Insurance Circular Letter No. 7 (2019)
April 30, 2019

STATUTORY AND REGULATORY REFERENCES: Insurance Law §§ 3217-b and 4325; Public Health Law §§ 280-a and 4406-c; Education Law § 6826-a; Chapter 57 of the Laws of 2018

I. Purpose

The Superintendent of Financial Services (“Superintendent”) has received information that some insureds may be paying a copayment for a drug they have been prescribed in instances in which the copayment is more than the price of the drug. The problem appears to be compounded due to “gag clauses” that some issuers and/or pharmacy benefit managers may be attempting to impose in their health care provider contracts that seek to prohibit participating pharmacies from discussing the price of the drug with the insured. This circular letter provides a reminder to insurers authorized to write accident and health insurance in New York State, article 43 corporations, health maintenance organizations, student health plans certified pursuant to Insurance Law § 1124, and municipal cooperative health benefit plans (collectively, “issuers”) of their responsibilities under New York law. This circular letter further reminds issuers that they -- the issuers -- are ultimately responsible for ensuring compliance with the Insurance Law, regardless of whether the issuer has entered into a contract with a third party such as a pharmacy benefit manager relating to the administration of the pharmacy benefit in the insurance policy.

II. Copayment May Not Exceed Usual and Customary Cost

Insurance Law § 4325(h) and Public Health Law § 4406-c(6) state that no issuer that “provides coverage for prescription drugs shall require, or enter into a contract which permits, a copayment which exceeds the usual and customary cost of such prescribed drug.” This means that, where an insured’s copayment for a medication exceeds the corresponding retail price for the same medication on the pharmacy’s drug retail price list, the insured shall only be responsible to pay the retail price for the drug. If the medication that the insured is purchasing is not on the drug retail price list, the insured may only be charged the lesser of the insured’s copayment or the pharmacy’s usual and customary price for that drug. The pharmacy’s usual and customary price for the drug is the price the pharmacy charges an individual who purchases the drug without insurance.

III. “Gag Clauses” That Prohibit a Pharmacist from Disclosing the Price of a Drug

Some issuers and/or their contracted pharmacy benefit managers may be attempting to include clauses in their health care provider contracts with pharmacies that prohibit a pharmacist from disclosing to the insured that the price of the drug the insured is purchasing is less than the required copayment. Such a practice violates the Insurance Law, the Public Health Law and the Education Law.

Insurance Law §3217-b(a)(2) generally provides in relevant part that no issuer “shall by contract, written policy or written procedure prohibit or restrict any health care provider from disclosing to any insured, designated representative or, where appropriate, prospective insured,…any information that such provider deems appropriate regarding…the provisions, terms or requirements of the insurer’s products as they relate to the insured.” Insurance Law § 4325(a)(2) and Public Health Law § 4406-c(2) contain substantively identical provisions to § 3217-b(a)(2). A “gag clause” that prohibits a pharmacist from providing information to the insured that is necessary for the proper administration of the insured’s health insurance policy is contrary to these provisions of the law. Pharmacists must be able to provide information about the price of the drug being purchased for insureds to understand their rights and obligations related to payment for their prescription drugs.

Further, Education Law § 6826-a places an affirmative duty on a pharmacist to notify the insured when the copayment exceeds the price of the drug. Section 6826-a provides “where an insured’s copayment for a drug exceeds the corresponding retail price for the same drug on the pharmacy’s drug retail price list, the pharmacist shall notify the insured of this occurrence and charge no greater than the pharmacy’s corresponding retail price.” Additionally, § 6826-a provides that “where the drug being purchased is not on the drug retail price list, and the copayment for the drug exceeds the pharmacy’s usual and customary price for that drug, the pharmacist shall notify the insured of this occurrence and charge the lesser of the insured’s copayment and the pharmacy’s usual and customary price for that drug.” A “gag clause” in a contract with an issuer (including the issuer’s subcontractor such as a pharmacy benefit manager) prohibiting a pharmacist from providing this information thus also violates Education Law § 6826-a.

In addition, Chapter 57 of the Laws of 2018, effective April 12, 2018, amended Public Health Law § 280-a by adding two new subdivisions that specifically prohibit a pharmacy benefit manager from prohibiting or penalizing a pharmacist or pharmacy from disclosing to an individual purchasing a prescription medication information regarding the cost of the prescription medication to the individual, or the availability of any therapeutically equivalent alternative medications or alternative methods of purchasing the prescription medication, including paying a cash price. Public Health Law § 280-a now also prohibits a pharmacy benefit manager from charging or collecting from an individual a copayment that exceeds the total submitted charges by the pharmacy for which the pharmacy is paid. It further provides that if an individual pays a copayment, the pharmacy shall retain the adjudicated costs and the pharmacy benefit manager shall not redact or recoup the adjudicated cost.

The Department is especially concerned by reports that pharmacy benefit managers are threatening or taking retaliatory action against pharmacy providers who are fulfilling their obligations under Education Law § 6826-a. The Department reminds issuers that it will take all appropriate action in response to retaliatory actions by any issuer, its contracted pharmacy benefit managers or any other agents against pharmacists for complying with any of the provisions discussed above. The Department will hold issuers responsible for such retaliation committed by pharmacy benefit managers or other agents to whom the issuer has contracted management of its pharmacy benefit.

IV. Conclusion

Under New York law, an insured’s copayment shall not exceed the usual and customary cost of a prescribed drug. Any contractual provisions such as “gag clauses” that purport to prevent a pharmacist from providing information to an insured violate New York law and are void and unenforceable. Accordingly, issuers must take immediate steps to ensure that their health care provider contracts with pharmacists, whether negotiated directly with the issuer or through a pharmacy benefit manager, do not contain “gag clauses” or any other clause or provision that would cause the issuer to be in violation of Insurance Law § 4325(h), Public Health Law §§ 280-a and 4406-c(6), or Education Law § 6826-a. If an issuer’s health care provider contracts with pharmacists, whether negotiated directly with the issuer or through a pharmacy benefit manager, contain an impermissible gag clause or other provision, the issuer must take immediate corrective action. The Department further reminds issuers that they are ultimately responsible for complying with the Insurance Law and other applicable laws, regardless of whether they contract with third parties, including pharmacy benefit managers, for some or all of the administration of insurance policy benefits.

Please direct any questions regarding this circular letter to Thomas Fusco, Supervising Insurance Attorney, Health Bureau, New York State Department of Financial Services, Walter J. Mahoney Office Building, 65 Court Street, Room 7, Buffalo, New York 14202 or by e-mail at [email protected].

Very truly yours,

Lisette Johnson
Bureau Chief, Health Bureau