The Hochul administration is proposing to mandate a $10.18 “dispensing fee” for almost every prescription filled in New York, a change that would add billions of dollars to health-care costs statewide.

Pharmacies would be entitled to collect the fee as part of a package of tentative regulations aimed at pharmacy benefit managers, or PBMs, the middle-man companies that process prescription drug claims on behalf of most health plans.

The fee would be directly paid by PBMs, but they would likely pass all or most of the cost along to consumers in the form of higher premiums and copayments.

PBMs often pay dispensing fees under their existing contracts with pharmacies, but the amounts typically range no higher than $2 or $3. The state’s proposed minimum would add $7 to $10 to the bottom-line cost of each prescription.

When multiplied by the hundreds of millions of prescriptions that New Yorkers fill each year, the additional expense for the health system as a whole would likely reach into the billions – and ultimately add to what are already some of the highest insurance premiums in the U.S.

The proposed regulations, published by the Department of Financial Services in August, grew out of PBM licensing legislation that was enacted in 2021 and amended in 2022. The department is accepting public comments on its proposals through Monday.

The new statute – Article 29 of the Insurance Law – authorizes the department to regulate many aspects of how PBMs operate, including their “pricing models,” but makes no mention of establishing a dispensing fee.

Industry officials contend that the fee is one of several parts of the regulatory package that exceed the department’s statutory authority – and would provide grounds for a court challenge if the rules are implemented in their current form.

Health plans have become increasingly dependent on pharmacy benefit managers to handle their burgeoning expenditures on prescription drugs. In addition to paying drug claims, the firms also create networks of participating pharmacies, set “formularies” of preferred drugs, and negotiate rebates from pharmaceutical manufacturers – strategies that are meant to control costs for health plans and consumers, but which also generate profits for the PBMs. 

The business is dominated by three major players – Caremark, Express Scripts and OptumRx – leading to concern that they wield too much sway over the nationwide retail drug market, which was worth $370 billion in 2021.

New York is one of several states that have responded with tighter regulations and Congress is weighing legislation as well.

While there is legitimate concern about PBMs, New York’s regulations seem primarily focused on maximizing consumers’ choice of pharmacies – and individual pharmacies’ access to customers – rather than saving money.

For example, the regulations would make it harder for PBMs to steer customers to mail-order pharmacies or to exclude retail pharmacies from their networks. PBM officials argue that these rules would weaken their leverage to negotiate discounts and ultimately lead to higher drug prices for health plans and consumers.

The clearest driver of higher costs would be the state’s proposed pricing rule. It would require PBMs to pay pharmacies a minimum benchmark price for the drug itself – based on a federal market survey – plus a dispensing fee of $10.18.

That matches a fee already being paid by the state’s Medicaid health plan, but it’s otherwise unclear how the state arrived at its proposed amount.

The stakes are significant. Medicaid alone fills about 77 million prescriptions a year, which translates to $784 million in dispensing fees. If that same fee were extended to every health plan in New York – as the regulations propose – the annual cost to consumers, employers and taxpayers would approach $3 billion or more.

When she announced the draft regulations in August, DFS Superintendent Adrienne Harris presented them as good for consumers.

“Our proposed regulation is a significant milestone in stopping unfair practices that have fueled years of runaway prescription drug prices,” Harris said. 

Before moving ahead with such a sweeping regulatory change, Harris should explain how tacking a $10.18 fee on every prescription would not drive those prices even higher.

About the Author

Bill Hammond

As the Empire Center’s senior fellow for health policy, Bill Hammond tracks fast-moving developments in New York’s massive health care industry, with a focus on how decisions made in Albany and Washington affect the well-being of patients, providers, taxpayers and the state’s economy.

Read more by Bill Hammond

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