State moves to curb prescription drug management companies

ALBANY – Increased scrutiny is being placed on prescription drug plans in New York.

The state, a laggard in regulating prescription benefit managers, implemented a package of PBM reforms four months ago and last week announced the creation of an oversight office to oversee the PBM industry. .

Also last week, Albany-based health insurer CDPHP announced it would end its contract with Caremark, the nation’s largest PBM, and retain Capital Rx, a much smaller PBM with a business model very different, to manage his prescription drug plans.

Most of the pharmacies currently used by CDPHP members will remain in the network. There will just be a different intermediary arranging their coverage.

The CDPHP and members covered by pharmacare pay pharmacies more than $600 million a year combined for prescription drugs.

Eileen Wood, CDPHP’s pharmacy manager, said the benefit of the deal with Capital Rx will be convenience and efficiency, with cost savings to be determined. One of the main goals of the change is the transparency of drug prices, which are widely criticized as opaque under the traditional PBM model.


A drug benefit manager is an intermediary who negotiates the price of drugs between those who manufacture, sell and pay for the drugs – pharmaceutical manufacturers, pharmacies and insurers.

Their trade association, the Pharmaceutical Care Management Association, says PBMs administer drug plans for more than 266 million Americans annually and save an average of $962 per person per year.

That’s $10 for every dollar spent on PBM services, according to the organization, and there are also non-monetary benefits such as reduced medication errors.

Critics blame PBMs for exacerbating rapidly rising drug costs, for pushing independent pharmacies out of business, and for doing business with them through vertically integrated business models.

The most prominent example is CVS Health, which owns the largest PBM (Caremark), the largest retail pharmacy chain (CVS), and one of the largest health insurers (Aetna) in the United States. But there are others.

Earlier this year, the Federal Trade Commission chose not to investigate whether these relationships are hurting other pharmacies.

But states have been taking steps for years to regulate PBMs.

Given its regulatory reputation, New York was surprisingly behind the game. Then-Governor. Andrew Cuomo vetoed an earlier regulatory proposal in December 2019, saying at the time he appreciated its intent but saw potential undesirable consequences.

A later reform measure was passed by Cuomo’s successor, Governor Kathy Hochul, who signed it into law on Dec. 31, 2021, and called it the nation’s most comprehensive package.

The Pharmacy Benefits Bureau, she announced Wednesday, will license and oversee the PBM industry in New York and have the authority to investigate drug price spikes. PBMs must register by June 1 and submit their first annual reports by July 1.

The office, Hochul said in a press release, will be able to resolve the widely publicized issues in the PBM industry; reduce drug and insurance costs for New Yorkers and protect their access to medication; and supporting New York pharmacies, some of which are small, independent businesses.

Strong words punctuated the announcement. Hochul blamed PBMs for “predatory practices” and Assemblyman Richard Gottfried spoke of “profiteering” and “mistreating independent pharmacists”.

Caremark declined to comment for this story.

The Pharmaceutical Care Management Association said via email: “The primary mission of Pharmaceutical Benefit Managers, PBM, is to increase access to affordable prescription drugs for patients. We look forward to continuing to work with Governor Hochul and the new Pharmacy Benefit Bureau.


Independent pharmacists, once so common in New York’s cities and towns, now far outnumber pharmacies with CVS, Walgreens, and other corporate logos.

Schenectady County is a particularly prominent example, with only one independent pharmacy out of 32 state-licensed: Lange’s Pharmacy in Niskayuna.

David Lange said on Thursday that the change announced by the CDPHP and the oversight office announced by Hochul sounded good, but he will wait to see what actually happens to them.

Previous changes have looked good but have failed to live up to their promise, he said, and Lange remains in an ongoing battle with PBMs over their reimbursement levels.

John T. McDonald III, who runs independent drugstore Marra’s in Cohoes, is more optimistic, but he also has a different outlook than Lange. He is a member of the state assembly, serves on its health and insurance committees, and was a co-sponsor of PBM reform legislation.

“We now have a much better view of what manufacturers are charging and what PBMs are getting in return,” he said, referring to discounts that PBMs negotiate with drugmakers but typically don’t disclose. .

“We will actually be able to see both sides of the equation.”

McDonald marveled at the situation: As mayor of Cohoes, he should have offered every job worth more than $10,000, but New York State didn’t know what the true net drug cost was. for which he paid billions. through the Medicaid program.

“Other states have been doing it for years,” he said. “New York is very late for the game.”

The dysfunctional model has real consequences for public health, McDonald said, explaining that Marra’s loses money on one in three prescriptions. In areas where the population is heavily dependent on Medicaid, usually poor and urban or rural, the pharmacy can operate at such a deficit that continued operations become unsustainable and firm.

He saw four pharmacies roughly lined up from Albany’s South End to Cohoes closing like this.

Populations dependent on Medicaid often have less access to transportation, which means the loss of a neighborhood pharmacy can harm the health of the community, he said.

“Community pharmacies have been attacked,” McDonald said. “Pharmacy as a profession has been held captive and has in fact been reduced. Hopefully this will stem the loss of community pharmacies in rural areas and city centers. »

He also applauded the CDPHP’s announcement.

“They are going in a direction that I wish every health plan would go,” he said.


So how does Capital Rx do what other PBMs can’t or won’t?

Transparency on pricing and reduced overhead, chairman Matt Gibbs said Thursday. Next-generation technology allows the business to operate with less staff and greater efficiency.

More importantly, he said, there is no need for the “game” typically involved in PBM drug price negotiations. Capital Rx uses the published list of national average drug acquisition cost to set prices, rather than the average wholesale price.

The young company grew 400% in its first year, 250% in its second, and expects to grow 200% to 300% this year, Gibbs said. It currently manages the pharmacy benefits of over 1.2 million people for over 150 active clients. His contract with the CDPHP takes effect on January 1.

Gibbs said securing a client of the size and diversity of CDPHP’s business sectors with a concentration of 400,000 members in 29 counties was a big win for his company.

He’s waiting for details on the state’s new regulatory framework and is a bit surprised at the delay from the state, which hadn’t even previously required PBMs to register.

“Over thirty states have required PBM registration for probably 10 years,” he said.

CDPHP is also excited about the arrangement, said Wood, the insurer’s chief pharmacy officer and executive vice president of pharmacy services.

This will be a partnership that will bring the CDPHP closer to the integrated health model it has been pursuing for years, in which the administration, delivery and accounting of health care are less siloed. To this end, the insurer opened a pharmacy, integrated into the hospitals and entered into a management agreement with the largest group of independent doctors in the region.

For the member with prescription coverage through the CDPHP, the change on January 1 will not result in any interruption of care or coverage, she said, but improvements in cost, access and quality will follow.

“We wanted more transparency in our relationship with a PBM,” she said. “We wanted to deconstruct the current PBM model.”

Gaining this transparency about the true cost of drugs allows the CDPHP more room for innovation and efficiency, Wood said.

As McDonald’s pointed out, it’s hard to control costs if you don’t know what the costs are.

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