Empire State Today

New York’s three-year journey to lead the nation with regulation of pharmacy benefit managers (PBM) has entered a new chapter, just as the Federal Trade Commission (FTC) prepares to sue three PBM giants.

According to an FTC investigative report released on Tuesday, these titans— including UnitedHealth Group’s Optum Rx, CVS Health’s Caremark and Cigna’s Express Scripts—are "manipulating the prescription drug supply chain" to feed their own pockets while smaller, independent pharmacies struggle, CNBC reported on July 10.

How this will impact New York’s own Legislature-inspired effort to rein in PBMs, which impact pricing as third-party administrators of prescription drug programs, remains to be seen. But it is anticipated that New York will be keeping a close watch as it finalizes PBM regulations, which were published in the State Register on March 27.

The NY Department of Financial Services (NYDFS) was entrusted by the Legislature in 2021 with stepped up regulation of PBMs, and now enters a new chapter with the May 28 closure of a second 60-day public comment period. 

Next up is for the agency to finalize and activate these regulations, which NYDFS Superintendent Adrienne Harris said, in the Empire State News on April 5, are “designed to put an end to unfair practices by the PBM industry, making prescription drugs more affordable and accessible for New Yorkers.” 

Proposed regulations, according to a DFS statement in August of 2023, were to target deceptive marketing, abusive contract terms, preferential treatment for PBM affiliates and new PBM-related mergers.

In an interview with Empire State Today, Leigh McConchie, immediate past president of the Pharmacists Society of the State of New York (PSSNY), a not-for-profit representing pharmacists, started off addressing reports of the FTC’s pending legal action against the three PBMs and predicted that New York, which wants to be known as a leader in such regulation, will be watching "carefully” and may even want to “jump on with the FTC.”

He then went on to address the advantages and disadvantages of the pending New York regulations for both pharmacists and the consumer. 

McConchie, who owns Stone’s Pharmacy in Lake Luzerne, has experienced first-hand the problems dealing with PBMs and looks to the new regulations to bring relief as do many independent owners. He’s seen the regulations change substantially, dropping from 23 to 17 pages, since the first public comment period ended in 2023 and included union backlash triggered by what he describes as misinformation about costs.

“Some of the regulations that were removed were very important to independent pharmacies,” McConchie said. “Specifically, there was a payment floor requiring them (PBMs) to make a minimum payment to us basically equivalent to what we receive from Medicaid…Now they’re allowed to pay us whatever they want.” At times, he said, pharmacies even take a substantial loss filling a script to keep a customer.  

Many retail pharmacies suffer under the inequities of the payment structure, he said, noting Walgreens’ recent announcement of widespread store closures as per CNN on June 27, but the independents are hit hardest since prescriptions make up 90% of their sales. Meanwhile, PBMs, like CVS Caremark, the largest of the entities, continue to report outstanding profits “and they make nothing and sell nothing; all they do is process claims and manage healthcare,” he noted. 

According to CVS Health, the total third-quarter revenues increased to $89.8 billion for the third quarter, up 10.6% from 2022. As regulations seem to take the slow road to finalization, he said, “Independent pharmacies are closing at an alarming rate.”

Yet McConchie and the PSSNY still see benefits to the proposed regulations, even if they don’t go far enough. As part of the new safeguards, he said, consumers would have greater options with mail order scripts and, through the PBMs, they would have the benefit of an online formulary website with info on medications, co-pays and coverage.

For the pharmacies, the new regs contain a fair audit clause to end excessive auditing by the PBMs, which currently can happen multiple times a year, he said. The DFS also will require PBMs to make an accounting of rebates and other profit-makers, where a health plan might be charged $70,000 but a pharmacy only paid $50,000 of that amount. “Then this will be public knowledge and hopefully enlighten the (healthcare) plans,” according to McConchie. 

Due to streamlining, the regulations do not address performance measures for pharmacists based on whether they encourage patients to take new drugs, such as cholesterol medication for diabetics. They also do not reform audits to the desired extent, which would have centered on randomness and not more expensive drugs.

With the public comment period’s conclusion, McConchie said it’s uncertain how long the DFS may take to put these regulations into action, but that even the scaled-back changes should be a breath of relief for pharmacists and their clients.

According to the DFS website, these regulations were drafted based on feedback derived from its Pharmacy Benefits Bureau on a variety of issues, from pharmacy audits to pricing models. DFS also reviewed the annual reports of New York-registered PBMs and more than 100 complaints from pharmacies and pharmacy associations dealing with PBM conduct and practices.

DFS is entrusted with regulating 94 health insurers and managed care organizations. Harris, senior advisor the U.S. Treasury Department during the Obama Administration, was appointed to head of the DFS in January 2022 with the nod of Gov. Kathy Hochul (D-NY).