On November 20, 2024, New York State’s independent pharmacies and consumers received a much-needed victory, as the New York State Department of Financial Services (DFS) adopted a groundbreaking set of market conduct regulations. The new regulations are designed to level the playing field between independent pharmacies and pharmacy benefit managers (PBMs), who have long been criticized for anticompetitive practices. These regulations aim to curb PBM overreach, ensuring fairer practices and better protections for pharmacies and consumers alike. These transformative changes offer new hope to independent pharmacies across the New York State.
Why These New Regulations Matter
The adoption of these regulations marks a turning point for independent pharmacies and consumers in New York State. DFS first proposed market conduct regulations in August 2023 to combat the growing frustration with PBM practices. Though the initial proposals were withdrawn in October 2023, new regulations were proposed in February 2024. As discussed in a prior alert, while the enacted regulations are scaled back compared to those initially proposed by DFS and signaled a much-needed shift toward fairness and transparency, they continue be a step in the right direction by New York State.
Key Provisions You Need to Know About
The new market conduct regulations are a major win for independent pharmacies and consumers. The key provisions include:
- Expanded Home Delivery Access: PBMs will no longer be able to block in-network pharmacies from offering mail order or home delivery, boosting access for patients to their trusted community pharmacy.
- Increased Transparency for Consumers: PBMs must publish formularies and pharmacy directories online, ensuring consumers can make informed decisions without facing penalties for using this information.
- Better Consumer Support: PBMs must provide clear contact information and respond promptly to consumer inquiries. This transparency will help consumers navigate the often-complex world of pharmacy benefits.
- Ban on Patient Steering: Anticompetitive practices that push consumers away from independent pharmacies to PBM-affiliated chains are banned. This will ensure patients are able to stay with the pharmacy they know and trust.
- Fair Treatment of Pharmacies: PBMs can no longer unfairly retroactively deny reimbursement for drugs they previously approved, ensuring fair compensation for pharmacies.
- Reduced Administrative Burden: Independent pharmacies will be able to submit information electronically, reducing administrative burdens and costs.
- Equal Audit Standards: PBMs are required to apply consistent audit practices across all in-network pharmacies, preventing discrimination against independent pharmacies. This means that if the PBM is not applying the same audit standards to its own affiliated pharmacies (or even auditing those pharmacies), then it is acting in violation of the law.
How the New Rules May Immediately Impact Independent Pharmacies
We are hopeful that DFS will strictly enforce the new regulations to promote the goals that were established in 2021, when DFS was charged with promoting transparency and leveling the playing field for independent pharmacies to compete with PBM-affiliated pharmacies that have not been subjected to the same terms and conditions of network participation.
Below are a few key changes that may immediately impact independent pharmacies, which have seen a large uptick in denials of network enrollments, network terminations, and audits in recent months.
Changes to Pharmacy Contracting and Enrollment
The regulations prevent PBMs from making unilateral changes or updates to pharmacy contracts unless the contract is up for renewal. If a PBM desires to make changes at the time of renewal, it must provide 60 days’ notice to the pharmacy.
PBMs are required to provide 60 days’ notice to a pharmacy when choosing not to renew a contract. The notice must include an explanation of the reason for nonrenewal. If a pharmacy can demonstrate that the reason for nonrenewal no longer applies, the PBM must allow the pharmacy to reapply after one year. While PBMs must provide pharmacies with the opportunity to reapply in this circumstance, note that this does not mandate a pharmacy’s acceptance into the pharmacy network.
The regulations require PBMs to provide credentialing requirements at a pharmacy’s request. If a pharmacy requests credentialing requirements related to enrollment or participation in a pharmacy network, the PBM must respond within 14 days of the request. PBMs must provide a network pharmacy with information regarding recredentialing requirements at least 30 days before the pharmacy is required to submit information for the recredentialing process.
PBMs must also provide a timely response to applications to enroll in pharmacy networks. Specifically, a PBM must issue a decision in writing within 30 days of application submission. When denying a pharmacy’s enrollment application, the PBM’s decision must include an explanation of the reason for denial.
Termination Protection and Fairer Audits
The adopted regulations intend to restrict a PBM’s ability to immediately terminate a network pharmacy. Other than in limited circumstances, a PBM seeking to terminate a pharmacy must provide the pharmacy with at least 60 days’ notice of the impending termination. The termination notice must include a “specific explanation” regarding why the pharmacy’s contract was terminated. The explanation must also have a “rational basis.” This new regulation will better enable network pharmacies facing termination to have a full and fair opportunity to respond to allegations by PBMs and not be subjected to subjective reasoning that is not based on objective evidence.
The new regulations will supplement New York State’s existing PBM audit requirements under Public Health Law Section 280-c and expand protections further for independent pharmacies. Most critically, based on our experience, is the inclusion of a definition for “fraudulent activity,” which is defined as “an intentional act of theft, deception, material misrepresentation, or concealment committed by the pharmacy.” This definition will prevent PBMs from using their own overbroad and arbitrary definitions of fraud, waste, and abuse, which didn’t take into account any intent to deceive and considered inventory shortages that were caused by date ranges solely selected by the PBM to be fraud despite the pharmacy being able to establish that the drug was in fact on the shelf and dispensed to the patient.
Regarding clerical and recordkeeping errors, PBMs will only be able to recoup in instances where fraudulent activity is alleged, there is a pattern of these errors, or the error resulted in an overpayment to the pharmacy. This, too, is a welcome addition to the regulations.
Why These Changes Are Crucial for Independent Pharmacies
These regulatory changes come at a time when independent pharmacies are facing increased challenges, from rising denials of network enrollments to audits and unfair terminations. By leveling the playing field, New York State is helping independent pharmacies continue to provide the personalized service and care that consumers have complained that PBM-affiliated mail-order and chain pharmacies simply do not match. These regulations give independent pharmacies a fighting chance to stay in business while ensuring consumers have better access to reliable care.
What’s Next?
The regulations will take effect upon publication in the State Register on November 27, 2024. Independent pharmacies should take immediate steps to familiarize themselves with these new regulations and ensure their practices align with the updated standards. By doing so, they can protect their business and continue to thrive.
The new market conduct regulations represent a major victory for independent pharmacies and, ultimately, the consumers they serve. While there are still challenges ahead, these protections are a step in the right direction toward creating a more equitable environment for pharmacies and patients alike. Independent pharmacies in New York State now have more in their toolbox and will be able to better compete with PBM-affiliated pharmacies—so long as DFS is also willing to enforce the regulations strictly across the board.
If your pharmacy is facing challenges with PBM network enrollment, audit, terminations, and reimbursement disputes, our team is here to help. Let us partner with you to protect your business and ensure your rights are upheld.
If you have any questions regarding the content of this alert, please contact Brad Gallagher or Linda Clark, co-leaders of the Health Care Controversies Team, at bgallagher@barclaydamon.com and lclark@barclaydamon.com; Amanda Rhodes, associate, at arhodes@barclaydamon.com; or another member of the firm’s Health Care Controversies Team.