Comments by Bill Hammond

Senior Fellow for Health Policy, Empire Center for Public Policy

To the Department of Financial Services

October 16, 2023

Re: Proposed Consolidated Rulemaking for Insurance Regulations 219, 224, 226, 227, 228 and 229 (11 NYCRR Parts 450, 454, 456, 457, 458 and 459), relating to licensing and oversight of pharmacy benefit managers

While reported abuses in the pharmacy benefit management industry may warrant some level of government oversight, regulators should intervene with caution. In such a complicated and high-stakes business, the danger of unintended consequences is high.

These comments focus on Section 456.7 of the proposed regulations, which would require pharmacy benefit managers (PBMs) to pay pharmacies a minimum reimbursement, including a price for the drug itself (based on one of two benchmarks) plus a “professional dispensing fee” of $10.18.

Such a minimum-pricing scheme would impose billions of dollars of additional costs on consumers, employers and taxpayers with no commensurate benefit for the state or its health-care system.

Although the floor price would be paid directly by PBMs, these firms could be expected to pass all or most of the added expense to the health plans that employ them – which is to say almost every health plan in the state, including Medicare plans.

This in turn would push up the cost of coverage for New Yorkers, who already pay some of the highest health premiums in the country.

The overall impact of the proposed regulation is impossible to gauge without access to industry data that are not publicly available. However, the cost of the dispensing fee alone would be significant.

Many PBMs currently pay such fees under their existing contracts with pharmacies. However, 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 filled statewide each year, the additional expense would reach into the billions.

It’s not clear that the condition of the state’s pharmacy industry warrants such an expensive subsidy. According to the National Community Pharmacies Association, New York was home to 22.7 pharmacies per 100,000 residents in 2022, which was the third highest rate in the U.S. Fifty-eight percent of those pharmacies were independently owned, the second-highest share nationwide.

Although some of those businesses might be struggling financially, the proposed $10.18-per-prescription fee would be paid to all pharmacies – whether big or small, urban or rural, money-losing or highly profitable.

The department has provided no rationale for setting the amount at $10.18 – other than the fact that the Health Department currently pays such a fee for prescriptions filled by the state-run Medicaid program.

Price regulation always carries a risk of distorting markets and fomenting waste and inefficiency. Mandating a minimum price seems especially ill-advised when it comes to prescription drugs and health care – areas in which costs are already high by global standards and generally growing faster than the overall economy.

There can be little doubt that the proposed pricing policy would tend to increase the cost of prescription drugs in New York State. Even if other parts of the proposed regulations lead to savings, those savings would be offset if not eliminated by the expense of mandatory dispensing fees.