New Jersey is poised to join the growing wave of states enacting broad pharmacy benefit manager (PBM) reform. On May 18, 2025, the New Jersey General Assembly passed Assembly Bill 1502 (A1502), the “Patient and Provider Protection Act,” through a decisive 59-18 vote, marking a significant step forward toward the regulation of PBMs in New Jersey.
Sponsored by Assemblyman Roy Freiman (D-16th District) and backed by 22 co-sponsors, the bill now heads to the Senate Commerce Committee, where companion legislation (S2345) awaits action. If enacted, A1502 would represent one of the most comprehensive state-level PBM reform measures in the country and would fundamentally reshape how PBMs operate in New Jersey by providing critical protections for independent and community pharmacies.
The bill arrives at a moment of unprecedented scrutiny of PBM practices in both Trenton and Washington.
New Jersey Governor Mikie Sherrill specifically targeted PBMs during her March 2026 budget address, referring to them as “a type of shadowy middleman” that she accused of driving up the cost of medications “as much as 10 times” while implementing “secret manufacturer rebates and insider tricks” to generate massive profits. Her framing of PBM practices directly aligns with the goals and key provisions of A1502.
In the federal context, lawmakers enacted new PBM transparency requirements through the Consolidated Appropriations Act, 2026. The Federal Trade Commission’s (FTC) landmark 2024 interim report laid bare how the nation’s largest PBMs leverage vertical integration to steer patients, squeeze independent pharmacies, and inflate costs. Below, we examine the bill’s key provisions, the political landscape surrounding its path to enactment, comparable reform efforts in other states, and what this legislation means for New Jersey’s independent pharmacy community.
Key Provisions of A1502
The Patient and Provider Protection Act contains several provisions that, if enacted, would fundamentally reshape the landscape for independent pharmacies in New Jersey. These provisions are aimed at shielding both patients and providers from the coercive conduct of PBMs.
Fiduciary Duty. A1502 imposes a fiduciary obligation upon PBMs, requiring them to act in the best interests of the carriers with which they contract, including insurance companies, health service corporations, medical service corporations, the State Health Benefits Program (SHBP), the School Employees’ Health Benefits Program (SEHBP), and Medicaid. The addition of this fiduciary duty would ensure that a PBM’s decisions cannot benefit the PBM at the expense of the carriers and, by extension, the patients enrolled in those carriers’ plans.
Flat-Fee Compensation Model. The bill prohibits PBM compensation structures tied to drug prices, rebates, or utilization volume, and instead mandates a transparent flat-fee administrative model. As Assemblyman Freiman stated, “Right now, PBM compensation structures reward higher drug prices by incentivizing the promotion of more expensive medications to maximize profits. This bill would move PBMs to a flat-fee model, creating a fairer and more transparent system that puts patients first instead of profit margins.”
This provision aims to level the playing field while significantly increasing transparency that has been traditionally lacking in the PBM industry.
NADAC-Based Reimbursement. The legislation requires PBMs to reimburse pharmacies at a rate based on the National Average Drug Acquisition Cost (NADAC) plus a dispensing fee, with specific rules for affiliated pharmacies.
This provision directly addresses the longstanding practice of PBMs reimbursing independent pharmacies below their actual acquisition costs. This practice has directly led to the forced closure of pharmacies across the United States.
Anti-Steering and Network Access. A1502 restricts PBMs from steering patients to affiliated pharmacies or excluding pharmacies willing to meet network terms. The FTC’s 2024 report documented how PBM-affiliated pharmacies’ share of the specialty drug segment increased from 54% in 2016 to 68% in 2023. This occurred largely through formulary design, differential reimbursement, and targeted steering tactics.
These provisions are expressly designed to prevent coordinated patient funneling.
Formulary and Rebate Standards. The bill establishes formulary standards intended to prevent PBMs from favoring higher-cost drugs over lower-cost generic or biosimilar alternatives. It also ensures that agreements between PBMs and manufacturers cannot condition rebates on the exclusion of generic drugs from formularies.
Such exclusions can keep patients on more expensive brand-name medications when clinically appropriate alternatives exist.
Contracts of Adhesion Presumption and Transparency. A1502 establishes that contracts between PBMs and pharmacies are presumed to be contracts of adhesion.
Adhesion contracts are those that constitute “take-it-or-leave-it” agreements, or agreements where only one side has undertaken the drafting of provisions. This is an acknowledgment of the enormous bargaining power disparity between PBMs and independent pharmacies.
The bill’s categorization of these agreements as contracts of adhesion is particularly significant in the context of litigation. This designation causes courts to increase their level of scrutiny over the provisions of these agreements. This additional scrutiny may create opportunities for certain provisions to be stricken or deemed unenforceable based upon oppression, violations of public policy, or surprise.
The bill also requires greater disclosure of third-party broker fees, ensuring the state and purchasers have a clearer understanding of where costs originate and how pricing decisions are made.
What This Means for New Jersey’s Independent Pharmacies
For independent and community pharmacies operating in New Jersey, A1502 addresses many of the structural challenges that have threatened their viability. The NADAC-based reimbursement floor directly combats below-cost reimbursement that has squeezed pharmacy margins to unsustainable levels. Anti-steering protections help ensure patients can continue accessing their local pharmacies rather than being steered to PBM-owned mail-order or specialty operations. The contracts-of-adhesion presumption gives pharmacies stronger legal footing when challenging onerous PBM contract terms. Network access provisions help ensure that pharmacies willing to meet reasonable terms are not arbitrarily excluded from serving patients.
These important protections come at a critical time. Independent pharmacies serve as essential healthcare access points, particularly in underserved and rural communities. As PBM consolidation has accelerated, many independent pharmacies have been forced to close or operate at unsustainable margins. If enacted, the Patient and Provider Protection Act would provide meaningful structural relief. However, compliance with new contractual frameworks, reimbursement standards, and network requirements will require careful navigation.
Looking Ahead
A1502 must still clear the New Jersey Senate before reaching the Governor’s desk. The companion bill (S2345) has been referred to the Senate Commerce Committee but has not yet advanced.
However, several factors suggest the legislation has a favorable path forward: Governor Sherrill’s vocal support for PBM reform, the bill’s strong Assembly margin, the backing of influential trade groups like HINJ and BioNJ, and the broader momentum of federal and multi-state reform efforts all create political tailwinds. The PBM industry’s opposition, while well-funded, faces an increasingly unified coalition of patients, pharmacies, biopharmaceutical companies, and policymakers who view reform as overdue.
Even before enactment, the regulatory landscape is shifting. Independent pharmacies should evaluate their current PBM contracts, understanding how A1502’s provisions would affect their reimbursement and network participation, and prepare for a compliance environment that will demand greater attention to contractual rights and obligations.
How Frier Levitt Can Help
As the regulatory landscape for PBMs continues to evolve rapidly across the country, independent pharmacies face both new opportunities and complex compliance challenges. Frier Levitt has represented thousands of pharmacies nationwide in their dealings with PBMs, bringing decades of experience in PBM contract review and negotiation, audit defense, reimbursement disputes, network access challenges, and regulatory compliance. Our attorneys combine deep industry knowledge with real-world clinical experience to help pharmacies navigate these changes and protect their interests. If you have questions about how A1502 or other PBM reform legislation may affect your pharmacy, contact our team today to assess your position and develop a strategy for the future.
