New Jersey Introduces New Legislation Targeting Patient Steering and Other PBM Conduct

The recent increase in proposed State Legislature across the U.S. in an effort to regulate Pharmacy Benefit Managers (“PBMs”) demonstrates rising scrutiny by the government into the abusive conduct of PBMs and the impact it has on American healthcare. On October 13, 2022, New Jersey Senator Linda R. Greenstein (D-14) introduced a new Bill (S3199) to the State Legislature primarily designed to prevent PBMs from engaging in patient steering. S3199 defines patient steering as “a practice employed by a pharmacy benefit manager or health carrier that channels a prescription to an affiliated pharmacy, or pharmacy in which a pharmacy benefits manager or carrier has an ownership interest, and includes but is not limited to retail, mail-order or specialty pharmacies.”

S3199 prohibits patient steering by making it unlawful for PBMs to require patients to use any particular mail-order pharmacy or pharmaceutical distributor. The Bill acknowledges that patient steering increases drug prices, results in underpayments to pharmacies, and creates barriers to care. Under S3199, any PBMs found to have engaged in patient steering are subject to a surcharge payable to the State of NJ in the amount of 10% of the aggregate dollar amount the PBM reimbursed pharmacies in the previous calendar year for prescription drugs. While this “penalty” would help deter patient steering, we believe S3199 should provide patients, pharmacies and other providers a private right of action against PBMs when PBMs fail to comply with this requirement.

The Bill also prohibits the imposition of what are commonly referred to as “gag clauses”. Gag clauses are provisions in contracts between pharmacies and PBMs that prevent pharmacists from providing patients with information regarding the amount of their cost sharing for a prescription drug or information about more affordable alternatives.

Other PBM activities proscribed under S3199 include:

  • Charging patients a cost-sharing amount that exceeds the pharmacy’s reimbursement;
  • Sharing patient records for commercial purposes;
  • Making misrepresentations to patients or pharmacy providers; or
  • Removing drugs from formulary for the purpose of incentivizing patients to seek coverage from another plan sponsor.

Finally, S3199 makes a small stride towards exposing PBM spread pricing, which occurs when PBMs charge a plan sponsor a higher price for the drug dispensed than the price that the PBM pays the pharmacy for the drug. The difference is the “spread”, which PBMs pocket as revenue. While the Bill does not prohibit spread pricing, it requires PBMs to report to their plan sponsor clients the aggregate difference between the amount a PBM reimburses a pharmacy and the amount the PBM charged the Plan Sponsor.

While S3199 has certain shortcomings in terms of providing patients, pharmacies and other providers with full relief against these abusive PBM practices, the Bill is nevertheless a welcome addition to other pending NJ legislation seeking to regulate unscrupulous PBM conduct, including S2221, S1614, S1615 and S1616.

How Frier Levitt Can Help

Frier Levitt has extensive knowledge regarding PBM contracts, activities and policies. Frier Levitt attorneys regularly litigate and arbitrate disputes against PBMs on behalf of pharmacies and other providers to curb abusive PBM practices, including patient steerage, gag clauses, spread pricing, PBM audits and network access/termination issues. Frier Levitt also has experience drafting letters to lawmakers to effectuate change at both the state and federal levels. Contact us to speak with a member of our team for more information about how we can help resolve your PBM issues.