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January 29, 2021

A Look at the State and Federal Rollercoaster That Is PBM Reform—Post-Rutledge and Post-Election

Following the US Supreme Court’s decision in Rutledge and a change in presidential administration, reform of pharmacy benefit managers (PBMs) and their role in the marketplace has gained significant traction at the state and federal levels.

Federally, the Biden administration is confronted with whether to proceed with a final rule published by the Trump administration that creates two new safe harbors governing certain pharmaceutical manufacturer price reductions at the point of sale as well as PBM fees. The final rule also removes discount safe harbor protection for rebates under the Anti-Kickback Statute by excluding rebates from the definition of a discount.

On Inauguration Day, President Biden issued a memorandum detailing how his administration plans to manage the federal regulatory process. Concerning rules that have been published in the Federal Register, but have not yet taken effect, the administration asked heads of executive departments and agencies to consider postponing the rules’ effective dates for 60 days from January 20, 2021. The new safe harbors to the Trump administration’s “no rebate” final rule take effect as of January 29, 2021; the removal of the discount safe harbor is delayed until January 1, 2022. Whether the Biden administration’s Department of Health and Human Services intends to adopt the final rule and defend its validity against the recent lawsuit filed by the Pharmaceutical Care Management Association (PCMA) remains to be seen. Assuming stakeholders are afforded notice with a comment period following any changes to or rescission of the final rule, certain causes of action asserted by the PCMA could be considered moot. As a practical matter, Biden’s administration will be compelled to limit skyrocketing drug prices, as pharmaceutical companies increased prices on hundreds of prescription drugs at the beginning of 2021.   

Meanwhile, New York’s Executive Budget for fiscal year 2020-21 requires PBMs to register and become licensed by the Department of Financial Services (DFS). DFS may set minimum standards for issuance of a PBM license, including standards of conduct that may address things like prohibitions on anticompetitive conduct and spread pricing. DFS also has the authority to suspend, revoke, or refuse to renew or issue a PBM license if its determines that the PBM violated, among other things, state insurance law. Amid these significant changes, independent pharmacies and other stakeholders will hopefully be provided with greater transparency in drug pricing and other reimbursement-related issues.

Barclay Damon represents independent pharmacies and other stakeholders across the United States. Its attorneys actively monitor the constantly evolving landscape of PBM reform and are experienced in handling issues arising out of stakeholder relationships with PBMs.

If you have any questions about this blog post, please contact Linda Clark, Health Care Controversies Practice Area chair, at lclark@barclaydamon.com; Mary Connolly, associate, at mconnolly@barclaydamon.com; Brad Gallagher, partner, at bgallagher@barclaydamon.com; or another member of the firm’s Health Care Controversies Practice Area.

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