BILL NUMBER: S1888

SPONSOR: SKOUFIS
 
TITLE OF BILL:

An act to amend the insurance law, in relation to reducing pharmacy
benefit manager costs

 
PURPOSE:

Provides for a pass-through pricing model for pharmacy benefit manager
services.

 
SUMMARY OF PROVISIONS:

This bill amends the Insurance Law to add a new section 3114.

Section 1 of this bill amends the Insurance Law to add a new Section
3114, which provides that any contract or other arrangement entered into
by a health insurer that provides for the provision and administration
of pharmacy benefit management services shall be based on a pass-through
pricing model.
              

Subpart 1 provides that payment to a pharmacy benefit manager (PBM)
shall be limited to the actual ingredient costs, dispensing fees paid to
pharmacies, and the administrative fee that covers the cost of providing
PBM services (the maximum for such administrative fee may be set by the
Department of Financial Services (DFS)).

Subparts 2 and 3 requires PBMs to identify and report to both DFS and
the health care plan all sources of income, payments, and financial
benefits received by them (including any clawbacks, rebates, charge-
backs, fees, etc.) and pass through those financial benefits in full to
the health care plan to reduce the reportable ingredient cost.

Subpart 4 requires the PBM to identify all ingredient costs and dispens-
ing fees or similar payments made by the PBM to any pharmacy in
connection with the contract.

Subpart 5 prohibits the practice of spread pricing, which is defined to
mean any amount charged or claimed by the PBM in excess of the amount
paid to the pharmacies on behalf of the health care plan less an admin-
istrative fee. Subpart 5 also requires any excess amount to be remitted
to the plan on a quarterly basis.

Subpart 6a requires PBMs to make their payment model for administrative
fees available to the health care plan and DFS, and requires the plan,
if so directed by DFS, to make change to the payment model and resubmit
an amended contract to DFS for review and approval. Subpart 6b subjects
any changes in premiums resulting from the contracts to approval by DFS.

Subpart 6c defines pharmacy benefit manager to mean an entity that
contracts with pharmacies or pharmacy contracting agents on behalf of a
health plan, state agency, insurer, managed care organization, or other
third-party payer to provide pharmacy health benefit services

Section 2 provides the effective date, such that the act would take
effect immediately.

 
JUSTIFICATION:

This bill expands upon a significant cost-saving measure from the FY
2019-20 Budget that prohibits the practice of spread pricing by PBMs
contracted with NYS Medicaid Managed Care Plans to all commercial insur-
ance plans.

In the 1960s, insurance companies began to expand their coverage of
prescription medications. This expansion of coverage led to increased
caseloads that put .a significant administrative burden on the insurance
industry. Prescription drug coverage plans began to outsource the proc-
essing and administration of claims to new companies called Pharmacy
Benefit Managers (PBMs). As the price of prescription medications
increased, PBMs were able to wield their significant power within the
prescription drug pricing industry and act as a "middleman," negotiating
discounts and rebates with a manufacturer in exchange for a preferable
position on an insurance company's drug formulary. The savings from
these rebates and discounts are meant to pass through to patients making
drugs more affordable.

PBMs negotiate rebates with the drug's manufacturer in exchange for a
favorable position on an insurance company's formulary. A favor able
position on a formulary makes it more affordable to consumers thus
increasing the drug's market share. Despite the fact that many PBMs
claim to pass on these savings from these rebates to the consumer, many
PBMs hold on to large portions or all of these rebates as profit.

PBMs also act on behalf of the insurance company to reimburse pharmacies
for the cost of purchasing the medication from the distributor and
dispensing the medication to the consumer. These costs, and often a
small profit, are covered through the "administrative fee" charged to
insurance companies they are contracted with.

Oftentimes, PBMs will also markup - sometimes dramatically - the differ-
ence between the amount they reimburse the pharmacy and the amount they
charge their clients. These controversial practices, called "spread
pricing," "claw backs," or "chargebacks," are most common with generic
drugs, which make up almost 901 of all prescriptions dispensed in the
United States, and where most believe PBMs make their greatest profit.

Ending these practices throughout the commercial insurance industry will
prevent overinflated and unjustifiable price markups, eliminate wasteful
spending, and' ensure fair and affordable drug prices for all New York-
ers.

 
LEGISLATIVE HISTORY:

Senate

2020 - S6297, Referred to Insurance

2021-2022- 51768, Referred to Insurance

Assembly

2020- A8165, Referred to Insurance

2021-2022- A291, Referred to Insurance
 
FISCAL IMPLICATIONS:

To be determined.

 
EFFECTIVE DATE:
This act shall take effect immediately.