Gotham Gazette

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Undoing the Medicaid Pharmacy Benefit Carve-Out Before It’s Too Late

Seeking health care (photo: Michael Appleton/Mayor's Office)

Over the past three years, New York has been the epicenter of a global pandemic, seen the outbreak of mpox, a reemergence of polio, and recently experienced spikes in flu, COVID, and RSV. Currently, an unprecedented number of asylum-seekers are looking to New York City and its safety-net health-care providers for care.

Come April 1, the state will face another potential crisis, as 7 million New Yorkers will have to undergo a difficult and error-prone process of recertification for Medicaid for the first time since the beginning of the pandemic. A study from George Washington University estimates that more than 180,000 New York Medicaid recipients could lose coverage starting July 1. This loss of coverage will put lives in jeopardy and undermine Governor Hochul’s commitment to advancing health equity. 

Despite all this, the state is proceeding with a radical change in how drugs are paid for in the Medicaid program. Moving the Medicaid pharmacy benefit out of Medicaid managed care plans and into the state-administered fee-for-service program will eliminate drug manufacturer discounts to safety-net health centers that are used to fill gaps in care. The timing is stunningly bad.

The pharmacy benefit carve-out will strip providers of the very funding they use to care for those who may lose their insurance during recertification. The carve-out must be repealed and replaced with a new alternative plan.

Historically, safety-net health providers have filled in gaps in coverage by using revenue from the 340B drug discount program to continue to see patients while their recertification issues are resolved, provide care to undocumented New Yorkers, and more. 

The revenue from 340B drug discounts will play a vital role in ensuring continuity of care throughout the Medicaid recertification process and in helping serve the influx of migrants New York is now seeing. Given this, it is extremely troubling that Governor Hochul is proceeding with the Medicaid pharmacy benefit carve-out.

This policy will strip safety-net clinics serving 2.3 million New Yorkers of more than $310 million in annual funding by removing the pharmacy benefit from Medicaid managed care. It would also fundamentally change how Medicaid recipients access their pharmacy benefit, causing certain disruption for patients. 

California implemented the pharmacy carve-out last year, and the results were disastrous. Patients faced life-threatening delays in accessing their medications, and providers are currently fighting for the distribution of funds to offset their lost drug discounts that were promised 12 months earlier. 

The carve-out will also exacerbate the very inequities in our healthcare system that Governor Hochul has pledged to address. Under this proposal, more than 15,000 New Yorkers who are members of HIV Special Needs Health Plans will lose access to a tailored formulary and specialty pharmacists with experience in HIV, mental health, and gender-affirming care who use data in real time to resolve problems. This impact would be especially felt in LGBTQ+ communities and communities of color. 

To complicate things further, the State Department of Health is under new leadership and faces unprecedented staffing vacancies and turnover. It is impossible to imagine they’ll be able to take on the carve-out and recertification, in addition to an ambitious public health agenda, without missteps that lead to New Yorkers losing coverage.

Thankfully, legislation has been introduced that would achieve the state’s policy objectives for the carve-out, including protecting community pharmacies from Pharmacy Benefit Managers (PBMs), while averting disruption to Medicaid beneficiaries, preserving the safety net, and saving the state money. This alternative legislation keeps the pharmacy benefit in Medicaid managed care and, in doing so, maintains the 340B drug discount mechanism that providers rely on. Creating an approach that protects safety-net providers while also protecting small pharmacies from PBMs is critically important.

By forging ahead with the carve-out, the state is making the already challenging recertification exponentially harder and putting lives at risk. As we’ve jumped from one public health crisis to another, a strong network of safety-net providers has been there protecting vulnerable New Yorkers. A perfect storm is brewing: recertification, a migrant crisis, and a financial crisis for safety net providers. Now is not the time to proceed with the pharmacy benefit carve-out.

Assemblymember Linda Rosenthal represents parts of Manhattan. On Twitter @LindaBRosenthal.

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