Gridlock, Middleman Lobbying Cause Pharmacy Benefit Manager Reforms to Fail Again in New York Budget

The time surrounding the passing of the New York state budget is always met with much anticipation from residents and businesses. There are often many items of interest tucked into the budget and this year was no different.

In the wake of the US Supreme Court’s Rutledge decision in December 2020 that provided a path for states to regulate and control health care costs, many stakeholders believed that big changes were coming in the pharmacy industry in New York, especially after Governor Andrew Cuomo vetoed the bill last year signaling a desire to allow the SCOTUS Rutledge case to clear the path to state reforms.

In the end, what New Yorkers received was more of the same—delays and gridlock without solutions and another inexplicable siding with pharmacy benefit managers (PBMs), which has completely blindsided the independent pharmacy groups supporting the effort.

That was not the only surprise for the pharmacy industry. Many pharmacies and safety-net providers were preparing for the long-anticipated transition from Medicaid managed care to fee-for-service (FFS)—known as the carve-out—that was set to take effect on May 1, 2021.

In a last-minute amendment of the state budget after lobbying efforts, the transition to Medicaid FFS was delayed by 2 years until April 1, 2023. The carve-out of the pharmacy benefit from Medicaid was welcomed by many retail pharmacies that hoped for better reimbursement rates without paying the PBM middlemen.

Other safety-net providers participating in the popular 340B federal drug-discount program feared losing the ability to reinvest the savings for their critical care services. Proponents of the switch to FFS argue that the change would ultimately lead to lower prescription drug costs because New York would have been better able to negotiate directly on behalf of Medicaid members and obtain higher rebates from drug manufacturers.

With the FFS delay, we anticipate that stakeholders on both sides will attempt to figure out another solution that lowers prescription drug costs and unlocks savings for the New York Medicaid Program that is ballooning in costs while preserving the benefits of the 340B program.

As noted, another casualty of the backroom dealings that are the New York state budget bill was the failure of the pharmacist-backed PBM reform legislation designed to give the state better oversight over PBMs. Last year, legislation was passed by both houses of the New York state legislature before being vetoed by Cuomo.

The legislation was again introduced this year and was met with great enthusiasm from the independent pharmacies that feel that PBMs have been provided with too much power and compete unfairly by favoring and referring massive amounts of New York state’s drug spend to their affiliated health plans and national pharmacies.

The legislation was also supported by many physicians, patient advocates, labor unions, and lawmakers in both parties. Thus, it was a huge blow when PBM regulation was againrejected despite the Rutledge decision paving the path for change to benefit consumers and independent pharmacies.

For the time being, PBMs will continue to operate with very little oversight or ability to be kept in check in New York.

Barclay Damon represents independent pharmacies and other stakeholders across the United States. Its attorneys actively monitor the changing landscape and are experienced in handling issues on behalf of those stakeholders, including their relationships with PBMs.

If you have any questions regarding the content of this alert, please contact Linda Clark, Health Care Controversies Practice Area chair, at lclark@barclaydamon.com; Brad Gallagher, partner, at bgallagher@barclaydamon.com; or another member of the firm’s Health Care Controversies Practice Area.