Life Science Compliance Update

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February 16, 2017

New York Governor Unveils Plan to “Curb” Drug Pricing


Mere days before President Donald Trump was sworn into office, when any national action could (or would) be taken on drug pricing, Governor Andrew Cuomo of New York took the matter into his own hands. On January 11, 2017, he presented a three-pronged approach to “protect New Yorkers from the soaring prices of prescription drugs in New York State.”

The three-pronged approach will:

  • Insulate taxpayers by preventing prescription drug price gouging in the Medicaid program;
  • Impose a surcharge on drug manufacturers that charge exorbitant prices and reallocate that money to insurers and businesses to lower premiums for the following year; and
  • Protect ratepayers from abusive business practices by intermediaries that drive up drug prices.

According to Governor Cuomo, “The skyrocketing costs of prescription drugs is an issue that the nation has been grappling with for years and as we have so many times before, New York is prepared to show the path forward. Perpetually rising drug costs hurt the wallets of taxpayers and the bottom lines of businesses, but for those who desperately need lifesaving medicine and cannot afford it, the consequences can be dire. The idea that in 2017 someone who has fallen ill might not have the opportunity to recover simply so someone can line their pockets with a few more dollars is unconscionable and must be stopped immediately.”

Price Ceiling

First, the Governor’s plan would effectively create a price ceiling for certain high cost prescription drugs reimbursed under the Medicaid program by requiring a 100 percent supplemental rebate for any amount that exceeds a benchmark price recommended by the state's Drug Utilization Review Board. 


The second prong of the Governor’s plan imposes a surcharge on any amount by which the price of these high-priced drugs exceeds the benchmark recommended by the Drug Utilization Review Board in the Medicaid context, when these drugs are sold into the state. All proceeds from the surcharge amount will be deposited into a dedicated fund held and administered by the Department of Financial Services. The proceeds collected from surcharges will be reallocated to insurers to lower insurance premiums for New Yorkers the following year.

Protecting Consumers

The third step in the Governor's plan works to protect consumers from unfair business practices by intermediaries known as Pharmacy Benefit Managers, who many believe are contributing to the rising cost of prescription drugs. Pharmacy Benefit Managers are brokers that negotiate the prices of drugs for insurance plans and self-insured employers. Recently, the U.S. Justice Department and others have alleged that this industry is rife with conflicts of interests and undisclosed arrangements entered into at customers’ expense.

Under the Governor's proposal, Pharmacy Benefit Managers will be required to immediately register with the State, and be subject to new regulations requiring disclosure of financial incentives or benefits for promoting the use of certain drugs, as well as other financial arrangements affecting customers. The proposal would also require Pharmacy Benefit Managers to be licensed by the State Department of Financial Services beginning in 2019. The Department of Financial Services will also have the authority to suspend or revoke a Pharmacy Benefit Manager's license for deceptive, unfair, or abusive business practices, or for conduct that violates the standards set by the Department. 

However, just because the Governor has proposed it, it is not guaranteed to become law. First, the New York Legislature must approve it.

Industry Reaction

Priscilla VanderVeer, spokeswoman at PhRMA, noted that Cuomo’s plan seems eerily “similar to previous proposals that were soundly rejected by the Legislature.” VanderVeer further noted that breakthrough medicines continue to save lives daily, while also reducing health costs. She said it is the insurers that are imposing high drug deductibles and other out-of-pocket costs that are limiting access to drug therapies. “Government mandates and interventions that do nothing to help patients access their medicines are not the solution,” she said.

The Pharmaceutical Care Management Association, which represents PBMs, said that the plan, “would increase costs by tying the hands of employers, unions, and public programs that hire PBMs to negotiate discounts on prescription drugs,” also noting that it may be illegal because of a recent Eighth Circuit Court of Appeals ruling that struck down a mandate in Iowa that attempted to limit PBMs.

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