In an effort to save money on drug costs, New York state is planning to overhaul how millions of Medicaid members access their medication on April 1. That’s when most members will be transitioned to a new pharmacy benefit plan known as NYRx.

The shift comes with expanded pharmacy options for patients, but could also disrupt access to specific drugs. The NYRx plan will allow Medicaid enrollees to visit a much wider array of pharmacies to pick up their prescriptions, which could benefit those who have had to travel for their medications in the past. The new plan is also designed to give the state Department of Health more power to negotiate with pharmaceutical companies, which the Hochul administration says will result in bigger rebates on drug prices — potentially saving the state hundreds of millions of dollars.

But it could disrupt care for some of the nearly 8 million New Yorkers enrolled in the public health insurance program. Patients may find that the medication they’ve been taking is no longer on the “preferred” drug list – forcing them to switch to a different drug or seek extra approvals to stay on their current medication.

Another issue is hospitals and community health clinics — ones that serve large numbers of Medicaid patients — oppose the change because it will disrupt access to a little-known federal program known as 340b.

The 340b program, which was first established in the early 1990s, requires any pharmaceutical company that does business with Medicaid to provide deep discounts on prescription drugs to certain hospitals and clinics that serve vulnerable populations. Those medical facilities can then get reimbursed for those drugs by health plans at higher rates and pocket the difference – presumably to reinvest in patient care. Overhauling Medicaid pharmacy benefits and disrupting 340b was first included in the budget for fiscal year 2021 under Gov. Andrew Cuomo and called for the change to take place two years later.

But funding from 340b provides significant financial support for some clinics and hospitals that provide safety net health care. Leaders of those clinics and hospitals argue that any savings the state generates in switching to NYRx will come at their expense – and harm critical patient services as a result. Even as the state begins to release notices informing Medicaid members of the long-planned change to their pharmacy benefits on April 1, these safety net health care providers are making a last-ditch effort to delay or avoid the shift.

Advocates also said this is bad timing, since the state will be working to reassess millions of patients’ Medicaid eligibility come April.

“We are just at grave risk of not being able to provide the breadth and depth of primary health care services and wraparound services that we currently do,” said Kimberleigh Smith, senior director of public policy and advocacy at Callen-Lorde Community Health Center, a nonprofit that operates clinics in New York City serving the LGBTQ+ community, including people with HIV.

Opponents are hoping an alternative will be introduced in the upcoming state budget – which is due out the same day the pharmacy changes are supposed to go into effect.

Gov. Kathy Hochul’s executive budget has proposed ways to compensate health care providers for these losses, but hospital and clinic representatives worry they won’t be made whole.

For Callen-Lorde Community Health Center, 340b brings in about $10 million annually, accounting for 11% of the nonprofit’s budget, said Smith. The program allows the organization to provide low-cost or free medication to patients, including those who are uninsured, and to provide counseling on things like sexual health, nutrition and insurance enrollment.

Smith said the funding also helps support Callen-Lorde’s program dispense PrEP, an HIV prevention medication. And it allowed the health center to hire more staff when it was working to vaccinate New Yorkers against mpox last summer.

“A patient might come in and learn that they have diabetes and then a nurse or another provider may need to support them to figure out how to manage their diabetes, what medications they need to be on, how to check their blood sugar,” Smith said.

Community health center leaders say these are the types of services that are hard to get reimbursed for by insurance plans. Overall, the state’s community health centers brought in an estimated $260 million through the 340b program last year, according to the Community Health Care Association of New York State.

How the transition will work

Hochul’s administration anticipates that the NYRx transition will save the state $410 million in its first year and $547.8 million in its second, although net savings are projected to be much lower after accounting for the money the state plans to reinvest in health care providers to make up for 340b losses. Claims that the program will generate savings at all have been contested by critics such as the New York Health Plan Association, which commissioned an assessment by an outside group in 2020.

Here is what’s behind the debate. Even though Medicaid is taxpayer funded, most members are currently enrolled in private plans that contract with the state. Each plan negotiates its own rates for medications and has its own list of preferred drugs.

This system was established a little over a decade ago under Cuomo. But later in his tenure, advisers on the Medicaid program argued that it resulted in too many intermediaries being involved in negotiating drug prices and obscured true pharmaceutical costs.

Demonstrators gather in front of former New York Gov. Andrew Cuomo's office protesting the cuts to Medicaid and other health care reductions on March 1, 2021.

The idea behind NYRx is that by moving all Medicaid members back onto one pharmacy plan, the state will create more transparency and gain more leverage to negotiate prices with drug manufacturers. Notably, that transparency will not necessarily extend to the public, since the discounts Medicaid receives from pharmaceutical companies are kept secret.

According to Cort Ruddy, a spokesperson for the state health department, the plan will also streamline paperwork for practitioners and reduce confusion for the Medicaid recipients when they pick up their medication.

But under the new Medicaid pharmacy plan, hospitals and clinics would get much less money through 340b and the state would accrue the savings instead.

Some lawmakers and drug companies have criticized 340b as it has expanded over the years, and there is evidence that hospitals have found ways to profit off the program without benefiting the patients it’s supposed to help.

But the Community Health Care Association of New York State argued that 340b had become a crucial funding stream for health clinics and supports a wide range of services that are hard to get reimbursed for otherwise.

“This program is really critical to ensuring access when support for a program doesn't exist anywhere else in the system,” said Rose Duhan, president and CEO of the Community Health Care Association.

Why 340b matters for the health care safety net

The Community Healthcare Network, which operates health centers and school-based clinics across the city, garners about $6 million annually from 340b in a budget of about $100 million, according to President and CEO Robert Hayes. It may not sound like a lot, but Hayes said the funding is crucial precisely because it isn’t tied to specific medical services or designated for administrative costs. “It's what goes to the core of what makes community health work, which is the ancillary services, what goes on outside the medical visit,” Hayes said.

Hochul’s executive budget indicates that it will offer $125 million in supplemental Medicaid payments to community health centers in fiscal years 2024 and 2025 in an effort to make them whole. If that money comes with federal matching funds, as most Medicaid payments do, that would fall about $10 million short of covering the amount the clinics stand to lose, according to Duhan.

But Duhan said state officials have not provided any details on when or how that money will be distributed, or how long it will last.

Ruddy, the health department spokesperson, did not respond to specific questions about these concerns. He added that the state is still working to get federal approval for the extra Medicaid payments to clinics — something critics also raised as a source of uncertainty.

We're walking in a fog of ignorance.
Robert Hayes, Community Healthcare Network president and CEO

“We're walking in a fog of ignorance,” said Hayes, adding that it has made it hard to craft the budget for the coming year.

For hospitals, the proposal is a little clearer. They will receive a 5% increase in Medicaid payments for their services, which will result in a $212.5 million annual funding boost, according to an executive budget document.

But the Greater New York Hospital Association argued in a memo on the budget that hospitals are going to be grappling with an “explosion” of labor costs and the rate increase is inadequate to cover both rising expenses and the loss of 340b funding.

Is there an alternative?

Advocates also said this is just bad timing, since the state will also be working to reassess millions of patients’ Medicaid eligibility come April – a process that could potentially suck up health department resources. A group known as Save New York’s Safety Net is hoping it might still be possible to delay the launch of NYRx, or better yet, convince state officials to agree to a compromise that achieves savings without completely carving pharmacy benefits out of existing Medicaid plans.

Save New York’s Safety Net suggests the state could still create a single preferred drug list for all Medicaid plans to use, thereby reducing the complexity of the program and boosting the state’s bargaining power.

State Assemblymember Amy Paulin, who chairs the Assembly’s health committee, said she is hoping to get answers to outstanding questions about the transition during the state budget process — and may seek to put out an alternative proposal.

State Sen. Gustavo Rivera, chair of the health committee in his chamber, said he is reviewing the changes advocates want to make.

“For most providers, the priority is an adequate and enduring commitment to support their critical services,” Rivera said. “I am working with all stakeholders and exploring every possible avenue to address the challenges of the Medicaid pharmacy transition.”