Insurance Law Alert

Since 2021,  in an effort to encourage  greater transparency in the prescription drug industry, there  has been a national trend toward increased state licensing and regulation of Pharmacy Benefit Managers (PBMs). PBMs are paid third-party administrators of prescription drug coverage for insurers and employers. They provide a wide variety of services including developing and maintaining formularies, processing claims, and negotiating discounts and rebates between payers and manufacturers. PBMs manage plans for millions of Americans who have health insurance from a variety of sponsors including commercial health plans, self-insured employer plans, Medicare Part D plans, state government employee plans, and Medicaid managed care organization (MCO) plans.  More and more state laws require PBMs to obtain some regulatory status, i.e. as a PBM, Third Party Administrator (“TPA”) or Health Care Benefit Manager (“HCBM”) licenses/registrations.

In 2021 alone, at least 18 states passed a PBM licensing/registration requirement or had one which became effective in 2021, including:

  • Alabama – SB 227 (effective 07/01/2021)
  • Alabama – Rule and Regulation 482-1-164-.01 (effective 01/01/2022)
  • Delaware – HB 219 (effective 10/26/2021)
  • Georgia – Rule and Regulation 120-2-97-.01 (effective 01/01/2021)
  • Hawaii – SB 1096 (effective 06/28/2021)
  • Indiana – HB 1405 (effective 04/29/2021)
  • Kentucky – Rules and Regulation 806 KAR 9:360 (amendment effective 07/06/2021)
  • Maine – Rule and Regulation Chapter 210 (effective 02/14/2021)
  • Maryland – HB 601 (effective 01/01/2022)
  • Maryland – Bulletin 21-07 (effective 03/04/2021)
  • Minnesota – Insurance Code 62W.11 (amendment effective 07/01/2021)
  • Mississippi – Rules and Regulations R30-3001-4501 (amendment effective 12/30/2021)
  • Missouri – Rule and Regulation 20 CSR 200-22.010 (effective 10/30/2021)
  • Montana – SB 395 (effective 01/01/2022)
  • Montana – Rule and Regulation dated October 12, 2021 (effective 10/12/2021)
  • New Hampshire – Bulletin 21-001-AB (effective 01/04/2021)
  • New Hampshire – Bulletin 21-104-AB (effective 12/17/2021)
  • New Mexico – Rules and Regulation (effective 03/01/2021)
  • North Carolina – SB 257 (effective 10/01/2021)
  • Oklahoma – HB 2677 (effective 05/04/2021)
  • South Carolina – Bulletin 2021-08 (effective 12/01/2021)
  • Washington – Insurance Code 48.200.010 (effective 01/01/2022)
  • Washington – Rules and Regulations 284-180-110 (effective 01/01/2022).

In keeping with the wave of state regulation of PBMs, on May 25, 2022, New York’s Department of Financial Services (DFS) adopted on an emergency basis Insurance Regulation 221, a registration requirement for a PBM which brings New York in line with other jurisdictions noted above, requiring registration, certification or a higher degree of regulation for PBMs. New York Regulation 221 requires that the registrant provide detailed information, including:

  • the name of the pharmacy benefit manager;
  • the address, contact telephone number, and website for the pharmacy benefit manager;
  • the federal employer identification number for the pharmacy benefit manager;
  • the name, address, e-mail address and telephone number of the primary contact person authorized to act on behalf of the pharmacy benefit manager;
  • the name, address, e-mail address and telephone number of the pharmacy benefit manager’s agent for service of process in this State;
  • the name, position and e-mail address of each individual who is a controlling person of the pharmacy benefit manager, including all members of the board of directors, board of trustees, executive committee, or other governing board or committee; and (i) if the pharmacy benefit manager is a partnership or other unincorporated association, each partner or member; (ii) if the pharmacy benefit manager is a corporation, each of its officers and stockholders; (iii) if the pharmacy benefit manager is a limited liability company, each officer, manager, or member;
  • all basic organizational documents of the pharmacy benefit manager, including any operating agreements, articles of incorporation, articles of association, charter, partnership agreement, trade name certificate, trust agreement, shareholder agreement, certificate of existence from the New York Secretary of State and other applicable documents and all amendments to such documents;
  • the bylaws, rules, regulations or other primary document regulating the internal affairs of the pharmacy benefit manager;
  • a copy of the pharmacy benefit manager’s standard, generic contract template, including provider manual or other appropriate items incorporated by reference that the pharmacy benefit manager uses for contracts entered into by the pharmacy benefit manager with pharmacists, pharmacies or pharmacy service administration organizations in New York in administration of pharmacy benefits for insurers; and
  • such other information the superintendent deems necessary.

Any change in the information reported as part of the annual registration process must be provided to DFS within 30 days of any such change.

Though there have been no formal regulations, New Jersey also has required registration of PBMs as Organized Delivery Systems (a unique status recognized only under New Jersey law for certain entities which deliver health care services, or provide a network of providers.) See Bulletin No. 18.11. In New Jersey, pharmaceutical services are included within the definition of “limited healthcare services” for which ODS status is required. An ODS license for those PBMs which accept risk will be required under New Jersey Law once implementing regulations are adopted. In the meantime, PBMs need to file the certification available here.

The number of states which have imposed licensing/registration processes requiring disclosure of much of the same information as the New York Regulation, signals that enhanced disclosure is, indeed, a national trend. Accordingly, it is important for PBMs to confirm that they are in compliance with the licensing/registration and operational requirements of the states in which they are conducting business.

Questions can be submitted to Cynthia Borrelli.

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