Legislature(2009 - 2010)BUTROVICH 205
04/03/2009 01:30 PM Senate HEALTH & SOCIAL SERVICES
| Audio | Topic |
|---|---|
| Start | |
| SB38 | |
| SB156 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 38 | TELECONFERENCED | |
| *+ | SB 156 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 38-PHARMACY BENEFITS MANAGERS; MANAGED CARE
1:33:22 PM
CHAIR DAVIS announced consideration of SB 38.
KRISTEN BRESSETTE, staff to Senate District B [former Senator
Kim Elton's district], read the sponsor statement. She said that
SB 38 would regulate and bring transparency to the business
practices of pharmacy benefit managers (PBM) in Alaska. They are
the largely unregulated drug middle men that administer the
prescription drug benefit portion of health insurance plans for
governments, private companies and unions. The three major PBMs
are Medco, CVS Care Mart, and Express Scripts. Premera Blue
Cross Blue Shield, the State of Alaska's health insurance
provider has a contract with Medco to administer prescription
drug benefits for state employees. Sixteen states as well as the
District of Columbia have enacted laws regulating the operation
of PBMs.
PBMs determine what drugs are on the preferred drug list or
formulary - meaning which brands or drugs are covered for
specific health insurance plan elected by an employer.
Pharmaceutical manufacturers discount the preferred drugs to
employers in exchange for volume usage. PBMs typically lower
costs by designing benefits that incentivize the use of generics
and lower cost delivery options like mail service pharmacies.
Since large drug companies often pay large rebates for having
their drugs on the preferred drug list, the PBM is in charge of
passing that rebate back to the client. Some PBMs realize
profits by employing a practice known as differential pricing
where they charge an employer more for prescriptions than they
pay the pharmacy. Some PBMs have gone to court regarding whether
they were acting in the best interests of their clients when
choosing or recommending different drugs and whether they are
passing those rebate savings on to their clients.
The federal government and 20 states sued Medco and settled for
$184.1 million in 2006. Similar settlements have happened
between 29 states and the District of Columbia and Express
Scripts for $9.3 million and up to $200,000 to affected patients
in May 2008, and between 28 states and the District of Columbia
and CVS for $41 million in February 2008. Since litigation is so
costly other states have led the way with legislation regarding
the business practices of PBMs and it's time for Alaska to do
the same.
1:37:03 PM
Sectional Analysis:
MS. BRESSETTE said the first 12 pages, Sections 1-16, are
cleanup language for the Division of Insurance because multiple
terms were used. It changes a "managed care entity" to "health
care insurer". AS 21.07.100, Section 17 on pages 12-19, the
heart of the bill, requires a PBM to operate under the terms of
a written agreement and maps out the scope of what benefits a
PBM can manage and what matters can't be included in an
agreement. I requires PBMs to act as a fiduciary.
AS 21.07.105 prohibits certain activities by PBMs; one of the
main issues is influencing the prescriber's choice of therapy.
AS 21.07.110 states the terms under which an agreement between a
PBM and a pharmacy may be terminated. AS 21.07.115 designates a
method for determining reimbursement payments to pharmacies
(based on national model legislation). AS 21.07.120 on page 16
establishes time limits for payments, prohibits and
extrapolation audit as a condition of participating in the
contract. An extrapolation audit is an audit of a sample of
prescription drug benefit claims submitted by a pharmacy to the
entity conducting the audit. It is then used to estimate audit
results for group claims not reviewed the auditor - a big
concern.
AS 21.07.125 on page 17 requires the health care insurer to
disclose to a covered person the relationships among the PBM,
the health care insurer and the covered person. AS 21.07.130
requires a PBM to disclose information to the covered person
related to the substitution; it requires a PBM to compensate a
health care insurer for a benefit received by the PBM as a
result of the substitution.
AS 21.07.135 on page 18 maps out the complaint process (already
in Division of Insurance statutes). AS 21.07.140 prohibits
compensation to a PBM based on claim experience; rather payments
are based on total number of claims paid or processed. AS
21.07.145 requires a PBM to disclose to a health care insurer
the financial arrangement between the PBM and a drug
manufacturer; it requires the PBM to disclose whether there is a
difference between the price paid to a retail pharmacy and the
amount billed to the health care insurer.
AS 21.07.150 on page 19 requires a PBM to register as a TPA,
which is what most PBMs are already doing. AS 21.07.155 on page
19 requires a PBM to pay to register as a third-party
administrator. AS 21.07.160 - for the purpose of applicability
the state and bargaining units are health care insurers;
therefore they have to comply with all these provisions. Section
18 on page 19 requires the covered individual to comply with
utilization review guidelines. Section 19 is another cleanup
having to do with a "managed care entity" being changed to
"health care insurer". Sections 20-23 on page 21 rewrite the
definition of utilization review, another cleanup item using a
more standard definition that is suggested by the National
Association of Insurance Commissioners. Section 24 repeals
references to managed care entity for consistency.
1:43:18 PM
SENATOR DYSON said he suspected the administration's
reservations were primarily with Section 17, and that might not
be an area this committee wanted to get into.
CHAIR DAVIS responded that the sponsor told her she would like a
CS and would prefer that it be done in the Labor and Commerce
Committee.
1:45:44 PM
SENATOR DYSON asked if this bill reflects what other states have
done particularly with the agreements and arrangements in
Section 17.
MS. BRESSETTE replied that this bill is based on model
legislation that has been modified by the Division of Insurance
to fit within its framework.
SENATOR DYSON asked how this piece of legislation eliminates the
problems that everyone has heard about.
MS. BRESSETTE replied that ultimately it brings transparency,
because pharmacy benefit managers are the middle man and there
are lots of unanswered questions about what is going on
including litigation.
SENATOR DYSON said in many areas a successful contractor who
provides a service gets uneasy if all of their internal
financial affairs become a part of the public record, and asked
if this legislation would raise those concerns.
MS. BRESSETTE replied that their plan is to start the
conversation and bring all of the stakeholders to the table
during the Interim.
SENATOR DYSON said he thinks she just said yes, and that he
would like to hear from the administration.
1:48:05 PM
LINDA HOFFMAN, Division of Insurance, Department of Commerce,
Community & Economic Development, indicated she was present via
teleconference.
1:48:38 PM
PAT SHIRE, Director, Division of Retirement and Benefits,
Department of Administration, said he would answer questions on
SB 38.
SENATOR DYSON said he understands that the administration may
feel that section 17 is not in the best interests of the client
base, and asked him to speak to that.
MR. SHIRE responded that portions of section 17 seem to undo
some of the benefits of having a network and those could
increase costs in the administration of the plan. Some other
language raises concerns about sharing proprietary business
information that a contractor may have; and he has not had a
chance to speak to the contractors associated with the state. It
may create some disincentives for PBMs to continue to work in
Alaska or make it impossible for the state to get the kind of
discounts it has enjoyed over the past period.
SENATOR DYSON asked if this would mean some pharmacies or
pharmacists in a given area would not be able to provide
prescriptions to state employees, for instance.
MR. SHIRE answered no; under the current situation pharmacies
can provide benefits to state employees or retirees that are
covered by the plan. The point of sale process is more straight
forward for those that are in network pharmacies. If an
individual covered by these plans wanted to do business with
someone outside the network they are able to go in and make
their transaction over the counter, pay for the prescription and
seek reimbursement. In that case, there are no price controls on
the amount the pharmacist can charge or the amount that would be
reimbursed or, at least, very few. The contract provides not
only point of sale convenience for the customer, but it's the
item that allows some network savings. He didn't see this
measure as changing access.
SENATOR DYSON said it just changes one protection against the
hassle of having to apply for the reimbursement as opposed to
just paying the co-pay.
1:52:36 PM
MR. SHIRE said that is unclear; he wasn't sure how the PBM's
would respond to this.
SENATOR DYSON asked if he has had any contact with other states
that have enacted similar legislation.
MR. SHIRE said they try to remain aware of what other states are
doing, but have no information on this point. He is aware that
some suits have been brought in other jurisdictions with Medco
and usual and customary disputes with some states using Engenics
(database), but he has no details.
SENATOR DYSON said he specifically wants to know what the result
of this model legislation has been in other states. He added
parenthetically that a detailed audit of Alaska's PBMs is going
on now.
1:54:40 PM
SENATOR PASKVAN remarked that he understands the PBM's are
supposed to be acting for the benefit of the state of Alaska.
MR. SHIRE replied that the state's current contract has a single
point of business relationship with its third-party
administrator, Premera Blue Cross/Blue Shield. Medco is their
subcontractor. In this case Premera is obligated to act in the
state's best interests for its active and retiree health plans.
They have network saving, sharing contractual language which has
allowed the state to realize savings. The contract between
Premera and Medco has rebate-sharing contractual agreements that
are passed on to the state.
SENATOR PASKVAN said he wanted to make sure that if the state
has entered in to a primary contract with Premera, that their
subcontractors have the same requirement to act in the state's
best interests.
MR. SHIRE said he would also assume that Premera would try to
ensure that is the case, and even though the state may not have
access to all of the details of the subcontract, they would try
to make sure that the contract clearly states their obligation
to pay claims at as low a cost as possible within a certain
number of days and have a high accuracy rate, as well.
SENATOR PASKVAN asked if Premera and Medco's obligation is to
secure the best price for the state of Alaska.
MR. SHIRE replied that he couldn't make a blanket statement
without looking at the details first. Was he asking if Medco is
contractually obligated to pass along any subsequent discounts
it receives from drug providers to the state?
SENATOR PASKVAN responded that he was focusing on whether in a
general contract sense, Premera and Medco are operating within
the general covenant of good faith and fair dealing and
secondarily, if there is a fiduciary relationship or if that
would be an additional obligation.
MR. SHIRE said the third-party administrator absolutely has a
fiduciary responsibility and the trust fund has third-party
fiduciary responsibilities to the third-party administrator in
the contract. But he couldn't tell him what he wanted to know
about the fiduciary relationship between Medco and Premera
without seeing further contractual language.
1:59:14 PM
SENATOR PASKVAN asked if Premera or Medco disclosed the
differences in pricing it was able to receive to ensure that the
savings could be passed through to the state.
MR. SHIRE replied they recently heard some complaints from local
pharmacies and added some detailed audit investigation
procedures specifically designed to reveal what type of
relationship those two have contractually and in fact. They are
awaiting the results of that audit within the next three or four
months. As far as they know, they are acting in the state's best
interest.
SENATOR PASKVAN asked if that information might be proprietary.
MR. SHIRE said he could not say based on his limited knowledge
of contract law and the business relationship between the two.
2:01:14 PM
CHAIR DAVIS asked if he was not supportive of the legislation
because he is waiting for the results of the audit.
MR. SHIRE replied that he would be cautious about supporting any
bill that increases the cost of the health plan up to $77
million, but he needed more information.
CHAIR DAVIS asked if he would know after the audit and if he
needed anything else.
MR. SHIRE said they are interested in the results of the audit;
but the bill as it is increases the cost to the health plan, and
that is a concern.
CHAIR DAVIS said it might be worth it; it could turn out to be a
net gain. She asked him to explain how it would work if it was
working correctly.
2:03:47 PM
MR. SHIRE replied if it is working correctly the PBM is
negotiating with pharmaceutical manufacturers and suppliers for
volume discounts and creating a formulary that is a list of
preferred medications used to treat certain maladies that
doctors may prescribe. Some are brand name issues; some have
minor differences in the actual make up of the drugs. By
creating formularies and negotiating quantity discounts the PBM
should pass along reduced costs. That may not show up in a co-
pay, but it would show up in the amount of "pharmacy spend" in
the plan, itself, that affects plan assets, which for the active
plan results in increased monthly contributions for the employer
and employee in the future. In terms of the retiree plan, it
would increase the amount of money that the health trust funds
will need from year to year, which would affect both normal
costs and the unfunded liability.
He said, "If it works well, discounts are flowing to the plan
and the plan is benefiting and individuals are benefits in
foregone costs." It's possible that there would be additional
savings that did not flow to the plan, but some parts of this
bill would remove the ability to enforce discounts that flow
from the network. One is the provision that allows individuals
to opt out of that pricing structure, which would cause prices
to rise.
CHAIR DAVIS asked when Medco's contract with Premera expires.
MR. SHIRE replied about June 30 of this year. There has been an
intent to present an award letter to Wells Fargo.
SENATOR PASKVAN remarked that one portion of this bill seeks to
impose fiduciary relationships on a PBM, and asked if he opposed
the express establishment of that.
MR. SHIRE replied that was a good point; but it is not one he
has fully explored.
2:07:29 PM
SENATOR PASKVAN asked if he had requested that the attorney
general consult with him about acquiring information on this
issue.
MR. SHIRE answered not yet, but he would if facts led him to
believe there is malfeasance.
SENATOR PASKVAN said if it wouldn't be prudent to request the
assistance of the AG while information is being acquired to see
if the good faith or duties clauses have been breached.
MR. SHIRE said the department provided information to the
auditors and asked them to tell them before the end of the audit
if they see anything funny. They didn't, so they've kept the
attorneys out of it.
SENATOR PASKVAN asked what type of information they might not
have access to and how deep they were looking.
MR. SHIRE answered that every quarter they get detailed
utilization reports from Premera and Medco, all of which are
proprietary; so he felt they have access to all the information
they need. There have been only a couple of instances in which a
subcontractor has balked at providing information, but the state
has always prevailed.
SENATOR PASKVAN remarked, "So as far as the state is concerned,
nothing is proprietary."
MR. SHIRE said he wouldn't go that far.
SENATOR PASKVAN pressed that he wants to be assured the state is
conducting in-depth audits.
SENATOR DYSON said he thinks the difference is that Mr. Shire
said "everything they wanted" they have gotten, but Senator
Paskvan is saying nothing is proprietary.
2:12:59 PM
LINDA HALL, Director, Division of Insurance, Department of
Commerce, Community & Economic Development (DCCED), said she did
not intend to make a statement at this time.
2:13:21 PM
DAVID BALTO, said he is an anti-trust attorney and a senior
fellow at the Center for American Progress where he works on
health care reform issues. He supported SB 38. He appended
testimony to his written statement that summarized the major
cases brought by over 38 state attorneys general against the
various PBMs. He said the PBM market has chronic problems
because of the significant lack of choice and lack of
transparency. They are able to engage in a variety of deceptive
practices which have cost consumers a tremendous amount of
money. That is why these enforcement actions have secured over
$400 million in fines and penalties. He said this legislation is
a refined approach trying to address those problems in a
comprehensive fashion.
MR. BALTO explained regarding the prompt payment provision for
pharmacies that PBMs engage in a variety of practices that harm
pharmacies such as delaying payment or engaging in egregious
auditing practices, and the legislation addresses those
appropriately. Also, PBMs in the past have engaged in a variety
of forms of substitution of drugs, not where the drugs are
necessarily lower cost or better for consumers, but simply
because PBMs want to get a higher rebate.
This legislation doesn't prohibit that kind of substitution, but
makes sure it is authorized by the doctor and makes sure that
the consumer is fully informed about it. In general, this
provision provides greater disclosure and greater choice for
consumers and protects the rights of pharmacies.
2:19:02 PM
GERALD BROWN supported SB 38. It allows for freedom of choice
and more transparency in showing where cost savings are - and it
allows for those savings to be shared with the state. As it is
right now that information is not shared with all insureds.
He explained that PBMs send messages to doctors to not use
certain medications because they can get the others for a better
price. This doesn't necessarily translate into health care
benefits for the patient, but health care savings for the PBM
that doesn't necessarily share those savings with the state.
MR. BROWN was particularly interested in language on page 13,
line 29, section (d) where the co-pay is the same no matter
where health services are received making it a patient's choice
as to what they get and where they get health care. It is of
economic benefit to residents to keep it in the state. However,
he didn't know if this legislation would work under the ERISA
programs.
He also said this transparency would allow the state and others
to be able to see where drug companies would start to "cost
shift."
2:24:16 PM
In answer to Senator Dyson's question about cost increases and
lost revenue, the lost revenue would now be because the PBMs
would have to share the costs with the employer or sponsoring
body. That means less profit to the PBM, but at least it's
honest profit.
Neither the UAA nor the Fairbanks North Star Borough School
system reimburse non-network pharmacies for prescription
services even though a person has health care coverage and
needed a prescription filled.
He reminded Senator Paskvan that the transparency will allow
savings and overall reduction in the cost of the plan.
Basically, SB 38 is trying to uncover the cost savings so it can
be shared.
2:27:00 PM
SENATOR ELLIS joined the meeting.
DIRK WHITE, Secretary, State Board of Pharmacy, said he owns two
pharmacies that employ about 30 full-time people, and supported
SB 38. The Board was concerned that PBMs have been acting as
pharmacists without the training to do that. These jobs include
drug utilization reviews, formulary development and management,
drug-to-drug interactions and drug-to-food interactions, and
therapeutic drug substitutions. So, this bill will set standards
for the PBMs as well as limiting the use of abusive contractual
provisions that are used not to negotiate the reimbursement
rates that PBMs say they "negotiate" with the independent
pharmacies that in reality are "take-it-or-leave-it"
propositions.
SENATOR DYSON asked aside from being able to provide better care
for his clients, how will pharmacists in general benefit from
this legislation.
MR. WHITE answered that profit is certainly a factor; he
provides health care benefits to his employees. Also, when he
fills a prescription and goes through an insurance claim he
could end up with a denied reimbursement or get a message at the
point of sale through the computer system that the patient needs
prior authorization for the medication. Well, that patient may
need to start the medication immediately, and the physician has
already determined that. Yet the PBM is saying that it needs to
hear from the doctor first - because maybe it doesn't fit into
their formulary or they want to make a substitution because they
get a kick back.
SENATOR DYSON asked how that benefits him.
MR. WHITE replied that his activities are paid by the PBM, not
by Aetna or Premera. So, his contract says, for instance, they
will get paid average wholesale price minus 15 percent plus
dispensing fees ($1-$5). He would like to be paid a more
equitable share of the profits the PBMs make.
2:33:12 PM
BARRY CHRISTENSEN, Co-chair, Alaska Pharmacists Association,
said he is also a practicing pharmacist in Ketchikan, Alaska. It
introduces standards to an industry that is currently not being
regulated in Alaska and it desperately needs it. It is their
number one priority. He wanted to say that he heard the word
"assumption" used several times, and he hoped this bill would
take some of the assumptions out of the conversation.
2:35:28 PM
SENATOR FRENCH, sponsoring SB 38 for former Senator Elton, noted
that the individual whom they really wanted to hear from was
unable to testify due to technical difficulties. He gave credit
to Senator Elton, who crafted this bill before he left and said
he and his aide, Andy Moderow, would continue moving it through
the process.
SENATOR DYSON asked if he is correct in understanding that a
working group was going to be working on this issue during the
interim.
SENATOR FRENCH answered yes; it is a complex topic. They know
abusive practices are taking place in other states. They don't
know that is happening in Alaska, but testimony from the retail
pharmacists indicates they are being oppressed.
SENATOR PASKVAN moved to report SB 38 from committee with
individual recommendations and attached fiscal note(s). There
being no objection, the motion carried.
2:39
At ease from 2:39 p.m. to 2:41 p.m.
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