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January 15, 2014

Health Plans and PBMs Tighten the Competitive Reins

Managed care organizations ("MCOs") such as health care plans are assuming more control and influence over health care determinations for patients under the Affordable Care Act. In the pharmacy arena, however, their multiple roles as payer, provider and gatekeeper of information can create conflicts of interest that lead to aggressive tactics in dealing with doctors and patients that can violate New York's intricate pro-patient choice regulatory scheme. Those dealing with MCOs – and the pharmacy benefit managers ("PBMs") they hire as their agents – should be aware of statutory provisions to protect the rights of medical providers and patients.

For example, recent reports have surfaced of an MCO sending letters and making calls to New York providers and patients with the apparent intent of discouraging prescribers from using compounded drugs. Those communications from the MCO criticized the prescribing habits of doctors, failed to note or acknowledge the well-established benefits of compounded drugs for certain patients, and alarmed patients with the specter of increased health costs, even when the cost of the medication was covered under the patient's current plan. Some of the letters were sent from an out of state pharmacist and second guessed the medical judgment of medical providers, including the form of medications that they prescribe. Other reports of overly-aggressive audit tactics directed to pharmacies competing with PBMs and outright disregard for a patient's right to avoid mail order and use a local pharmacy are becoming rampant.

When faced with this type of aggressive communications, medical providers can rely on various provisions under New York law that protect the ability of health professionals to advocate on behalf of their patients in favor of a recommended course of treatment. For example, Section 4406-c of the New York Public Health Law provides that:

  • 3. No health care plan shall by contract, written policy or written procedure prohibit or restrict any health care provider from filing a complaint, making a report or commenting to an appropriate governmental body regarding the policies or practices of such health care plan which the provider believes may negatively impact upon the quality of, or access to, patient care.
  • 4. No health care plan shall by contract, written policy or written procedure prohibit or restrict any health care provider from advocating to the health care plan on behalf of the enrollee for approval or coverage of a particular course of treatment or for the provision of health care services.

N.Y. Public Health Law §§ 4406-c(3)-(4) (emphasis added).

Similarly, Section 4406-d(5) of the Public Health Law provides that:

5. No health care plan shall terminate a contract or employment, or refuse to renew a contract, solely because a health care provider has:

(a) advocated on behalf of an enrollee;
(b) filed a complaint against the health care plan;
(c) appealed a decision of the health care plan;
(d) provided information or filed a report pursuant to [Public Health Law Section 4406-c]; or
(e) requested a hearing or review pursuant to this section.

N.Y. Public Health Law §§ 4406-d(5) (emphasis added). New York courts have held that a violation of Section 4406-d(5) will be found upon a showing that patient advocacy was the determining factor in a nonrenewal decision, such that the provider would not have been terminated had s/he not engaged in the protected activity. Lewis v. Individual Practice Ass'n of W. N.Y., Inc., 187 Misc. 2d 812, 817 (Sup. Ct. Erie County 2001). This, in turn, frequently raises a question of fact for a jury's consideration.

Additionally, the American Medical Association's ("AMA") code of ethics, which courts have recognized as binding on doctors1, provides that "Physicians should prescribe drugs, devices, and other treatments based solely upon medical considerations and patient need and reasonable expectations of the effectiveness of the drug, device or other treatment for the particular patient." AMA Code of Prof. Ethics, Op. 8.06.

The AMA also has issued a Health Insurer Code of Professional Principles, which provides that:

  • "necessary" medical care is provided "not primarily for the economic benefit of the health plans;"
  • "Health insurers must not use financial incentives that discourage the rendering, recommending, prescribing of, or referral for medically necessary care;"
  • No care may be denied on the grounds it is not "medically necessary" except by a physician qualified by education, training and expertise to evaluate the specific clinical issues;
  • "Financial incentives must not corrupt benefit decisions;" and
  • "Physician profiling systems must be focused primarily on improving the quality of care"”not on reducing the cost of care."

Patients also have protections under New York law. Pursuant to Section 4904 of the Public Health Law, Medicaid and other managed care patients are entitled to an internal appeal of adverse "utilization review" determinations, i.e., an appeal to a clinical peer reviewer of a determination on the medical necessity of particular health care services. A patient receiving a "final adverse determination" on such an internal utilization review then is entitled under Section 4910 of the Public Health Law to an external appeal to the Department of Health. The MCO (or its hired PBM) is required to include in all final adverse determinations notification of the reason for the rejection of the requested treatment or prescriptions, including the clinical rationale. Sections 4904 and 4910 of the Insurance Law provide similar patient rights for an internal appeal to a health insurer and an external appeal to the Department of Financial Services.

A violation of these patient and provider protections can be reported in a complaint to the Department of Health, the Department of Financial Services, and the Attorney General's Health Care Bureau, which have overlapping jurisdiction over health care regulation and enforcement. Medical providers can also communicate with their respective professional society. Such reporting of complaints often induces the MCOs and PBMs to resolve disputes in favor of the provider or patient. In the event that the MCOs or PBMs do not respond favorably, reporting the violations provides documentation that can be used in litigation seeking damages pursuant to New York and federal laws against deceptive advertising and business practices, false claims and anti-competitive behavior.

The Department of Health's website maintains a list of the various agency contacts for particular types of complaints, which is available at:

Complaints by providers and managed care patients can be directed to:

NYS Department of Health
Bureau of Managed Care Certification and Surveillance
Complaint Unit Room 2019
Corning Tower ESP
Albany, NY 12237
Or Email:

Complaints against health insurance companies can be directed to:

Consumer Assistance Unit
NYS Department of Financial Services
One Commerce Plaza
Albany, NY 12257

The Attorney General's Health Care Bureau targets health care organizations that have fraudulent, misleading or deceptive practices and challenges health insurers that refuse to cover a patient's provided costs. Complaints can be directed to:

NYS Office of the Attorney General - Health Care Bureau
The Capitol
Albany, NY 12224-0341
Fax: (518) 402-2163

If you have any questions or concerns that require legal guidance, please contact Linda Clark at (518) 429-4241 or, or Joe Murphy at (518) 429-4241 or, for an initial consultation.

1 See, e.g., Agee v. Grunert, 349 F. Supp. 2d 838 (D. Vt. 2004); Horn v. N.Y. Times, 100 N.Y.2d 85, 102 (2003) (Jones J., dissenting).


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