Legislature(2011 - 2012)SENATE FINANCE 532
04/13/2012 09:00 AM Senate FINANCE
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 217 | TELECONFERENCED | |
| + | HB 286 | TELECONFERENCED | |
| + | HB 282 | TELECONFERENCED | |
| + | HB 301 | TELECONFERENCED | |
| + | HB 204 | TELECONFERENCED | |
| + | HB 205 | TELECONFERENCED | |
| + | HB 252 | TELECONFERENCED | |
| + | HB 276 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 21 | TELECONFERENCED | |
| += | HB 60 | TELECONFERENCED | |
| += | HB 78 | TELECONFERENCED | |
| += | HB 115 | TELECONFERENCED | |
| += | HB 131 | TELECONFERENCED | |
| += | HB 246 | TELECONFERENCED | |
| += | HB 258 | TELECONFERENCED | |
| += | HB 298 | TELECONFERENCED | |
| += | HB 302 | TELECONFERENCED | |
| += | HB 360 | TELECONFERENCED | |
| += | HB 366 | TELECONFERENCED | |
| += | HCR 23 | TELECONFERENCED | |
| = | SB 121 | ||
SENATE BILL NO. 217
"An Act establishing procedures and guidelines for
auditing pharmacy records; and providing for an
effective date."
9:33:50 AM
Co-Chair Hoffman MOVED to ADOPT the proposed committee
substitute for SB 217, Work Draft 27-LS1411\I (Martin,
4/10/12).
9:33:59 AM
Co-Chair Stedman OBJECTED for the purpose of discussion.
9:34:05 AM
SENATOR DENNIS EGAN, explained that SB 217 would establish
procedures and guidelines for auditing pharmacy records and
holding all pharmacies to equal standards. He stated that
the legislation had been introduced by the request of the
Alaska Pharmacists Association.
9:34:53 AM
DANA OWEN, STAFF, SENATOR DENNIS EGAN, detailed the changes
in version I of the legislation.
9:35:28 AM
Mr. Owen. explained that on Page 1, line 8, the word "such"
had been added in replacement of the word "those". A new
paragraph had been added to Page 2, line 6:
(3) an insurer, managed care company, hospital or
medical service corporation, third-party payor, or
pharmacy benefits manager may not conduct an audit
within 90 days after an audit in which no errors were
found; in this paragraph, "error" does not mean a
clerical error, record keeping error, or typographical
error unless the auditor finds proof of intent to
commit fraud;
Mr. Owen continued with the changes. Page 2, line 24 had
been changed to the following to clarify the intent of the
original bill:
(9) calculations of overpayment by an auditor may not
include dispensing fees unless a prescription was not
dispensed, a physician denied authorization to
dispense the prescription, or the dispensing violated
a term of a contract;
Mr. Owen explained that Page 2, lines 31 through Page 3,
line 4 replaced a paragraph from the original bill:
(11) to the extent that an audit finds clerical or
record keeping errors in a required document or
record, the pharmacy may not be subject to recoupment
unless there is proof of intent to commit fraud or the
clerical or record keeping error results in actual
financial harm to an insurer, managed care company,
hospital or medical services corporation, third-party
payor, pharmacy benefits manager, or a customer;
Mr. Owen stated that Page 3, line 7 reflected the addition
of the words, "from the date of completion of the audit to
the delivery date of the preliminary audit report, unless
an auditor finds proof of intent to commit fraud"; the
language applied to the interest that accrued during the
time an audit was being carried out. Paragraph 19 of the
same page was a new paragraph that stated that patient
information accessed in the course of an audit was
confidential and could not be used for marketing purposes.
He stated that the effective date of the legislation had
been changed to January 1, 2013.
9:38:16 AM
Co-Chair Stedman REMOVED his OBJECTION. There being NO
FURTHER OBJECTION, Work Draft 27-LS1411\I was ADOPTED.
9:38:46 AM
Mr. Owen remarked that SB 217 sought to achieve fair audit
standards that allowed for adequate auditing of pharmacies;
while reigning in unfair, and often abusive, audit
practices. He stated that it was important to understand
that Alaska's pharmacies were presented "take it or leave
it" contracts by pharmacy benefit managers (PBM).
Pharmacies must take the contracts if they wanted to be
paid by their customer's medical plans for the prescription
drugs that the pharmacies dispensed. He furthered that
contract terms could, and often were, changed unilaterally
by the PBM arbitrarily. He stated that it was not possible
for small independent pharmacies to negotiate better audit
terms. Among the most abusive practices was the use of
extrapolation to determine how much a PBM may have overpaid
a pharmacy; meaning that if an audit found that the
prescription of a certain drug was overbilled, the PBM
could assert that every similar prescription was likewise
overbilled, and then calculate without examining actual
dispensing records how many such prescriptions the
Pharmacist was likely to have filled and use that
calculated number to determine the amount that was
recoverable. Mr. Owen relayed that auditors could, and did,
take typographical errors as errors of fact and proof of
fraud. Dispensing fees (amounts paid over and above
reimbursement costs of drugs) could and were taken back,
even in cases where a prescription was legitimate, the drug
dispensed as prescribed, and only the amount of the
reimbursed cost was at issue.
Mr. Owen explained that the bill would also place limits on
when an audit could be performed, the frequency of audits,
the length of time an audit could look back, the time that
elapsed between audit completion and a preliminary report
was given to the pharmacy and the length of time to deliver
a final report. None of the standards were yet written in
statute. Finally, the bill would keep patient records
required during an audit confidential. This would ensure
that PBM knowledge of individual patient prescription drug
usage could not be shared with the arm of the corporation
that retailed the drugs, and prevented the retail arm from
contacting individuals with offers that undercut local
pharmacies. He noted that the bill was based on model
legislation that had been adopted in 18 states, 3 of which
had enacted the laws during the time-period of the current
the legislative session: Utah, Kentucky, and Indiana.
9:42:16 AM
Co-Chair Stedman discussed the fiscal notes in the packet.
Co-Chair Stedman OPENED public testimony.
9:42:31 AM
JIM PUCKETT, DIRECTOR, DIVISION OF RETIREMENT AND BENEFITS,
DEPARTMENT OF ADMINISTRATION, expressed concern in
recognition of the department's fiduciary responsibilities.
He pointed out to the committee Page 2, line 6. He
expressed that the department had reservations concerning
the responsibility of the burden of proof to show that
there had been intent to commit fraud. He stated that the
language was thought by the department to be overly broad,
and that the responsibility should lie with law
enforcement. He furthered that the department did not agree
that the legislation should limit the timeframe specified
in an existing agreement with two business parties, as
written on Page 2, line 4. He suggested adding: "Unless a
longer time period is specified in a contract between the
pharmacist and the insurer, manager company, hospital or
medical service corporation, third-party payor, or pharmacy
benefit manager." He directed attention to Page 2, line 31,
and expressed departmental concerns that the language was,
again, overly broad. He said that the proof of intent to
commit fraud was an unreasonable burden for an audit. He
continued to Page 3 line 7. He said that the department
believed that there was a time value of money that was
universally understood; that removing interest would
unnecessarily reduce a normal consequence for errors,
overcharging, stealing, or committing fraud. He stated that
the department believed that the language on Page 3, line
10 was too broad because it required the department to
accept any record, documented phone calls, or other written
electronic record as proof that the prescription was
delivered as ordered by the prescriber. He shared that
computers and phone logs could be altered, or
counterfeited, and did not believe it was unreasonable for
the department to require specific business practices. He
relayed that the department wished to add a phrase to Page
3, line 29 that would state, "or any contractor of a
governmental agency." He suggested that the effective date
be changed in the interest of the time it would take to
review contracts.
9:47:26 AM
Co-Chair Stedman asked if Department of Administration had
participated in the drafting of the bill.
9:47:50 AM
Mr. Puckett responded that the administration wanted
language added to the bill in order to address the
aforementioned concerns.
9:48:01 AM
AT EASE
9:48:50 AM
RECONVENED
9:48:52 AM
Senator Egan queried why the administration was proposing
changes so late in the process. Mr. Puckett replied that
many of the changes had been recommended during prior
hearings on the bill. Senator Egan furthered that some
changes had been discussed in committee, but that the ideas
offered presently had not been discussed. He wondered why
the department had suddenly taken issue with the effective
date of the bill.
9:49:37 AM
Senator Egan queried why it took the administration so long
to figure out a course of action.
9:49:56 AM
Mr. Puckett replied that the recommended changes would be
better for the pharmacies and the administrators of the
health plans. He said that the administration appreciated
the changes that were made to the effective date, but that
more changes were needed to meet recommendations of the
department.
9:50:14 AM
Senator Egan commented that major and minor pharmacies
throughout the state had provided testimony and ideas to
improve the legislation. He was disappointed that the
administration had taken so long to present the suggested
changes.
9:50:45 AM
Senator McGuire wondered if the language in the bill was
similar to legislation that had come out of other states.
Senator Egan replied that similar legislation from other
states had been studied while crafting the bill. He noted
that the legislation had been curtailed to needs that were
unique to Alaska.
9:51:31 AM
Senator McGuire thought that the bill required further
changes. She understood that audits could be taxing to the
smaller pharmacies. She noted that the hearing was late in
the legislative process, but hoped that the bill could be
held for further review.
Co-Chair Stedman assured the committee that, this being the
first hearing of the bill, it was unlikely that it would be
moved out of committee at this time.
9:52:11 AM
AT EASE
9:53:23 AM
RECONVENED
Co-Chair Stedman stated that that Senator Egan would work
with the administration on its concerns regarding SB 217.
SB 217 was HEARD and HELD in committee for further
consideration.