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Administration, Lawmakers at Odds Over Redo of Massive Pharmacy Benefits Contract

Dispute over a court-ordered re-bidding of $6.7 billion contract for public-worker benefits raises possibility of a gubernatorial veto followed by attempts to sidestep the governor

Elizabeth Maher Muoio
Credit: NJ Chamber of Commerce
State Treasurer Elizabeth Maher Muoio

New Jersey lawmakers may be on a collision course with the Murphy administration over the timing and process of re-bidding a $6.7 billion, three-year contract for public-worker pharmacy benefits, a move required by a state court ruling in May.

The State Treasurer warned key lawmakers in writing late last week of her “serious concerns” regarding legislation to expedite a new bid process, which passed both houses Monday with zero objections. If enacted, the bill could hinder the current procurement process the department launched in September, trigger errors and court challenges, and further delay the state’s effort to award a new contract for the services, Treasurer Elizabeth Maher Muoio wrote to the bill’s sponsors and certain Democratic leaders.

The initial contract remains in place until the service is re-bid, she noted, and the state will continue to accrue any savings it negotiated under that deal. Estimates suggest the state will save some $1.6 billion in three years over what it paid for pharmacy benefits in the past.

But legislators feel strongly that the bill was needed to jump-start the process and ensure the state locks in a new deal with a pharmacy benefits manager, or PBM, and to guarantee that those discounts continue. And the sooner it can be re-bid, the sooner New Jersey can take advantage of additional savings that experts believe the state would now get — estimated at between $12 million and $20 million monthly — based on market fluctuations and increased competition for the contract, Senate staff said.

The disagreement could lead Democratic Gov. Phil Murphy to veto the legislation, something he has done only three times since he took office in January. And a veto could in turn prompt the Democratic-led Legislature to override his refusal to sign the measure into law; two-thirds of the members of each house would be needed for such an override.

Savings at issue

Senate President Steve Sweeney
Senate President Steve Sweeney

Efforts to find savings through changes to the state’s employee benefit system, like the PBM deal, have been a longtime priority for Senate President Steve Sweeney (D-Gloucester). He is also working with Senate Budget Chairman Paul Sarlo (D-Bergen) on a measure to provide greater accountability, and possible savings, through enhanced oversight of public-worker health claims.

OptumRx, a prescription service created by insurance giant UnitedHealth, was awarded the multi-year deal — worth roughly 6 percent of the annual state budget — in June 2017, under former Gov. Chris Christie. The contract started in January and the company now handles pharmacy claims for more than 800,000 current and retired state and local public employees in New Jersey.

To select OptumRx and ensure they maximized the savings available over time, the state hired a second firm, Truveris, which ran a “reverse auction” process using specially designed software to determine which PBM can offer the best deal over time. Truvaris has been paid approximately $12 million, Treasury officials said, and its contract runs through the end of this year. New Jersey was the first state to employ this technology to obtain a PBM deal, Senate staff has said.

But Express Scripts, the company that previously held the benefits contract, dating back to 2009 — and the nation’s largest PBM — challenged the Christie administration’s selection of OptumRX in July 2017, claiming the company’s submission included language that gave it an unfair economic advantage over other bidders. A panel of appellate court judges agreed and, in May 2018, ordered the state to re-bid the massive benefits contract.

Legislators: Re-bidding process must be expedited

Mark Magyar, the Senate Democratic policy director, said Senate staff have been meeting with officials in Treasury and the Governor’s Office since then to discuss the need to expedite this re-bidding process. The issue came up again during the contentious budget negotiations, he said, and legislative leaders persuaded state officials to include $100 million in additional savings in the current budget year, which began in July.

Drugs

But those additional savings would require the state to expedite the re-bid process and have a new, potentially more beneficial contract in place by January 2019, so the state could start saving an additional estimated $17 million a month through June 2019, Magyar explained. The legislation — sponsored by Sen. Joseph Lagana (D-Bergen), and Assembly members Eliana Pintor Marin (D-Essex) and Louis Greenwald (D-Camden) — would force Treasury to adhere to that timeline.

Maher Muoio, a former lawmaker herself, said in her letter that, while she appreciated the sponsors’ intent to lock in savings, rushing the process could have the opposite effect. The court warned in its May ruling that the short timeline employed during the first bidding process, under Christie, may have affected the outcome.

“The last time around the enabling legislation modified many of the existing procurement laws at the time for both the reverse auction bid and the PBM bid, the PBM award’s timeline being one of the components the court found troubling in its decision,” Treasury spokeswoman Jennifer Sciortino said.

The latest legislation calls for a two-step hiring process, similar to that required the first time, which was dictated by a 2016 bill sponsored by Sweeney that triggered the initial contract and led to the new era of savings, Senate staffers note. First the state would need to obtain the unique technology and expertise needed to run a reverse action — a process that allows bidders to apply their pricing models to claims data and enables the state to better understand the resulting costs — and then it would need to use this system to analyze the bids of various PBMs.

The Lagana bill urges the state to extend the Truveris contract — something Treasury said is not possible — or push forward with the process to re-hire that company, or a similar firm, to initiate another PBM bidding process. But experts agree few, if any, other companies have the capacity to do this kind of work well, and the legislation is unusually prescriptive, spelling out exactly what kind of technology is needed and how it must be used. It also seeks to ensure that technology firms tied to PBMs are not eligible for the job, an effort to reduce conflicts of interest.

Administration: We’re already on the case

It is not clear how many lawmakers saw the Treasurer’s letter; it was not sent to Republican leaders or shared by the Democratic sponsors within their own caucus, staff members said. But Magyar said the administration’s concerns were not new to Senate leaders.

What was a surprise was that the administration had posted an online solicitation to hire a new reverse-auction firm, in late September, with a deadline for submissions of November 14.

Treasury officials said it is not part of their normal process to inform lawmakers of these postings, which, in this case, was placed on a federal contracting website; contractors that access these jobs are already vetted, allowing the state to expedite the process.

Regardless of the timeline, Treasury stressed that no matter when the next reverse auction is held, the state cannot install a new pharmacy benefits manager until 2020, because that deal must sync up with health benefit plans, which are tied to the calendar year.

“The current legislation is unnecessary because Treasury has already taken the lead in expediting the process of procuring a Reverse Auction vendor. We have made this clear to the Legislature on a number of occasions,” Sciortino said. “The notion that the state is at risk of losing out on savings if this process is not rushed even further is simply not true.”

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