This past legislative session, several state legislatures enacted legislative regulating pharmacy benefit managers ("PBMs"). New Mexico, Utah, and Washington all adopted laws requiring licensure or registration of PBMs, in addition to other requirements, such as audit procedures, appeal rights for pharmacies, or rules regarding maximum allowable costs. Iowa also adopted a new law regulating PBMs' pricing methodologies.

New Mexico enacted House Bill 126, entitled "The Pharmacy Benefits Manager Regulation Act." House Bill 126 is effective May 21, 2014 and requires pharmacy benefit managers ("PBMs") to do as follows:

• Become licensed by the New Mexico Superintendent of Insurance, or they may not operate as a PBM in New Mexico.

• Comply with requirements for placing a drug on a maximum allowable cost list.

• Follow new requirements when contracting with pharmacies.

• Comply with laws governing the audit of pharmacy records (Professional and Occupational Licenses Law N.M. Stat. § 61-11-18.2).

The Utah law, House Bill 113, which is effective May 13, 2014, does the following:

• Requires a PBM to register with the Division of Corporations and Commercial Code within the Department of Commerce to do business in the state.

• Defines maximum allowable costs.

• Requires certain contract provisions between a pharmacy benefit manager and a pharmacy related to the use of maximum allowable cost and appeal rights.

In Washington, Senate Bills 6137 and 6511, which are effective June 12, 2014, impose the following requirements:

• To conduct business in this state, a PBM must register with the department of revenue's business licensing service and annually renew the registration.

• PBMs must comply with audit procedures.

• PBMs must follow requirements governing maximum allowable cost standards and reimbursement appeal rights.

• PBMs must list prior authorization requirements on a website and issue acknowledgement of receipt or reference numbers for prior authorizations.

There are a number of states where PBMs must be licensed or registered with State regulators. Additionally, there are also a number of states which statutorily require PBMs to be licensed as third party administrators in their respective states.

Recently, the Minnesota Department of Commerce ("Department") took regulatory action against a sizeable number of PBMs operating in Minnesota that were not licensed as TPAs by the Department.

Consequently, it is extremely important for PBMs to be licensed or registered before transacting business in a state. In addition to potential regulatory liabilities for operating without a TPA or PBM license, PBMs may also have contractual issues or liabilities with their business partners (employers, insurers, etc.) for not being properly licensed where required.