The New York State Department of Financial Services (DFS) recently announced the publication of proposed regulations that would increase the state’s oversight of pharmacy benefit managers (PBMs). According to DFS, the proposed regulations would be “the most comprehensive set of market conduct rules for pharmacy benefit managers in the country.” If enacted, the regulations would govern a wide range of PBM activities. They would regulate contracting with network pharmacies; prohibit preferential treatment of pharmacies owned or affiliated with PBMs; require prior approval for acquisitions of PBMs; and impose consumer protection requirements such as prohibiting market conduct practices deemed unfair, deceptive or abusive, and requiring network adequacy standards.

Comments on the proposed regulations are due October 16, 2023. If adopted following the comment period, the regulations would require compliance by January 1, 2024.

IN DEPTH

The proposed regulations are lengthy and intricate, but the key provisions are summarized below. The complete text can be accessed here.

Applicability

The proposed regulations would impact almost all PBMs operating in New York state. PBMs providing services only to a Medicare prescription drug plan would be exempt from complying with some, but not all, of the proposed regulations. To the extent that a PBM provides services to another health plan in addition to a Medicare prescription drug plan, the requirements would apply. Neither the proposed regulations nor DFS guidance addresses whether the Employee Retirement Income Security Act of 1974 (ERISA) would preempt application of the proposed regulations to PBMs that provide services only to self-funded plans. ERISA preemption of state PBM regulation remains a hot topic, as demonstrated in the US Court of Appeals for the 10th Circuit’s recent decision in Pharmaceutical Care Management Association v. Mulready.

Contracting with Network Pharmacies

The proposed regulations would regulate PBMs’ contracts with network pharmacies, including prohibiting PBMs from the following:

• Charging pharmacies a fee related to enrollment or participation in a pharmacy network

• Charging pharmacies a fee related to adjudication of claims

• Reimbursing a pharmacy less than what the PBM reimburses a pharmacy that is owned by or affiliated with the PBM

• Retroactively denying or reducing reimbursement for a claim unless the claim was submitted fraudulently, the denial or reduction was made to correct errors identified in an audit, or the pharmacy agreed to an adjustment prior to the denial or reduction

• Prohibiting a pharmacy from engaging in certain discussions or disclosures to covered individuals, selling more affordable alternatives to covered individuals, providing individuals with the option of paying cash, or offering and providing mail or delivery services.

PBMs also would be required to do the following:

• Make unilateral changes or updates to pharmacy contracts only at the time of contract renewal and upon 60 days’ notice

• Disclose in pharmacy contracts the sources used to calculate reimbursement

• Adhere to certain requirements when denying a pharmacy’s application for enrollment or participation in a pharmacy network

• Provide 60 days’ notice when exercising a right of non-renewal for a pharmacy contract, and provide an explanation of the reason for non-renewal.

Credentialing

PBMs would be prohibited from requiring a network pharmacy to renew credentialing more frequently than every three years.

Terminating Pharmacies from Network

PBMs would be prohibited from immediately terminating network pharmacies except in limited specified circumstances, such as bankruptcy or insolvency, fraud, change of pharmacy ownership or where the pharmacy submits no claims for at least 90 days. Otherwise, a pharmacy could not be terminated with less than 60 days prior written notice. PBMs would be required to provide pharmacies with a detailed explanation for the termination, and termination would not release a PBM from its obligation to make payments due to the terminated pharmacy for services properly rendered prior to termination.

Maximum Allowable Cost Pricing Lists and Appeals

The proposed regulations would regulate PBMs using maximum allowable cost (MAC) pricing, including detailing requirements for placing a drug on a MAC price list, reviewing and adjusting MAC lists, and making disclosures to pharmacies regarding MAC lists. The proposed regulations also include several requirements regarding pharmacies’ rights to appeal MAC pricing. PBMs would be prohibited from charging a pharmacy a fee related to re-adjudication of claims resulting from a MAC pricing appeal, regardless of whether such appeal was denied or upheld.

Pricing Models

PBMs would be prohibited from reimbursing a pharmacy or pharmacist for a prescription drug or pharmacy service in an amount less than the national average drug acquisition cost for the prescription drug or pharmacy service at the time the drug is administered or dispensed, plus a professional dispensing fee of $10.18. If the average drug acquisition cost is not available, PBMs would be prohibited from reimbursing in an amount that is less than the wholesale acquisition cost of the drug plus a professional dispensing fee of $10.18.

PBMs would be required to offer a health plan the option of paying the PBM the same price for a prescription drug as the PBM pays a pharmacy for the prescription drug.

PBMs would be prohibited from restricting a pharmacy from dispensing drugs to covered individuals based on volume of claims, therapeutic categories or dispensing rates of other pharmacies. However, the regulations propose an application process whereby a PBM could apply to DFS for permission to restrict a pharmacy from dispensing a prescription drug covered by the covered individual’s health plan on the basis of the above categories.

These requirements would apply to any contract issued, assigned, renewed, recredentialed, extended, amended or otherwise modified on or after January 1, 2024. Any provision in a contract between a PBM and a pharmacy that conflicts with the proposed requirements would be deemed void and unenforceable as of January 1, 2025.

Acquisition of PBMs

The proposed regulations would require DFS’s prior approval for acquiring control of a PBM licensed in New York. A proposed acquisition could be disapproved if such disapproval was “reasonably necessary to protect the interests of [New Yorkers].” The regulations detail factors that DFS may consider in making such a determination, including the following:

• The financial condition of the acquiring person and the PBM

• The trustworthiness of the acquiring person or any of its officers or directors

• The plan for the proper and effective conduct of the PBM’s operations

• The source of the funds or assets for the acquisition

• The fairness of any exchange of shares, assets, cash or other consideration for the shares or assets to be received

• Whether the effect of the acquisition may contribute to excessive concentration and vertical integration of markets

• Whether the acquisition is likely to be hazardous or prejudicial to health plans, covered individuals, pharmacies or any other stakeholders in the pharmaceutical supply chain.

Consumer Proetction

The proposed regulations also contain several consumer protection requirements. PBMs would be prohibited from engaging in a variety of conduct, including the following:

• Marketing to individuals or providers to gain dispensing opportunities at pharmacies owned by or affiliated with the PBM

• Including the name of pharmacies in marketing materials (other than lists of all pharmacies in a network)

• Transferring or sharing certain prescription records to a pharmacy owned by or affiliated with the PBM for commercial purposes

• Requiring covered individuals to purchase prescription drugs exclusively through a mail-order pharmacy, except as required by a health plan

• Penalizing covered individuals for not using a pharmacy owned by or affiliated with the PBM, or incentivizing covered individuals to use a pharmacy owned by or affiliated with the PBM

• Removing a drug from a formulary or denying coverage of a drug for the purpose of incentivizing covered individuals to seek coverage from a different health plan

• Charging a shipping fee for use of an in-network pharmacy that provides shipping for prescription drugs

• Prohibiting or limiting covered individuals from selecting an in-network pharmacy of their choice, unless in accordance with a health plan’s requirements.

Maximum Out-of-Pocket Costs

PBMs would be prohibited from requiring a covered person purchasing a covered prescription drug to pay an amount greater than the lesser of the cost-sharing amount under the health plan, the MAC or the cash price for the drug.

Consumer Resources

PBMs that provide clinical, formulary or preferred drug list development or management on behalf of health plans would be required to publish complete lists of covered prescription drugs on each health plan’s formulary drug list. They also would be required to notify covered individuals of any intent to remove a prescription drug from a formulary or to alter cost-sharing requirements. PBMs that perform retail network management or contract with network pharmacies on behalf of health plans would be required to publish a list for each health plan identifying pharmacies with which the PBM contracts.

Network Adequacy

PBMs would be required to have pharmacy networks that meet access requirements within specified distances and with specified hours, do not use pharmacies that only provide mail-order services to meet access standards, and do not require covered individuals to use only pharmacies that are directly or indirectly owned by the PBM, including for all regular prescriptions, refills or specialty drugs regardless of number of days’ supply.

Other Requirements

The proposed regulations touch on a variety of other PBM conduct, including credentialing and accreditation requirements imposed by PBMs on network pharmacies, confidentiality provisions in contracts with network pharmacies, consumer-facing resources, investigations of complaints, and PBM audits and investigations of network pharmacies.

Timeline and Next Steps

The proposed regulations will be open to public comment until October 16, 2023. Any party interested in participating in the rulemaking process must submit comments to the DFS in writing to kristina.magne@dfs.ny.gov. Although the proposed regulations do not have a timeline for formal adoption, since several provisions in the proposed regulations require compliance as of January 1, 2024, the release of a notice of adoption marking the effective date of the proposed regulations could fall anywhere in the last months of 2023.

DFS’s objectives for the proposed regulations are to ensure fairness in contracting between PBMs and pharmacies, increase state oversight of transactions involving pharmacies to “protect the interests of the people of [New York],” and to guarantee that New Yorkers have the information and access they need with regard to pharmacy services. The proposed regulations, if adopted, would create significant requirements for PBMs and would require prompt compliance. Interested parties should submit comments to DFS by October 16, 2023.