The New York State Department of Financial Services’ (“DFS”) new Pharmacy Benefit Manager (“PBM”) Regulations took effect on November 27, 2024. This is the third set of regulations established by DFS’s Pharmacy Benefits Bureau to regulate PBMs in New York. Beginning in 2021, Governor Hochul signed the first round of legislation aimed at providing some reasonable regulation towards PBMs doing business in New York, intended to level the playing field for independent pharmacies and empower patients. As these new regulations take effect, the DFS’s Superintendent, Adrienne A. Harris, weighed in and stated that the most recent regulations are geared towards protecting New York patients’ access to prescription drugs, prohibiting PBM business practices that increase the costs of drugs, and also ensuring that independent pharmacies can compete with PBM affiliated pharmacies. A summary of some of the key components of the new regulations are provided below.
Summary of New Regulations
A. Prohibiting and Curbing PBM “Patient Steering”
The new regulations aim to prohibit PBMs from engaging in business practices that would be considered “patient steering,” which is a PBM business practice that has been a concern for independent pharmacies throughout the country. For example, under the new regulations, a PBM cannot require a patient to purchase prescription drugs exclusively through a mail-order pharmacy or refer a patient to a mail-order pharmacy or an affiliated pharmacy unless contractually required to do so by a health plan. A PBM also cannot penalize a patient for using a pharmacy not affiliated with the PBM, including by requiring a patient to pay the full cost for a medication but being able to obtain the same medication from a PBM affiliated pharmacy at a lower cost. These regulations are specifically designed to increase competition between independent pharmacies and PBM affiliated pharmacies. It also gives patients greater flexibility in choosing their preferred pharmacy.
B. PBMs Cannot Restrict Mail Order Pharmacy Services by Independent Pharmacies
Also contained in the new regulations are restrictions on PBMs’ control over whether a pharmacy can mail or deliver prescription medications to its patients. One example of this is that the regulations prevent a PBM from prohibiting an independent pharmacy from offering and providing mail order or delivery services to its patients as an ancillary service of the pharmacy. This responds to a growing concern throughout the country based on PBMs attempting to prohibit or substantially limit independent pharmacies or pharmacies not affiliated with the PBM from engaging in mail order pharmacy services or delivery services. This became even more concerning since by limiting the capability of independent pharmacies to mail or deliver, PBMs simultaneously used this as a method to steer patients to its affiliated mail order pharmacy operations.
C. PBMs Limitation on Unilateral Control and Termination Over Pharmacy Contracts
New York’s new regulations also create new standards for pharmacy contracts regarding legal rights related to terminations including noteworthy restrictions on PBMs’ rights to terminate pharmacies. The DFS has restricted PBMs from immediately terminating a pharmacy contract except in 12 specific circumstances, which, generally speaking, are limited. Furthermore, if a PBM invokes a termination right under these circumstances, the PBM must give the pharmacy at least 60 days’ notice along with a specific explanation of the termination that has a rational basis. This is important because it limits PBMs’ unfettered right to terminate pharmacies and can be helpful to independent pharmacies fighting against a wrongful termination by a PBM.
D. Regulations to Limit PBM Audit Ability
Another main area of concern that DFS is working to regulate is PBM audits of pharmacies. PBM audits can be daunting for many independent pharmacies as PBMs often attempt to terminate pharmacies from their pharmacy network based on audit findings. The new regulations set standards for audits such as notice and timeframe requirements. The regulations require PBMs to use the same standard for audits of an independent pharmacy as an affiliated pharmacy. In addition, audits cannot be conducted more than once every six months except for audits initiated to address an identified problem, or when fraudulent activity is suspected. A PBM cannot assess a chargeback, recoupment or other penalty because a prescription is mailed or delivered, recoup funds for clerical or record-keeping errors, or collect any recoupment chargebacks or penalties until the audit and appeals are final. It is crucial for independent pharmacies to be aware of these new regulations to understand their new rights during a PBM audit.
E. New Pharmacy Credentialing Requirements for PBM Networks
In addition to the above, the new regulations also lay out new credentialing requirements. They state a PBM cannot require recredentialing of a pharmacy more than once every three years. In addition, if a PBM determines it will not renew a pharmacy contract for any reason during the credentialing process, the PBM must notify the pharmacy of the non-renewal determination in writing with a detailed explanation that has a rational basis. This again limits PBMs’ discretion. Pharmacies should be aware of this right and be prepared during a contract renewal period.
How Frier Levitt Can Help
Frier Levitt represents numerous pharmacies in New York and across the United States in challenging unfair and aggressive PBM practices as well as in understanding new legislation. Contact us to speak with an attorney about how your pharmacy can leverage the protections afforded by the Pharmacy Benefit Reform Law and other laws governing PBMs. Independent pharmacies should familiarize themselves with the Law and consider hiring qualified legal counsel to ensure they are maximizing the protections and legal rights afforded to New York pharmacies.
