded to provide Colorado private-sector employers and working families relief from rising prescription drug prices.

This innovative and modern strategy for reducing prescription drug costs has been put to great effect in other states that have passed similar legislation. New Jersey saved $2.5 billion in prescription drug costs through conduct of two, successive PBM reverse auctions. Just this summer, a PBM reverse auction conducted by Minnesota, which has a population size similar to Colorado, will save a projected $130 million on prescription drugs costs during the next two years. This represents a massive 27% savings over their previous state and local government employees’ prescription drug contract. 

One of the most important lessons we’ve learned from states like Minnesota and New Jersey that have conducted successful reverse auctions is this: the PBM reverse auction succeeds in lowering prescription drug spending only when it is conducted with full transparency. State managers and employee beneficiaries must work together as partners and joint stakeholders to conduct a successful PBM reverse auction process. If Colorado heeds this lesson, Coloradans stand to save millions in taxpayer dollars while we lower costs for beneficiaries who are covered by state health programs.

Through a timely and well-run PBM reverse auction process conducted with real transparency and partnership, all Coloradans stand to win. Lowering the cost of prescription drugs offers Colorado the greatest opportunity we have this year to save real money for the people of our state. Taxpayers will save. The state’s employees will save. Our state government will save. In a year filled with bleak budget outlooks and potential cuts to public programs, Colorado may create a budget bright spot through this PBM reverse auction – if it’s done right.

Sen. Majority Leader Dominick Moreno  is a Democrat representing Commerce City. Sen. Janice Rich is a Republican representing Grand Junction.