Happy New Year for New York State Pharmacists – Landmark PBM Bill Enacted

On December 31, 2021, Governor Hochul signed S. 3762/A. 1396 into law, one of the most comprehensive Pharmacy Benefit Manager (PBM) laws in the country. Frier Levitt previously reported on this bill as part of a suite of bills passed by the Legislature earlier in 2021. The new law includes many new requirements incumbent upon PBMs, including a private right of action for pharmacies to enforce the law, a MAC appeals process, transparency, licensure and registration, along with a list of duties and services PBMs must follow. The law provides substantial rights to pharmacy providers that are aggrieved by PBMs, as well as enforcement mechanisms.

Protections for Pharmacies

The law makes PBMs directly accountable to pharmacy and other health care providers, plans, and beneficiaries imposing upon PBMs “a duty and obligation to the covered individual and the health plan or provider” such that the PBM “shall perform pharmacy benefit management services with care, skill, prudence, diligence, and professionalism, and for the best interests of the covered individual, and the health plan or provider.” Funds the PBM receives are to be held “in trust” for a health plan or provider with whom the PBM contracts. The law requires transparency in reporting conflicts of interest, rebates and disclosure of any spread pricing. The law also prohibits various contract provisions such as Gag clauses, copay disposition to prevent PBMs from redacting/recouping adjudicated costs, or requiring pharmacy accreditation/certification beyond that required for licensure. A PBM may not mandate the substitution one prescription drug for another or alter the terms of a prescription, except with the approval of the prescriber or as explicitly permitted by law.

Enforcement Mechanisms

The law contains a private right of action for providers (who, as defined in the statute, include pharmacies). Pharmacies, consumers and healthcare providers will be able to bring a lawsuit or arbitration against a PBM directly when a PBM is believed to have violated the law. This is a powerful enforcement tool, allowing pharmacies to bring cases directly against PBMs in ways not often provided for in most states.

New Regulatory Scheme

Among the biggest developments under the law, PBMs are now brought under the purview of the Department of Financial Services.\

The Insurance and Health Department must establish, through regulation, “minimum standards for pharmacy benefit management services which shall address the elimination of: conflicts of interest between pharmacy benefit managers and covered individuals, health benefit plans and health care providers; spread pricing; and deceptive practices, anti-competitive practices, and unfair claims practices. Although the law does not specify precisely what these regulations shall entail, the superintendent of financial services and the commissioner of health are directed to immediately begin drafting such regulations and implement the new law, which is to become effective on March 31, 2022. Frier Levitt will be monitoring progress on these new regulations. Additionally, PBMs must become registered and licensed to operate in the State of New York and will be subject to penalties if they fail to do so.

Pricing Regulation

Specifically addressed is spread pricing and an annual reporting requirement for any pricing discounts, rebates, inflationary payments, credits, clawbacks, fees, grants, chargebacks, reimbursements received by the PBM. Importantly, the law also creates an Appeal Process with regard to multi-source generic drug pricing including requirements for updates to Maximum Allowable Costs (MAC). This appeals process requires a PBM to update pricing for all similarly situated pharmacies if it adjusts pricing for one pharmacy, and if an appeal is denied, the PBM “shall identify the national drug code of a therapeutically equivalent drug, as determined by the federal Food and Drug Administration, that is available for purchase by pharmacies in this state from wholesalers registered pursuant to subdivision four of section sixty-eight hundred eight of the education law at a price which is equal to or less than the maximum allowable cost for that drug as determined by the pharmacy benefit manager.”

Future of PBM Regulation and Steps Pharmacies Can Take

The pharmacy-backed legislation was one of four deemed the “Pharmacy Rescue Package.” Together with the pharmacy immunization expansion law and mail-order reimbursement bill which provides for the same reimbursement rate to community and mail-order pharmacies, in 2022 pharmacy in NY has indeed been rescued. Frier Levitt can help pharmacies enjoy the benefits of the new law.

Frier Levitt’s attorneys are experts in state and federal laws and regulations like New York’s and we are at the forefront in contract negotiations with and litigation against PBMs when they fail to meet their legal obligations. Our pharmacy attorneys are insiders in the PBM space and meet with PBM personnel regularly to discuss pharmacy and PBM compliance with laws like these. Call Frier Levitt today to learn more about how your pharmacy can gain the benefits of this powerful new law.