A5668

An Act concerning the procurement of a pharmacy benefits manager for certain State-sponsored health benefits plans 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. As used in this act:

“Department” means the Department of the Treasury.

“Professional dispensing fee” means the same as defined pursuant to 42 C.F.R. s.447.502.

“State pharmacy benefits manager” means a corporationor other business entity, or unit within a corporationor other business entity that, pursuant to a contract with the department, administers prescription drug benefits on behalf of the State Health Benefits Commission and School Employees’ Health Benefits Commission.

“Vendor” means a third-party administrator that conducts claims administration, network management, claims processing, or other related services for the State Health Benefits Commission and the School Employees’ Health Benefits Commission.

2. a. No later than January 1, 2030, the department shall issue a request for proposals for a single third-party administrator to serve as the State pharmacy benefits manager to administer all pharmacy benefits for the State Health Benefit Commission and School Employees’ Health Benefits Commission. The department shall:

(1) evaluate applications received pursuant to section 3 of this act and choose an applicant, in collaboration with members of the State Health Benefits Commission and the School Employees’ Health Benefits Commission, to serve as the State pharmacy benefits manager; and

(2) enter into a contract with a third-party administrator chosen pursuant to paragraph (1) of this subsection to act as the State pharmacy benefits manager and manage, direct, and coordinate:

(a) payments and rebates for any prescription drugs listed in the contract; and

(b) all other services and payments relating to the provision of prescription drugs under a plan providing health care benefits coverage for eligible public employees and retirees, and their eligible dependents, offered by the State Health Benefits Program or the School Employees’ Health Benefits Program.

b. The contract awarded pursuant to subsection a. of this section shall:

(1) include the provisions required by section 4 of this act;

(2) require the State pharmacy benefits manager to disclose to the department, the State Health Benefits Commission, and the School Employees’ Health Benefits Commission any information relating to the services covered by the contract, including, but not limited to:

(a) information concerning dispensing fees, including the total amount and how the total is calculated;

(b) measures taken to control costs;

(d) any additional fees and charges imposed by the State pharmacy benefits manager pursuant to the contract; and

(e) any other sources of payment received by the State pharmacy benefits manager for prescription drugs covered by the contract;

(3) require the State pharmacy benefits manager to comply with all other applicable State and federal laws;

(4) require the State pharmacy benefits manager to provide the entire amount of any rebates received for the purchase of prescription drugs, including, but not limited to, rebates for the purchase of prescription drugs by an entity other than the department, to the department; and

(5) require the State pharmacy benefits manager to pass through to the State in full all income, payments, and financial benefits related to the provision and administration of pharmacy benefits management services, including, but not limited to, any pricing discounts, pharmacy discounts, inflationary payments, credits, claw backs, fees, grants, chargebacks, reimbursements, or other benefits. For the purposes of this paragraph, “income, payments, and financial benefits” shall include any amounts received, earned, retained, credited, or otherwise obtained, directly or indirectly, by the pharmacy benefits manager or through any affiliate, subsidiary, parent company, group purchasing organization, rebate aggregator, or other entity acting on behalf of, under common ownership or control with, or for the benefit of the pharmacy benefits manager.

c. In addition to the requirements of subsection b. of this section, a contract entered into pursuant to subsection a. of this section shall prohibit the State pharmacy benefits manager from:

(1) using spread pricing;

(2) paying a pharmacy a professional dispensing fee for a drug which is less than the applicable dispensing fee established pursuant to paragraph (3) of subsection a. of section 7 of this act;

(3) creating, modifying, implementing, or indirectly establishing any fee to be imposed upon a pharmacy, pharmacist, or a recipient of benefits under the contract without first seeking and obtaining written approval from the department;

(4) requiring a recipient of benefits under the contract to obtain a specialty drug from a specialty pharmacy owned by or otherwise associated with the State pharmacy benefits manager;

(5) requiring a recipient of benefits under the contract to use

a specific pharmacy;

(6) requiring a recipient of benefits under the contract to use a mail-order pharmacy;

(7) deriving income from pharmacy benefits management services provided to the State Health Benefits and School Employees’ Health Benefits Programs, except for income derived from a pharmacy benefits manager fee; and

(8) deriving income, revenue, remuneration, or other financial benefit from conducting, administering, or otherwise participating in pharmacy audits, including through audit fees, recoupments, penalties, chargebacks, or amounts retained as a result of an audit.

d. As used in this section, “spread pricing" means any technique by which a pharmacy benefit manager charges or claims an amount from an insurer for drugs or services provided by a pharmacy or pharmacist that is different from the amount the pharmacy benefit manager pays the pharmacy or pharmacist, as applicable, for those drugs or services.

3. a. A third-party administrator that meets the eligibility criteria established pursuant to paragraph (1) of subsection a. of section 7 of this act may apply to become the State pharmacy benefits manager by submitting an application to the department in a form and manner to be prescribed by the department. The application shall demonstrate that the applicant is not disqualified pursuant to subsection b. of this section and shall include, but not be limited to, disclosures of:

(1) any activity, policy, practice, contract, or agreement of the applicant that may directly or indirectly present a conflict of interest in the relationship between the applicant and the department or a vendor, including, but not limited to, any activity, policy, practice, contract, or agreement that operates solely or partially outside this State;

(2) any direct or indirect fees, charges, or assessments that the applicant imposes on any pharmacy in this State:

(a) with which the applicant shares common ownership, management, or control;

(b) which is owned, managed, or controlled by any management, parent or subsidiary of the applicant, any company jointly held by the applicant or any company otherwise affiliated with the applicant by a common owner, manager, or holding company;

(c) for which the board of directors of the pharmacy shares any members in common with the board of directors of the applicant; or

(d) which shares any manager in common with the applicant;

(3) all common ownership, common management, common members of a board of directors, shared managers, or shared control between:

(a) the applicant, or any management, parent, subsidiary or jointly held company of the applicant or any company otherwise affiliated by a common owner, manager, or holding company with the applicant; and

(b) any of the following entities:

(i) a vendor or a company affiliated with the vendor;

(ii) a pharmacy services administrative organization, any other entity that contracts on behalf of a pharmacy or any company affiliated with a pharmacy services administrative organization or such an entity;

(iii) a wholesale distributor, as defined pursuant to 21 C.F.R. s.205.3(g);

(iv) a third party, other than a vendor, or any company affiliated with a third party; and

(v) a pharmacy or any company affiliated with a pharmacy; and

(4) all financial arrangements, including the terms of each arrangement, currently in effect between the applicant and a manufacturer or labeler of prescription drugs, including, but not limited to, an arrangement for:

(a) the management of a formulary;

(b) fees relating to data sales; and

b. The department shall disqualify an applicant from serving as the State pharmacy benefits manager if the applicant:

(1) shares common ownership, management, control, or other ownership interest with any vendor that contracts with the department to provide services for the State Health Benefits Commission, the School Employees’ Health Benefits Commission, or any licensed pharmacy, except that this paragraph shall not apply solely by reason of common ownership with a prepaid ambulatory health plan; or

(2) maintains any direct or indirect financial arrangement with a manufacturer or labeler of prescription drugs that creates an incentive for formulary decisions, drug substitution, or utilization management, including, but not limited to, rebates, discounts, chargebacks, claw backs, or data sales.

c. As used in this section, “third party” means a carrier or other third-party payer.

4. a. A contract entered into between the department and the State pharmacy benefits manager pursuant to section 2 of this act shall require the State pharmacy benefits manager to:

(1) submit to and cooperate with an annual audit conducted by the department to evaluate the compliance of the State pharmacy benefits manager with the contract and generally accepted accounting and business practices. The audit shall analyze all claims processed by the State pharmacy benefits manager pursuant to the contract; and

(2) obtain from an independent accountant, at the expense of the State pharmacy benefits manager, an annual audit of internal controls to ensure the integrity of financial transactions and claims processing.

b. The department shall post the results of the audit conducted pursuant to paragraph (1) of subsection a. of this section on the Internet website of the department.

5. a. The State pharmacy benefits manager shall submit to the department for review:

(1) each contract for the provision of benefits, under the contract entered into pursuant to section 2 of this act, between the State pharmacy benefits manager and a pharmacy or an entity that contracts on behalf of the pharmacy;

(2) each revision to the terms and conditions of a contract described pursuant to paragraph (1) of this subsection; and

(3) each suspension or termination of a contract described pursuant to paragraph (1) of this subsection.

b. (1) The department shall review each submission received pursuant to subsection a. of this section and approve or deny the contract, revision, suspension, or termination, as applicable.

(2) A contract, revision, suspension or termination shall not be effective until the contract, revision, suspension, or termination, as applicable, is approved by the department.

c. To comply with updates to federal or State law or regulations, the department shall make any necessary change to the payment arrangement between the department and State pharmacy benefits manager or a vendor and the State pharmacy benefits manager.

d. The State pharmacy benefits manager shall not enter into, renew, or amend any contract that is inconsistent with:

(1) the terms and conditions of the contract entered into by the State pharmacy benefits manager and the department pursuant to section 2 of this act; or

(2) the reimbursement methodologies and dispensing fees established by the department pursuant to subsection a. of section 15 of this act.

e. Any contract in violation of subsection d. of this section shall be void and unenforceable.

6. Each vendor shall be required to contract with and utilize the State pharmacy benefits manager for the purpose of administering all pharmacy benefits for eligible employees and retirees, and their eligible dependents, in the State Health Benefits Program or the School Employees’ Health Benefits Program who receive pharmacy benefits through the vendor. Each vendor that enters into a contract with the department pursuant to this section shall disclose, upon the request of the department and in a form and manner prescribed by the department, the expenditures of the vendor associated with providing pharmacy benefits for the beneficiaries of the State Health Benefits Program or the School Employees’ Health Benefits Program.

7. a. The department, in collaboration with members of the State Health Benefits Commission and School Employees’ Health Benefits Commission, shall adopt rules and regulations, pursuant to the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.), establishing:

(1) the criteria that a pharmacy benefit manager shall meet to be eligible to serve as the State pharmacy benefits manager and enter into a contract pursuant to subsection a. of section 2 of this act;

(2) the methodology for reimbursement to pharmacies for providing benefits under a contract entered into pursuant to subsection a. of section 2 of this act;

(3) dispensing fees paid to pharmacies and pharmacists for providing benefits under a contract entered into pursuant to subsection a. of section 2 of this act; and

(4) any other rules and regulations as may be necessary to carry out the provisions of this act.

b. To the extent authorized by federal law, the dispensing fees established pursuant to paragraph (3) of subsection a. of this section may vary by pharmacy type, including, but not limited to, rural and independently owned pharmacies and pharmacies owned by a corporation operating in multiple states.

c. To the extent practicable, the methodology for reimbursement established pursuant to paragraph (2) of subsection a. of this section shall:

(1) generate the maximum amount of savings for the State with respect to the cost of prescription drugs; and

(2) provide rates of reimbursement for drugs which are based on the actual cost of acquiring a drug. The calculation of a pharmacy reimbursement shall include the cost of the drug and a professional dispensing fee. The State shall utilize the Medicaid Covered Outpatient Prescription Drug Reimbursement methodology. Ingredient cost shall be based on the National Average Drug Acquisition Cost (NADAC) or, if a NADAC is unavailable, the Wholesale Acquisition Cost (WAC) minus 2 percent or, if neither is available, the Suggested Wholesale Price (SWP) minus 19 percent. The professional dispensing fee shall be the State Medicaid professional dispensing fee.

8. This act shall take effect on January 1, 2030, except that the State Treasurer may take any anticipatory administrative action as shall be necessary for the implementation of this act.

STATEMENT

This bill requires the Department of the Treasury (department), no later than January 1, 2030, to issue a request for proposal and contract with a single third-party administrator to serve as the State pharmacy benefits manager and administer all pharmacy benefits under the State Health Benefits Commission and School Employees’ Health Benefits Commission.

Under the bill, the department must:

(1) evaluate applications received by the department and choose an applicant to serve as the State pharmacy benefits manager; and

(2) enter into a contract with the chosen applicant to manage, direct, and coordinate:

(a) payments and rebates for any prescription drugs listed in the contract; and

(b) all other services and payments relating to the provision of prescription drugs under the State Health Benefits Program (SHBP) and the School Employees’ Health Benefits Program (SEHBP).

Contracts entered into between the department and the State pharmacy benefits manager must:

(1) include provisions allowing certain audits of the contract for compliance purposes;

(2) disclose to the relevant parties any information relating to services covered by the contract

(3) require the State pharmacy benefits manager to comply with all other applicable State and federal laws; and

(4) require the State pharmacy benefits manager to provide the entire amount of any rebates received for the purchase of prescription drugs to the department.

In addition to the requirements above, a contract entered into pursuant to this bill will prohibit the State pharmacy benefits manager from:

(1) using spread pricing, as the term is defined in the bill;

(2) paying a pharmacy a professional dispensing fee for a drug which is less than the applicable dispensing fee established pursuant to the bill;

(4) requiring a recipient of benefits under the contract to obtain a specialty drug from a specialty pharmacy owned by or otherwise associated with the State pharmacy benefits manager;

(5) requiring a recipient of benefits under the contract to use

a specific pharmacy; and

(6) requiring a recipient of benefits under the contract to use a mail-order pharmacy.

The bill additionally stipulates requirements for the application form that must be submitted to become the State pharmacy benefits manager and requires vendors to contract with and utilize the State pharmacy benefits manager for the purpose of administering all pharmacy benefits to beneficiaries who receive pharmacy benefits through the vendor.

The bill also establishes eligibility requirements for the request for proposals. An applicant may not share ownership, management, control, or another ownership interest with a vendor or any licensed pharmacy, except where the affiliation is solely with a prepaid ambulatory health plan. An applicant is also ineligible if it maintains direct or indirect financial arrangements with drug manufacturers or labelers that create incentives for formulary decisions, drug substitution, or utilization management, including rebates, discounts, chargebacks, claw backs, or data sales.

The bill requires the State pharmacy benefits manager to submit pharmacy-related contracts, contract revisions, and contract suspensions or terminations to the department for review. The department must approve or deny each submission, and no contract action becomes effective without approval. The department must also modify certain payment arrangements as needed to comply with federal or State law. The bill additionally provides that the State pharmacy benefits manager must not enter, renew, or amend contracts inconsistent with its State agreement or department-established reimbursement and dispensing fee rules.

The bill further requires the department, in collaboration with the State Health Benefits Commission and the School Employees’ Health Benefits Commission, to adopt regulations governing the State pharmacy benefits manager. These rules must establish:

(1) eligibility criteria to become a State pharmacy benefits manager;

(2) pharmacy reimbursement methodologies;

(3) dispensing fees; and

(4) any other rules and regulations as may be necessary to carry out the provisions of this bill.

The bill finally provides that pharmacy reimbursement methodologies should maximize State prescription drug savings and

provide rates of reimbursement for drugs which are based on the actual cost of acquiring a drug.