A1502 1R ACS

An Act concerning pharmacy benefits managers, amending various parts of the statutory law and supplementing P.L.2015, c.179 (C.17B:27F-1 et seq.).

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

1. (New section) The Legislature finds and declares:

a. Pharmacy benefits managers administer prescription drug benefits for health insurers, employers, union health plans, and public programs, and exercise substantial authority over formulary design, rebate negotiations, pharmacy reimbursement, and patient access to medications within the State of New Jersey.

b. Pharmacy benefits managers occupy a central position in the prescription drug supply chain, negotiating rebates and discounts with drug manufacturers, determining pharmacy network participation, and influencing the out-of-pocket costs borne by patients.

c. The 2024 bipartisan report issued by the U.S. House Committee on Oversight and Accountability entitled The Role of Pharmacy Benefit Managers in Prescription Drug Markets found that the largest pharmacy benefits managers control a dominant share of prescription drug claims, are frequently vertically integrated with major insurers and affiliated pharmacies, and derive significant revenue from manufacturer-paid rebates and price concessions tied to formulary placement and list prices.

d. The Federal Trade Commission, in its first interim report Pharmacy Benefit Managers: The Powerful Middlemen Inflating Drug Costs and Squeezing Main Street Pharmacies, released in 2024, found that pharmacy benefits managers exercise significant market power, operate through opaque rebate and spread pricing arrangements, and may reimburse independent pharmacies at rates that threaten their viability while charging plans higher amounts.

e. In the Federal Trade Commission’s second interim report, released in 2025 and entitled Specialty Generic Drugs: A Growing Profit Center for Vertically Integrated Pharmacy Benefit Managers, the commission found that vertically integrated pharmacy benefits managers may generate substantial profits through affiliated specialty pharmacies, including markups on specialty generic drugs, creating financial incentives to steer patients internally and maximize margin rather than minimize net cost.

f. The Federal Trade Commission documented that pharmacy steering, restrictive network design, differential cost-sharing, and internal transfer pricing arrangements may reduce patient choice, disadvantage independent and community pharmacies, and create conflicts of interest inconsistent with fiduciary standards.

g. Pharmacy benefits managers frequently receive compensation calculated as a percentage of a drug’s list price, rebate amount, wholesale acquisition cost, or utilization volume, thereby linking pharmacy benefits manager revenue directly to higher list prices and larger rebates

h. Compensation structures tied to rebates, discounts, list prices, or affiliated pharmacy margins create inherent conflicts of interest and may incentivize pharmacy benefits managers to favor higher-cost drugs or preferred internal dispensing channels over lower-cost or clinically appropriate alternatives

i. An article published in the Oxford Health Affairs Scholar, entitled The cost of misaligned incentives in the pharmaceutical supply chain, discusses how research conducted by the University of Southern California’s Schaeffer Center for Health Policy & Economics estimates that delinking pharmacy benefits manager and other supply chain compensation from drug list prices and rebate-based incentives could reduce national prescription drug spending by approximately $95.4 billion annually, or nearly 15 percent of net spending, without undermining pharmaceutical innovation.

j. That research further concludes that fixed, transparent administrative fee models would eliminate incentives tied to list-price inflation and rebate magnitude, align pharmacy benefits manager incentives with lowest net cost objectives, and generate substantial savings for employers, public programs, and patients.

k. Congress enacted comprehensive pharmacy benefits manager reforms under the bipartisan “Consolidated Appropriations Act, 2026,” Pub. L. No. 119-75, to address compensation distortions, transparency deficiencies, and conflicts of interest in federal prescription drug programs.

l. The “Consolidated Appropriations Act, 2026” established a “bona fide service fee” model for Medicare prescription drug coverage, requiring pharmacy benefits manager compensation to consist solely of flat, fair-market-value administrative fees not contingent on list price, rebate value, utilization, or formulary placement, and requiring 100 percent pass-through of manufacturer rebates and price concessions.

m. The “Consolidated Appropriations Act, 2026” also strengthened transparency requirements, enhanced audit rights for plan sponsors, and reinforced “any willing pharmacy” protections to prevent discriminatory pharmacy steering and preserve access to community and rural pharmacies.

n. The bipartisan congressional reforms under the “Consolidated Appropriations Act, 2026” reflect a national consensus that pharmacy benefits manager compensation must be structurally delinked from rebates and price inflation, must be transparent and auditable, and must not reward spread pricing or conflicted pharmacy steering practices.

o. Pharmacy benefits managers owe a financial responsibility to clients, including employers; insurers; union plans; and public programs, to act in the best interests of plan participants and beneficiaries.

p. Aligning pharmacy benefits manager revenue with rebate magnitude, list price inflation, or affiliated pharmacy profit centers may materially conflict with those fiduciary obligations.

q. There exists a compelling State interest in ensuring that pharmacy benefits manager compensation is transparent, delinked from rebate and discount volume, free from conflicts of interest, protective of pharmacy access, and structured to reduce prescription drug costs for New Jersey residents.

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. For the purposes of P.L. , c. (C. ) (pending before the Legislature as this bill), “health benefits plan” shall include the State Medicaid program established pursuant to P.L.1968, c.413 (C.30:4D-1 et seq.), the State Health Benefits Program, and the School Employees’ Health Benefits Program.

"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] fee" 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] a payment that covers the cost of providing one or more pharmacy benefits management services and does not exceed the value of the service or services actually performed by the pharmacy benefits manager.

"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]:

(1) negotiating the price of prescription drugs, including negotiating and contracting for direct or indirect rebates, discounts, or other price concessions;

(2) managing any aspects of a prescription drug benefit, including but not limited to, the processing and payment of claims for prescription drugs, the performance of utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to the prescription drug benefit, contracting with network pharmacies, controlling the cost of covered prescription drugs, managing data relating to the prescription drug benefit, or the provision of services related thereto;

(3) performing any administrative, managerial, clinical, pricing, financial, reimbursement, data administration or reporting, or billing service; and

(4) any other services as the department may define pursuant to rule or regulation.

"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.

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

3. Section 7 of P.L.2023, c.107 (C.17B:27F-3.3) is amended to read as follows:

7. a. A carrier, or a pharmacy benefits manager under contract with a carrier, shall establish a pharmacy and therapeutics committee responsible for managing the formulary system.

b. A carrier, or a pharmacy benefits manager under contract with a carrier, shall not allow a person with a conflict of interest to be a member of its pharmacy and therapeutics committee.

A carrier, or a pharmacy benefits manager under contract with a carrier, shall require that its pharmacy and therapeutics committee meet the requirements for conflict of interest as set by the Centers for Medicare and Medicaid Services or meets the accreditation standards of the National Committee for Quality Assurance or another independent accrediting organization.

c. A pharmacy benefits manager shall not provide recommendation, advice, or counsel to a plan sponsor or carrier concerning the inclusion of a prescription drug in a formulary system, or in a particular tier of the formulary system, that places a prescription drug with a higher cost to the patient, including but not limited to coinsurance, copayments, deductibles, and other cost-sharing, in a more favorable position than a generic or biosimilar prescription drug with a lower cost, if the recommendation, advice, or counsel is based solely on the cost of the prescription drug and not on another factor.

d. The provisions of this section shall apply to contracts between a pharmacy benefits manager and the State Health Benefits Program or School Employees’ Health Benefits Program.

(cf: P.L.2023, c.107, s.7)

4. Section 9 of P.L.2023, c.107 (C.17B:27F-3.4) is amended to read as follows:

9. a. If a carrier uses a pharmacy benefits manager to administer or manage the prescription drug benefits of covered persons, any pharmacy benefits manager [compensation] fee, for purposes of calculating a carrier's anticipated loss ratio or any loss ratio calculated as part of any applicable medical loss ratio filing or rate filing, shall:

(1) constitute an administrative cost incurred by the carrier in connection with a health benefits plan; and

(2) not constitute a benefit provided under a health benefits plan. A carrier shall claim only the amounts paid by the pharmacy benefits manager to a pharmacy or pharmacist as an incurred claim.

b. Any rate filing submitted by a carrier with respect to a health benefits plan that provides coverage for prescription drugs or pharmacy services and that is administered or managed by a pharmacy benefits manager shall include:

(1) a memorandum prepared by a qualified actuary describing the calculation of the pharmacy benefits manager [compensation] fee; and

(2) any records and supporting information as the department reasonably determines is necessary to confirm the calculation of the pharmacy benefits manager [compensation] fee.

c. Upon request, a carrier shall provide any records to the department that relate to the calculation of the pharmacy benefits manager and pharmacy services administrative organization [compensation] fee.

d. A pharmacy benefits manager and pharmacy services administrative organization shall provide any necessary documentation requested by a carrier that relates to pharmacy benefits manager [compensation] fees in order to comply with the requirements of this section.

e. No pharmacy benefit manager may derive income from pharmacy benefits services provided to a carrier or health benefits plan in this State except for income derived from a pharmacy benefits manager fee. The amount of any pharmacy benefits manager fees shall be set forth in the agreement between the pharmacy benefits manager and the carrier or health benefits plan.

f. The pharmacy benefits manager fee charged or paid to a pharmacy benefits manager from a carrier or health benefits plan shall not be directly or indirectly based or contingent upon:

(1) the acquisition cost or any other price metric of a drug;

(2) the amount of savings, rebates, or other fees charged, realized, or collected by or generated based on the activity of the pharmacy benefits manager; or

(3) the amount of premiums, deductibles, or other cost sharing or fees charged, realized, or collected by the pharmacy benefits manager from patients or other persons on behalf of a patient.

g. Upon request by the department or a purchaser, a pharmacy benefits manager shall disclose to the department or purchaser the amount of any fees paid by the pharmacy benefits manager to a third party broker.

h. Subsections e. and f. of this section shall also apply to a contract between a pharmacy benefits manager and the State Health Benefits Program or the School Employees’ Health Benefits Program.

i. Each pharmacy benefits manager authorized to operate in this State pursuant to P.L.2015, c.179 (C.17B:27F-1 et seq.) shall certify to the commissioner, by December 31st of each year, that the pharmacy benefits manager has fully and completely complied with the requirements of this section during the prior calendar year. Each certification submitted pursuant to this subsection shall be signed by the chief executive officer or chief financial officer of the pharmacy benefits manager.

(cf: P.L.2023, c.107, s.9)

5. a. A pharmacy benefits manager shall have a fiduciary duty to act in the best interests of a carrier with which it contracts. A pharmacy benefits manager shall also, in connection with a contract, have a fiduciary duty to act in the best interests of the State Health Benefits Program ¹[and] ,¹ School Employees’ Health Benefits Program¹, and State Medicaid program¹. Nothing in this subsection shall be construed as creating, establishing, or authorizing a private cause of action by an aggrieved subscriber, enrollee, or covered person against a pharmacy benefits manager who has violated, or is alleged to have violated, the provisions of this subsection.

b. A pharmacy benefits manager shall not engage in any marketing activity that uses inaccurate or misleading information to convince or attempt to convince covered persons to use a contracted or network pharmacy.

6. (New section) An agreement between a pharmacy benefits manager and a manufacturer shall not be valid if the contract conditions any rebate on the exclusion of generic drugs from coverage.

7. (New section) a. A contract between a pharmacy benefits manager and a contracted pharmacy or network pharmacy shall, in the event of a dispute, be presumed to be a “contract of adhesion.”

b. ¹(1)¹ A pharmacy benefits manager shall, for a prescription drug, reimburse ¹pharmacies at¹ the State fee-for-service benchmark of the National Average Drug Acquisition Cost (NADAC) plus the prevailing State defined Medicaid professional dispensing fee. ¹[If the NADAC is not established for a specific national drug code, the ingredient reimbursement rate shall default to the Wholesale Average Cost (WAC), or the Suggested Wholesale Price (SWP). The provisions of this subsection shall not apply to a pharmacy in which the]

(2) If a¹ pharmacy benefits manager or its affiliate maintains an ownership interest or control ¹of a pharmacy, the pharmacy benefits manager shall reimburse the pharmacy, for a prescription drug, at the State fee-for-service benchmark of the NADAC.

(3) Pursuant to paragraphs (1) and (2) of this subsection, if the NADAC is not established for a specific national drug code, the ingredient reimbursement rate shall default to the Wholesale Average Cost (WAC) or the Suggested Wholesale Price (SWP)¹.

c. A pharmacy benefits manager shall not engage in differential payment pricing, including differential payment pricing based on ownership or affiliation.

d. A pharmacy benefits manager shall not deny a pharmacy or pharmacist the right to participate as a contract pharmacy under a policy or plan if the pharmacy or pharmacist agrees to the terms and conditions established for participation in the network of the carrier, pharmacy benefits manager, health plan, or other administrator.

e. A pharmacy benefits manager shall not:

(1) require a covered person to 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) offer or implement a plan design that encourages a covered person to use a pharmacy, including a mail-order or specialty pharmacy, in which the pharmacy benefits manager or an affiliate maintains an ownership interest or control.

¹f. The provisions of subsections d. and e. of this section shall not apply to 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.¹

8. This act shall take effect on the first day of the seventh 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 may take such anticipatory administrative action in advance thereof as shall be necessary for the implementation of the act.