State moves to rein in prescription drug management firms

CDPHP cuts the ribbon on its first standalone retail pharmacy, in Watervliet in December 2021. Photo provided.

CDPHP cuts the ribbon on its first standalone retail pharmacy, in Watervliet in December 2021. Photo provided.

ALBANY — More oversight is coming to prescription drug plans in New York.

The state, a latecomer to regulating prescription benefit managers, put a PBM reform package in place four months ago and last week announced formation of a watchdog bureau to oversee the PBM industry.

Also last week, Albany-based health insurer CDPHP announced it would end its contract with Caremark, the nation’s largest PBM, and retain Capital Rx, a much smaller PBM with a very different business model, to manage its prescription drug plans.

Most of the pharmacies that CDPHP members now use will remain in the network. There will just be a different intermediary arranging their coverage.

CDPHP and the members who have drug coverage through the insurer pay pharmacies more than $600 million a year combined for prescription medication.

CDPHP Chief Pharmacy Officer Eileen Wood said the benefit of the Capital Rx deal will be convenience and efficiency, plus a cost savings to be determined. A main goal of the switch is transparency on drug prices, which are extensively criticized as opaque under the traditional PBM model.


A pharmacy benefit manager is an intermediary that negotiates the price of medication between those making, selling and paying for the drugs — pharmaceutical manufacturers, pharmacies and insurers.

Their trade association, the Pharmaceutical Care Management Association, says PBMs administer drug plans for more than 266 million Americans a year and extract a savings of $962 per person per year, on average.

That’s $10 for every $1 spent on PBM services, the organization says, and there are also non-monetary benefits such as reduced medication errors.

Critics blame PBMs for exacerbating the rapidly rising cost of drugs, for driving independent pharmacies out of business, and for self-dealing through vertically integrated business models. 

The most prominent example is CVS Health, which owns the largest PBM (Caremark), the largest retail pharmacy chain (CVS) and one of the largest health insurers (Aetna) in the United States. But there are others.

The Federal Trade Commission earlier this year opted to not investigate whether these relationships harm other pharmacies.

But states have been taking action for years to regulate PBMs.

Considering its reputation for regulations, New York was surprisingly late to the game. Then-Gov. Andrew Cuomo vetoed an earlier regulatory proposal in December 2019, saying at the time he appreciated its intent but saw unwanted potential consequences.

A subsequent reform measure passed muster with Cuomo’s successor, Gov. Kathy Hochul, who signed it into law Dec. 31, 2021, and called it the most comprehensive package in the nation.

The Pharmacy Benefits Bureau she announced Wednesday will license and supervise the PBM industry in New York and have the authority to investigate drug price spikes. PBMs must register with it by June 1 and submit their first annual reports by July 1.

The bureau, Hochul said in a news release, will be able to address the widely publicized problems in the PBM industry; reduce drug and insurance costs for New Yorkers and protect their access to drugs; and support New York pharmacies, some of which are independent small businesses.

Strong words dotted the announcement. Hochul charged “predatory practices” by PBMs and Assemblymember Richard Gottfried spoke of “profiteering” and “mistreatment of independent pharmacists.”

Caremark declined comment for this story. 

The Pharmaceutical Care Management Association said via email: “The primary mission for pharmacy benefit managers, PBMs, is to increase access to affordable prescription drugs for patients. We look forward to continuing to work with Gov. Hochul and the newly created Pharmacy Benefit Bureau.”


Independent pharmacists, once so common in the cities and villages of New York, are now far outnumbered by drug stores bearing CVS, Walgreens and other corporate logos. 

Schenectady County is a particularly striking example, with just one independent left among the 32 pharmacies licensed by the state: Lange’s Pharmacy in Niskayuna.

David Lange said Thursday the changeover announced by CDPHP and the watchdog bureau announced by Hochul sound great but he’ll wait to see what actually comes of them.

Previous changes have sounded good but not delivered on what they promised, he said, and Lange’s remains in continual battle with PBMs over their reimbursement levels.

John T. McDonald III, who runs the independent Marra’s Pharmacy in Cohoes, is more optimistic, but he’s also got a different perspective than Lange. He’s a member of the state Assembly, sits on its Health and Insurance committees, and was a co-sponsor of the PBM reform legislation.

“We now have a much better view of what manufacturers are charging and what PBMs are getting rebated back,” he said, referring to the rebates PBMs negotiate with drug makers but traditionally don’t disclose.

“We will actually be able to see both sides of the equation.”

McDonald marveled at the situation: As mayor of Cohoes, he’d have to put every job worth more than $10,000 out to bid, yet the state of New York was in the dark about the true net cost of the drugs it was paying billions for through the Medicaid program.

“Other states have been doing it for years,” he said. “New York is very late to the game.”

The dysfunctional model has real-world consequences for public health, McDonald said, explaining that Marra’s loses money on one in three prescriptions. In areas with a heavily Medicaid-dependent population, typically poor and urban or rural, the pharmacy may run at such a deficit that continued operation becomes untenable, and it closes.

He watched four pharmacies roughly in a line from Albany’s South End to Cohoes shut down like this.

Medicaid-dependent populations often have less access to transportation, which means the loss of a neighborhood pharmacy can diminish community health, he said.

“Community pharmacies have been under attack,” McDonald said. “Pharmacy as a profession has been held captive and actually been diminished. Hopefully this will stem the loss of community pharmacies in rural and inner city areas.”

He applauded the announcement by CDPHP, as well.

“They are going in a direction that I wish every health plan would go in,” he said.


So how does Capital Rx do what other PBMs can’t, or won’t?

Transparency on prices and lower overhead, President Matt Gibbs said Thursday. Next-generation technology lets the company run with fewer people and greater efficiency.

Most importantly, he said, there’s no need for the “gamesmanship” typically involved in PBM drug price negotiations.  Capital Rx uses the published National Average Drug Acquisition Cost list to set prices, rather than the average wholesale price.

The young company grew 400% in its first year, 250% in its second and expects to grow 200% to 300% this year, Gibbs said. It currently manages the pharmacy benefits for more than 1.2 million people for over 150 active clients. Its contract with CDPHP takes effect Jan. 1.

Gibbs said landing a client of CDPHP’s size and diversity of business lines with concentration of 400,000 members in 29 counties was a big win for his company. 

He’s awaiting details on the state’s new regulatory framework, and is a little surprised at how late the state is out of the gate, having previously not even required PBMs to register.

“Thirty-plus states required PBM registration for probably 10 years,” he said.

CDPHP is also excited about the arrangement, said Wood, the insurer’s chief pharmacy officer and executive vice president for pharmacy services.

It will be a partnership that brings CDPHP one step closer to the integrated health model it has been pursuing for years, in which the administration, delivery and bookkeeping of healthcare is less compartmentalized. Toward this goal, the insurer has opened a pharmacy, embedded itself in hospitals, and entered a management agreement with the region’s largest independent physician group.

For the member with prescription coverage through CDPHP, the changeover Jan. 1 will involve no disruptions in care or coverage, she said, but improvements in cost, access and quality will follow.

“We wanted more transparency in our relationship with a PBM,” she said. “We wanted to deconstruct the current PBM model.”

Gaining this transparency into the actual cost of medications allows CDPHP more room for innovation and efficiency, Wood said. 

As McDonald pointed out, it’s hard to control costs if you don’t know what the costs are.

Categories: Business, News, Schenectady County

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