New York State Proposes New Rules for Pharmacy Benefit Managers

ALBANY, N.Y. — New York state’s chief financial services regulator has unveiled new “market conduct” rules to govern pharmacy benefit managers that she says will both strengthen consumer protections and tamp down on anti-competitive conduct.

In doing so, she also announced the state’s Department of Financial Services will accept public comments on the new regulations through Feb. 16.

“It is no coincidence that as New Yorkers continue to pay more for lifesaving medication each year, the PBM industry records billions in revenue with little regulatory oversight,” Superintendent Adrienne Harris said in a written statement. 

“This proposed regulation seeks to put an end to unfair practices by the PBM industry, making prescription drugs more affordable and accessible for New Yorkers,” she said.

In 2021, New York state enacted what it described at the time as a “comprehensive” law aimed at addressing the common and widely despised practice of “spread pricing.”

During a House Committee on Oversight and Accountability hearing on Capitol Hill last September, Hugh Chancy, a pharmacist owner with Chancy Drugs, a small chain of community pharmacies in South Georgia, explained that the “spread” refers to the difference between how much a pharmacy benefits manager reimburses a pharmacy for a drug and the higher price they turn around and charge benefits plans for the same prescription.

“For years, community pharmacists have said that PBMs have been playing spread pricing games, contributing to higher drug costs to the detriment of patients and the taxpayer-funded programs the PBMs are supposed to serve,” Chancy said.

The committee itself titled its update on the hearing “Pharmacy Benefit Managers Push Anticompetitive Drug Pricing Tactics to Line Their Own Pockets.”

Another entity that has long been outspoken against price spreading is PhRMA, the trade group representing companies in the pharmaceutical industry in the United States.

The problem, it has said, is twofold. First, though pharmacy benefits managers negotiate rebates and discounts for medicines, the compensation these middlemen receive is typically tied to the price of the medicine, a situation that PhRMA says “may create misaligned incentives.”

Secondly, the industry group has noted, “there are no requirements that PBMs share their negotiated rebates and discounts with the clients they claim to serve: health insurance companies, employers, state agencies or patients. 

“In fact, in a practice called ‘spread pricing,’ PBMs often bill more than what they pay to the pharmacy for medicines and keep the difference, enriching themselves, typically unbeknownst to their own paying clients and patients.”

In New York, the 2021 law directed the Department of Financial Services to develop regulations that would address conflicts of interest; and deceptive, anti-competitive and unfair claims practices by these companies.  

Harris said the proposed rules will help protect New Yorkers’ access to prescription drugs, prohibit business practices that increase the cost of those drugs, and will ensure that small, independent pharmacies compete on a level playing field with large pharmacies affiliated with PBMs. 

The proposed regulations would:

• Prohibit PBMs from barring any in-network pharmacies from providing mail order or delivery services, which will increase patients’ access to home delivery from their community pharmacy.
• Increase transparency to consumers and employers by requiring PBMs to list formularies and pharmacy directories online, and prohibiting PBMs from punishing a consumer who relies on said information.
• Require PBMs to post a telephone number and email address for consumers to direct their questions to, and PBMs must respond in a reasonable amount of time.
• Prohibit anti-competitive practices that steer consumers away from their community pharmacy to larger pharmacies affiliated with the PBM.
• Prohibit PBMs from unfairly passing losses onto pharmacies when the PBM mistakenly approves dispensing a drug and then seeks to retroactively deny reimbursement to the pharmacy.
• Reduce administrative burdens and costs on small pharmacies by allowing them to submit information to and receive information from PBMs electronically.
• Prevent the abuse of audits against small pharmacies who are not affiliated with a PBM by requiring PBMs to apply the same audit standards across all in-network pharmacies.

Harris said in developing the new rules, her agency relied on comments and suggestions from a wide range of stakeholders, including the pharmaceutical industry, health plans, pharmacy groups, state and federal regulators, and the general public. 

The current 10-day pre-proposal comment period will be followed by a 60-day comment period upon publication in the State Register. 

DFS looks forward to and appreciates receiving feedback on the proposed regulation during the comment period. The department will then review all received comments and issue a revised proposal or a notice of adoption of the final regulation. 

Dan can be reached at [email protected] and @DanMcCue