On December 31, 2024, the New Jersey Department of Banking & Insurance (“Department”) issued two Bulletins, announcing changes to the law, effective January 1, 2025. Both Bulletins addressed health insurance.
Bulletin, No. 24-18, https://www.nj.gov/dobi/bulletins/blt24_18.pdf provided guidance to the marketplace regarding the 2023 adoption of N.J.S.A 17B:27F-1 et seq. (“PBM Act”), establishing oversight of Pharmacy Benefit Managers (“PBMs”). The PBM Act is effective January 1, 2025 and requires, among other things, PBM licensing.
PBMs and PSAOs
The PBM Act also regulates carriers, PBMs, and Pharmacy Service Administrative Organizations (“PSAO”). Under N.J.S.A. 17B:27F-1.1, PSAOs must be registered to operate in New Jersey. A registration application for PSAOs may be found on the Department’s website at: https://www.nj.gov/dobi/division_insurance/pharmacybenefitsmanagers/index.htm. This is a separate and distinct process from the required registration with the New Jersey Department of Law and Public Safety, Division of Consumer Affairs pursuant to P.L. 2023, c. 106 and N.J.A.C. 13:45K-1.1.
A PSAO is an entity that charges a transparent, flat fee for its services and assists with executing contracts, but does not negotiate with manufacturers, determine medication costs, or sell medications to pharmacies. The Act requires PSAOs to report annually to the Department on negotiated reimbursement rates for brand, generic, and specialty drugs for each PBM network. The PSAO is a member’s strategic advisor and will work with payers and PBMs to promote and educate plans on the performance capabilities of its network and works with both payers and PBMs to build the performance measures for the pharmacies within the network.
Set forth at the link below is a license application for PBMs at: https://www.nj.gov/dobi/division_insurance/pharmacybenefitsmanagers/index.htm. This is a separate and distinct process from the required registration with the New Jersey Department of Law and Public Safety, Division of Consumer Affairs pursuant to P.L. 2023, c. 106 and N.J.A.C. 13:45K-1.1. Under N.J.S.A. 17B:27F-1.1(h)(1), PBMs that completed a Notification of Organized Delivery System Anticipated Application pursuant to the Department’s Bulletin 18-11 may continue to operate during the pendency of its application for licensure pursuant to this bulletin, but not later than December 31, 2026. However, these PBMs are encouraged to submit the required license application as soon as possible to ensure licensure before the expiration of the 24 months.
All PSAO registrations completed and submitted by March 31, 2025 will be reviewed by the Department and issued with an effective date of January 1, 2025, if complete. PSAO registrations completed and submitted after March 31, 2025 will be effective on the date deemed complete by the Department.
The following standards will apply to the Department’s review of applications for a PSAO registration:
- All necessary application information and documents have been filed;
- The persons responsible for conducting the applicant’s affairs are competent, trustworthy and possess good reputations, and have appropriate experience, training and education;
- The applicant has demonstrated the ability to assure that its services will be performed in a manner which will ensure the efficient operation of its business;
- Any compensation arrangements between the registrant and carriers do not result in the assumption of financial risk by the applicant;
- The name used by the applicant to do business in this State does not so closely resemble the name of an insurer authorized to do business in this State or otherwise include such descriptive language as to be likely to mislead the public with respect to the nature of its business operations; and
- The applicant meets all requirements of N.J.S.A. 17B:27F-1 et seq. and demonstrates the ability to continue to meet all those requirements.
If the application for registration is denied, the Department will notify the applicant in writing. The applicant may request a hearing by notice to the Commissioner no later than the 30th day following receipt of the notice of denial.
The following documents will be considered to be confidential pending applications for registration:
- Social security numbers and residential addresses provided in biographical affidavits submitted for consideration;
- The applicant’s business plan and contracts, compensation arrangements; and
- The applicant’s financial statements.
Completed PSAO registrations shall be sent to: pharmacyfilings@dobi.nj.gov
Questions regarding PSAO registrations may also be addressed to: pharmacyfilings@dobi.nj.gov
Pursuant to N.J.S.A. 17B:27F-2, when a contract between a PBM and a PSAO, or a PBM and a contracted pharmacy is executed or renewed, or when there is a material change in the contract, a PBM shall:
- include in the contract the sources utilized to determine multiple source generic drug pricing, brand drug pricing, and the wholesaler in the State where pharmacies may acquire the product, including, but not limited to, the brand effective rate, generic effective rate, dispensing fee effective rate, maximum allowable cost, or any other pricing formula for pharmacy reimbursement;
- update that pricing information every seven calendar days;
- establish a reasonable process by which contracted pharmacies have a method to access relevant maximum allowable cost pricing lists, brand effective date, generic effective rate, and dispensing fee effective rate, or any other pricing formulas for pharmacy reimbursement;
- maintain a procedure for eliminating drugs from the list of drugs subject to multiple source generic drug pricing and brand drug pricing, or modify maximum allowable cost rates, brand effective rate, generic effective rate, dispensing fee effective rate or any other applicable pricing formula in a timely fashion and make that procedure easily accessible to the PSAOs or the pharmacies that they are contractually obligated to provide that information; and
- provide an internal appeal mechanism for any disputes raised by carriers or pharmacies, regardless of whether the carrier or PBM has a contract to challenge maximum allowable costs for a specific drug. Any dispute regarding the determination of an internal appeal may be referred to arbitration. The Department is in the process of contracting with an arbitration organization.
As information is available, it may be found on the Department’s website at: https://www.nj.gov/dobi/division_insurance/pharmacybenefitsmanagers/index.htm
The Requirements imposed on PBM, PSAOs, and carriers, respectively, under the PBM Act, is clearly addressed in the Department’s Bulletin. Importantly, under the Act, carriers must comply with Statement of Statutory Accounting Principles No. 84, including but not limited to pharmaceutical rebates that have not been collected within 90 days of the invoice date or confirmation date shall be non-admitted. Furthermore, if accrued pharmaceutical rebate receivables are not invoiced or confirmed in writing in accordance with the contract provisions, the accrual shall be treated as a non-admitted asset.
Pursuant to the PBM law, compensation from pharmaceutical manufacturers to carriers or PBMs under contract with a carrier, must be paid to the covered person at the point of sale, or remitted to the carrier who must apply it to offset the premium. See N.J.S.A. 17B:27F-3.2(a).
Significantly, the PBM Law requires that should a carrier use a PBM to manage prescription drug benefits, when calculating a carrier’s anticipated loss ratio or any loss ratio calculated as part of any applicable medical loss ratio filing or rate filing, the PBM’s compensation is considered an administrative cost, not a benefit provided under the health benefits plan and the carrier can only claim amounts paid by the PBM to pharmacies or pharmacists as incurred claims. N.J.S.A. 17B:27F-3.4(a). Any rate filing by a carrier for a health benefits plan that includes prescription drug coverage managed by a PBM must include a memorandum from a qualified actuary explaining how PBM compensation was calculated and any necessary records and supporting information as determined by the Department to verify the calculation of PBM compensation. N.J.S.A. 17B:27F-3.4(b). Upon request, a carrier shall provide any records to the Department that relate to the calculation of the PBM and PSAO compensation. N.J.S.A. 17B:27F-3.4(c). A PBM and PSAO shall provide any necessary documentation requested by a carrier that relates to PBM compensation. N.J.S.A. 17B:27F-3.4(d).
Carriers and PBMs under a contract with a carrier, must use a single maximum allowable cost list, to establish the maximum amount to be paid by a health benefits plan to a pharmacy provider for a generic drug or a brand-name drug that has at least one generic equivalent available. The same maximum allowable cost list must be used for each pharmacy provider. N.J.S.A. 17B:27F-3(a). A prescription drug can be on the maximum allowable cost list if the conditions under N.J.S.A. 17B:27F-3(b) are met.
Pharmacists or pharmacies cannot be penalized if they perform a generic substitution. N.J.S.A. 17B:27F-3(c). For brand-name drugs without a generic equivalent, or a prescription drug not included on a maximum allowable cost list, carriers or PBMs must use the average wholesale price to establish the maximum payment. N.J.S.A. 17B:27F-3(d). Only one national drug pricing source can be used during a calendar year, unless the original drug pricing source is no longer available. N.J.S.A. 17B:27F-3(d). The same national drug pricing source must be used for each pharmacy provider and be identified on the carrier’s, or its PBM’s, publicly accessible website. N.J.S.A. 17B:27F-3(d). Moreover, the formula for determining the amount paid by a carrier or a carrier’s PBM to a pharmacy for dispensing a prescription drug is the ingredient cost plus the dispensing fee less any cost-sharing amount paid by a covered person. N.J.S.A. 17B:27F-3(e). The ingredient cost shall not exceed the maximum allowable cost or average wholesale price, as applicable, and shall be disclosed by a carrier’s PBM to the carrier. N.J.S.A. 17B:27F-3(e). The pharmacy provider that dispensed the drug shall retain the payment. N.J.S.A. 17B:27F-3(e).
Penalties for violations of the PBM Act are significant, $5,000 for the first and $10,000 for each subsequent licensing violation, or the aggregate gross receipts attributable to all violations, whichever is greater. N.J.S.A. 17B:27F-10(a); N.J.S.A. 17B:27F-1.1(g). A PBM may also be required to make restitution and pay compensatory damages to any person injured by the violation. N.J.S.A. 17B:27F-10(b). Finally, PBMs and PSAOs who violate the Act may have their licenses or registrations suspended, revoked or placed on probation for engaging in fraudulent activity or activity which otherwise violates state or federal law.
Regulations to implement these requirements of the PBM Act are pending. Importantly, however, prior to the promulgation of regulations, carriers should comply with the Act as set forth above, including filings in the individual market, small group market, and the large group market. The Department will update its regulations related to loss ratio calculations, including N.J.A.C. 11:20-7 (loss ratio and refund reporting requirements, individual health benefit plans) and N.J.A.C. 11:21-7A (loss ratio reports, small employer health benefit plans), as needed.
Prior Authorization
The Department’s other Bulletin, No. 24-17, https://www.nj.gov/dobi//bulletins/blt24_17.pdf also announced changes to the law, effective, January 1, 2025 and pertains to the Ensuring Transparency in Prior Authorization Act, (ETPAA) signed into law in 2023 and replacing the Health Claims Authorization, Processing and Payment Act (“HCAPPA”). The ETPAA updates the uniform procedures and guidelines for hospitals, physicians, and carriers to follow in communicating and following utilization management decisions and determinations on patients’ behalf. N.J.S.A. 17B:30-55.2(g). The ETPAA aims to reduce inefficiencies in the health care delivery system, which can harm patients, by modernizing the prior authorization process. N.J.S.A. 17B:30-55.2. The ETPAA emphasizes the need for enhanced transparency of the prior authorization process by requiring certain information be posted on the carrier’s website. N.J.S.A. 17B:30-55.16. The ETPAA also includes provisions regarding the prompt payment of claims, overdue claims, the accrual of interest on overdue claims, reimbursement of overpaid claims, reimbursement for underpaid claims, the process for a provider or carrier to appeal or dispute a claim internally, and the arbitration process, which is final and binding upon all parties.
The ETPAA defines “prior authorization” as the process by which a carrier determines the medical necessity of an otherwise covered service prior to the rendering of the service including, but not limited to, preadmission review, pretreatment review, utilization review, and case management. N.J.S.A. 17B:30-55.3. As summarized below, the ETPAA sets forth specific requirements related to prior authorizations, including: timeframes for a carrier to respond to a request and for a provider to respond to a carrier request for additional information; the consequences if those timeframes are not met; parameters related to a carrier’s denial or limitation of a prior authorization request; timeframes for the validity of a prior authorization; an appeals process for denials or limitations of a prior authorization request; and reimbursement for covered services including requirements related to medically necessary emergency and urgent care services.
Timeframes for response to prior authorization, depending upon the nature of the supply or service and where it is administered is set forth in the Bulletin. Appeals of denials or limitations of a prior authorization request, reimbursement for Covered Services, payment of claims, electronic submission of claims, and the appeals and arbitrations of disputed claims are all addressed in the Bulletin and in the ETPAA.
Questions regarding these new Laws and implementing Bulletins can be directed to Cynthia Borrelli who directs the firm’s Insurance and HealthCare Regulatory Transactional Practice.