Legislature(2011 - 2012)BARNES 124
02/27/2012 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB259 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 300 | TELECONFERENCED | |
| *+ | HB 259 | TELECONFERENCED | |
HB 259-PHARMACY AUDITS
3:47:59 PM
CHAIR OLSON announced that the only order of business would be
HOUSE BILL NO. 259, "An Act establishing procedures and
guidelines for auditing pharmacy records; and providing for an
effective date."
3:48:16 PM
REPRESENTATIVE CATHY MUNOZ, Alaska State Legislature, introduced
herself.
The committee took a brief at-ease.
3:49:56 PM
REPRESENTATIVE MUNOZ explained that HB 259 is about establishing
common courtesy guidelines for pharmacy audits and was requested
by the Alaska Pharmacists Association (APA). She related some
major components of the bill. This bill would give pharmacists
time to prepare for an audit and adequate notice of one. It
would also prevent pharmacists from being accused of fraud when
they commit a small clerical, recordkeeping, or typographical
error. She related a scenario in which a pharmacist had filled
a 30-day prescription and due to a clerical error, the client
received a 31-day prescription. When the pharmacy was audited,
the pharmacist was denied reimbursement for the entire
prescription due to the clerical error. She characterized the
process as an unfair process. This bill would also prevent
extrapolation, with is a method of projecting the cost of one
mistake over several cases or extrapolating over a timespan.
She offered an example, such that if a pharmacist filled a
prescription which resulted in a $.25 error, the audit could add
a $.25 on each prescription filled. She indicated that this
recently happened to an Alaskan pharmacist, who was given a bill
of over $7,000. She said HB 259 would also ban the practice of
auditors receiving compensation based on a percentage of what
they recover from pharmacists. She offered her belief that this
is just wrong since payments should not be driven by audit
recovery costs, but should be based on facts.
REPRESENTATIVE MUNOZ acknowledged that pharmacists understand
the importance of audits, but sometimes audits may be
unreasonable and are used in a manner that deprives pharmacists
of fair reimbursement for their services. At times, a
pharmacist may prescribe the right drug and dose, but perhaps a
clerical error in billing transpired. In those instances the
pharmacist will not receive payment for the prescription. She
related that HB 259 is aimed at protecting the public from
potential abuse while assuring pharmacists face fair,
reasonable, and consistent audits. The measure is supported by
the APA, the National Community Pharmacists Association (NCPA),
and the National Association of Chain Drug Stores (NACDS).
3:53:45 PM
REPRESENTATIVE P. WILSON, Alaska State Legislature, said
auditors have shown gross abuse in conducting audits and have
been paid by a percentage of the insurance reimbursement.
Therefore, they are nitpicking to the extreme and extrapolate
amounts to fill their own pockets, which simply must stop. She
characterized auditors' practices as bordering on unethical.
She referred to members' packets, to the APA, which includes
examples of abuses and noted some pharmacists will testify.
CHAIR OLSON remarked problems are occurring throughout the
industry.
3:56:01 PM
CHRISTOPHER CLARK, Staff, Representative Cathy Munoz, Alaska
State Legislature, explained that HB 259 consists of four
sections. Section 1 would outline the intent of the bill to
help the public understand the purpose of the bill, which is to
set standards for pharmacy audits. He pointed out his analysis
of the auditor qualifications are in error in the sectional
analysis for Section 2. This bill attempts to establish
courtesy and flexibility during the audit, such as avoiding
scheduling an audit when the pharmacists are unusually busy -
the first of the month or during a special event - yet still
allow an audit to be conducted. He referred to paragraph (9),
which would ban the accounting practice of extrapolation, as one
of the most important aspects of the bill. He suggested
pharmacists on line today may better be able to describe the
problems they have encountered.
3:58:55 PM
REPRESENTATIVE JOHNSON asked for a definition of a desk audit.
MR. CLARK explained two types of audits: one is a desk audit in
which the auditor requests records and the pharmacist supplies
them; the second is an on-site audit is one in which an auditor
enters the pharmacy and asks to see records.
3:59:28 PM
REPRESENTATIVE MILLER referred to page 2, line 13, to paragraph
(6), which read, "a clerical error, record-keeping error,
typographical error, or scrivener's error may not constitute
fraud." He asked for clarification on "may."
MR. CLARK answered that may not equals shall not according to
the legal drafter.
4:00:17 PM
CHAIR OLSON asked for the genesis of the bill.
MR. CLARK answered that the Alaska Pharmacists Association (APA)
provided the basic language for the bill. He related his
understanding the provisions were derived from reviewing laws in
15-20 other states. He offered that the sponsor has held
preliminary meetings with some state agencies, including the
Department of Health and Social Services (DHSS), and the
Department of Administration (DOA). He related some concerns
have been expressed, which he suggested represents a good start
on the discourse to provide a system that is fair to
pharmacists, yet still will assure the public that compromises
will not happen, in terms of detecting fraud or abuse.
4:01:05 PM
REPRESENTATIVE SADDLER referred to page 2, which read: "(5)
each pharmacy shall be audited using the same standards and
parameters as other similarly situated pharmacies." He pointed
out that a variety of types of retail establishments exist in
Alaska and asked how these businesses are affected.
MR. CLARK deferred to the pharmacists on-line today. He
suggested that pharmacists in Anchorage are affected in a manner
that is likely similar to ones in Eagle River. He related his
understanding that costs would be different for some areas, such
as costs in Nome as compared to ones in Eagle River.
4:02:05 PM
REPRESENTATIVE JOHNSON asked who will pay for the audits.
MR. CLARK deferred to the pharmacists to more fully respond. He
related his understanding that the costs are paid for, in part,
from the pharmacists and by the entity that hires the auditor
for legitimate purposes to ensure no cases of fraud or abuse
exist.
4:02:47 PM
REPRESENTATIVE JOHNSON noted that the finding of an audit must
be based on the actual overpayment or under payment. He
expressed concern that the language may encourage more audits
and more time in the audits. He understood the pitfall in being
subjected to extrapolation, but he also understood the auditor
would not go through every piece of paper.
MR. CLARK agreed the sponsor would want to avoid being subjected
any unintended consequences under the bill. He suggested that
the pharmacists may be able to address this issue.
4:04:17 PM
BARRY CHRISTENSEN, Pharmacist, Island Pharmacy; Legislative
Committee Co-Chair, Alaska Pharmacists Association (APA), stated
that the association represents pharmacists, pharmacies, and
pharmacy technicians in Alaska. He related that APA members
work hard in retail pharmacies, hospitals, nursing homes, and
medical clinic settings throughout the state. He asked for
members' support for HB 259, to help create a level playing
field for pharmacists when dealing with pharmacy audits. He
remarked that the APA has made this the organization's number
one legislative priority. The APA supports the need for audits
to ensure that fraud, waste, and abuse activities are checked;
however, the audits must be conducted in a fair and balanced
manner, allow for a fair appeal process, and payment for all
services performed within the patients' insurance benefit
structure. He related that pharmacists are online to describe
their experience with audits. He briefly outlined the typical
prescription process and how a record is created. He referred
to a handout in members' packets titled, "U.S. Commercial
Pharmaceutical Supply Chain: How does it Work?" He said
pharmacists generally contract with pharmacy benefit managers
(PBM) and in turn the PBM sends back authorization for payment
in order to fill and bill prescriptions for consumers as part of
their health benefit plan. He explained that currently nearly
all prescriptions are filled electronically in real time. The
pharmacy sends prescription information to the PBM, and in turn
the PBM returns authorization for payment and other clinical
edits for concern, including high dose, drug interactions, or
other pertinent information. The pharmacy is reimbursed the
cost of the medication plus a dispensing fee for covering the
pharmacy's cost of doing business. He clarified that typically
the PBM or the entity contracted by the PBM will perform audits
on contracted pharmacies to legitimately protect against fraud
and abuse.
4:07:46 PM
MR. CHRISTENSEN said it has been suggested that pharmacies
should be able to address auditing concerns directly with the
contracted PBM. He said, "I wish it were this easy." Most
Alaska pharmacists have never been able to alter the terms of a
contract given to them except perhaps to modify dispensing fees.
He characterized the process as a "take it or leave it" offer.
He stated that this leads to the reason the pharmacists are
asking for standardization in auditing practices, which would be
applicable to all plans and pharmacies in the state.
MR. CHRISTENSEN recalled an earlier question about how pharmacy
audits are paid. He offered that usually the PBM has an
auditing department or will contract with another entity to
perform the audit. He suggested that the cost is likely borne
by the PBM, but the PBM can recoup the cost from pharmacies.
4:08:58 PM
REPRESENTATIVE SADDLER asked for clarification on who the PBM
works under.
MR. CHRISTENSEN related that the PBM works for the health
insurer and provides services, including contracting with the
pharmacy and drug manufacturers, typically for rebates from
manufacturers to the PBM and/or the health insurer.
REPRESENTATIVE SADDLER asked for clarification on the chart with
respect to the dispensing fee.
MR. CHRISTENSEN answered that typically the dispensing fee would
come back from the PBM to the pharmacy, but the cost of the drug
would also be included in the fee.
REPRESENTATIVE SADDLER inquired as to the typical dispensing
fee.
MR. CHRISTENSEN answered that in Alaska the dispensing fee
varies from $2-$10, depending on the location and the number of
prescriptions. In response to a question by Chair Olson, he
answered that the dispensing fee is almost always based on a
dollar basis and not a percentage.
4:10:31 PM
CHAIR OLSON asked for clarification on the current standards for
PBMs.
MR. CHRISTENSEN said he would argue there are not any standards.
He related his understanding that the contracts that pharmacies
sign likely contain provisions on audits and appeal process, but
that overall the process is not standardized. In further
response to Chair Olson, he agreed that the fees vary based on
the major medical carrier, such as Blue Cross, and on the size
of the pharmacy. He reiterated that standards do not exist.
4:11:21 PM
REPRESENTATIVE JOHNSON pointed out the bill requires any
underpayments or overpayments must be based on actual payment
and asked for clarification on the method.
MR. CHRISTENSEN answered that the bill is a work in progress.
He stated that most other states' statutes contain a limit on
the number of prescriptions that can be audited, which is
currently under consideration.
REPRESENTATIVE JOHNSON expressed concern that as the bill is
currently written pharmacists may encounter huge administrative
hassles. He suggested that instead of stopping the audit after
finding one mistake, the auditor would continue to look for
other errors, instead of extrapolating. He questioned whether
any advantage would exist. He reiterated that he envisioned
pharmacists would need to spend significantly more time with
auditors rather than dispensing drugs. He offered his belief
that averages are often used and he suggested the pharmacists
may wish to consider a time limit.
MR. CHRISTENSEN understood the concern. He pointed out one
thing the bill would do is place a time limitation on the number
of years an auditor can audit, which he thought was a good
provision. He offered his belief that pharmacists as a group
are detail oriented so he envisioned the number of mistakes
would be minimal.
4:14:02 PM
REPRESENTATIVE JOHNSON asked how pharmacists read doctors'
writing.
MR. CHRISTENSEN answered that most prescriptions are
electronically prescribed; although mistakes can still happen
since the prescriber must still key it in correctly and code the
prescription correctly. He offered his belief that the industry
still faces a computer challenge.
4:14:56 PM
REPRESENTATIVE SADDLER asked whether any limit exists on how
often pharmacists can be audited. He further asked for an
estimate on the amount of time a pharmacist spends filling
prescriptions and an estimate of the time spent on audit-related
activities.
MR. CHRISTENSEN answered that he thought the time varies. He
agreed that it takes a lot of time to copy records and while
most audits are desk audits that it still takes time to compile
the record. This bill does not limit the number of audits.
4:15:47 PM
REPRESENTATIVE SADDLER further asked if he would hazard a guess
if the amount would be 5-10 percent of his time or some other
percentage.
MR. CHRISTENSEN answered that pharmacists do not receive audit
requests every day, but auditors may ask for 20-30 prescriptions
at once. He pointed out that pharmacists simply must fit the
requests into their workload. Pharmacies are busy and time
spent responding to audits means less time spent on other
things. In further response to Representative Saddler, he
agreed this adds to the overhead costs.
CHAIR OLSON stated his intention is not to move the bill today.
4:16:59 PM
REPRESENTATIVE JOHNSON cautioned against creating a bureaucracy
or the necessity for pharmacists to designate a specific staff
person to manage auditor requests. He expressed his desire in
assisting pharmacists and to have the bill move forward. He
asked the pharmacists to address his concerns to ensure proper
public benefits yet still minimize paperwork pharmacists must
process.
MR. CHRISTENSEN answered that approximately 15-20 states have
had similar legislation on the books for some time and he has
not heard of any problems they have encountered.
4:18:12 PM
CHAIR OLSON inquired as to whether this bill is modeled after a
national model.
MR. CHRISTENSEN responded HB 259 this bill was modeled after
model legislation from the National Community Pharmacists
Association.
CHAIR OLSON asked how long the model legislation has been in
place.
MR. CHRISTENSEN answered about 5-10 years. In further response
to Chair Olson, he stated that the law varies from state to
state.
4:18:55 PM
REPRESENTATIVE MILLER asked for clarification on the auditors'
employers and how they are engaged. He further asked for brief
overview of how an audit is conducted.
CHAIR OLSON mentioned several auditors are online.
4:19:21 PM
REPRESENTATIVE MILLER noted the bill indicates an auditor may
not receive percentage of amount recovered. He said he assumed
this is in the bill since some of this currently happens.
MR. CHRISTENSEN answered yes.
REPRESENTATIVE MILLER related that a copy of the audit is
provided to the health benefit plan sponsor affected by the
audit. He questioned whether the pharmacists, doctors, or
patients also receive a copy of the audit.
MR. CHRISTENSEN described the process such that the PBM, the
auditing entity, would notify the pharmacy. The language just
mentioned is intended to notify the health insurer. He referred
to a company, such as Envision Rx Options, which is a PBM that
operates for the State of Alaska's employees' plan. He
explained that under the bill if a pharmacy is audited by that
company, the State of Alaska would be notified of the results of
the audit. In further response to Representative Miller, he
answered that the doctor or patient would not be notified.
4:20:46 PM
REPRESENTATIVE SADDLER referred to page 2, line 16, to paragraph
(8), which restricts an auditor from providing information to
anyone other than the person requesting the audit and the
pharmacy. He asked whether security of information has been a
problem.
MR. CHRISTENSEN responded that this language would protect the
pharmacy from auditors sharing information on which pharmacies
should be audited.
4:21:40 PM
REPRESENTATIVE SADDLER related his understanding that Health
Insurance Portability and Accountability Act of 1996 (HIPAA)
requires privacy for patients. He inquired as to whether HIPAA
would apply.
MR. CHRISTENSEN answered yes, that HIPAA would apply to the
patient information, but the specific provision in the bill
would apply to the type of error.
4:22:29 PM
REPRESENTATIVE SADDLER asked whether this type of problem is
prevalent.
MR. CHRISTENSEN answered no, but that this language addresses
more of a fear of this type of activity might occur. In further
response to Representative Saddler, he said he was not aware of
any other laws that would protect the pharmacies from this type
of activity.
4:22:49 PM
REPRESENTATIVE SADDLER asked who would financially benefit and
who would lose from this bill.
MR. CHRISTENSEN answered with respect to extrapolation, the
pharmacy is being charged and the PBM entity would get the funds
the auditor extrapolated.
4:23:38 PM
REPRESENTATIVE SADDLER related his understanding to the extent
that pharmacies are being "dinged," that the bill would benefit
the pharmacists.
MR. CHRISTENSEN answered that the bill would keep pharmacists
whole.
4:23:52 PM
REPRESENTATIVE JOHNSON asked for the percentage of the three
types of audits pharmacists incur for desktop, in pharmacy, and
investigative audits.
MR. CHRISTENSEN answered that he was not aware of any
documentation, but from an industry practice the desktop audits
are much more prevalent for the simple reason that it is less
expensive for the auditor to conduct. Auditors typically would
ask for copies of records rather than travel to Alaska, and
absorbing the auditor's travel costs. He said he assumed it is
less expensive to conduct desk audits.
4:24:58 PM
REPRESENTATIVE JOHNSON inquired as to the reasons to investigate
a pharmacy.
MR. CHRISTENSEN answered that an investigation would likely
happen after a tipoff. He explained since prescription records
are submitted electronically that any irregularity to the PBM or
insurance company would be visible, such as one pharmacy
dispensing substantial amounts of a type of expensive medicine
when other pharmacies are not dispensing similar amounts.
4:25:40 PM
REPRESENTATIVE JOHNSON asked for an indication of problem with
audits since the number of audits conducted is unknown.
MR. CHRISTENSEN suggested that listening to upcoming testimony
should illustrate the problems pharmacists have, noting at least
one pharmacist will indicate it is a big problem. He reiterated
that the pharmacists do not have any means of tracking these
figures since the PBMs in Alaska are not regulated.
REPRESENTATIVE JOHNSON asked whether it would be helpful to add
reporting language to the bill.
MR. CHRISTENSEN pointed out that doing so would likely mean more
paperwork for someone to submit.
4:26:41 PM
CHAIR OLSON related a scenario and asked what would happen
during an audit in the event a couple has two major medical
policies, with one policy as the primary and the other as the
co-payment. He asked whether one company would notify the other
in case of any discrepancies.
MR. CHRISTENSEN answered no, not typically. He clarified the
question, that if there was a problem with a claim, whether an
auditor who represented the secondary insurance would notify the
primary insurance company. He answered that he did not believe
so. He agreed, in response to a remark, that the drug might be
expensive.
4:27:56 PM
CHAIR OLSON remarked that the industry has no standards in terms
of audits.
MR. CHRISTENSEN emphasized that there are an unknown number of
PBM companies with numerous contracts containing a variety of
terms. He said he did not believe any of the contracts require
adhering to the same audit standards.
CHAIR OLSON inquired as to whether any other states hold PBMs to
the same standards.
MR. CHRISTENSEN answered yes.
CHAIR OLSON suggested using their approach might address some of
these issues.
MR. CHRISTENSEN answered yes. He pointed out that his
association has tried to pursue legislation to address the
issue, but dropped it due to the substantial opposition.
4:28:58 PM
CHAIR OLSON inquired as to the number of states with audit
standards.
MR. CHRISTENSEN answered about 20 states. He suggested that
other testifiers should be able to provide national statistics.
4:29:19 PM
REPRESENTATIVE SADDLER asked whether the audit cycle spans a
year. He further asked about similarly-situated pharmacies.
MR. CHRISTENSEN related his understanding that an audit cycle
would cover a set number of claims during a set period of time.
He suggested it may be a request for 50 prescriptions spanning
January to January.
4:30:02 PM
REPRESENTATIVE SADDLER asked whether that would that constitute
the cycle or if an auditor would subsequently request additional
prescriptions.
MR. CHRISTENSEN deferred to the National Community Pharmacists
Association, who has assisted other states with these issues.
4:30:49 PM
REPRESENTATIVE SADDLER asked how many classes of pharmacies in
Alaska would be considered similarly situated.
MR. CHRISTENSEN answered that some pharmacists specialize in
compounding, which might be considered an old-fashioned pharmacy
in which the pharmacist takes medications and makes them into
products patients can use. Another type of pharmacist would be
the IV home-infusion pharmacy, which is a pharmacy that prepares
IVs for home use. Finally, standard retail pharmacies would
include independent pharmacies and chain pharmacies.
REPRESENTATIVE SADDLER answered that a Native health clinic or
big city hospital would not fall under similarly situated
pharmacies.
MR. CHRISTENSEN responded that pharmacies of that nature would
be outside the ones he mentioned and would be considered in
their own category of similarly-situated pharmacies.
4:32:02 PM
REPRESENTATIVE SADDLER reiterated the types of pharmacies would
include compounding, IV home infusion, and retail pharmacies.
MR. CHRISTENSEN offered that additionally it could include some
clinics, but he thought hospital pharmacies would not likely be
included since they would be separate.
4:32:26 PM
CHAIR OLSON asked how doctors that repackage would be affected
by the bill.
MR. CHRISTENSEN surmised that if these doctors bill third-party
insurance they could theoretically be considered a class and
could also be audited.
4:32:42 PM
REPRESENTATIVE MILLER noticed the language mentions
underpayments. He related a scenario in which an audit is
conducted that discloses underpayments. He recalled the bill
limits the disclosure of this information to the PBM. He
assumed that a doctor or patient who has overpaid is not
notified. Thus patients are not protected, but rather the
audits are conducted to ensure that the pharmacies are
performing due diligence to the PBM.
MR. CHRISTENSEN agreed.
4:34:17 PM
MATTHEW DILORETO, Director, State Government Affairs, National
Community Pharmacists Association (NCPA), on behalf of the
National Community Pharmacists Association (NCPA), thanked
members for conducting this hearing. He stated that NCPA
strongly supports HB 259. He offered to read his testimony, and
read [original punctuation provided]:
This legislation would provide some fair and common sense
protections for pharmacies against what are currently
abusive audit practices by the CBMs. Let me first be
clear. This legislation does not prevent audits from
occurring for their intended purpose of preventing fraud,
waste, and abuse, in fact, [subsection] (b) of this
legislation specifically states standards within HB 259 do
not apply when pertaining to criminal investigation or an
investigation by a government agency. On a side note, I
just want to let you know that's fairly common language,
not word for word, but in other states as well.
NCPA's members understand that audits must occur to catch
fraud and abuse within the system. However, current PBM
audits of a pharmacy are in many cases simply being used as
a lucrative revenue source. NCPA represents America's
independent community pharmacists, including the owners of
more than 23,000 community pharmacies, franchises and
chains. Together, they employ over 300,000 full-time
employees and dispense nearly half of the nation's retail
prescription medicine. In Alaska alone there are over 39
community pharmacies which employ a projected 413
residents. The average independent community pharmacy
generates $4 million in annual revenue and employs 10.6
full-time individuals. Alaska's independent community
pharmacies generate $157 million in annual revenue. Also,
those community pharmacies support additional revenue to
other state businesses in the amount of $141 million
annually and support additional full-time employment to
other businesses equal to 155 employees.
4:36:45 PM
MR. DILORETO continued to read his statement, as follows
[original punctuation provided]:
NCPA has long championed the need for greater
oversight of pharmacy benefit managers (PBMs) and many
of their questionable business practices due to the
problems our members and their patients continue to
face. One of the largest problems that NCPA
pharmacist members face in today's pharmacy
marketplace is the issue of abuse of audit practices.
This issue occurs nationwide and many states are
taking steps to protect their pharmacists and small
business owners. Today about 15 states have
implemented some level of audit protection. Another
side note I'd like to make - about 23 states also have
some level of PBM regulation or transparency
legislation. I heard that being discussed earlier.
It is not uncommon for these audits to penalize an
independent pharmacy tens of thousands or even - and
this is not an exaggeration - hundreds of thousands of
dollars for nothing more than a clerical or
administrative mishap, many of which are not the fault
of a pharmacy. Let me be clear: the so called errors
I'm referring to are instances in which the correct
medicine was dispensed to the correct person and a
correct fee was charged to the patient and the plan.
Let me provide you with a recent example of a quote
unquote minor audit that an NCPA member went through.
This member was penalized $14,000 for not using a
physician number in their computer system. The catch
was that in this case it was a certified nurse
practitioner (CRNT) that wrote the order so there was
no physician number to log in the system. The
prescriber was not a physician. The pharmacist took
measures to ensure he was properly compliant and even
contacted the insurance company to indicate that this
was not a problem and he should just use the CRNP
license number and he did this. In addition, he also
attached a copy of the CRNP's actual license to the
file prescription so it was clear what he was doing.
He then logged the phone call to further protect
himself. Even so, when he was audited, the PBM
demanded $14,000 back for this prescription. After
all the steps the pharmacist took to ensure he was
acting properly he ultimately settled this issue for
$12,000. The pharmacist was doing exactly what he was
told to do by the insurance company and even took
additional steps to make sure everything was properly
documented. Even so, this pharmacist's small business
took a $12,000 loss.
4:39:01 PM
MR. DILORETO continued to read his statement, as follows
[original punctuation provided]:
These stories occur on a regular basis. Similar
stories have resulted in pharmacists being fined
$250,000 or more and I can vouch for that specifically
- previous to my current position I was the director
of government relations in Pennsylvania and the
$250,000 story actually happened to one of our
members.
Rather than legitimately using the audit practice to
guard and protect against fraud, many PBMs now view
the process as a possible revenue stream for the
company. In fact, many auditors are incentivized by
receiving payment based on the percentage of money
they've reclaimed. PBMs now go well beyond the intent
of an audit, to catch fraud and abuse, and instead
focus on typographical or administrative errors for
small loopholes in the rules and regulations such as
the basis to recoup money from pharmacy. In many
cases, if a PBM auditor identifies an administrative
error, he will "take back" 100 percent of the value of
that prescription and every single refill that came
with it - a severe financial penalty that is out of
proportion to the gravity of the offense.
4:40:06 PM
MR. DILORETO continued to read his statement, as follows:
Another egregious practice many PBMs employ in order
to "ensure" that discrepancies will be found is to
establish recordkeeping requirements well in excess of
what is required under the state or federal law or
other PBMs. Pharmacies typically maintain contracts
with multiple PBMs. The result is a myriad of
conflicting documentation requirements that can make
operating a busy pharmacy and providing patients' care
an even greater challenge.
NCPA is confident that once members review HB 259,
they will see the measure spelled out are reasonable
standards to ensure that abuses do not occur. In
circumstances when fraud or legitimate errors occur,
independent pharmacists understand steps must be taken
to correct these errors and recoup a reasonable sum of
money. As business owners, independent pharmacists
realize there are individuals in every profession that
may try to work the system. In those cases we fully
support the recoupment of money. These instances are
not what are being referred to today. In conclusion,
NCPA urges your support of HB 259, legislation that
will provide pharmacies an understandably needed
degree of protection against the overaggressive and
far reaching PBM audit practices. We pharmacists
understand that in business there must be audits to
identify those instances where true fraud occurs.
However, these audits should not be utilized to only
increase PBMs' profit margins.
4:41:47 PM
TOM HODEL, Pharmacist, Soldotna Professional Pharmacy, stated
that he has owned Soldotna Professional Pharmacy for 28 years.
He provided an overview of a recent audit that his pharmacy is
still currently involved in attempting to resolve. He explained
that he has had several audits over the years with little
adjustment in payments. However, in the spring of 2011, his
pharmacy was notified by an audit firm that they would be
performing a desk audit on over 100 prescriptions issued in
2008. He explained that he copied the prescriptions and
signatures for each of them, which took a great deal of time
since some of the records were three years old. He mailed the
information timely. Several months later he was advised the
audit firm had scheduled an on-site audit for June. On the
scheduled date two staff members arrived and as the pharmacist
he spent the day pulling records. He pointed out that these two
auditors were from out of state. He remarked he was astonished
on the lack of knowledge and terminology concerning the practice
of pharmacy these auditors possessed.
DR. HODEL stated that a few weeks later he received a
preliminary report. He stated that out of 100 prescriptions for
over $100,000 in claims reviewed, the auditors had an issue with
four prescriptions totaling less than $90 in claims. He said he
was satisfied with this small amount even though he believed
three of the four claims were absurd. He acknowledged one claim
was a result of the pharmacy's error in the amount of $40. He
subsequently read the back page of the report and discovered
that the $85 error had become a total of $7,300. He explained
the firm used a term called a one-sided confidence interval
formula to extrapolate the actual error total to a ridiculous
sum. He related he sent in documentation on three of the errors
that he did not think were appropriate, but the documentation
was rejected. A few weeks ago he received a letter requesting
he remit $7,300 in overpayments by March 8. He has since hired
an attorney and is in the process of appealing this decision.
He said it would likely cost him more in the long run to appeal
the decision, but he feels the actions are blatantly unfair. He
offered his belief that extrapolation methods should only be
used in instances of patterns of abuse. He emphasized that his
pharmacy has not had that happen. He stressed that pharmacists
try every day to take care of their patients amongst an ever
changing and complicated billing system. He agreed that audits
are an important method to monitor pharmacies and ensuring safe
practice; however, these audits also need to be standardized and
performed in a way that does not interfere with the health care
services being provided by pharmacists. He thanked members for
their support of HB 259.
4:45:02 PM
REPRESENTATIVE SADDLER recalled the pharmacist has experienced
several audits. He asked him to speculate on how widespread the
problems are in terms of abusive auditing practices.
DR. HODEL answered that that desk audits regularly occur,
typically for 3-5 prescriptions. He offered that onsite audits
of his pharmacy are conducted once or twice a year from Blue
Cross or other firm. He pointed out that the logistics of
traveling to Alaska tend to limit the onsite audits.
4:46:09 PM
REPRESENTATIVE SADDLER questioned whether there are any limits
on the number of audits that can be conducted.
DR. HODEL answered no.
4:46:24 PM
ERIC DOUGLAS, Director, Government Affairs, CVS Caremark, spoke
in opposition to HB 259. He explained that the four sections in
HB 259 cover numerous audit practices and procedures which are
overly prescriptive and would hinder the CVS Caremark's ability
to conduct audit functions on behalf of their clients. He
provided background information, including that CVS Caremark is
not only a large PBM, but is also the largest chain pharmacy in
the U.S., with about 7,400 CVS pharmacies in 47 states. He
offered that CVS has about 66,000 pharmacies in its network that
contract with an insurer or through the CVS to help manage
prescription benefits for employees of government agencies,
clients. The function CVS serves in terms of conducting an
audit is to ensure that claims being filed are filed properly
and represent valid claims. When CVS recoups moneys, the monies
are not recouped for CVS, but for their clients. He referred to
a section in the bill with respect to not recouping a dispensing
fee. He stated that the dispensing fee is part of overall
payment. He surmised that proponents would say the reason they
want to keep the fees is because the pharmacists have filled the
prescriptions. However if the pharmacists have incorrectly
filled prescriptions or the pharmacists cannot provide the
prescription records during an audit, the CVS not only recovers
the cost of the drug, but the fees the pharmacists were paid to
dispense the drugs. He concluded that this money does not
belong to CVS or the pharmacy, but to the client who paid for
the prescription. Thus, provisions in the bill hinder the
ability for PBMs to continue to operate.
4:49:14 PM
MR. DOUGLAS recalled testimony in which a very small error was
committed and the entire claim was recouped. He said he
couldn't speak to that specifically, but he could say CVS
Caremark does not recoup or extrapolate monies for clerical
errors or scriveners errors. CVS Caremark does not take the
practice of reviewing 100 records, discovering 4 mistakes and
extrapolating sums that some "bad actors" or PBMs may do. He
said that most often the groups engaged in that type activity
would be "rack auditors" and not PBMs. The rack auditor only
audits. These businesses are subcontracted out typically
because an insurer or PBM cannot conduct the audit so they hire
someone to work on a contingency fee basis. These
subcontractors have a vested interest in maximizing the number
of errors they find since they are paid to discover them. He
assured members that CVC Caremark does not employ those types of
practices.
4:51:09 PM
MR. DOUGLAS offered his belief that the specific problem with HB
259 is that it harms the valid methodologically used to keep
fraud, misuse, abuse, and overpayments out of the system that
helps curb costs and reimburse incorrect payments. The bill
focuses on the situations and problems rack auditors use that
need to be addressed, but in the process of doing so adversely
affect the PBMs who use good practices. He emphasized that as
the reason that CVC opposes the bill. He acknowledged that 15
states with audit laws, including other types of PBM laws. He
reiterated that 15 states have audit laws that vary; however,
many are similar to this bill. He clarified that the model
language is an association's model language, but it is not model
language based on what the majority of states that have passed
audit laws considered as model language. He stated that
typically when a bill of this nature has been introduced, based
on model legislation, that no one has approached CVS Caremark to
discuss the issue.
4:52:56 PM
MR. DOUGLAS emphasized that CVS Caremark firmly objects to the
idea that all PBMs are bad. He recalled the point that PBMs are
not regulated; however, that is not true. He agreed it is fair
to say that PBMs are not regulated by a state agency in Alaska,
but PBMs must comply with numerous existing regulations and
laws. The PBMs are licensed as third-party administrators,
preferred provider organizations, utilization review
organizations, resident and nonresident pharmacies, including
mail order facilities. He pointed out that if CVS is mailing
prescriptions to Alaska, these pharmacists are registered with
the Board of Pharmacy, and the CVS pharmacist is licensed in the
state. Thus to state that PBMs are a wholly unregulated
industry is not true. He stated that his written testimony has
been submitted for inclusion in the record. He thanked members
for the opportunity to testify.
4:54:14 PM
REPRESENTATIVE SADDLER asked how long CVS Caremark has been in
business.
MR. DOUGLAS answered that CVS Pharmacy and Caremark merged in
2007.
4:54:42 PM
REPRESENTATIVE SADDLER questioned whether audit collections have
gone up, down, or stayed the same.
MR. DOUGLAS answered that to the extent that CVS Caremark has
grown that he would assume recoupments from audits have grown
since they have more clients; however, CVS Caremark is not
auditing more often or recouping more per audit; however if
their business expands by 25 percent, they will likely have more
recruitment.
4:55:44 PM
REPRESENTATIVE MILLER questioned whether the 25 percent increase
in business would be the result of profit margin or dispensing
more pharmaceuticals.
MR. DOUGLAS related his comments were hypothetical and he did
not mean that CVS Caremark has increased its business by 25
percent. However, if they did it would be reflected to the
extent that more pharmacies are opened would dispense more
prescriptions, or if the PBM gains additional clients it would
result in more business. He offered his belief that the number
of businesses using PBMs is fairly finite and the business is a
pretty competitive business. He acknowledged that there are
three major PBMs; however, 50 PBMs exist that are very
competitive on a regional basis throughout the country.
4:57:15 PM
GERALD BROWN, Independent Pharmacist, Prescription Center
Pharmacy, spoke in support of HB 259. He emphasized currently
the pharmacists have no protection against PBMs and PBM audits.
He stated that the fines can be quite onerous and the audits are
conducted at any time for any timeframe. He pointed out that
pharmacists are so inundated with work it is difficult to find
time available to respond to audits. He remarked that the
audits can be punitive. He offered his belief that this bill is
a great start. He further emphasized the importance of
obtaining more transparency in terms of how PBMs perform. He
related his understanding that PBMs receive a lot of money from
drug companies in the form of rebates, yet pharmacists
dispensing fees are $2. He pointed out that works for drugs
whose value is $2-$20. He related a scenario in which the
pharmacy paid $7,500, with a dispensing fee $2, but the audit
indicated it would remove the $7,500 for punitive action. He
wondered how a pharmacy could exist or how a pharmacist could
justify a bank loan to become a pharmacy. He acknowledged that
this bill doesn't answer all the questions, but it prevents
pharmacists from undergoing undue audits and penalties.
5:00:41 PM
REPRESENTATIVE THOMPSON asked how many audits he has had over
past 5 years.
DR. BROWN estimated that he has four to six desk audits each
quarter, but has not had any onsite audits during the past three
to four years. He pointed out that the logistics typically
affect the number of onsite audits. He also noted his pharmacy
has clean records and works to ensure they do not set themselves
up for audits, which is another reason for so few audits.
REPRESENTATIVE THOMPSON asked if the pharmacy has 20 desk audits
a year, whether the auditor would audit 25 prescriptions each
time or if the auditors limit the audit to five different
prescriptions.
DR. BROWN answered the desk audits typically consist of 5-20
prescriptions per audit and the audits typically come from
various third parties looking for any error. He explained staff
must pull the prescription, photocopy the original, remit to the
auditor to justify the prescription was filled and that the
patient signed for the prescription. He reiterated the pharmacy
has about 4-6 desk audits per quarter consisting of 10-15
prescriptions per request.
5:03:14 PM
REPRESENTATIVE THOMPSON suggested that it sounds like the
auditors are on a fishing expedition. He asked for the number
of errors the desk audits have discovered.
DR. BROWN answered none.
5:03:32 PM
MARGARET SODEN, Past President, Alaska Pharmacists Association
(APA), stated she is a retired community pharmacist. She
thanked members for hearing their concerns. She urged members
to support HB 259. She explained when she started out as a
pharmacist 45 years ago most prescriptions were to patients who
paid for the prescriptions, but now the majority of
prescriptions are billed to third parties and along with that
third-party billing comes the audit of the pharmacy records.
This bill is intended to bring standardization and fairness into
the audit process. She explained that the provisions of this
bill will allow pharmacists' time to comply with an audit
request and cause less disruption to patient care pharmacists
provide. She highlighted that the main reason pharmacists are
in business is to fill prescriptions for patients, ensure they
get the right drugs, the right dose, for the right period of
time. She concluded that audits then to take away pharmacists'
time from their patients and from patients getting the best care
pharmacists can provide for them.
[HB 259 was held over.]