Lower Pharmacy Middleman Fees

Section 1 of this bill amends the Insurance Law to add a new Section 3114, which provides that any contract or other arrangement entered into by a health insurer that provides for the provision and administration of pharmacy benefit management services shall be based on a pass-through pricing model.

Subpart 1 provides that payment to a pharmacy benefit manager (PBM) shall be limited to the actual ingredient costs, dispensing fees paid to pharmacies, and the administrative fee that covers the cost of providing PBM services (the maximum for such administrative fee may be set by the Department of Financial Services (DFS)).

Subparts 2 and 3 requires PBMs to identify and report to both DFS and the health care plan all sources of income, payments, and financial benefits received by them (including any clawbacks, rebates, charge- backs, fees, etc.) and pass through those financial benefits in full to the health care plan to reduce the reportable ingredient cost.

Subpart 4 requires the PBM to identify all ingredient costs and dispens- ing fees or similar payments made by the PBM to any pharmacy in connection with the contract.

Subpart 5 prohibits the practice of spread pricing, which is defined to mean any amount charged or claimed by the PBM in excess of the amount paid to the pharmacies on behalf of the health care plan less an admin- istrative fee. Subpart 5 also requires any excess amount to be remitted to the plan on a quarterly basis.

Subpart 6a requires PBMs to make their payment model for administrative fees available to the health care plan and DFS, and requires the plan, if so directed by DFS, to make change to the payment model and resubmit an amended contract to DFS for review and approval. Subpart 6b subjects any changes in premiums resulting from the contracts to approval by DFS. Subpart 6c defines pharmacy benefit manager to mean an entity that contracts with pharmacies or pharmacy contracting agents on behalf of a health plan, state agency, insurer, managed care organization, or other third-party payer to provide pharmacy health benefit services or admin- istration.

Section 2 provides the effective date, such that the act would take effect immediately.

Justification

This bill expands upon a significant cost-saving measure from the FY 2019-20 Budget that prohibits the practice of spread pricing by PBMs contracted with NYS Medicaid Managed Care Plans to all commercial insur- ance plans.

In the 1960s, insurance companies began to expand their coverage of prescription medications. This expansion of coverage led to increased caseloads that put a significant administrative burden on the insurance industry. Prescription drug coverage plans began to outsource the proc- essing and administration of claims to new companies called Pharmacy Benefit Managers (PBMs). As the price of prescription medications increased, PBMs were able to wield their significant power within the prescription drug pricing industry and act as a "middleman," negotiating discounts and rebates with a manufacturer in exchange for a preferable position on an insurance company's drug formulary. The savings from these rebates and discounts are meant to pass through to patients making drugs more affordable.

PBMs negotiate rebates with the drug's manufacturer in exchange for a favorable position on an insurance company's formulary. A favor able position on a formulary makes it more affordable to consumers thus increasing the drug's market share. Despite the fact that many PBMs claim to pass on these savings from these rebates to the consumer, many PBMs hold on to large portions or all of these rebates as profit.

PBMs also act on behalf of the insurance company to reimburse pharmacies for the cost of purchasing the medication from the distributor and dispensing the medication to the consumer. These costs, and often a small profit, are covered through the "administrative fee" charged to insurance companies they are contracted with.

Oftentimes, PBMs will also markup - sometimes dramatically - the differ- ence between the amount they reimburse the pharmacy and the amount they charge their clients. These controversial practices, called "spread pricing," "claw backs," or "chargebacks," are most common with generic drugs, which make up almost 901 of all prescriptions dispensed in the United States, and where most believe PBMs make their greatest profit.

Ending these practices throughout the commercial insurance industry will prevent overinflated and unjustifiable price markups, eliminate wasteful spending, and' ensure fair and affordable drug prices for all New York- ers.

Legislative history

New Bill

Fiscal implications

To be determined.

Effective date

This act shall take effect immediately