New York State Requires PBM Contracts to Include a Mechanism for Appealing Disputes Related to Generic Drug Pricing

Health Care and Life Sciences Client Alert

Epstein Becker Green Health Care and Life Sciences Client AlertOn December 11, 2015, Senate Bill 3346-B[1] was signed into law by New York State Governor Andrew Cuomo. The new bill requires contracts between pharmacy benefit managers (“PBMs”) and pharmacies (or pharmacies’ contracting agents) to include a mechanism for appeals of contract disputes related to generic drug pricing. Codified as new Section 280–a of the New York Public Health Law, the new law will take effect on March 10, 2016.

Background

In contracts between PBMs and pharmacies, reimbursement schedules for brand-name drugs utilize published pricing benchmarks, such as the Wholesale Acquisition Cost (“WAC”) and Average Wholesale Price (“AWP”). For generics, however, PBMs utilize pricing benchmarks developed and managed by individual PBMs and known as Maximum Allowable Costs (“MACs”), which are unit prices for therapeutically equivalent “multisource” drugs (i.e., pharmaceutics that can be purchased under any of several trademarks from different manufacturers or distributors).

Since MAC pricing is not generally included in contracts that are presented to pharmacies (or their contracting agents), and since each patient’s policy may be governed by a different MAC list to which the pharmacist does not have access, a pharmacy typically will not know the reimbursement rate of a drug prior to filling a prescription. Under the new law, contracts between PBMs and pharmacies (or pharmacies’ contracting agents) will be required to include a process by which a pharmacy can appeal a MAC price that is below its cost, with a reasonable timeline for both the pharmacy to appeal and for the PBM to respond to the appeal.

Similar legislation has already been enacted in 16 other states, as well as in the Medicare Part D policy scheduled to take effect in January 2016.

Specific Requirements Under New York Public Health Law § 280–a

Section 280–a of the New York Public Health Law provides the following:

  1. A pharmacy (and/or the pharmacy’s contracting agent) has the right to appeal the MAC price within 30 days following the initial claim submission.
  2. The PBM must provide a telephone number through which a network pharmacy may contact the PBM for the purpose of filing an appeal and an email address for the individual at the PBM who is responsible for processing appeals.
  3. The PBM must acknowledge receipt of the appeal and respond to the pharmacy (and/or the pharmacy’s contracting agent) by email within seven business days indicating its determination. In addition:
  1. if the appeal is determined to be valid, the MAC for the drug must be adjusted for the appealing pharmacy, effective as of the date of the original claim for payment; and
  2. the PBM must require the appealing pharmacy to reverse and rebill the claim in question in order to obtain the corrected reimbursement.
  1. If an update to the MAC is warranted based on a valid appeal, the PBM must adjust the MAC of the drug for all similarly situated pharmacies in its network in New York, effective as of the date that the appeal was determined to be valid.
  2. If an appeal is denied, the PBM must identify the national drug code of a therapeutically equivalent drug (as determined by the U.S. Food and Drug Administration) that is available for purchase by pharmacies in New York (from wholesalers registered under the New York Education Law) at a price that the PBM determines is equal to, or less than, the MAC for that drug.

Since this law goes into effect soon, we recommend that PBMs review their agreements with their New York pharmacy networks to make sure that they comply with the law.

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This Client Alert was authored by Basil H. Kim, Leonard Lipsky, and Bethany J. Hills. For additional information about the issues discussed in this Client Alert, please contact one of the authors or the Epstein Becker Green attorney who regularly handles your legal matters.



ENDNOTE

[1] The full text of the bill is available at https://www.nysenate.gov/legislation/bills/2015/s3346b.