S3212

An Act concerning pharmacy benefits managers and amending and supplementing various parts of the statutory law.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 3 of P.L.2023, c.106 (C.45:14-82.4) is amended to read as follows:

3. a. A pharmacy benefits manager shall, to the extent allowed by law, report to the division the following minimum data, and other data that may be specified by the division. The division shall annually notify pharmacy benefits managers of the specific drugs or drug groups for which reporting is required and a pharmacy benefits manager shall have 60 days following such notification to report to the division the following:

(1) minimum and maximum WAC, and total acquisition cost, for each indicated drug and drug group for which the pharmacy benefits manager has negotiated directly with the manufacturer in the last calendar year, related to prescriptions under an insurance policy issued in the State;

(2) volume in pricing units of each indicated drug and drug group that the pharmacy benefits manager negotiated directly with the manufacturer in the last calendar year, for business in the State, in total and for each payer type as relevant;

(3) total rebates, discounts, and price concessions received or negotiated directly with the manufacturer for each drug and drug group as indicated by the division in the last calendar year, for business in the State, in total and for each payer type as relevant;

(4) total rebates, discounts, and price concessions received by the manufacturer and remitted to a carrier or covered person for each drug and drug group as indicated by the division in the last calendar year, for business in the State, in total and for each payer type as relevant;

(5) total discounts, dispensing fees, and other fees negotiated last year with pharmacies, prescription drug networks, or pharmacy services administrative organizations for each drug and drug group as indicated by the division in the last calendar year, for business in the State, in total and for each payer type as relevant; and

[(5)] (6) total net income received in the last calendar year for each drug and drug group as indicated by the division, for business in the State, in total and for each payer type as relevant.

b. A pharmacy benefits manager shall additionally report annually to the division, in a form and manner prescribed by the division:

(1) prior authorization, step therapy, and denial metrics for each drug and drug group required to be reported to the division pursuant to subsection a. of this section; and

(2) the total amount of spread pricing revenue earned by the pharmacy benefits manager in the past calendar year.

c. Disclosure of all information reported under this section shall be subject to protections defined in section 9 of P.L.2023, c.106 (C.45:14-82.10).

(cf: P.L.2023, c.106, s.3)

2. Section 1 of P.L.2015, c.179 (C.17B:27F-1) is amended to read as follows:

1. As used in P.L.2015, c.179 (C.17B:27F-1 et seq.):

"Anticipated loss ratio" means the ratio of the present value of the future benefits payments, including claim offsets after the point of sale, to the present value of the future premiums of a policy form over the entire period for which rates are computed to provide health insurance coverage.

"Average wholesale price" means the average wholesale price of a prescription drug determined by a national drug pricing publisher selected by a carrier. The average wholesale price shall be identified using the national drug code published by the National Drug Code Directory within the United States Food and Drug Administration.

"Brand-name drug" means a prescription drug marketed under a proprietary name or registered trademark name, including a biological product.

"Carrier" means an insurance company, health service corporation, hospital service corporation, medical service corporation, or health maintenance organization authorized to issue health benefits plans in this State.

"Contracted pharmacy" means a pharmacy that participates in the network of a pharmacy benefits manager through a contract with:

a. the pharmacy benefits manager directly;

b. a pharmacy services administration organization; or

c. a pharmacy group purchasing organization.

"Cost-sharing amount" means the amount paid by a covered person as required under the covered person's health benefits plan for a prescription drug at the point of sale.

"Covered person" means a person on whose behalf a carrier or other entity, who is the sponsor of the health benefits plan, is obligated to pay benefits pursuant to a health benefits plan.

"Department" means the Department of Banking and Insurance.

"Drug" means a drug or device as defined in R.S.24:1-1.

"Health benefits plan" means a benefits plan which pays hospital or medical expense benefits for covered services, or prescription drug benefits for covered services, and is delivered or issued for delivery in this State by or through a carrier or any other sponsor. For the purposes of P.L.2015, c.179 (C.17B:27F-1), health benefits plan shall not include the following plans, policies or contracts: accident only, credit disability, long-term care, Medicare supplement coverage; TRICARE supplement coverage, coverage for Medicare services pursuant to a contract with the United States government, the State Medicaid program established pursuant to P.L.1968, c.413 (C.30:4D-1 et seq.), coverage arising out of a worker's compensation or similar law, the State Health Benefits Program, the School Employees' Health Benefits Program, or a self-insured health benefits plan governed by the provisions of the federal "Employee Retirement Income Security Act of 1974," 29 U.S.C. s.1001 et seq., coverage under a policy of private passenger automobile insurance issued pursuant to P.L.1972, c.70 (C.39:6A-1 et seq.), or hospital confinement indemnity coverage.

"Maximum allowable cost" means the maximum amount a health insurer will pay for a generic drug or brand-name drug that has at least one generic alternative available.

"Network pharmacy" means a licensed retail pharmacy or other pharmacy provider that contracts with a pharmacy benefits manager either directly or by and through a contract with a pharmacy services administrative organization.

"Pharmacy" means any place in the State, either physical or electronic, where drugs are dispensed or pharmaceutical care is provided by a licensed pharmacist, but shall not include a medical office under the control of a licensed physician.

"Pharmacy benefits manager" means a corporation, business, or other entity, or unit within a corporation, business, or other entity, that, pursuant to a contract or under an employment relationship with a carrier, a self-insurance plan or other third-party payer, either directly or through an intermediary, administers prescription drug benefits on behalf of a purchaser.

"Pharmacy benefits manager compensation" means the difference between: (1) the amount of payments made by a carrier of a health benefits plan to its pharmacy benefits manager; and (2) the value of payments made by the pharmacy benefits manager to dispensing pharmacists for the provision of prescription drugs or pharmacy services with regard to pharmacy benefits covered by the health benefits plan.

"Pharmacy benefits management services" means the provision of any of the following services on behalf of a purchaser: the procurement of prescription drugs at a negotiated rate for dispensation within this State; the processing of prescription drug claims; or the administration of payments related to prescription drug claims.

"Pharmacy services administrative organization" means an entity operating within the State that contracts with independent pharmacies to conduct business on their behalf with third-party payers.

"Prescription" means a prescription as defined in section 5 of P.L.1977, c.240 (C.24:6E-4).

"Prescription drug benefits" means the benefits provided for prescription drugs and pharmacy services for covered services under a health benefits plan contract.

"Purchaser" means any sponsor of a health benefits plan who enters into an agreement with a pharmacy benefits management company for the provision of pharmacy benefits management services to covered persons.

“Spread pricing” means any amount charged or claimed by the pharmacy benefits manager in excess of the amount paid to pharmacies on behalf of purchasers.

(cf: P.L.2023, c.107, s.1)

3. (New section) a. Compensation that a pharmacy benefits manager remits to a carrier under contract with the pharmacy benefits manager shall be:

(1) remitted directly to a covered person to reduce the covered person’s out-of-pocket costs for a prescription drug at the point of sale; or

(2) retained and applied by the contracted carrier in its plan design to offset premiums for covered persons.

b. A used in this section, “compensation” means any direct or indirect financial benefit related to the provision and administration of pharmacy benefits management services, including but not limited to pricing discounts, rebates, fees, or incentives.

4. (New section) a. In a contract for pharmacy benefits management services between a pharmacy benefits manager and the State Health Benefits Program, School Employees’ Health Benefits Program, or NJ FamilyCare program, compensation to a pharmacy benefits manager shall be based on a pass-through pricing model. A pharmacy benefits manager shall:

(1) receive payment that is limited to the ingredient cost plus dispensing fee; and

(2) identify all sources and amounts of income, payments, and financial benefits related to the provision and administration of pharmacy benefits management services on behalf of the State Health Benefits Program, School Employees’ Health Benefits Program, or NJ FamilyCare program, including but not limited to any pricing discounts, rebates, fees, or incentives, and ensure that any benefits identified pursuant to this paragraph are passed through to the State Health Benefits Program, School Employees’ Health Benefits Program, or NJ FamilyCare program to reduce the ingredient cost.

b. A pharmacy benefits manager shall identify and disclose to the department and to the State Health Benefits Program, School Employees’ Health Benefits Program, or NJ FamilyCare program, on an annual basis:

(1) the sources and amounts of income, payments, and financial benefits received by the pharmacy benefits manager pursuant to paragraph (2) of subsection a. of this section; and

(2) the ingredient costs and dispensing fees or similar payments made by the pharmacy benefits manager to a pharmacy in connection with a contract pursuant to subsection a. of this section.

c. A pharmacy benefits manager shall not utilize spread pricing in a contract between the pharmacy benefits manager and the State Health Benefits Program, School Employees’ Health Benefits Program, and State Medicaid and NJ FamilyCare programs.

d. As used in this section, “spread pricing” means any amount charged or claimed by the pharmacy benefits manager in excess of the amount paid to pharmacies on behalf of the State Health Benefits Program, School Employees’ Health Benefits Program, and State Medicaid and NJ FamilyCare programs.

5. (New section) a. In a contract for pharmacy benefits management services between a pharmacy benefits manager and the State Health Benefits Program, School Employees’ Health Benefits Program, or NJ FamilyCare program, the pharmacy benefits manager shall reimburse contracted or independent pharmacies for a prescription drug at a rate that:

(1) is at least equal to the National Average Drug Acquisition Cost (NADAC) for the dispensed prescription drug ingredients; and

(2) includes a reasonable and adequate dispensing fee determined by the department, in consultation with the Department of Health and State pharmacy advocacy groups. The department shall adjust the dispensing fee annually to account for inflation, using the United States Bureau of Labor Statistics’ Consumer Price Index for Medical Care or equivalent healthcare cost index.

If the NADAC is not available at the time a prescription drug is dispensed, a pharmacy benefits manager shall not reimburse the drug in an amount that is less than the wholesale average cost.

b. A pharmacy benefits manager shall maintain NADAC-based rate methodologies for periodic review by the department, in a time and manner as determined by the department.

6. (New section) A pharmacy benefits manager under contract with a carrier, that has established a pharmacy and therapeutics committee to manage a formulary system pursuant to section 7 of P.L.2023, c.107 (C.17B:27F-3.3), shall make available on its Internet website a price comparison tool that allows a covered person to view and compare the cost of a brand-name drug found on the formulary system with the cost of the drug’s generic or therapeutic equivalent, regardless of the placement of the generic or therapeutic drug on the formulary system.

7. (New section) a. A pharmacy benefits manager shall not require or incentivize a covered person to:

(1) use a pharmacy, including a mail-order or specialty pharmacy, in which the pharmacy benefits manager or its affiliate maintains an ownership interest or control, unless a covered person consents to use a pharmacy in which the pharmacy benefits manager or its affiliate maintains an ownership interest or control; or

(2) use a mail-order pharmacy to order non-specialty prescription drugs.

b. A contracted pharmacy shall be reimbursed at the same reimbursement rate, regardless of the ownership or affiliation of the contracted pharmacy.

8. (New section) A pharmacy benefits manager shall ensure that a retail pharmacy under contract with a pharmacy benefits manager’s network is no farther than five miles of a covered person residing in an urban area or 10 miles of a covered person residing in a rural area.

9. (New section) a. When conducting an audit of a pharmacy under contract with a pharmacy benefits manager’s network, a pharmacy benefits manager shall:

(1) notify the pharmacy no later than 15 days before the date of the initial audit. Notification to the contracted pharmacy shall be in writing, delivered either by certified mail or electronically, and addressed to the supervising pharmacist of record and to the pharmacy corporate office, if applicable;

(2) limit the audit period to 24 months after the date a claim is submitted to or adjudicated by the pharmacy benefits manager;

(3) include in the written advance notice of the audit the list of specific prescription numbers to be included in the audit if applicable;

(4) use the written and verifiable records of a licensed hospital, physician, or other health care provider, which are transmitted by any means of communication, to validate pharmacy records in accordance with State or federal law;

(5) limit the number of prescriptions audited to no more than 100 prescriptions randomly selected in a 12-month period, unless fraudulent activity or systemic abuse is reasonably suspected;

(6) provide the pharmacy with a copy of the preliminary audit report no later than 45 days after the conclusion of the audit;

(7) provide the pharmacy with the ability to provide documentation to address a discrepancy or audit finding, provided that the documentation must be received by the pharmacy benefits manager no later than the 45th day after the preliminary audit report was provided to the pharmacy or its contracting agent. The pharmacy benefits manager shall consider a reasonable request from the pharmacy for an extension of time to submit documentation to address or correct any findings in the report;

(8) provide the pharmacy with the final audit report no later than 60 days after the preliminary audit report was provided to the pharmacy.

b. A pharmacy benefits manager conducting an audit of a contracted pharmacy pursuant to subsection a. of this section shall not:

(1) conduct more than two audits per 12 month period, unless fraudulent activity or other systemic abuse is reasonably suspected; or

(2) recoup funds for clerical or record-keeping errors, including typographical errors; scriveners’ errors; and computer errors on a required document or record, unless the error resulted in overpayment or clinical harm.

c. (1) The department shall adopt rules and regulations, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), as is necessary to implement subsections a. and b. of this section, and shall include a uniform appeal process for a pharmacy seeking to appeal a final audit report issued by a pharmacy benefits manager pursuant to subsection a. of this section. The appeal process established pursuant to this subsection shall include an independent dispute resolution component.

(2) The Division of Consumer Affairs within the Department of Law and Public Safety, in consultation with the New Jersey State Board of Pharmacy, shall suspend the authority of a pharmacy benefits manager to conduct an audit of a contracted pharmacy pursuant to subsection a. of this section, if the division finds that there is a violation of the audit authority provided to the pharmacy benefits manager pursuant to subsection a. of this section. A pharmacy benefits manager suspended pursuant to this paragraph may be reinstated by the division after a suspension period determined by the division.

10. (New section) The department shall prepare and publish annually for the Governor and, pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), the Legislature a report:

a. analyzing pharmacy benefits management industry practices, including reimbursement trends;

b. identifying systemic issues affecting the pharmacy benefits management industry, including whether pharmacy benefits manager practices are contributing to pharmacy closures or limited access areas in the State; and

c. issuing legislative recommendations that the department determines are necessary to address identified issues within the pharmacy benefits manager industry.

11. (New Section) a. There is established within the Insurance Division of the Department of Banking and Insurance, the Pharmacy Benefits Manager Compliance and Enforcement Unit. The unit shall operate under the supervision of the commissioner and shall:

(1) produce market conduct examinations of pharmacy benefits managers licensed in the State;

(2) enforce and ensure compliance with P.L.2015, c.179 (C.17B:27F-1 et seq.) and any rules and regulations established thereunder;

(3) conduct investigations of pharmacy benefits managers pursuant to paragraph (2) of this subsection. The unit may issue subpoenas to compel the attendance of witnesses and the production of any documents relevant to an investigation;

(4) upon a finding of a violation of P.L.2015, c.179 (C.17B:27F-1 et seq.), issue penalties pursuant to subsection a. of section 7 of P.L.2019, c.274 (C.17B:27F-10) and order, if necessary, restitution to a contracted pharmacy for payments that are below the pharmacy’s cost for a prescription drug; and

(5) suspend or revoke a pharmacy benefits manager license pursuant to subsection f. of P.L.2023, c.107 (C.17B:27F-1.1).

b. The unit shall publish, on the Internet website of the department, an annual report summarizing the enforcement actions that it has completed in the past year. The report shall include the total amount of penalties collected in the past year.

c. The department shall establish a link on the Internet website of the department to allow pharmacies and consumers to submit complaints to the unit regarding the conduct of a pharmacy benefits manager.

d. The department shall adopt, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), rules and regulations as is necessary to implement the provisions of this section.

12. This act shall take effect on the first day of the twelfth month next following the date of enactment and shall apply to contracts and agreements entered into, renewed, modified, or amended on or after the effective date, but the Commissioner of Banking and Insurance and the Attorney General may take such anticipatory administrative action as is necessary for the implementation of this act.

STATEMENT

This bill establishes the “New Jersey Pharmacy Fair Reimbursement and Anti-Steering Act.”

Under the bill, compensation that a pharmacy benefits manager remits to a carrier under contract with the pharmacy benefits manager will be remitted directly to a covered person to reduce the covered person’s out-of-pocket costs for a prescription drug at the point of sale or retained and applied by the contracted carrier in its plan design to offset premiums for covered persons.

The bill prohibits spread pricing in a contract between a pharmacy benefits manager and the State Health Benefits Program, School Employees’ Health Benefits Program, and NJ FamilyCare programs and requires that compensation to a pharmacy benefits manager must be based on a pass-through pricing model in which a pharmacy benefits manager must:

(1) receive payment that is limited to the ingredient cost plus dispensing fee; and

(2) identify all sources and amounts of income, payments, and financial benefits related to the provision and administration of pharmacy benefits management services on behalf of the State Health Benefits Program or School Employees’ Health Benefits Program, including but not limited to any pricing discounts, rebates, fees, or incentives, and ensure that any benefits identified pursuant to this paragraph are passed through to the State Health Benefits Program or School Employees’ Health Benefits Program to reduce the ingredient cost.

The bill provides that a pharmacy benefits manager must reimburse contracted or independent pharmacies, for a prescription drug, at a rate that:

(1) is at least equal to the National Average Drug Acquisition Cost (NADAC) for the dispensed prescription drug ingredients; and

(2) includes a reasonable and adequate dispensing fee determined by the department, in consultation with the Department of Health and State pharmacy advocacy groups. The department will adjust the dispensing fee annually to account for inflation, using the United States Bureau of Labor Statistics’ Consumer Price Index for Medical Care or equivalent healthcare cost index.

If the NADAC is not available at the time a prescription drug is dispensed, a pharmacy benefits manager will be prohibited from reimbursing the drug in an amount that is less than the wholesale average cost.

The bill additionally provides anti-steering and geographic pharmacy access standards that prohibit a pharmacy benefits manager from requiring or incentivizing a covered person to:

(1) use a pharmacy, including a mail-order or specialty pharmacy, in which the pharmacy benefits manager or its affiliate maintains an ownership interest or control; or

(2) use a mail-order pharmacy to order non-specialty prescription drugs.

A pharmacy benefits manager will also be required to ensure that a retail pharmacy, under contract with a pharmacy benefits manager network, is no farther than five miles of a covered person residing in an urban area or 10 miles of a covered person residing in a rural area.

The bill further provides for pharmacy-side audit protections. These protections:

(1) limit audits of pharmacies to two per 12-month period, absent fraud or other systemic abuse;

(2) prohibit recoupments for clerical or recordkeeping errors that do not lead to financial loss or clinical harm; and

(3) require advance notice for initial audits, among other provisions.

Finally, the bill requires:

(1) a pharmacy benefits manager to establish a price comparison tool allowing covered persons to view and compare the cost of a brand-name drug with the cost of the drug’s generic or therapeutic equivalent;

(2) the establishment of an annual report written by DOBI analyzing pharmacy benefits management industry practices and identifying systemic issues affecting the pharmacy benefits management industry;

(3) the establishment of a Pharmacy Benefits Manager Compliance and Enforcement Unit to enforce compliance with certain pharmacy benefits manager laws and regulations; and

(4) certain data and reporting requirements.