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New York Bill Targets PBMs, Would Extend Medicaid FFS Program

Analysis  |  By Jack O'Brien  
   June 13, 2019

Empire State lawmakers are considering legislation that would implement a fee-for-service program and effectively cut out PBMs.

As the 2019 New York State legislative session nears its mid-June conclusion, lawmakers are considering bills in both the Assembly and Senate that aims to eliminate spread pricing, a major component of the business model for pharmacy benefit managers (PBM).

The pieces of legislation, sponsored by Assembly Health Committee Chair Richard Gottfried and Senate Health Committee Chairman Gustavo Rivera, would mandate that Medicaid managed care (MMC) plans adopt a fee-for-service (FFS) program, effectively cutting out PBMs entirely.

Gottfried told HealthLeaders that he is optimistic the Assembly will be able to get his bill out of the Ways and Means Committee for a floor vote, noting that the chamber included the bill as part of its fiscal year 2020 budget proposal earlier this spring.

However, he says he does not know what the odds are that the Democratic-controlled Senate will take action on the bill and deliver it to Governor Andrew Cuomo.

Still, Gottfried says that the legislative proposals coming out of Albany are examples of interest by state and federal lawmakers across the nation applying greater regulations to PBMs in an effort to combat high prescription drug prices.

Related: Blame Game, Again: PBM Execs Jockey With Senators Over Price Transparency

"There's a growing body of evidence that PBMs are one of the major culprits in the skyrocketing cost of drugs," Gottfried says. "They are black boxes that operate with little if any protection for the public interest and they are an industry with a heavy concentration in the market. That kind of secrecy and economic power is a recipe for disaster."

In a regulatory move last August, Ohio's Department of Medicaid eliminated PBM contracts for MMC plans based on spread pricing in favor of a fixed fee rate for filling prescriptions.

In a different approach, New York and Massachusetts are targeting the PBM business model at the statehouse level. If passed, these bills could represent the first legislative attempts to cut out PBMs from MMC plans.

Pressure to act in Albany

While the two bills are considered in their respective chambers, a recent report on high prescription drug prices in New York places the blame squarely on PBMs.

Last week, the Senate Investigations and Government Operations Committee released a report about PBM practices and recommended legislative action to introduce safeguards on high prescription drug prices for New Yorkers.

"Although the steps taken during the budget were certainly important, this report makes it clear that new legislation is necessary to address additional parts of the business model that are being exploited -- often times to the detriment of patients in terms of cost and treatment access," Rivera, a coauthor of the report, wrote.

The study found that due to a lack of oversight and transparency, PBMs have engaged in "self-dealing to the detriment of consumers." It also recommended State Comptroller Thomas DiNapoli regulate the practice of spread pricing—in which payments for prescription drugs from health plans to pharmacies filter through PBMs—and conduct a full audit of dollars paid to PBMs through this practice.

The report urged the legislature to regulate spread pricing in pharmacy benefit contracts, block PBMs from mandating patients use mail order and specialty pharmacies, and require PBMs to pass-through all drugmaker rebates to MMC clients.

Related: As New York Nears Vote on Single-Payer, Divisions Show

Jake Frenz, CEO of SmithRx, a San Francisco-based PBM, shares his thoughts with HealthLeaders on the recent discussions about PBM pricing practices at the state and federal level and what he thinks could make the business model work better for healthcare.

"I think that if you eliminate spread pricing, you're taking away how these PBMs make money," Frenz says. "If [lawmakers] start removing these pieces, then PBMs have to figure out a different business model to operate. I don't think that they need to eliminate spread pricing, I'm an advocate for removing rebates. There are a lot of pieces that will need to change to control those costs on a go-forward basis, but rebates are not an aspect of the market that I believe are necessary to deliver a cost-competitive drug target."

Plans and pharmacies exchange views

The proposed changes to the way PBMs operate have been met with a split reaction across New York, as independent pharmacies applauded the proposal while others have been less enthusiastic.

The New York Health Plan Association (NYHPA), which represents 29 managed care health plans, issued a memorandum of opposition to Gottfried's legislation in March, saying that the proposal will "merely reinstate a failed system," referring to the state FFS program.

Gottfried says that NYHPA's argument does not "have any relation to the facts," adding that people are realizing PBMs are not adequately serving patients.

"There's just no basis as to why the individual insurance companies would think they can do better to negotiate prices than the state can with its 6 million customers," Gottfried says. "It is now clear that the preferred drug program was getting substantially better discounts than the individual MMC plans."

Related: PBM Lobby Raps 'Poorly Conceived' HHS Drug Rebate Proposal

Roger Paganelli is owner of Mt. Carmel Pharmacy in the Bronx, who says he has seen the effects of PBMs on his business.

He is involved as spokesperson for the FixRx campaign, which was launched as a joint effort between the New York City Pharmacists Society and the Pharmacists Society of the State of New York in November 2018. 

Paganelli says independent pharmacies have faced a "difficult time over the last year and a half," due to PBMs "ratcheting down on generic [prescription drug] reimbursements." He adds that 85% of what pharmacies dispense to patients are generic prescription drugs.

Due to lower reimbursements, independent pharmacies are losing money, and Paganelli says it could force businesses to close or eliminate staff.  

Paganelli says a survey of FixRx members found that over 70% of 500 New York-based pharmacies had to eliminate staff or reduce hours in 2018, with more than 90% considering similar action in 2019. 

Paganelli says he is upbeat about the likelihood that the legislature will pass Gottfried and Rivera's bills, adding that New York has the "opportunity to use its own formulary" on brand and generic drugs while also recouping 100% of the rebates passed through PBMs. 

"We're moving in the right direction. We've got a lot energy behind taking PBMs out of [MMC] and carving [them] back into the Medicaid's FFS Department of Health charge," Paganelli says. "I think there's a lot of merit in that move."

'Circling down the drain'

The New York State legislative session is slated to end next Wednesday, and unless the governor and legislative leaders convene a special session to address outstanding issues, no legislative business will be handled until January 2020.

Another independent pharmacy owner, Stephen Cilento, who founded Bridge Pharmacy in Brooklyn in 1998, tells HealthLeaders that he has already had to cut back hours for his workers and laid off one tech position.

Unlike Paganelli, Cilento is "not very optimistic" about either piece of legislation passing, noting that independent pharmacists face an "uphill battle" in Albany.

"I've had these discussions with other pharmacy owners and it seems to be like circling down the drain," Cilento says. "[The situation] started with a little bit, then it ratcheted up. [Pharmacists] used to be able to make a decent living filling prescriptions, and then that gets taken away. It's going further and further down the spiral, and I don't know how much longer it will be sustainable."

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.


Independent pharmacy owners are hoping two companion bills targeting pharmacy benefit managers (PBM) get passed before the legislative session ends on June 19.

A recent Senate report charged that PBMs have engaged in "self-dealing to the detriment of consumers."

The push for greater oversight and regulation has been opposed by the New York Health Plan Association, who say the legislative proposals will "merely reinstate a failed system," referring to the state fee-for-service program.

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