Building Support for Legislation to Shed Light on Drug Costs 

State policymakers are increasingly interested in how pharmacy benefit managers (PBMs) may drive rising health care spending and make medication less affordable. PBMs are companies that negotiate prices with drug manufacturers and pharmacies on behalf of health insurers or employers; studies have shown that some of their practices contribute to inflated prices.

While Kimberly Chen was serving in the California Health and Human Services Agency, she developed and built support for a provision of the state’s 2025 budget legislation establishing licensing for PBMs. In October, the California legislature followed up with a law reforming PBM practices to lower drug prices for residents. Below, Chen discuss how she made the PBM transparency policy possible in a conversation with Rich Callahan, the lead consultant for the Milbank Memorial Fund’s Emerging Leaders Program.

Rich Callahan: It’s great to have an opportunity to follow up on the discussion of one of your policy successes that we had a couple weeks ago in St. Louis at the alumni meeting of the Emerging Leaders program. If you could describe the position you were serving in at that time.

Kimberly Chen: About six months ago, I was the Assistant Secretary for Program and Fiscal Affairs at the California Health and Human Services Agency, where I handled our health care coverage entities. That included the Department of Health Care Services, our Medicaid entity, the Department of Managed Health Care, which covers our managed care organizations, and our ACA exchange.

Rich Callahan: Kim, you were handling several positions at once, and out of that challenge you created this opportunity for this policy success. What were you were trying to accomplish?

Kimberly Chen: Rolling back the tape two to five years, the conversation about PBMs — pharmacy benefit managers — had grown significantly. PBMs tie into health care costs, affordability, and specifically the cost of pharmaceuticals and prescriptions. Supporters say the PBMs’ role is to consolidate purchasing to lower costs for consumers, but in practice and policy, we’ve learned some of that isn’t as transparent as it seems. Some of the supposed savings become profits for PBMs.

There have been efforts to ban them, regulate them, or require transparency. Where this particular project started was near the end of the Biden administration, during budget continuing resolution conversations about whether to include PBM reforms in federal legislation. That sparked conversations within the state administration about whether we could do more.

We looked at the federal proposal and then went to the California Department of Managed Health Care — which regulates health plans — and Department of Health Care Access and Information, which holds the Health Care Payments Database. [They helped us identify] one major sticking point: that PBMs were not regulated or licensed, so they weren’t required to directly report data to the state.

Rich Callahan: You’ve described a complex, fluid, dynamic environment. You emphasized the “we”—that it’s a team effort. But from a leadership standpoint, what drove you to engage in this?

Kimberly Chen: First, political salience. This was important to political leadership, and as someone in both policy and political roles, you need to respond to leadership priorities. Second, consumer impact. Costs ultimately fall on consumers, and anything we can do to address that matters.

I started my career as a consumer advocate, and the department leaders I worked with on this effort had also worked with consumer advocates. We had long-standing relationships built over more than 10 years, often on the same side of issues, always with a shared goal of consumer protection and affordability.

Rich Callahan: So, in this complex environment and with long-standing relationships, how did you get started?

Kimberly Chen: Part of it was me raising my hand and saying, “This is cross-departmental. I now have purview over multiple departments, and I know the staff. Let me take the lead.”

I’d worked in the legislature; I knew the key staff; I’d worked on budget bills and legislation from multiple angles. I felt I knew the players and textures and could get it done.

In my formal role, I could bring department directors together. In collaboration with agency leadership and the governor’s office, we agreed I would take point because I knew the people and the issue. Also, when I was in grad school, I wrote a research paper on PBMs, so I felt very ready.

Rich Callahan: So, there’s tenacity, persistence, and relationships. You said that you developed consensus—working with the governor’s office, agency secretary, full-time legislature and expert staff.

What does developing consensus look like, and what happens once they sign off on you as point person?

Kimberly Chen: The first thing I did was lean into department expertise and ask them to put together a menu of options, cross-walked with federal legislation and other states’ actions. Step one: gather information.

Then conduct risk assessment—what are the benefits, risks, what do we know, what do we not know?

We mapped out a range of options—from lightest touch to kitchen-sink approaches. Workshopping that was the hardest part. Then we repeatedly brought it to leadership, refining it as needed, presenting the same information so everyone could assess their risk tolerance and make decisions.

Rich Callahan: What did “workshopping” look like?

Kimberly Chen: It started with subject-matter experts doing a brain dump. Then we organized their information so non-experts could understand what it meant, who would care, and who might oppose it.

And, sometimes you don’t know something until you try. There’s discomfort in saying, “This could be the outcome—or this could be. I don’t know yet. I need approval to talk to people, but that risks tipping our hand.” It’s an iterative, strategic process intertwined with policy.

Rich Callahan: So, you’re balancing the need for information from outside stakeholders with the need not to disclose too much too soon?

Kimberly Chen: Yes, while also balancing relationships with legislative colleagues. Many want to collaborate and share credit for the years they’ve spent keeping this issue alive. So, we had to be strategic about when to bring them in.

Rich Callahan: So, you start with a continuum of options. Through iteration, they get refined. What does this start to look like as you’re discussing it with the governor’s office, legislators, and stakeholders?

Kimberly Chen: It culminated in a joint memo from the governor’s office and our agency. We laid out options, our recommendations, and the political strategy — for example, if we take these options, others remain available for legislators. Ultimately, we recommended regulating and licensing PBMs so they would be required to submit data and so future reforms could be enforced.

We presented it to the governor, leadership met, and we were told the governor chose that option.

Rich Callahan: You talked about transparency. Is it fair to say you addressed transparency by first requiring direct data submission?

Kimberly Chen: Yes. The legislature had long tried to get pharmaceutical cost reporting, but the state only regulated health plans, which receive PBM data secondhand through contracts. It is difficult to compel complete data from a contractor of a contractor. We needed authority over the entity that actually holds the data. Licensing PBMs did that.

Rich Callahan: And you left the broader practice-reform piece for later legislation?

Kimberly Chen: Correct, and that was also strategic politically to ensure legislators could share the load in policymaking and advance their priorities in this area.

Rich Callahan: Once leadership and the governor sign off, what do you do next?

Kimberly Chen: This is where long-standing legislative relationships mattered. Working with the governor’s office, we talked with key legislative staff, including authors of past bills. Because we knew each other well—sometimes from both collaborative and adversarial roles—we could have honest conversations.

I walked them through the theory, then brought in department experts for technical details. We also briefed consultant staff. Many of them have 10-to-15-plus years of experience, so they know how hard consensus on this issue is.

We essentially went on a “tour” to ensure people understood the approach. Some of it we figured out as we went. The goal was to at least establish licensure as the foundation for further reforms.

Rich Callahan: You “walked the halls”—or Zoom halls—of the Capitol. Then it goes to the legislature. How did it go?

Kimberly Chen: We introduced it as trailer-bill language as part of the budget. We made sure it truly was budget-related by including the licensure structure and funding.

Because trailer bills have less formal process, it was even more important to brief both budget staff and policy committees beforehand and afterward. That helped the legislators get on board because staff knew what we were proposing and why.

Rich Callahan: You also developed a fascinating financing mechanism. How did that work?

Kimberly Chen: We tapped the Department of Managed Health Care, which regulates health plans, and essentially adapted their existing regulatory framework for PBMs. That made the process easier to explain and implement — “lift and shift.”

Funding came from PBM licensure fees. Part of the funding went to Department of Managed Health Care to perform licensure; part went to Health Care Access and Information to support the Health Care Payments Database, which needs sustainable funding.

Rich Callahan: And the database is the all-payer claims database?

Kimberly Chen: Yes. It collects data from nearly every regulated health care entity in California. It has struggled at times to be self-sustaining because it’s expensive, and you don’t want to overburden participants. Using part of the PBM licensure fees to support it made sense, since the database helps with transparency around PBMs.

Rich Callahan: Coming back to where we started — consumer advocacy — how many people are affected by this legislation?

Kimberly Chen: Everyone covered under Department of Managed Health Care–regulated commercial plans—around 15 million people. Every PBM that works with a regulated commercial health plan is affected.

Rich Callahan: As you reflect on this experience, is there anything that surprised you or that’s essential to understanding how this came together?

Kimberly Chen: Trust — and being driven to do the right thing. Even in a political environment, that’s what guided me and what helped get this across the finish line. People trust me to work with integrity and to know my stuff. Those relationships are built over time.

One of the biggest compliments I received was when a legislative staffer said that when they saw I was leading the effort, they immediately felt relieved because they knew it was coming from a good place. I show my value through the work, and I build relationships through how I work with people.