New York issues extensive new pharmacy benefit manager regulations

On November 27, 2024, the New York State Department of Financial Services (DFS) will be releasing new regulations governing pharmacy benefit managers (PBMs). Beginning with legislation in 2021, New York has been active in developing a comprehensive statutory and regulatory framework governing PBMs. These new regulations build on that framework and establish significant compliance and contracting obligations for any PBM operating under the jurisdiction of DFS.

These regulations will generally take effect upon publication, although certain provisions include later effective dates.

Applicability

The regulations add a new “applicability” provision that establishes that the PBM regulations do not apply with respect to Medicare prescription drug plan offerings or with respect to New York’s Workers Compensation Law. Given the existing DFS position that its regulations apply to PBMs administering plans subject to Employee Retirement Income Security Act (ERISA), DFS has also added new severability language in the event a court holds that any of the PBM regulations are preempted by federal law.

Compliance cost disclosures

Within existing regulations governing PBM duties, accountability, and transparency obligations, DFS is adding a new obligation for PBMs to disclose compliance costs to health plans. If the PBM increases its charges for PBM services due to the cost of complying with the New York PBM regulations, the PBM must disclose the requirements that have caused the charge increase and the related costs attributable to the plan. The PBM must also disclose any additional amounts the PBM is charging the plan.

Trade names

No PBM may operate under any trade name in New York unless it was disclosed in its license application or if DFS is properly notified.

Contracting with network pharmacies

The new regulations add an entirely new subpart that governs the content of pharmacy contracts; credentialing, certification, and accreditation requirements; rules regarding termination of pharmacies from PBM networks; and PBM services contracts. Under the rules for pharmacy contracts, PBMs will be subject to a variety of restrictions in their financial relationships with pharmacies (including reimbursement and retroactive adjustments). PBMs will likewise be prohibited from restricting disclosures of the contract or information in a number of situations related to communications with the government. PBMs will also be required to comply with rules governing the delivery of the contract, amendments, contact information, network participation (including rental networks), and terminations and nonrenewals.

Any of the PBMs’ contracts that are signed, issued, assigned, renewed, extended, amended, or otherwise modified on or after July 1, 2025 will be subject to these requirements. For all other contracts, any provision in those contracts that conflict with these regulations will be deemed void and unenforceable on and after January 1, 2027.

Credentialing, certification, and accreditation requirements

Under the new regulations, PBMs will not be permitted to recredential a pharmacy more frequently than once every three years. Likewise, the PBM will need to follow other timelines and credentialing rules set out in the new regulations. For example, if a PBM nonrenews a pharmacy contract for any reason, the PBM must notify the pharmacy with a specific explanation (which must have a rational basis).

Pharmacy contract termination provisions

With these new regulations, PBMs will be restricted from immediately terminating a pharmacy contract except in situations expressly enumerated in the regulations (which include material breaches of the contract). Otherwise, terminations may only be given on at least 60 days’ written notice. An explanation for the termination must be provided (which must have a rational basis).

PBM services contracts

DFS is asserting, via new regulations, its authority to gain access to any contract or arrangement between a PBM and other party that relates to the PBM services provided to health plans, notwithstanding any confidentiality provisions therein. PBMs will be required to affirmatively include contractual clauses that ensure the availability of the contracts to DFS.

Acquisitions of PBMs

Any acquisition of control of licensed PBMs will be subject to the process outline in new Part 457, which provides DFS with a broad range of factors upon which DFS may disapprove a transaction.

Consumer protections

New Part 458 establishes a list of consumer protections. Many of these regulations are targeted at a PBM’s relationship and arrangements with respect to affiliated pharmacies; for example, a member ID card that lists an affiliated pharmacy but also lists unaffiliated options. The regulations focus on other behaviors, including general deceptive and unfair acts and practices, uses of mail order pharmacies, efforts to steer individuals to specific plans via formulary designs, and pharmacy communications with patients, among other rules.

By July 1, 2025, PBMs will also be required to comply with new regulations establishing standards for formulary and network pharmacy directories.

Pharmacy audits

New Part 459 imposes rules for the conduct of pharmacy audits by PBMs. These rules include standards for notices of audits, such as timeframes and content. The rules likewise establish operational rules for the conduct of an audit itself. Pharmacy contracts must include the process for finalizing audit reports and for the appeal of a preliminary audit report. Under Part 459, PBMs must also comply with new standards governing the recoupment and any fee assessments related to in-person and remote audits.

Key takeaways

Given the scope of these new regulations, PBMs subject to licensure in New York are encouraged to carefully review and amend their contracts and policies and procedures to ensure compliance going forward. At the same time, these rules may have a material impact on the PBMs’ business arrangements with a variety of affiliated and unaffiliated third parties, including in particular mail order pharmacies, rental pharmacy networks, and health plans. Even vendors managing marketing materials, as well as member ID cards, may need to adjust their services and deliverables.

For more information, please contact the authors.