Despite much talk about “affordability” in Albany, state lawmakers are working hard to make New Yorkers’ prescription drugs more expensive.
As their session wound down at the end of last month, members of the state legislature voted to mandate a minimum payment that pharmacies must receive from pharmacy benefit managers (PBMs), the companies that process drug claims on behalf of most health plans. If Governor Kathy Hochul signs the measure, PBMs would have to fork over a minimum amount for the drug itself, based on a federal benchmark, plus a “dispensing fee” of $10.18 per prescription.
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Since dispensing fees currently average about $2, that last requirement alone would get expensive. The Pharmaceutical Care Management Association, which represents PBMs, pegged the bill’s overall cost at $576 million—much of which will be passed on to consumers.
That price tag did not faze supporters. They implausibly insisted that PBMs would eat the expense without passing any of it along to insurers, employers, or consumers. The bill text itself says nothing along those lines. It merely compels PBMs to pay more and lets the impact land where it may, almost certainly yielding higher premiums.
This harebrained legislation was a bipartisan project. All but two Republicans in the State Senate and Assembly voted in favor, along with every Democrat. Sixteen other states have already enacted similar pricing mandates, most of them GOP-led. Fourteen call for minimum dispensing fees, ranging from $10.48 (Indiana) to $15 (Montana). New Jersey is currently considering a fee of $10.92, while Mississippi is looking at $11.29.
In all these cases, lawmakers are ham-handedly taking sides in what they view as a David versus Goliath situation. Pharmacists are small business owners who live and work in virtually every district, many of whom lawmakers know personally and depend on for political support. PBMs are corporate behemoths that make money as go-betweens without either producing or possessing the product and are widely resented by other players in the health-care system.
That’s a pretty story. But the reality is that both sides in the fight are seeking as much money as possible, and what they collect ultimately comes from consumers’ wallets.
During the debate in Albany, lawmakers assailed the three largest PBMs—which handle about 80 percent of claims—for wielding too much power, keeping too many secrets, and allegedly playing favorites. One of the “Big Three,” CVS Caremark, is owned by CVS Health Corporation, and the other two are subsidiaries of large health-insurance companies.
Yet setting a minimum price does nothing to break up the market, improve transparency, or address conflicts of interest. It simply transfers money from one player to another.
Supporters in Albany claimed to believe that their price-fixing scheme would be cost-neutral or even save money. They have reason to know better. When state regulators floated a nearly identical plan in 2023, employers and unions spelled out the punishing math in their letters of opposition.
The benefit fund that covers 200,00 members of 32BJ—the building service workers’ union—reported that its dispensing fees varied widely but averaged 36 cents per prescription. Setting the fee at $10.18 would have cost the union $12 million in 2022, an 8.5 percent increase for its pharmacy benefit. Comments like that convinced the Department of Financial Services to drop the proposal.
Yet the idea soon reappeared in legislative form. Rather than responding to the opposition, its proponents neutralized it in a classic Albany way—by exempting any health plan collectively bargained by a labor union. That effectively carved out all governmental employers and a chunk of the private sector.
Left to bear the full brunt are millions of other New Yorkers who work for nonunionized small- and medium-sized employers, or who purchase insurance directly. These very groups are already struggling the most to afford New York’s premiums, which are among the nation’s highest.
If Hochul wants her rhetoric about affordability to be taken seriously, she should not hesitate to use her veto. The legislature nominally has enough votes to override, but that’s a fight worth picking.
Otherwise, most New Yorkers might see this drug-pricing mandate not just as bad policy, but as the cudgel of a government-sanctioned protection racket. Who could argue?