pills-384846_960_720-300x200-4567758In 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.

 

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

You may also like

Pandemic deaths in New York nursing homes show no correlation with staffing levels

Nursing home staffing levels remained an unreliable indicator of Covid-19 risk for residents through the second year of the pandemic. Read More

Answers needed on Governor Hochul’s health-care budget

The health-care agenda laid out by Governor Hochul in her budget proposal this week leaves a lot of questions unanswered. Here are a few of them. Read More

Putting Governor Hochul’s $10 billion health-care ‘investment’ in context

In her State of the State address this week, Governor Hochul prominently called for a $10 billion "multi-year investment" in the state's health care system, including $4 billion earmarked for wages and bonuses, with a goal Read More

Hochul faces a test on health insurance costs

With judicious use of her veto pen this month, Governor Hochul could draw a line against spiraling health expenses for consumers and taxpayers. Several health insurance-related bill Read More

Hochul’s Emergency Order Imposes Insurer Restrictions Sought by Hospital Group

Buried in Governor Hochul's emergency order on health-care staffing is a temporary bar against insurance companies challenging claims submitted by hospitals–and an influential hospital association is taking credit. Read More

Home Care Agencies Project Widespread Staffing Shortages in the Next Phase of New York’s Vaccine Mandate

Agencies providing home-based care to elderly and disabled New Yorkers face a large-scale loss of employees when the next phase of the state's vaccine mandate takes effect on Oct. 7, according to a newly released industry s Read More

New York’s health benefits remain the second-costliest in the U.S.

New York's health benefit costs increased faster than the national average in 2020, leaving it with the second-least affordable coverage in the U.S. The state's average total cost f Read More

The Health Department’s FOIL Responses Signal an Indefinite Wait for Pandemic Data

The quest for comprehensive data on New York's coronavirus pandemic hit a bureaucratic roadblock this week Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100

General Inquiries: Info@EmpireCenter.org

Press Inquiries: Press@EmpireCenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.

Empire Center Logo Enjoying our work? Sign up for email alerts on our latest news and research.
Together, we can make New York a better place to live and work!