In the name of lowering drug costs, state lawmakers are on the brink of passing hastily drafted and ill-considered legislation that would risk driving those costs even higher.
The bill in question, A. 2836/S. 6531, seeks to regulate pharmacy benefit managers, or PBMs, which act as middlemen in the complex transactions among health plans, drug manufacturers and pharmacies. Their role typically includes negotiating the rebates collected from manufacturers and the fees paid to pharmacies, as well as managing formularies and processing claims.
The companies’ controversial tactics and opaque finances have made them a target for regulation by many other states. But the bill pending in Albany – sponsored by Assembly Health Chairman Dick Gottfried (D-Manhattan) and Senate Insurance Chairman Neil Breslin (D-Albany) – includes onerous and self-contradictory rules that would make it hard for PBMs to function at all.
One provision declares that PBMs would have a duty to act “for the best interests primarily of the covered individual, and the health plan and the provider” – which is puzzling, since the interests of those three groups are often at odds.
Another section gives providers and health members the right to sue PBMs “for any injury or loss … caused by any violation of such duties, obligations or requirements,” a vague standard that seems guaranteed to trigger a flood of litigation.
The bill also prohibits PBMs from substituting one drug for another “except with the approval of the prescriber or as explicitly required or approved by law.” This would seem to create a chilling effect on the common cost-cutting practice of substituting generic equivalents for brand-name drugs.
Another issue is that the legislation appears to cover PBMs’ dealings with all types of health plans, including self-insured plans operated by large businesses and labor unions, which are exempt from state regulation by federal law. This leaves the measure vulnerable to being challenged and possibly overturned in court.
The proposal spent most of the session as a one-house Assembly bill. On Friday night, however, it was amended with new language subjecting PBMs to licensing and oversight by the Department of Financial Services – a concept that Governor Cuomo proposed as part of his budget, but which was left out of the final product in early April. The licensing section includes reporting requirements and other regulations that overlap with rules spelled out in the rest of the bill, which could lead to confusion in enforcement.
That same night, a matching bill with both sections was introduced by Breslin in the Senate.
The Senate approved the legislation on Monday night, barely satisfying the constitutional three-day waiting period, and the Assembly is expected to take it up later this week.
The Gottfried-Breslin bill is one of several PBM-related measures advancing in the closing days of the legislation session.
On Monday, the Assembly passed bill that would prohibit mid-year changes to drug formularies, and the Senate approved a measure that would limit the ability of health plans (and PBMs) to require the use of mail-order pharmacies for certain prescriptions.
Earlier this year, as part of the state budget, the Legislature prohibited PBMs from using a practice known as “spread pricing” in contracts with Medicaid managed care plans. A bill that would extend that ban to private health plans, among other provisions, was also passed by the Senate on Monday night.
PBMs play a central role in a drug pricing system that’s dysfunctional in many ways, and some regulation may be warranted. If the state is going to intervene, it should have a well-vetted plan, not heavy-handed legislation that was cobbled together in Albany’s last-minute rush.