New Jersey Gov. Phil Murphy vetoed legislation to jump-start and guide the state’s rebidding of a massive, $6.7 billion three-year contract for public workers’ pharmacy benefits. He insisted the administration has the situation under control and is on pace to award a new deal in the spring.
Democratic leaders in the Senate said the bill — which passed both houses of the Legislature unanimously in late October — is needed to help the state comply with a court order requiring it to redo the complex process it used to hire the company now managing its massive portfolio of drug claims and pricing negotiations. The measure was introduced weeks earlier, after leadership said discussions with the administration failed to prompt any action.
The legislation prescribed specific steps for the state to take and a timeline — with target dates that made sense months ago — that sponsors said would help ensure the greatest potential for continued taxpayer savings. They also said that it would reduce potential conflicts of interest in the bidding process. Supporters of the deal hoped to lock in ongoing savings like those under the current contract, which is predicted to trim $1.6 billion from spending over time.
Governor sees no need to rush
But Murphy — a Democrat who has found himself in a standoff with lawmakers from his party over a growing number of issues — said rushing through another highly complex hiring process could trigger errors or new legal challenges. State Treasurer Elizabeth Maher Muoio shared similar concerns in the lead-up to the Legislature’s vote, setting up the potential for the governor’s veto.
In a message accompanying the move, Murphy said the state signed a deal last week with a technology company to oversee the selection of a new vendor — the first step in the two-part hiring process — and plans to run a “reverse auction” to identify the strongest contender early next year. He noted the current deal does not actually expire until 2020. (Details on the new contractor were not available late Monday.)
“I certainly appreciate the intent of the sponsors and supporters of this bill to start realizing cost savings for pharmacy claims as soon as possible. I share their goal and look forward to working together with them as we make progress solving the challenges facing our state. But at the same time, I am concerned that this bill could actually have the opposite effect,” Murphy wrote.
Targeting NJ’s intractable issues
The legislation (S-3704) sponsored by Sen. Joseph Lagana, (D-Bergen), Assemblywoman Eliana Pintor Marin (D-Essex), and Assemblyman Louis Greenwald (D-Camden) is part of a larger effort driven by Sen. President Steve Sweeney (D-Camden) to address some of the Garden State’s most daunting economic problems, including the cost of public benefits. There are more than 800,000 current and retired state, local, and school employees covered through the state’s benefit plans, and taxpayers spend billions of dollars annually on their care.
But while the legislation may be dead — and legislative leaders aren’t thrilled with how the bidding process evolved — the first phase of the new contracting procedure is underway, which was the underlying goal in the bill. Lagana said he and others will work with Murphy’s team to make sure the savings that are accruing under the current deal do not end. (Sweeney did not comment on the veto, saving his energy for another measure nixed by Murphy.)
“Our legislation was intended to ensure that the Department of the Treasury moves as expeditiously as possible to maximize the hundreds of millions of dollars in potential savings we can achieve through the swift implementation of a new Pharmacy Benefits Manager contract,” Lagana said. “We look forward to working cooperatively with the administration to ensure that those savings for the taxpayers are fully realized.”
The language of Lagana’s proposal echoed a Sweeney bill passed and signed into law by former Gov. Chris Christie, a Republican, in 2016. That measure dictated how the state had to use a specific technology-driven process that could compare in real time the abilities of pharmacy benefit managers, or PBMs — the massive companies that oversee drug pricing, claims, and appeals — to save the state money. The process is designed to help lock in the most favorable deal, based on actual claims data.
Case went to court
New Jersey is believed to be the first and most likely is still the only state to have used this reverse-auction process, which was run by a New York City-based tech startup called Truveris. The process led the state to sign a three-year, $6.7 billion deal with OptumRx, the PBM connected with insurance giant UnitedHealth, in July 2017. Savings began to accrue immediately, officials said.
But the joy was short lived. Express Scripts, the nation’s largest PBM and the company that had held the state’s contract since 2009, challenged that award in court. A panel of judges in the state’s Appellate Court agreed and, in May 2018, ordered New Jersey to redo the entire hiring process, based on language in the bid communication they said gave OptumRX an unfair advantage.
Muoio and others have noted that while the court required the state to redo the deal, it did not set a specific timeframe for the process, and the judges cautioned officials against rushing the process. The savings that are accruing now will continue while the new deal is rebid, she said in October, and rushing the process jeopardizes those gains.