A5669

An Act concerning the procurement of a pharmacy benefits manager for Medicaid and supplementing P.L.1968, c.413 (C.30:4D-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 Human Services.

“Managed care organization” means a health maintenance organization contracted with the department to provide benefits to enrolled beneficiaries under the Medicaid program.

“Medicaid” means the program established pursuant to P.L.1968, c.413 (C.30:4D-1 et seq.).

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

“State Medicaid pharmacy benefits manager” means a corporation or other business entity, or unit within a corporation or other business entity that, pursuant to a contract with the department, administers prescription drug benefits on behalf of the department.

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 Medicaid pharmacy benefits manager to administer all pharmacy benefits for Medicaid recipients, including Medicaid recipients enrolled in a managed care organization with which the department contracts for the delivery of Medicaid services. The department shall:

(1) evaluate applications received pursuant to section 3 of this act and choose an applicant to serve as the State Medicaid pharmacy benefits manager; and

(2) enter into a contract with the State Medicaid pharmacy benefits manager chosen pursuant to paragraph (1) of this section 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 Medicaid.

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

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

(2) require the State Medicaid pharmacy benefits manager to disclose to the department any information relating to the services covered by the contract, including, but not limited to:

(a) information concerning dispensing fees, including total amount and calculation of total amounts;

(b) measures taken to control costs;

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

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

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

(4) require the State Medicaid 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 Medicaid 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 State Medicaid 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 State Medicaid 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 Medicaid 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, if the applicable dispensing fee established pursuant to that section has been included in the State Plan for Medicaid and approved by the Centers for Medicare and Medicaid Services in the United States Department of Health and Human Services;

(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 Medicaid 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 Medicaid, 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:

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

“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 Medicaid 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 managed care organization, 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 managed care organization or a company affiliated with a managed care organization;

(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 managed care organization, 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 manager if the applicant:

(1) shares common ownership, management, control, or other ownership interest with any managed care organization that contracts with the department to provide Medicaid services, or with 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 Medicaid pharmacy benefits manager pursuant to section 2 of this act shall require the State Medicaid pharmacy benefits manager to:

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

(2) obtain from an independent accountant, at the expense of the State Medicaid 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 Medicaid 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 Medicaid 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 is not 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, or modifications to an agreement between the department and the federal government, the department shall make any necessary change to the payment arrangement between the department and the State Medicaid pharmacy benefits manager or a managed care organization and the State Medicaid pharmacy benefits manager.

d. The State Medicaid 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 Medicaid 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 7 of this act.

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

6. Each managed care organization shall be required to contract with and utilize the State Medicaid pharmacy benefits manager for the purpose of administering all pharmacy benefits for Medicaid beneficiaries who receive pharmacy benefits through the managed care organization. Each managed care organization that enters into a contract with the department pursuant to this section shall, upon the request of the department and in a form and manner prescribed by the department, disclose the expenditures of the managed care organization associated with providing pharmacy benefits for Medicaid beneficiaries.

7. a. The department 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 is required to meet to be eligible to enter into a contract with the department to serve as the State Medicaid pharmacy benefits manager 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. In establishing dispensing fees pursuant to this paragraph, the department may consider applicable guidance promulgated by the Centers for Medicare and Medicaid Services of the United States Department of Health and Human Services; 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;

(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. The Commissioner of Human Services shall apply for State plan amendments or waivers as may be necessary to implement the provisions of this act, and to secure federal financial participation for State Medicaid expenditures under the federal Medicaid program.

9. This act shall take effect on January 1, 2030, except that the Commissioner of Human Services may take any anticipatory administrative action as shall be necessary for the implementation of this act.

STATEMENT

This bill requires the Department of Human Services (DHS), 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 Medicaid pharmacy benefits manager under the State Medicaid program, including pharmacy benefits for Medicaid recipients enrolled in managed care plans.

Under the bill, DHS must:

(1) evaluate applications received by the department and choose an applicant to serve as the State Medicaid 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 Medicaid Program.

Contracts entered into between DHS and the State Medicaid 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, including, but not limited to:

(a) information concerning dispensing fees;

(b) measures for the control of costs;

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

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

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

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

In addition to the requirements above, a contract entered into pursuant to this bill will prohibit the State Medicaid 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 Medicaid 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 Medicaid pharmacy benefits manager and requires managed care organizations to contract with and utilize the State Medicaid pharmacy benefits manager for the purpose of administering all pharmacy benefits to Medicaid beneficiaries who receive pharmacy benefits through the managed care organization.

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 Medicaid managed care organization 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 Medicaid pharmacy benefits manager to submit pharmacy-related contracts, contract revisions, and contract suspensions or terminations to DHS for review. DHS must approve or deny each submission, and no contract action becomes effective without approval. DHS must also modify certain payment arrangements as needed to comply with federal or State law. The bill additionally provides that the State Medicaid 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 DHS to adopt regulations governing the State Medicaid pharmacy benefits manager. These rules must establish:

(1) eligibility criteria to become a State Medicaid 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.

manager to manage pharmacy benefits under Medicaid.