United States: New York Department Of Financial Services Withdraws Bulk Of Proposed Pharmacy Benefit Manager Regulations

On October 31, 2023, the New York Department of Financial Services (DFS) took important regulatory action concerning pharmacy benefit managers (PBMs) that operate in the state, withdrawing one set of proposed rules to regulate PBMs and adopting as final a separate rule that provides instructions to PBMs on how to obtain a license to operate in New York.

In 2022, Governor Kathy Hochul signed into law a comprehensive regulatory regime for PBMs that charged DFS with licensing PBMs and curbing conduct harmful to pharmacy competition (S.3762/A.1396). The goal of the legislation was to help lower drug and health insurance costs while increasing opportunities for New Yorkers to access those drugs.

Consistent with the legislation, the now-withdrawn rules would have subjected PBMs to a range of consumer protection provisions, including prohibitions against engaging in deceptive marketing or business practices, and prohibited PBMs from incentivizing covered individuals to use a pharmacy owned by or affiliated with the PBM, or requiring covered individuals to purchase prescription drugs exclusively through a mail-order pharmacy, among other things.

Further, the rules set contract standards for PBMs aimed at protecting local, independent pharmacies from abusive contract terms. The withdrawn rules also would have formalized the process for DFS to investigate complaints filed against PBMs. In addition, in an effort to limit further market concentration, the rules required DFS approval for any merger or acquisition involving a PBM licensed in New York.

Most notably, the withdrawn rules would have imposed upon pharmacists a minimum dispensing fee of $10.18 on the medications filled, drawing pushback of interest groups like the Pharmaceutical Care Management Association, the national PBM lobby, which claimed the dispensing fee, alongside other provisions, would have increased the cost of prescription drug coverage for consumers. The National Community Pharmacists Association, which had applauded the proposed rule during the comment period, said it was troubled by DFS' decision to withdraw the rules.

DFS gave no explanation for its decision. Its regulatory actions arose out of recent legislation that sought to bring needed oversight and reform to the PBM industry.

Duane Morris' Pharmacy Litigation Group will be monitoring these developments closely.