Legislature(2009 - 2010)BELTZ 105 (TSBldg)
04/01/2010 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB38 | |
| SB303 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 38 | TELECONFERENCED | |
| += | SB 303 | TELECONFERENCED | |
| += | SB 304 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 38-PHARMACY BENEFITS MANAGERS; MANAGED CARE
1:39:25 PM
CHAIR PASKVAN announced SB 38 to be up for consideration.
1:39:37 PM
SENATOR FRENCH, sponsor of SB 38, read the sponsor statement
into the record as follows.
SB 38 would regulate and bring transparency to the
business practices of pharmacy benefit managers (PBM)
in Alaska. Pharmacy benefit managers are the largely
unregulated drug middlemen that administer the
prescription drug benefit portion of health insurance
plans for governments, private companies, and unions.
The three major pharmacy benefit managers are Medco,
CVS Caremark, and Express Scripts. Wells Fargo
Insurance Services, the State of Alaska's health
insurance provider, has a contract with Envision
Pharmaceutical Services to administer prescription
drug benefits for state employees.
PBMs negotiate with drug manufacturers and pharmacies
on behalf of health insurance plans. These
negotiations include cash rebates that drug
manufacturers pay for drugs placed on lists of
approved drugs. The confidential and proprietary
nature of these contracts and financial arrangements
with drug manufacturers and pharmacies creates the
opportunity for PBMs to engage in unfair business
practices. PBMs increase profits by accepting
incentives from drug manufacturers that are not shared
with health plan sponsors, such as the State of
Alaska. SB 38 would prohibit pharmacy benefit managers
from intervening in the delivery or transmission of
prescriptions.
At of the beginning of 2009, 29 states and the
District of Columbia have sued Express Scripts and
won, resulting in a settlement of $9.3 million to
states and up to $200,000 to affected patients as of
May 2008. Twenty-eight states and the District of
Columbia have sued CVS Caremark and won, resulting in
a settlement of $41 million in February of 2008. The
federal government and twenty states have sued Medco
and won, resulting in a settlement of $184 million in
2006. The lawsuits were filed under the federal False
Claims Act and/or state False Claims Acts and/or
statutes.
In addition to lawsuits against PBMs, 16 states as
well as the District of Columbia have enacted laws
that regulate the business practices of PBMs. Other
states have led the way with legislation regulating
the business practices of PBMs and it is time for the
Alaska Legislature to do the same.
1:43:03 PM
BARRY CHRISTIANSON, pharmacist and co-Chair, Alaska Pharmacists
Association, introduced himself.
DIRK WHITE, pharmacist, Sitka, introduced himself and said he is
a member of the Alaska Pharmacists Association.
1:44:31 PM
MR. CHRISTIANSON said this bill has been a priority for the
Alaska Pharmacists Association. He said their members work in
community pharmacies, hospitals, other government institutions,
and places like the Pioneer Homes. He said there are many good
reasons to support SB 38. He described PBMs acting as
intermediaries between individuals (patients), the plan
sponsors, pharmaceutical manufacturers, and pharmacies. PBMs use
their large purchasing power to negotiate rates for members who
ideally pass those lower costs on to consumers. They do this by
managing formularies (obtaining drugs from manufacturers with
the best price).
He explained his diagram of a pharmacy supply chain in the U.S.
The pharmacy was in the middle with the consumers at the top. He
said the pharmacy has to procure its product from somewhere and
in most instances it's from the drug wholesaler or distributer.
The distributor or wholesaler buys that product from the drug
manufacturer. The PBM has contracts with the drug manufacturers
to recoup some rebate money and, in turn, they have contracts
with both the pharmacy and the employer or health sponsor
regarding the payment of the prescription drugs.
MR. CHRISTIANSON said the reason pharmacists are concerned is
because the industry has been largely unregulated and has grown
quite a bit in the last 10-15 years. PBMs have been able to
charge more for their drugs than the pharmacies actually receive
for payment from patients. One of the other ways PBMs make money
is by operating large mail order operations and switching
patients from one drug to another that is sometimes more
expensive for the patient but with a larger rebate on the other
end.
He said that there are three large PBMs operating in the United
States; all of them operate in Alaska and have extremely nice
profits. The three PBMs are involved in lawsuits.
MR. CHRISTIANSON said transparency is important because without
the plan's sponsor knowing what the drugs cost it would be hard
for them to negotiate a good contract.
MR. WHITE continued saying that some opponents to transparency
say that would allow the PBM or drug manufacturers to have some
collusion and inflate the pharmaceutical prices even more.
Manufacturers would say they would be reluctant to give the
discounts if the dollar amounts are actually out there in
public. Once the drug pricing is made available the PBMs would
have far less bargaining power. However, that hasn't proven to
be true in other states that have passed similar legislation.
1:51:26 PM
MR. WHITE explained that PBMs make an enormous amount off the
rebates and the plan sponsors aren't even aware of it. They can
"up charge" plan sponsors an average of $23 more for a single
prescription. In other words they can add another $23 to what a
customer paid for a drug and charge the plan sponsor - like the
State of Alaska or a union - that extra $23. Without
transparency PBMs also have a financial incentive to encourage
the use of more expensive brand name drugs because they might
get a higher rebate or other incentives to push those particular
drugs rather than less expensive generic drugs. Without
transparency the rebates that PBMs negotiate are not necessarily
passed on to the plan sponsor who doesn't even know what they
amount to.
He related that New York has seen $50 million in savings, Lear
Corporation saved $1.1 million in a $3.6 million budget, Sheet
Metal Workers International Association saved up to 30 percent,
and TRICARE anticipates saving $1.67 billion by negotiating its
own drug prices. Twenty-three other states have enacted this
legislative so far; South Dakota is one and they saved $800,000
in a single year. Wisconsin saved $30 billion, Texas estimated
$265 million, the California Health Care Coalition found they
could save $3-6 on every prescription with their transparent
PBM!
An Alaskan example that they actually have the data on showed a
person filling the prescription for 90-day supply of blood
pressure medication and the beneficiaries' (pharmacy) co-pay was
$37.50. The state was billed $187.50 by the PBM. So $37.50 went
to the pharmacy and $150 went to the PBM. In over a year of
filling this prescription the state paid the PBM $750 for just
this one prescription; $150 went to the pharmacy and $600 went
to the PBM. The pharmacist filled the prescription, made sure
the patient was compliant with the medication, followed the
medication, knew what the side effects were, and dealt with the
patient on a regular basis, and they got paid $150 over the year
and the PBM got paid $600 for "flipping a switch" and the state
was overcharged.
MR. WHITE said SB 38 will level the competitive playing field
for local pharmacists in dealing with PBMs, protect patients
from unauthorized drug substitutions by the PBMs, provide some
pricing transparency and would save plan sponsors and patients a
lot of money.
1:55:17 PM
SENATOR THOMAS supposed that the PBM never touches the drug and
that they are an entity that is supposedly negotiating a better
price for pharmacists, but getting an extremely good benefit for
themselves as well. He asked if that is what happens in all
cases and if transparency would give people the ability to know
exactly the entire transaction - the bulk prices maybe to a
union or to the state versus an arrangement with them because
they say they are going to do good things for you and ultimately
the state ends up paying all of the bills without any real
knowledge of exactly how the money is being parceled out.
1:56:26 PM
MR. WHITE answered yes that is correct. PBMs own no inventory
and have no stock whatsoever in the pharmaceuticals that he
dispenses. He explained that he purchases his pharmaceuticals
from his drug wholesaler, he pays the bills for those
medications, and then he gets paid that $37.50 (that particular
case was a co-pay, so the patient actually paid that). In some
cases, there may be that co-pay plus a little bit of money that
is sent to him through the PBM's system and then they turn
around and up charge a higher price to the state or whoever.
SENATOR THOMAS asked if someone could explain the difference
between them and a third-party administrator (TPA) and if a
third-party administrator is still involved.
MR. WHITE answered that this bill would make the PBM at TPA;
currently they are not. Currently, the plan sponsor would be
considered the TPA.
1:58:11 PM
CHAIR PASKVAN asked him to explain the pricing for mail order
pharmacies and how prices can become inflated through
repackaging.
MR. WHITE answered that every prescription bottle has a national
drug code (NDC). The first four or five numbers are who the
manufacturer and/or packager is; the next two or three numbers
are specific to the product (penicillin 500 mg tablets, for
instance), and the last numbers signify the package size. So if
he is buying a package of 28 tablets from his wholesaler, which
is a unit of use they would dispense (if you take one tablet
4Xday for 7 days=28 tablets), that would have a specific NDC.
Every NDC number has an average wholesale price (AWP) assigned
to it. The person who packages or manufacturers it gets the NDC
number and then they put the AWP on the product. In mail order
houses they found that the NDC numbers are from repackaged
drugs. The PBM could buy a train load of 500 mg penicillin
tablets from the manufacturer and then repackage it into those
same small little 28-count bottles. The PBM would apply for its
own AWP and get a price of $100, but his AWP for the product he
buys from his wholesaler, AmerisourceBergen, may be $10. So, you
can have two of the same bottles with the same tablets, but they
can have two totally different prices. When the PBM says they
are going to "discount the price" by 50 percent; that's 50
percent of $100 and they still make a lot more money than he
would dispensing the same tablets at his usual and customary
price.
2:00:36 PM
SENATOR DAVIS joined the committee.
2:01:18 PM
CHAIR PASKVAN asked if there is an ownership overlap between any
of the mail order pharmacies and the PBMs.
MR. WHITE answered that usually PBMs do own a mail order house.
CHAIR PASKVAN asked if there is the potential at that level to
provide discounting to the mail order pharmacy (buying volume
essentially from themselves) that he never has access to.
MR. WHITE answered "yes" would be the simple answer. He added
Medco that was once owned by Merck would have access to raw
materials from Merck to make the tablets, capsules or whatever
the dosage form is and then move it to their mail order house
and from the mail order house it would move to the consumer. So,
they would have a direct line from raw materials to final
consumer; then they would have the control loop for the cash
flow as well.
CHAIR PASKVAN said he wanted to focus on the potential for price
manipulation because Mr. White's business can't buy directly
from any of the pharmaceutical companies; he has to buy through
intermediaries. What kind of price disadvantage would he have?
MR. CHRISITIANSON responded that there are two separate pricing
issues. There would be the acquisition or what it costs for the
drug and then there is the AWP. It's the manipulation of the AWP
that is the biggest problem.
MR. WHITE added that up until 1995 or so he and his wife had
contracts to buy directly from Lily and Merck and they were able
to save. The reason they were doing those direct purchases is
because they were paying the freight which saved them about 2
percent. But he didn't know of a single drug manufacturer
anymore that will sell to an independent pharmacy; so they have
to go through one of the three national drug wholesalers:
AmerisourceBergen, McKesson and Cardinal.
CHAIR PASKVAN said now the business structure is that the
pharmacies have to go through the PBMs.
MR. CHRISTIANSON answered that since the early 90s they have
seen more and more prescriptions being processed through the PBM
networks. Nationally it's 85-90 percent.
2:06:18 PM
CHAIR PASKVAN asked what the risk is to the individual
pharmacist if they complain about the PBM pricing structure,
because he has heard stories about them exercising their
superior economic resources.
MR. CHRISTIANSON answered that PBMs carry a lot of weight; he
and Mr. White are just small pharmacies. Pharmacies in Alaska
and the Lower 48 have been subject to "heavy-handed" audits,
which SB 38 addresses.
2:07:31 PM
GERRY PURCELL, Pharmacy Partners, Atlanta, Georgia, supported SB
38. He said he is testifying without any compensation. This has
been his area of expertise nationally for the last 15 years, the
first five years of which he was working as a national sales
director for a PBM that conducted a number of contracts with
state and taxpayer entities. For the last 10 years he has been
recognized as a national functional area expert on PBM practices
and has personally briefed over a dozen attorneys general in
both blue and red states. He usually testifies three to five
times annually before committees such as this.
MR. PURCELL said he had done extensive work in reviewing state
contracts and, in particular, a great deal of work in the state
of Texas (that was mentioned as having the $265 million
savings). He has a unique understand of the various transparency
triggers that they put into place through legislation and
contracting. He noted that $265 million in savings is only one
of four Texas state plans. By the time they have fully
implemented their transparency bill the savings will likely
exceed a half billion dollars.
He said historically the problem has been in understanding the
complex mystery of PBM practices. In the late 90s, PBMs had
literally 30-40 different ways of making money and only a very
few of those ways were actually disclosed to the clients. PBMs
call themselves managers, but they actually make money when the
clients' costs go up in sort of a reverse incentive - and not
because they are managing the cost of the plan.
MR. PURCELL said his efforts have been in creating environments
where transparency is required. It would be very unusual for him
to go into any situation where there is a lack of transparency
and not be able to save that taxpayer entity somewhere 10-25
percent of their first year drug expenditures. Those savings
become increasingly significant to state budgets and are often
in the millions and billions of dollars.
2:11:06 PM
He liked four areas especially of SB 38. The first one was
registering PBMs. The idea is not to punish PBMs but to put them
on a level playing field with everyone else. Every other medical
and health care industry in Alaska and most states including
insurance companies third party administrators who administer
both medical, dentists, optometrists, pharmacists, and
physicians are all required to register. The only exception in
many states, however, is the PBM. So, requiring them to simply
register just levels the playing field - and they do fit the
classic definition of a third-party administrator. While TPAs do
different things, some of them process dental and vision claims;
their core function is that they do process claims and
administer payment of them. In that sense the PBM is not
different from any other TPA that provides that core
functionality.
2:12:37 PM
The challenge is that in many cases experts don't know how many
PBMs are even operating within a state. Some have estimated as
low as 80 and a most recent estimate of over 230 different PBMs
are operating in the United States. He said settlements have
been very favorable to the consumers in most states and which
ones are operating in Alaska should be known.
Secondly, he said the area of disclosure needs changing. Before
the 27-state attorneys general settlement occurred in 2003, they
had no idea how much money the PBMs were keeping in the way of
rebates. After that settlement it was learned that they were
retaining over 55 percent of the rebate dollars. The classic
Black's Law Dictionary definition of a rebate is something that
is to the benefit of the payer, but in this scenario those
benefits were primarily to the middle man, a classic arbitrage
scheme where they were taking they payers' money and leveraging
it (without great expenses or infrastructure costs) for high
margins and then retaining the majority of those margins without
disclosing in some cases even the nature of the margin and
certainly not the amount.
MR. PURCELL said SB 38 makes sure that the State of Alaska will
continue to benefit from total disclosure, not only of rebates
but of things like spread pricing using AWPs that was described
earlier. Spreads also occur in retail pharmacies where the PBM
may be charging you a number but reimbursing your local pharmacy
a different number and keeping the difference. He thinks because
that is your money that you ought to at least be aware that it
is occurring and how much it is.
MR. PURCELL said New Jersey that will save $500 million over
five years is a recent good example of what can happen when
transparency requirements are put out to bid in contracts that
were no bid previously.
2:15:40 PM
The third area of SB 38 he liked is the way it deals with
pharmacy audits. He explained that the practice of extrapolation
occurs if a PBM audits a pharmacy and finds a single
prescription that was administered wrong (often it is not a
prescribing error; it could just be one wrong number). He
related how a pharmacy was charged for years for an ibuprofen
prescription (actually prepared by a Texan physician who was a
Senator) that was incorrectly dispensed. It was an 800 mg
prescription for ibuprofen. The PBM in this case went back five
years and identified every ibuprofen prescription and charged
that incorrect but highest amount back to the pharmacist on the
next invoice without any appeal process in place at all and no
statute of limitations. It came to $8000! He said it is not
uncommon for these audits to go back anywhere from four to seven
years. They are often done without notice, and they are almost
always done without any meaningful appeals process, meaning if
the pharmacist objects to it, there is no time frame for which
they have to respond before the PBM takes the money out of their
account - and it's usually on the next cycle. This bill corrects
that problem.
In his judgment, Mr. Purcell said, extrapolation should not be
allowed. "Every claim should stand on its own merit and should
be audited as such on a by-claim basis." He said nobody argues
that, but there is a problem when the PBM makes an assumption
that affects five to seven years of business for every identical
or similar type prescription. Sometimes the word "retaliation"
was used as it relates to pharmacy audits. He could share,
probably for several hours, anecdotal examples of exactly that
type of practice or what would appear to be at the surface some
type of retaliation where local pharmacists testify or complain
and they show up on an audit list. In this economy he said
audits are on the increase and the local pharmacist has very
little of the protection that would be normal in other
industries.
2:18:37 PM
The fourth thing he liked about SB 38 is how it deals with the
timing of prices. He explained that prices are very dynamic in
the drug manufacturing marketplace and typically PBMs receive
nightly downloads from data sources that update those prices.
The problem over the last decade is that they will often make
the change in the price to affect the payer, but they won't make
the change at the same time to affect the pharmacies - thereby
creating arbitrage or a spread that is hidden. The net effect of
this over a year, even though they may be talking about pennies
worth of difference for each script, literally adds up to
millions of dollars of arbitrage activity. All he is saying here
is that the timing should be close to identical; the bill calls
for 24 hours. This just eliminates one of those 40 different
spread practices PBMs use to enjoy high margins of
profitability. However, he hastened to add that his argument
doesn't have anything to do with their profitability. Health
care has high operating margins, disproportionate to any other
industry, at 40-65 percent, but the problem is how they arrive
at it - and they arrive at it typically with your money. He
fully supported SB 38.
2:20:30 PM
SENATOR THOMAS said he thought pharmaceutical manufacturers had
the highest operating margins.
MR. PURCELL responded that pharmaceutical manufacturers will
typically make 14-18 percent, and that would be a very healthy
year for them. A typical Blue Cross/Blue Shield plan would be
happy with 4-6 percent. But PBMs operate with adjusted margins
of somewhere between 40-65 percent and much of that comes from
mail order (about 55 percent of their total margin). You can
begin to see a pattern of inherent conflict. Obviously they want
to try to drive traffic away from retail businesses by using
different average wholesale price mechanisms or different
packaging mechanisms that would disadvantage the local pharmacy
and highly advantage them. Every time they move a retail script
over to a mail order script, there is a ten-times exponential
factor in terms of their margin. Specialty drugs is another big
area of concern of his lawsuit, because it's the fastest growing
business. PBMs not only have their own mail order facilities but
they also own their own specialty mail order facilities and
those drug margins are even higher with a typical retail of
$2000 per drug and a margin of $400-500 per prescription.
2:22:36 PM
SENATOR THOMAS asked if the new US health care plan curbs some
of this activity and what kind of impact would state action have
on pharmaceutical costs to consumers across the United States.
MR. PURCELL answered the long term impacts on PBM practices are
unclear in the health care reform that was just passed, but
greater transparency will be required. The problem is with the
effective date of 2014 and beyond and the uniformity of the
application. The exchange model that they foresee for every
region, depending on how the compacts are set up, will have some
discretion as to how the vendors are selected and how prices
will be regulated. But they are talking about millions of
dollars of savings a year; so states should put things in place
that will protect people in the interim. If the reconciliation
bill goes into effect fully, you haven't lost anything; you've
just protected yourself in the interim years as its being
implemented.
2:25:07 PM
PAT SHIER, Director, Division of Retirement and Benefits, Alaska
Department of Administration (DOA), introduced himself.
CHAIR PASKVAN asked him to comment on where the state was on
this issue and where it best be going.
MR. SHIER responded that last year the state talked about
transitioning to its new third-party administrator with Wells
Fargo Insurance Services. Some questions raised by some of the
people in this room in 2008 actually helped the department write
a much better RFP. One change they demanded was not scoring the
programs based on shared drug and medical discounts which used
to be common practice in the medical community. He explained
that both the state's active and retiree plans are self insured
under Alaska Care that currently has an arrangement with a pure
TPA (not an insurance company) to pay claims on a per member/per
month basis. He said the state has a similar partnership with
Envision/Costco. There is no spread pricing, no rebate, which is
hidden and kept by the PBM, he assured. Any rebates that arise
during the tenure of their relationship flow directly to the
state. The state pays the TPA on a per member/per month basis to
manage its PBM and is in a much better place now than back in
2008.
2:27:32 PM
CHAIR PASKVAN thanked him and said the state plan covers a large
percentage of Alaskans, but what percentage is not covered under
this new system.
MR. SHIER answered that the state serves 72,000-74,000
individuals including members and dependents; of those about
52,000 are retirees. About 40 percent of those folks are outside
the State of Alaska. The state has a total of 15,000 active
individuals.
CHAIR PASKVAN asked him for suggestions on what statewide policy
could be more broadly applied to protect all Alaskans.
MR. SHIER answered that the legislature is the policy maker and
he would bring them any information they would need. He had
provided materials and met with some of the independent
pharmacists in the room and had very good discussions yesterday
afternoon. He said he would look into their concerns and had
asked Buck Consultants to also refresh their analysis. Overall,
when they look at 19.6 percent increase in medical plan spend
for the coming fiscal year and anticipating another 19.6 percent
after that, they want to provide the best information they can
and be as helpful as possible in the future.
2:29:35 PM
SENATOR THOMAS asked after today if he thinks the state needs to
go back and revisit their last RFP.
MR. SHIER answered the state is in very good shape now. Envision
Costco, under the leadership of Wells Fargo Insurance Services,
is directed to negotiate those contracts. He was very pleased
when their initial efforts expanded the number of in-network
pharmacies. That is the long way of saying the state is in a
pretty good place and very transparent. They prefer per
member/per month model, both for the medical plan and the drug
plan. The department is always looking for ways to improve
services to its members, but they have no incentive to even
approach a renegotiation.
SENATOR THOMAS asked if a PBM is involved anywhere in the chain
with the state's prescription plan.
MR. SHIER answered the state's partnership with Envision Costco
is taking the role of a PBM. Envision is the PBM and is a fairly
unique model in the industry that charges only a flat per
member/per month fee to manage. They provide a 24/7 call center
for members which has been very popular. The Costco partnership
portion delivers the mail order pharmacy piece, which is about a
third or less of the total number of scripts that are filled for
the Alaska plan.
SENATOR MEYER remembered that under the new Wells Fargo plan,
you can both go to your pharmacy or do mail order.
MR. SHIER answered absolutely.
SENATOR MEYER asked if mail order is where the problems occur.
MR. SHIER replied that under the old PBM process he had heard
complaints from pharmacists, in particular, about mail order
pricing, but Buck Consultants have consistently told him that
the mail order option can be very valuable on average is very
valuable to a lot of state employees even though it might not be
the cheapest alternative in every case. He was asking for that
to be reviewed again.
2:33:51 PM
SENATOR MEYER asked if going non generic could save the state
money.
MR. SHIER answered that the plan has steerage to generic drugs
and retirees have done a great job of increasing their generic
substitution rate. The active employee plan has a lower co-pay
incentive for generics if it is okay with the doctor.
2:35:28 PM
LINDA HALL, Director, Division of Insurance, Alaska Department
of Commerce, Community and Economic Development (DCCED), quipped
this is one of the few hearings she didn't bring her pie chart
to. She explained that that she regulates 23 percent of the
industry; a large chunk of the chart represents self insurers,
the un-insureds, the Medicaid/Medicare populations. The total
self insured population is probably 40 percent, significantly
higher than the regulated piece of the private insurance market.
She said SB 38 is in her title and her division would regulate
and enforce it if it is enacted. The first 12 pages, which she
worked on with the bill's sponsor, Senator Elton, merely make a
terminology change by substituting "health care insurer" for
"managed care entity" - making it consistent with the rest of
the state's health insurance regulations. It doesn't change any
provision. So they should start their concentration on the
bottom of page 12.
MS. HALL said it's appropriate to do "some oversight" of PBMs. A
registration system is they way that should be done and not
through a licensing process that they do with certain regulated
entities. Much of the bill is modeled using third-party
administrators. She was able to say that there are several PBMs
who are actually registered as TPAs in Alaska; so some are
following that model already.
2:39:11 PM
A number of provisions in the bill need work Ms. Hall said. The
reporting requirements, for instance, go beyond what is useful.
She didn't want to have to approve the contracts between the
PBMs and whoever it may be, and she said she thought they were
missing a big segment of who the PBMs serve and she was
referring to health insurers. The focus of most of today's
presentation has actually been on self insured plans,
governmental agencies. But PBMs also work on behalf of health
insurers, which is probably what she is more familiar with.
MS. HALL said she didn't think it appropriate for the division
to approve contracts between the PBM and the entity when in all
other cases the state only sets the standards for what can be in
agreements between health insurers and providers - between TPAs
and those for whom they may facilitate claims payments. TPAs
have standards now. If she had to approve contracts, she would
need to prepare a fiscal note.
She agreed that disclosure forms particularly to the end user,
the consumer who gets a prescription, are fine. The consumer has
a right to know there is another person in this equation;
however, the bill provides that each of those signed disclosure
forms come to the Division of Insurance - and she really doesn't
want all that paper. A copy of the generic disclosure form would
be adequate or maybe an approved disclosure form. She said they
have actually done that for prescription forms, because nobody
else seemed to want to - so it fell to her.
SB 38 has an amount of record-keeping that is not efficient or
cost effective, she said. Some of the pieces in the legislation
duplicate processes that already exist, like the complaint
process. The division actually has a whole complaint section
that deals with consumer complaints. They have formal processes
by which complaints can be filed and heard. Fees and penalties
are already in statute.
MS. HALL said she didn't think it was efficient for any agency
to set up a whole new way to regulate any individual piece. The
division regulates thousands of individuals and already has
methods in place to regulate and it doesn't need to set up a new
one just for PBMs. She planned to work with the bill sponsor on
those issues.
2:43:37 PM
ROSE KALAMARIDES, Administrator, Alaska Teamster Trust Fund,
said she had worked in this capacity since 1996 and opposed SB
38. She had submitted a letter outlining some of their concerns.
She explained that the Teamsters was one of the first large
groups in the state to hire a PBM in 1994; so they have been
through all the "gyrations."
All the things that the pharmacists have described today have a
lot of truth in them, Ms. Kalamarides said. In 2006 they put an
RFP out for a transparent contract. They had five respondents
and two runner ups. Envision Costco was the second runner up
only because their network hadn't been expanded enough in the
state. Their current transparent contract is working well she
reported, and they don't see the need for this legislation that
would only increase costs for their participants.
SENATOR THOMAS asked how it would increase costs for her
members.
MS. KALAMARIDES answered that it looks like the "any willing
provider" legislation that was introduced a few years ago for
medical services. She said 10 percent of their pharmaceuticals
go through their mail order service and they save a lot of money
because of that. Their retirees who live outside love the
service and it looks like they wouldn't have any kind of control
if a participant wanted to go to a pharmacy to get the same
pricing. It looks like it would just shift money into the local
pharmacies' pockets. She related that the Teamster Trust Fund is
pays its PBM not on a per member/per month, but a per script fee
and then pays the acquisition prices. SB 38 would force them to
do business differently and it looks like it is trying to
regulate some of the programs they already have in place, like
their step therapy and formularies. It messes with their private
business and she didn't think that was the state's job.
2:47:03 PM
DAVE DEDERICHS, Express Scripts, said they are a PBM based out
of St. Louis, MI and they manage the prescription drug benefit
for 750 million Americans across the country. Their clients
include health insurers, Fortune 500 companies, labor unions,
state governments, and the federal government. In fact, their
largest contract is with the US Department of Defense. He
explained that they "drive out waste in the health care
industry." They actually make money when their clients save
money and that stands in direct contradiction to most of today's
testimony.
First and foremost they try to promote generics, he said.
Express Scripts is FDA approved and it is AMA endorsed. They are
significantly cheaper than brand name pharmaceuticals. In fact a
few years ago a study said the average cost of a brand name drug
was $120 and for the same generic the average cost was $34.
He said it's "absolutely false" that they switch brand name
drugs into peoples' prescriptions so they can get money back on
the rebates. In fact, of the 750 million prescriptions they will
process this year, over 68 percent of them will be with generic
drugs. Mr. Dederichs said Express Scripts is a for-profit
company and it makes more money by using generic drugs.
He said it was also important to understand that they also
negotiate discounts with brand manufacturers and this function
goes in direct contradiction to the disclosure requirements in
this bill. When a pharmacy and therapeutics committee determines
which drugs should possibly be included on their formulary, they
will give them a list with no financials on it. It is a list of
drugs to be evaluated for efficacy and efficiency. The whole
list is sent to all the different brand name drug manufacturers
to get their best price for their formulary. Since Express
Scripts supplies 750 million Americans, there is a pretty strong
incentive to get their best price. Disclosing all this financial
information will destroy incentives to get better prices. It
doesn't allow the free market to help dictate what contract
terms are.
MR. DEDERICHS said he had five separate letters written by the
Federal Trade Commission on disclosure legislation that has been
heard in New Jersey, California, the District of Columbia,
Virginia, and Albany, New York. They say that disclosure
requirements destroy competition; they allow for collusion among
brand name manufacturers to increase their prices and will hurt
consumers.
He said Express Scripts also creates networks of retail
pharmacies and manages formularies for their clients. About 10
percent of the scripts they dispense are mail order and it is
only for maintenance medications. Mail order is a good way to
save money on drugs, because you can get a 90-day supply for two
co-payments instead of paying three co-payments for three 30-
days supply at the retail pharmacy. So, they are incentivizing
people to pay less to get a bigger supply. Studies also show
that when a customer gets a 90-day supply of mail order
medications his adherence rate goes up; so overall health
improves.
2:52:48 PM
MR. DEDERICHS said it's categorically untrue that PBMs are
unregulated. They are regulated by the Alaska State agency in
charge of Medicaid; they are registered with the Alaska State
Board of Pharmacy and regulated by them. They are also subject
to regulation from the State Division of Insurance, the Federal
Trade Commission, the US Department of Labor, the Centers for
Medicare and Medicaid Services and the US Department of Health
and Human Services.
It was said that drug spending has increased rapidly, but that
isn't true either, Mr. Dederichs said. People's overall medical
spend has increased in the past couple of decades and a lot of
it is medical, but because tools like drug utilization review,
using generics, and getting people to take mail order services
have been used drug spend has actually decreased.
He said they had heard that transparency is important for plan
sponsors but there is not one single plan sponsor, health
insurer or employer in the room today in support of this bill;
only the pharmacists. This is because their clients are very
sophisticated purchasers. Mr. Shier, the labor unions, the
Fortune 500 companies hire consultants to negotiate these
contracts. There are over 60 PBMs in this country and it is very
competitive. If they don't meet the terms and conditions set out
for them by clients in the RFP process they simply won't get
their business. Their contracts are for three years, so they
would see a higher turnover if they are not meeting specific
demands. This bill is riddled with mandates for contracts they
would rather see regulated by the free market, he said. Each one
of their clients has a unique set of people with their own
unique medication needs and they would not necessarily be helped
by this type of legislation.
2:55:50 PM
MR. DEDERICHS submitted there was no need for legislation that
requires transparency if the market is already dictating it, and
their company and ones like it probably wouldn't submit RFPs
with those kinds of contract demands. He also informed them that
they are a non resident mail order pharmacy and do ship drugs
into Alaska.
CYNDI LAUBACHER, Senior Director, State Government Affairs,
Medco Health Solutions, said Medco is one of the top three PBMs
and has approximately 60 million members across the country and
approximately 155,000 in the state of Alaska. She said Mr.
Dederichs covered most issues very well, but she wanted to touch
on a few things based on questions from committee members. First
of all Mr. Purcell made her case on the phone for why this bill
is unnecessary. The state of New Jersey recently awarded Medco
the new PBM contract. It is a transparent contract. Mr. Purcell
said that state would save $500 million, but the state of New
Jersey didn't pass this legislation to do it. It just wasn't
needed in order to get the kinds of savings they were looking
for.
2:58:13 PM
It's also incorrect that 23 other states have transparency laws.
Only two states have passed it, Maine and the District of
Columbia where it is being litigated. Maine's was upheld and the
large PBMs are no longer writing in that state. The bottom line
is that clients can ask for anything they want; that is what the
RFP process is for. No two clients want the same thing. In that
regard this bill is unnecessary.
MS. LAUBACHER said she was particularly concerned about what
some were saying their margins are and that the SEC would be
interested in their figures. Medco is required to report their
profits quarterly to the SEC and their numbers show profits are
2 percent or less.
2:59:09 PM
Regarding federal health care reform, Ms. Laubacher said, Medco
prides itself on being a transparent company. They support
transparency and supported the Senate language that was recently
enacted and signed into law by the President.
CHAIR PASKVAN asked her to provide the committee with the SEC
filing she talked about and asked Mr. Dederichs to provide the
letters he talked about.
3:00:25 PM
GREG LOUDON, Employee Benefits Consultant, Parker Smith & Veeck,
Anchorage, Alaska, said he was here on behalf of the Alaska
Association of Health Underwriters, a consumer protection and
trade group for brokers and agents. They opposed SB 38 because
they think it is an unnecessary restraint to trade. It
eliminates a number of cost containment options for their
clients, both insured and self insured. He said PBMs provide a
valuable service.
3:01:31 PM
SALLIE STUVEK, Director, Human Resources, Fairbanks North Star
Borough, said she has oversight for both the borough and the
school district's self insured health insurance plans. She said
both the borough and the school district are active members in
the Health Care Cost Management Corporation of Alaska (HCCMCA).
As a result they have seen strong savings in health care costs
to all of their members their negotiated agreements and they
would like to be able to continue those arrangements. SB 38
appears to jeopardize their ability to continue those cost
savings relationships that they would need in order to continue
managing the health claim costs.
She said they are especially concerned about the section
restricting the ability of employers or group of employers to
work together to negotiate discounts. The PBM provides a
valuable service to their health plans by reducing those costs
not only to the employer-sponsored health plans, but also to the
employees. They have estimated a savings of $3 million per year.
CHAIR PASKVAN closed public testimony and set SB 38 aside.
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