The Missing Piece in New York’s Health Care Cost Conversation
The Department of Financial Services (DFS) has just announced 2027 health insurance rates across New York and has approved an average increase of 6% for the individual market and 8% for the small group market. There’s already a long overdue conversation underway about why those numbers look the way they do. Hospital prices, drug pricing, mandates, taxes, federal funding — all of it is being examined in public. But one piece of the system is never part of that conversation — the middleman quietly deciding how much of every prescription dollar goes where, and how much it pockets. It’s time that changed.
A recent column ran through the factors driving premiums: hospital and provider prices, manufacturer pricing, mandated benefits, health insurance taxes, and lost federal funding. It’s a thorough list, and every item on it is somebody else’s cost. But even in the section on prescription drug costs, one player is glaringly absent: pharmacy benefit managers, or PBMs — the companies that negotiate manufacturer rebates, decide what a health plan pays for a drug, and set what a pharmacy is reimbursed to acquire and dispense it.
Just three PBMs control roughly 80 percent of prescriptions nationally — and the conglomerates that own them, which also own major insurers, are posting record profits even as premiums and drug costs climb for everyone else. The column cited manufacturers raising list prices on more than 870 drugs this year, including vaccines and oncology treatments, and treated that increase as a straightforward cost driver, without asking who benefits when those prices rise. List prices are a key factor in the rebates PBMs negotiate with manufacturers: the higher the list price, the larger the rebate, and PBMs keep a share of it rather than passing all of it through to the plan. On top of that is the spread built into every prescription — the undisclosed gap between what a PBM charges the health plan and what it actually pays the pharmacy — which PBMs keep as well. Pharmacies are forced to absorb these losses, and it’s patients who are left without convenient access to care when pharmacies close their doors.
More than 90 percent of what a pharmacy actually dispenses at the counter is generic medication, priced by a competitive market at a small fraction of brand cost — and pharmacies are routinely reimbursed for those generics at less than what they paid to acquire and dispense them. PBMs set those reimbursement rates unilaterally, and increasingly the rates fall below acquisition cost, before the actual work — procuring, storing, dispensing accurately, counseling patients, checking for drug interactions — is considered. Multiplied across the tens of thousands of prescriptions a single pharmacy fills each year, that shortfall becomes a real, sustained loss.
New York already has a regulator positioned to change that. DFS doesn’t just review rate requests — it also licenses PBMs and now collects their reporting on rebates, spread, and profits, but those two functions currently run on separate tracks. That data shouldn’t sit unused: when a plan cites prescription drug costs to justify a premium increase request, DFS has both the standing and the information to ask what became of the rebate revenue tied to those same drugs before it signs off on anything for 2027 — and a reform already moving through Albany would make that easier.
That reform is the Patient Access to Pharmacy Act, or PAPA — passed overwhelmingly by the state Legislature and now awaiting transmission to the Governor. It does not add any drug, treatment, or service to anyone’s coverage. What it does is take one piece of a system that currently runs on private math and puts it in public view: a guarantee that pharmacies get paid for the work they’re already doing, priced against a number anyone can actually check. New York has already tested this exact approach: the state’s Medicaid program has reimbursed pharmacies on a cost-based formula since 2023 which has resulted in net savings to the state. The Governor also championed a similar initiative requiring commercial plans to pay behavioral health providers, at minimum, at cost-based Medicaid rates which took effect last year.
Costs are rising across the health care system, and regulators, employers, and patients are right to look hard at what’s driving that increase. That scrutiny should include the part of the system operating furthest from public view. PBMs have set the terms of pharmacy reimbursement in private for years — and the toll on New York’s pharmacies has already been made clear. Before the state approves next year’s rates, it must bring that piece of the picture into the light — and PAPA is a straightforward place to start, not just for this year’s rates, but to control New York’s health care costs for years to come. We strongly urge Governor Hochul to take this critical step and sign the PAPA legislation into law this year.
*sponsored content*
