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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

February 6, 2024

New Regulations Proposed in New York State: DFS Renews Efforts to Enact PBM Reforms to Level the Playing Field for Independent Pharmacies

In October 2023, the New York State Department of Financial Services (DFS) withdrew comprehensive rules designed to regulate the state’s pharmacy benefit managers (PBMs). The proposed rules would have leveled the playing field between PBMs and independent pharmacies, ushering in a new era. The regulations were withdrawn because of “stakeholder concerns” that largely focused on a minimum dispensing fee for pharmacies.

After months of waiting, on February 6, 2024, DFS proposed new regulations that are comprehensive, albeit comparatively scaled back from regulations previously proposed. The regulations address important issues, including:

  • Prohibiting retroactive denial and reduction of reimbursements on claims 
  • Improvements in contracting and enrollments, including requiring a PBM to accept or deny an application within 30 days
  • Only permitting unilateral changes or updates to contracts at the time of contract renewal and upon notice to network pharmacies 
  • Requiring specific explanations for non-renewal of a contract
  • Permitting immediate terminations under limited and narrow criteria 
  • Consumer protections relating to patient steering by PBMs to affiliated pharmacies
  • Requiring PBMs to respond to complaints filed with DFS and for those responses to be shared with the complainant. PBMs are also prohibited from retaliating against complainants, even if the complaint is resolved in the PBM’s favor. 
  • Expanded audit protections, including a definition of “fraudulent activity,” limiting audits to once every 6 months, and clarifying the terms around clawbacks related to clerical errors
  • Permitting a pharmacy to charge a delivery fee and prohibits chargebacks when a patient requests mailing or delivery of their mediation 
  • Limiting payment suspensions for audit findings to 10% of each monthly payment if the preliminary findings exceed $25,000

There are several “loopholes” to the protections provided for PBMs. Notably, a PBM will still be able to immediately terminate a pharmacy from its network for a “material” breach. We have observed PBMs using an extremely liberal definition of the term “material” in the past to mean any breach of the PBM’s terms and conditions of network enrollment. Similarly, PBMs will still be able to enter agreements with health plans that create limited, restricted networks that only include affiliated pharmacies. These, and similar concerns, are areas where pharmacy stakeholders need to advocate for a reasonable definition and due process protections so that the exceptions do not swallow the letter and spirit of the proposed regulations.

Overall, we believe the regulations, while not as comprehensive as the prior version, are a good start at curbing some of the behaviors independent pharmacies have been subjected to over the years. The regulations, if implemented, will serve as a basis for protecting against some of the most egregious violations of the basic principles of good faith and due process.

We strongly urge independent pharmacies and others that support them to submit comments to PBMRegs@dfs.ny.gov. Pre-proposal comments are due by February 16, 2024, which will be followed by a 60-day comment period. DFS will then review the comments and issue a revised proposal or notice of adoption. For more information, visit the DFS website.

Barclay Damon has successfully represented pharmacies across the United States with PBM network enrollments, audits, terminations, reimbursement disputes, and compliance issues. 

If you have any questions regarding the content of this alert, please contact Linda Clark or Brad Gallagher, co-leaders of the Health Care Controversies Team, at lclark@barclaydamon.com and bgallagher@barclaydamon.com, or another member of the firm’s Health Care Controversies Team.
 

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