New York’s pharmacy benefit carve out delayed 2 years, buying opponents time for repeal

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New York’s closely watched pharmacy benefit carve out has been delayed by two years under the state budget announced Tuesday evening by Gov. Andrew Cuomo, Sen. Andrea Stewart-Cousins and Assemblyman Carl Heastie.

Health centers and insurers were among opponents that celebrated the delay, saying it provided them more time to push for a complete repeal. They had been fighting the state’s efforts to move Medicaid managed care’s pharmacy benefit back to fee-for-service since it passed in the governor’s budget April 2020. The carve out would disproportionately affect safety-net providers participating in a 340B program, they said.

The passed health budget bill would implement the transition no sooner than April 1, 2023, instead of April 1 of this year, as proposed by the governor. It differed from the Assembly’s proposal in March, which requested a three-year delay for the transition and a reimbursement fund for 340B-covered entities, and the Senate’s proposal, which called for a complete repeal of the carve out. The passed bill did not include a reimbursement fund for 340B-covered entities.

“With the delay, there is no need for the reimbursement fund at this time,” said Assemblyman Richard Gottfried, chair of the health committee. “The governor proposed no delay, so two years is a reasonably good negotiated outcome.”

Gottfried, however, recognized that 340B-covered entities still require assistance in providing services to their communities as the two years pass. “I will continue to work on a mechanism to get the significant benefits of the carve out while still protecting the 340B providers and HIV special-needs plans,” he said.

“While we would have preferred that the pharmacy benefit carve out be eliminated altogether, we are extremely grateful to our state legislators who fought hard for a delay because they understand the real-world harm it would have caused our patients,” said Brian McIndoe, president and CEO of Ryan Health. The health center serves 50,000 members annually in the city—nearly 90% of them are low income.

The carve out would have been about $6 million of lost 340B revenue for Ryan Health, McIndoe explained. Those funds pay for low-cost or free medication for patients, finance a sliding fee scale and help offer care coordination of chronically ill patients, including those with HIV, he said.

The next steps will be a continued push for repeal in the next two years, said Rose Duhan, president and CEO of Community Health Care Association of New York State, which represents 70 community health centers across the state.

“We’re taking a few days to breathe, but we’re looking forward to speaking with the Department of Health and legislators to look at alternatives to achieving cost savings other than from the carve out,” Duhan said. It could be possible to extract operational efficiencies, be it looking closely at third-party pharmacy benefit manager relationships or contract pharmacies, that translate into cost savings for the state, Duhan said.

The American Rescue Plan passed by President Joe Biden and other federal mandates for drug rebates by manufacturers could provide savings alternatives too, said Eric Linzer, president and CEO of the New York Health Plan Association. “There are a number of things we ought to be looking at rather than taking away pharmacy benefit out of integrated managed care,” he said.

The Save New York Safety Net coalition, which banded to fight the pharmacy benefit carve out, is also looking at national partnerships to lobby at the federal level to strengthen the reach of the 340B program into states, Duhan said.

Not all are on board with the carve out delay. “We had decided to move to a carve out for a reason, and with this delay it’s like we forgot it was in our best interest,” said Steve Moore, president of the Pharmacists Society of the State of New York.

Moore acknowledged that many health centers depend on 340B funds to provide valuable services, especially to low-income communities. But leaving the prescription drug benefit to be managed by PBMs without a state-regulating system only drives up drug prices up and drives pharmacists out of business, he said. “The carve out was the state’s solution to cutting the middlemen out,” he said.

Regulating PBM could help address affordability issues, but any legislation takes time to pass and to go into effect, Moore said. “Many independent pharmacies can’t wait that long and would have shut down by then,” he said.

“The state had the opportunity to ensure affordable medication for many, but by delaying the carve out, it has missed the boat on that,” Moore said.