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New York requires PBM contracts to include dispute resolution provisions

Image result for legislationOn Dec. 11, New York State Governor Andrew Cuomo signed Senate Bill 3346-B, requiring contracts between pharmacy benefit managers (PBMs) and pharmacies (or pharmacies’ contracting agents) to include a mechanism for appeals for contract disputes relating to multi-source generic drug pricing.

Pharmacy benefit management contracts must include the following provisions regarding appeals:

The right for a pharmacy to appeal for 30 days following an initial claim submitted for payment;
a telephone number through which a network pharmacy may contact the PBM for the purpose of filing an appeal and an electronic mail address of the individual who is responsible for processing appeals;

  • The PBM must send an email acknowledging receipt of the appeal and respond in an email to the pharmacy (and/or the pharmacy’s contracting agent) filing the appeal within seven business days indicating its determination. If the appeal is determined to be valid, the maximum allowable cost for the drug shall be adjusted for the appealing pharmacy effective as of the date of the original claim for payment. The PBM must require the appealing pharmacy to reverse and rebill the claim in question in order to obtain the corrected reimbursement;
  • If an update to the maximum allowable cost is warranted, the PBM or covered entity shall adjust the maximum allowable cost of the drug effective for all similarly situated pharmacies in its network in NY State on the date the appeal was determined to be valid; and
  • If an appeal is denied, the PBM must identify the national drug code of a therapeutically equivalent drug, as determined by the federal Food and Drug Administration, that is available for purchase by pharmacies in NY State from wholesalers registered under NY law at a price which is equal to or less than the maximum allowable cost for that drug as determined by the PBM.
Tyrone’s Comment –
From a plan sponsor perspective, this legislation is important because it sheds a bright light on spreads or the difference in what PBMs charge plan sponsors to fill prescriptions and what they in turn pay pharmacies to dispense those prescriptions. This difference often leads to greater profits for the PBM at the expense of plan sponsors. The spread is a prime contributor to why one pharmacy may charge your plan very little and another may charge very much for the same generic medication.
  1. Contracted rate is the reimbursement rate that a specific pharmacy or pharmacy chain contractually agrees to accept for processing prescription drug claims on behalf of a specific PBM
  2. Effective rate is the actual blended performance rate of discount for the AWP, accounting for differences in reimbursement rate among individual pharmacies and the net effect of drugs that process at a customary level (the pharmacy’s retail price of a drug), which may be lower than the negotiated AWP discount
According to reporting by Fortune magazine reporter Katherine Eban, Meridian Health System audited its spending on employee medications to learn the scope of spread pricing. For the antibiotic amoxicillin, Meridian was billed $92.53 when an employee filled the prescription, but its PBM paid only $26.91 to the pharmacy to fill the same prescription. That amounted to a spread of $65.62 for only one prescription.
In another instance, Meridian was billed $26.87 for a prescription of azithromycin. The PBM paid the pharmacy $5.19 to dispense the prescription, creating a spread of $21.68. While the PBM continually promised savings, Meridian paid $1.3 million in unnecessary prescription benefits costs to this vendor due to the spread, according to Eban.

Senate Bill 3346-B will be codified as NY Public Health Law § 280–A and takes effect March 10, 2016.

By  Serj Mooradian

Tyrone Squires, MBA, CPBS

I am the proud founder and managing director of TransparentRx, a fiduciary-model PBM based in Las Vegas, Nevada. We help health plan sponsors reduce pharmacy spend, by as much as 50%, without cutting benefits or shifting costs to employees.

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