In March 2023, New York State executed a major shift in how it manages prescription drug benefits for Medicaid recipients. By carving out pharmacy services from managed care plans and consolidating them under a single, state-administered model—known as NYRx—the state took a decisive step toward reclaiming control over drug pricing, pharmacy access, and transparency.
The transition affects more than 8 million Medicaid enrollees. Instead of relying on managed care organizations (MCOs) and their contracted pharmacy benefit managers (PBMs), Medicaid beneficiaries now receive prescription drugs directly through a centralized fee-for-service program. The change marked one of the most significant structural overhauls in the state’s Medicaid history and made New York one of only a handful of states with a fully state-run pharmacy benefit.
Reversing the Delegation Trend
For over two decades, New York—like many states—had outsourced the pharmacy benefit to managed care plans. These plans, in turn, contracted with PBMs to handle negotiations with manufacturers, determine drug formularies, set reimbursement rates, and manage prior authorizations. While the model promised administrative efficiency and cost containment, critics argued that it also obscured pricing structures, introduced middlemen, and squeezed independent pharmacies.
The state’s move to carve out pharmacy services aims to reverse that trend. Under NYRx, the Department of Health now directly negotiates with manufacturers, manages the preferred drug list, sets reimbursement rates, and oversees utilization controls. By cutting out PBMs and consolidating administration under a single payer model, officials expect to gain greater visibility into drug spending and reduce overall costs.
A Response to Transparency Gaps
At the heart of the reform is a push for transparency. In the prior model, each managed care plan had its own contracts, formularies, and billing systems. That fragmentation made it difficult for the state to assess true drug costs or ensure that savings from manufacturer rebates were fully passed along to Medicaid.
NYRx centralizes all pharmacy claims under a unified data system. Every prescription filled under the program now flows through the state’s fee-for-service platform, providing real-time data on utilization, pricing, and access. Officials argue that this level of insight allows for better monitoring of high-cost drugs, identification of prescribing patterns, and early intervention for inappropriate use.
Moreover, the state now collects 100% of negotiated rebates from drug manufacturers. Under the old model, rebate revenue was split between PBMs, plans, and the state—often with opaque contract terms. With NYRx, all rebates return directly to the Medicaid program, increasing transparency and potentially boosting state savings.
Pharmacy Access and the Independent Retailer
A key issue driving the transition was access to community pharmacies. Under managed care, PBMs often used narrow pharmacy networks and variable reimbursement rates, leading to complaints from independent pharmacists who claimed they were underpaid or excluded from networks altogether.
With NYRx, any pharmacy licensed in New York and enrolled in the Medicaid program is eligible to participate. Reimbursement rates are now standardized based on an established formula—ingredient cost plus a professional dispensing fee—rather than negotiated plan-specific contracts. This change has been welcomed by many independent pharmacists, who view the new system as more predictable and equitable.
Still, challenges remain. Some pharmacies report that while base reimbursement has improved, delays in payments and prior authorization issues persist. Others express concern that centralized policies may not adapt quickly to regional needs or accommodate special populations. The shift has brought administrative adjustments, requiring pharmacies to re-enroll, train staff on new billing processes, and navigate a different claims interface.
Balancing Cost Savings and Clinical Oversight
NYRx includes a Preferred Drug Program (PDP) that uses clinical review to evaluate which drugs offer the best value in terms of safety, efficacy, and cost. The PDP determines which medications require prior authorization and promotes lower-cost alternatives when clinically appropriate.
Supporters argue that this approach curbs spending on high-cost brand-name drugs when generics or therapeutic equivalents are available. Critics worry that centralized decision-making may introduce barriers for patients with complex needs who do not respond well to standard treatment options.
To manage these concerns, the state maintains a public process for reviewing clinical evidence and updating formularies. Physicians and pharmacists can submit override requests, and appeals are reviewed by an independent clinical panel. Still, stakeholders continue to monitor how quickly the system responds to changing evidence or emerging therapies.
Impact on Special Populations
The carve-out’s effects on vulnerable populations remain a focal point. For people living with HIV, mental illness, or other chronic conditions, uninterrupted access to medication is critical. These groups often rely on specific drug regimens with narrow therapeutic alternatives.
In response, the state implemented transition policies to minimize disruption. For the first 90 days after the NYRx launch, prior authorizations from managed care plans were honored, and existing prescriptions were grandfathered. Specialty drugs used to treat complex conditions remained accessible through the same pharmacies and mail-order services.
Even so, some advocacy groups expressed concern about implementation challenges, especially for patients with limited health literacy or language barriers. Outreach campaigns were launched in partnership with community health organizations to educate patients, providers, and pharmacists about the new process.
Financial Stakes and Long-Term Outlook
From a budget perspective, NYRx represents a gamble on centralized efficiency. New York’s Medicaid drug spending exceeds $10 billion annually, and pharmacy costs have risen steadily over the past decade. State officials project that the carve-out will produce long-term savings by consolidating purchasing power, improving rebate capture, and reducing administrative duplication.
In its first year, the program is expected to recapture hundreds of millions of dollars in rebates previously retained by PBMs. Over time, officials anticipate that the centralized formulary management will curb growth in drug spending without reducing access.
Yet the transition also came with costs. System upgrades, provider outreach, and training required significant upfront investment. The state had to build internal capacity to manage pharmacy operations at scale, including staff expansion and contracting with data analytics firms.
The program’s ultimate success will depend on its ability to balance cost controls with service quality. If access issues, delays, or clinical friction become widespread, pressure may mount for further reforms or even a partial return to managed care delegation.
National Implications and Policy Signaling
New York is not the only state experimenting with a Medicaid pharmacy carve-out. California implemented a similar model in 2021, known as Medi-Cal Rx. Other states, including Massachusetts and New Jersey, have explored variations on the concept.
NYRx adds weight to a growing policy debate about the role of PBMs in public insurance programs. With federal scrutiny of PBM practices rising—including investigations by the Federal Trade Commission—state-led initiatives like NYRx serve as both a policy experiment and a statement of intent.
The trend reflects broader dissatisfaction with fragmented pharmacy benefit models and rising concerns about price opacity, rebate capture, and access inequities. If NYRx succeeds in stabilizing costs and improving service delivery, it may serve as a blueprint for other large-scale Medicaid programs nationwide.
Operational Challenges and Risk Management
The transition to NYRx was not without friction. In the months following the launch, provider hotlines reported long wait times, pharmacies encountered reimbursement discrepancies, and some patients experienced delays in filling prescriptions due to prior authorization bottlenecks.
In response, the Department of Health ramped up technical support and clarified policy guidance. Regular stakeholder calls, provider bulletins, and updates to the Medicaid eMedNY system aimed to smooth over initial disruptions. Still, the state acknowledged the complexity of shifting millions of beneficiaries and thousands of pharmacies to a new model within a compressed timeline.
Looking ahead, officials have committed to performance monitoring and stakeholder engagement. Annual reports, satisfaction surveys, and independent audits will play a role in evaluating the program’s effectiveness. The state has also signaled willingness to refine the system in response to data and feedback.
A Cautious Optimism
The NYRx program continues to evolve. Pharmacies report greater predictability in payments, and the state has improved transparency in drug pricing and rebate data. Beneficiaries are gradually adapting to the new system, though educational outreach remains a priority.
The program’s long-term viability rests on its ability to deliver cost savings without sacrificing clinical quality or pharmacy access. If successful, it will mark a turning point in Medicaid pharmacy administration—favoring state oversight over private delegation, and data-driven policy over contract opacity.
For now, NYRx offers a case study in government reasserting its role in healthcare delivery—at a scale few other states have attempted. As federal and state policymakers continue to wrestle with the cost and complexity of prescription drug coverage, New York’s model stands as a bold, if unfinished, answer.