The New York State Department of Financial Services (DFS) recently announced it has adopted Pharmacy Benefit Manager Market Conduct Regulations to promote patient access to prescription drugs and to protect independent pharmacies from unfair business practices. This Nov. 20, 2024, announcement, and the regulations themselves, denote DFS’ deep appreciation that patients, not just businesses, are harmed by unfair competition.
The underhand business of Pharmacy Benefit Managers has captured national attention in recent months, including the publication of an ongoing study by the Federal Trade Commission, noting that “these powerful middlemen may be profiting by inflating drug costs and squeezing Main Street pharmacies” and exercising “significant power over Americans’ access to drugs and the prices they pay.” The PBMs’ “complex and opaque contractual relationships … may disadvantage smaller, unaffiliated pharmacies and the patients they serve.”
There has been a national trend of states focusing on PBMs, and New York has joined many other states in closely regulating PBM practices. The new DFS regulations will take effect once published in the State Register on November 27th. DFS Superintendent Adrienne Harris announced that these regulations “will put an end to the industry’s opaque practices in New York.”
Independent pharmacies in New York State have been waiting for these regulations since the enactment of Legislation S.3762/A.1396 in 2021, deemed “the most comprehensive PBM regulatory regime in the country,” which vested the DFS with the power to implement the law and issue regulations.
The DFS regulations include many protections to independent pharmacies that lack leverage over the terms of their agreements with PBMs. Currently, PBMs largely make, interpret, and apply their own rules and have the final word, with no recourse available to independent pharmacies, other than cost-prohibitive mandatory arbitration. This is like having a fox guard the hen house, because PBMs have their own affiliated pharmacies which benefit from the arrangement. For example, the FTC report points out “the largest PBMs are now also vertically integrated with the nation’s largest health insurers and specialty and retail pharmacies,” and “pharmacies affiliated with the three largest PBMs now account for nearly 70 percent of all specialty drug revenue.”
Examples of New PBM Regulations
To list just a few examples of how the DFS regulations intercept anticompetitive practices, PBMs operating in New York state are now prohibited from:
- Reimbursing unaffiliated pharmacies less than affiliated pharmacies within the same network;
- Preventing pharmacies from communicating about PBMs in a public forum;
- Unfairly clawing back ingredient costs and dispensing fees;
- Recouping from pharmacies amounts in excess of any actual overpayment;
- Assessing chargebacks or other penalties against independent pharmacies based on mailing or delivering prescriptions to patients;
- Steering patients to affiliated pharmacies;
- Marketing for the purpose of gaining dispensing opportunities at affiliated pharmacies;
- Preventing pharmacies from offering mail and delivery services to their patients; and
- Conducting audits (defined broadly to include investigations) more frequently than once every six months.
- https://www.dfs.ny.gov/reports_and_publications/press_releases/pr20241120
- https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf
- https://www.governor.ny.gov/news/governor-hochul-signs-landmark-legislation-bringing-transparency-and-comprehensive-regulatory
- https://www.ftc.gov/system/files/ftc_gov/pdf/pharmacy-benefit-managers-staff-report.pdf
