A recent New Jersey law change impacts providers that participate in value-based care arrangements with Payors. Frier Levitt has previously written about newly enacted legislation marking sweeping changes to how Pharmacy Benefits Manager (“PBM”) in New Jersey must account for rebates.
Most value-based care agreements are rooted in Total Cost of Care (“TCC”) arrangements, such as Total Medical Expense (“TME”). Theses VBC arrangements impact healthcare entities from providers, to hospitals, Independent Physician Associations (“IPAs”), Managed Services Organizations (“MSOs”), and Accountable Care Organizations (“ACOs”). To realize the benefit of shared savings, providers must carefully audit Payors, as even small changes in rebates or drug prices dramatically impact the shared savings models. On January 1st, New Jersey may just experience a sea-change in the way rebates are calculated. Provider beware.
Beginning on January 1, 2025, New Jersey will specifically require either that any compensation paid directly or indirectly by or on behalf of a drug manufacturer (or developer or labeler) to a carrier or PBM must either be (1) given directly to a patient at the point of sale to reduce that patient’s out-of-pocket cost or (2) given to the carrier to reduce future patient premiums.
Unfortunately, the law explicitly exempts from its reach, among others, “plans, policies or contracts” for
- Accident only;
- Long-term care;
- Medicare supplement coverage;
- TRICARE supplement coverage;
- Coverage for Medicare services pursuant to a contract with the United States government;
- The New Jersey State Medicaid program;
- Worker’s compensation or similar coverage;
- The State Health Benefits Program;
- the School Employees’ Health Benefits Program;
- Hospital confinement indemnity coverage; or
- Self-insured health benefits plan governed by the provisions of the federal “Employee Retirement Income Security Act of 1974,” (ERISA).
Yet, at least for fully-insured plans, Value-Based Partners whose agreements do not call for excluding rebates from the total cost of care may find that some costs in 2025 are lower because of the impact of the new Rebate Law, compared to their costs in 2024. Of course, this requires payors to actually factor rebates into the VBP, which they arguably should be doing under TME/TCC models if there is no contractual exclusion that does not merely seek to defeat the purposes of the new Rebate Law. As most Value-Based Agreements use a prior program year’s performance to calculate the current year’s cost target, that may mean a dramatic increase in shared-savings and – in all likelihood – a bitter contractual and legal fight by payors to avoid having to payout those increased shared savings. This could be very beneficial to providers if and only if they audit their PBMs and payors on how their TME/TCC is being calculated, and whether rebates are being included at all.
This legal change in PBMs’ accounting of rebates will in theory require PBMs to either remit a rebate directly to the patient, or remit the rebate to an insurance carrier – a payor – such that the payor must – at least prospectively – reduce its premiums charged to that patient. In theory that should benefit patients over time, and it could also conceivably benefit providers by indirectly reducing paid amounts over time. However, if history is any guide, diligent providers and groups will likely have to also audit payors to ensure that the rebate amounts they “retain” under the new Rebate Law are being applied to plan design to reduce premiums and not retained for improper administrative or other costs.
How Frier Levitt Can Help
Frier Levitt, as a boutique national healthcare law firm, has unique knowledge and experience of value-based care agreements and arrangements, and regularly advises on and litigates cases in the value-based sphere. We also have extensive experience in contract review and in the rebate and plan design space, including the value-based care sphere. Contact us to speak with an attorney about how your pharmacy can leverage the various laws and protections afforded to pharmacies, including New Jersey’s PBM laws.