Legislature(2017 - 2018)HOUSE FINANCE 519
02/14/2018 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB279 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 6 | TELECONFERENCED | |
| += | HB 172 | TELECONFERENCED | |
| + | HB 240 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 279 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
February 14, 2018
1:33 p.m.
1:33:04 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Sara Chambers, Acting Director, Alcohol and Marijuana
Control Office, Department of Commerce, Community and
Economic Development; Representative David Guttenberg,
Sponsor; Seth Whitten, Staff, Representative David
Guttenberg; Jane Conway, Staff, Senator Cathy Giesel;
Michele Michaud, Division of Retirement and Benefits,
Department of Administration; Emily Ricci, Division of
Retirement and Benefits, Department of Administration;
Scott Watts, Ron's Apothecary, Juneau; Will Whitehead,
Foodland Pharmacy, Juneau.
PRESENT VIA TELECONFERENCE
Barry Christensen, Alaska Pharmacists Association,
Anchorage; Leif Holm, Pharmacy Owner, Chair, Board of
Pharmacy, North Pole; Alliejo Shipman, NTPA, Washington DC;
Richard Ponesse, Senior Director, Finance Group, CVS
Caremark, Phoenix; Justin Ruffridge, Soldotna Professional
Pharmacy, Soldotna; Dirk White, Pharmacist, Sitka; Jerry
Brown, Self, Fairbanks; Bill Head, Pharmaceutical Care
Management Association, Washington DC; Tom Wadsworth, Self,
Eagle River.
SUMMARY
HB 240 PHARMACY BENEFITS MANAGERS
HB 240 was HEARD and HELD in committee for
further consideration.
HB 279 EXTEND: REAL ESTATE COMMISSION
HB 279 was REPORTED out of committee with a "do
pass" recommendation and with one new fiscal
impact note by the Department of Commerce,
Community and Economic Development.
Co-Chair Foster reviewed the agenda for the day. He
indicated it was his intention to move HB 279 from
committee.
HOUSE BILL NO. 279
"An Act extending the termination date of the Real
Estate Commission; and providing for an effective
date."
1:34:44 PM
SARA CHAMBERS, ACTING DIRECTOR, ALCOHOL AND MARIJUANA
CONTROL OFFICE, DEPARTMENT OF COMMERCE, COMMUNITY AND
ECONOMIC DEVELOPMENT, explained the updated fiscal note.
She elaborated that new fiscal impact note from the
Department of Commerce, Community and Economic Development
(DCCED)was updated to correct the previously underreported
number of board members from 5 to 7 and the appropriation
was updated to $27.9 thousand for travel to board meetings
and services that included advertising, training and per
diem.
1:35:45 PM
Representative Wilson thought the fiscal note was only an
approximation due to video conferencing availability. She
added that the licensees paid the costs. Ms. Chambers
agreed that all the 21 boards were working diligently to
reduce costs. She explained that the fiscal note reflected
the board's spending authority for the fees collected from
licensees. She expected the amount expended to be less due
to the board's successful use of teleconferencing.
Co-Chair Seaton MOVED to report HB 279 out of Committee
with individual recommendations and the accompanying fiscal
impact note.
There being NO OBJECTION, it was so ordered.
HB 279 was REPORTED out of committee with a "do pass"
recommendation and with and with one new fiscal impact note
by the Department of Commerce, Community and Economic
Development.
1:37:33 PM
AT EASE
1:38:03 PM
RECONVENED
hb#240
HOUSE BILL NO. 240
"An Act relating to the registration and duties of
pharmacy benefits managers; relating to procedures,
guidelines, and enforcement mechanisms for pharmacy
audits; relating to the cost of multi-source generic
drugs and insurance reimbursement procedures; relating
to the duties of the director of the division of
insurance; and providing for an effective date."
1:38:16 PM
Co-Chair Foster indicated he would hear public testimony on
the bill.
1:38:40 PM
REPRESENTATIVE DAVID GUTTENBERG, SPONSOR, related that the
issue of prescription drug costs had been on his mind for
many years. The bill related to the relationship between
the pharmacy and the Pharmacy Benefit Managers (PBM). He
explained that PBMs were established in the 1970s to
negotiate prices with manufacturers and pass the savings on
to the beneficiaries of the program. Over the years PBMs
evolved into large conglomerates and one PBM (CVS Health
Corporation) recently purchased the insurance company
AETNA. The pharmacists did not have any recourse to take
corrective measures from unreasonable, unfair, or incorrect
audit finding. The bill set up a process that designated
the state's Director of Insurance to become an
administrative hearing officer and negotiate disputes
between the pharmacies and the PBMs. He furthered that
pharmacies encountered significant problems with PBMs
without any resolution.
1:42:03 PM
JANE CONWAY, STAFF, SENATOR CATHY GIESEL, introduced the
PowerPoint presentation: "Pharmacy Benefit Managers:"
And the need for fair and reasonable standards over
the practice of auditing pharmacies
HB 240 and SB 38
Establishes Procedures & Guidelines for the
Auditing of Pharmacy Records
Requires Timely, Price Updates of
Pricing Changes &
an Appeals Process
Ms. Conway indicated that SB 38 was the companion bill to
HB 240. She related that Senator Giesel and Representative
Guttenberg "joined forces" to address the "unchecked
auditing practices" the pharmacists faced and bring the
information forward.
1:43:41 PM
Ms. Conway continued with slide 2: " PBM 101 What's a
PBM?" She read Directly from the slide:
• PBMs are multi-billion-dollar middlemen
• Started in1970 as claims processers, now intertwined
in almost every aspect of the
pharmaceutical/pharmacy supply chain
• Virtually unregulated, state or federal level
Today, the top PBMs represent some of the most
profitable companies in the nation
1:44:56 PM
Ms. Conway moved to slide 3:"Examples of PBM's Market
Power/Influence." She read directly from the slide:
CVS/Caremark (AK State Plan Pharmacy Benefit Manager)
square4 2017 - 7th most profitable U.S. company in Fortune
500
square4 2017 Revenue: $177.5 Billion
Express Scripts Holding
square4 ESH generated $100.3 billion in revenue in 2017
Number 22 ranking
Ms. Conway advanced to slide 4: "State of Alaska Health
Care Plan" that contained a picture of the state employees'
AETNA health insurance cards.
1:45:49 PM
Ms. Conway turned to slide 5: PBMs are designed to: She
read directly from the slide:
• reduce administrative costs for insurers
• validate patient eligibility
• administer plan benefits
• negotiate costs between pharmacies and health plans
• audit pharmacies for fraud
Ms. Conway continued to slide 6: "PBM's Impact on Pharmacy
& Patients":
• PBMs develop pharmacy provider networks
• Pharmacies must accept a PBM contract
• Contracts truly are "take it or leave it."
• PBMs influence what drugs are dispensed regardless of
what a physician prescribes by using a list of PBM-
approved drugs known as "formularies"
• PBMs receive rebates from drug manufacturers for
putting their drugs on a given formulary
1:46:58 PM
Representative Ortiz asked about the fourth bullet point on
slide 6. He ssked for clarity. Representative Guttenberg
responded that if a doctor prescribed a medication that the
PBM did not cover the PBM chose a substitution.
Representative Ortiz asked whether the patient's doctor
would be contacted prior to substitution. Representative
Guttenberg referred the answer to pharmacists that would
testify later in the meeting.
1:48:30 PM
Representative Kawasaki asked for the definition of a PBM.
He had difficulty understanding what kind of entities PBMs
were and how they operated. He wanted to know what PBMs
"physically" were. Representative Guttenberg was worried
that PBMs would become "vertically integrated" entities. He
explained that PBMs were standalone companies or a division
of a large corporation with offices and employees where
management negotiated discount prices for the most commonly
prescribed prescription drugs with pharmaceutical
manufacturers. The PBMs determined the price they would
reimburse pharmacies for a prescribed drug. He suggested
that they operated similarly to an insurance company and
acted as a "middleman." Prices were negotiated with drug
manufacturers and PBMs did not use an "algorithm."
Representative Kawasaki asked whether the PMB was "attached
to" the insurance company or the pharmacy. Representative
Guttenberg replied that the PBM was hired by the insurance
company to negotiate prices. He elaborated that the
pharmacy had a "take it or leave it" choice to enter into
the contract if they wanted to fill the prescriptions of
benefactors of various health care plans. He summarized
that PBMs were a "middleman between the patient and the
pharmacy."
1:51:23 PM
Representative Kawasaki referred to the second bullet on
slide 6 and ask what happened if the pharmacy did not
accept the contract. Representative Guttenberg answered
that if a pharmacy did not enter into the contract the
patient would have to pay in cash.
Representative Wilson surmised that the issue was not with
the pharmacy's ability to obtain the drug, but whether the
insurance company would pay for the drug. Representative
Guttenberg indicated that she was correct. Representative
Wilson initially thought that the state would be
intervening in contracts, but she deduced that the
pharmacies and the PBMs were not engaging in contract
negotiations. She asked if her statement was accurate.
Representative Guttenberg reiterated that the contracts
were a "take it or leave it deal" and the audits were
unreasonable. He recounted that the number of independent
pharmacies in the state had dramatically decreased from 74
to 14 because of the PBMs "dominating the relationship."
Representative Wilson inferred that the problem was not in
the "structure" of a PBM but in the audit and appeals
process "rather than the contract itself." Representative
Guttenberg agreed with her statement. He indicated that one
part of the bill dealt with the relationship between the
PBM and the pharmacy and the audit process. The other part
of the bill related to the costs for generic drugs embedded
in the contract that were hidden; the negotiated prices,
costs, and rebates between the manufacturer and PBM and
insurer, and rates of reimbursements were unknown to the
pharmacists. The pharmacists, reimbursement rates were
often changed without notice. He relayed hearing
pharmacists testifying that it cost more for the pharmacist
to fill a certain prescription under a contract than the
reimbursement amount. The committee would hear testimony
from pharmacist later in the meeting.
1:56:40 PM
Co-Chair Seaton asked about the state formulary for Alaska
Care and whether it was the same formulary as the PBM for
AETNA. Representative Guttenberg did not know the answer.
Co-Chair Seaton requested more information on how PBMs were
paid. He indicated that the state had a "formulary set up"
and published prices. He wondered whether the PBM received
a percentage. He wondered how PBMs made money by denying
coverage for "pills that were sold." He inquired how the
process affected the state's position and "how the PBM made
money." Representative Guttenberg replied that the process
was complex. He detailed that the state via AETNA hired a
PBM who negotiated a price with the pharmaceutical
companies. The state did not know the negotiated price, or
the reimbursement prices paid to the pharmacies. He voiced
that the there was a reason the PBMs were on the top of the
Fortune 500 list. He detailed that rebates were paid to
PBMs by manufacturers for purchasing their product. The
PBMs did not disclose how or if rebates were factored into
the pharmaceutical contracts. The process was not
transparent and how costs and benefits were distributed
among the PBM's recipients were completely unknown.
2:01:56 PM
Representative Tilton mentioned previously looking at the
pharmaceutical costs within the Pioneer Homes and whether
the costs could be reduced by using generic drugs. She was
unaware of the generic rebate issue and thought the lack of
transparency left open the question of whether the state
was getting the best prices for the patient. Representative
Guttenberg responded that Medicaid and Medicare costs were
established under the federal system. He only knew of two
actions the federal government implemented regarding
prescription drug costs; they ensured that drugs
distributed through the Veteran Affairs Administration (VA)
were the "cheapest" and drug prices could not be negotiated
across state lines. He affirmed that the rebates were not
transparent.
SETH WHITTEN, STAFF, REPRESENTATIVE DAVID GUTTENBERG,
clarified that the rebates occurred between the PBMs and
the plan sponsor; the Alaska Care Plan and the PBM would
negotiate the percentages. He deferred to the Department of
Administration (DOA) to answer the question of where the
rebates were going. He noted that pharmacies do not receive
rebates.
Representative Ortiz asked if PMB's were created because it
would otherwise be impossible for pharmacies to negotiate
with all the different drug manufacturers. Mr. Whitten
responded in the affirmative.
Ms. Conway advanced to slide 7: "PBM's Impact on Pharmacy &
Patients":
• PBMs dictate how much pharmacies will be paid for the
drugs they dispense regardless of the pharmacies'
acquisition costs
• PBMs have free reign to dictate what pharmacies are
permitted to do in a given network thereby driving
patients to particular pharmacy options
• PBMs operate their own mail-order pharmacies and can
incentivize or mandate that customers obtain their
medications only through the mail-order option
• PBMs audit pharmacies and in most cases, there are no
defined rules or regulations over what can be
considered a recoupable offense.
2:08:04 PM
Ms. Conway informed committee members that the third bullet
point regarding mail-order prescriptions was a huge problem
for rural pharmacies that were prohibited under contract
from mailing prescriptions to patients.
Ms. Conway reviewed slide 8 that described the mechanics of
the relationship between the payer, PBM, and pharmacy.
Slide 8 as follows:
• The Payer pays $100 to the PBM, the amount agreed upon
in their contractual plan.
• The PBM negotiates the $100 price for the drug with
the pharmaceutical company and receives a rebate of
$50 for the drug. The PBM then pays $50 to Pharmacy to
dispense the drug, via their contract with the
pharmacy. The remaining $50 stays with the PBM as its
profit. This is known as the spread.
• Pharmacy buys its drugs from a drug wholesaler at best
price they can find, pays $60 for the drug.
PBM only pays them $50, and then the pharmacy loses
$10 on that prescription.
Representative Wilson understood that the pharmacy had to
purchase drugs at the best rate they could find but did not
know whether the price was a good deal or not until they
were reimbursed by the PBM. Representative Guttenberg
responded that her statement was correct. Representative
Wilson deduced that the lack of transparency by the PBM
caused the situation. Representative Guttenberg responded
in the affirmative. He added that she would hear similar
testimony from pharmacists. Representative Wilson was
trying to understand the "players." She asked whether the
pharmacists were given a list of reimbursed prices or if
the prices changed so frequently without notification the
pharmacist could not rely on the list. Representative
Guttenberg in the affirmative and added the bill contained
provisions mandating when the PBM must notify the pharmacy
price changes.
2:13:32 PM
Representative Kawasaki pointed to a flow chart titled "The
Role of PBMs in the Flow of Money and Prescription Drugs"
on a separate handout (copy on file). He deduced that the
pharmacy negotiated discounted dispensing fees with the
PBMs and sent electronic claims to PBMs for the dispensed
drugs the pharmacy also negotiated discounted drug prices
with wholesalers or directly with pharmaceutical
manufactures for less than the PBM reimbursement amount. He
asked whether he was correct. Mr. Whitten responded that
the pharmacy did not purchase drugs directly through the
manufacturer, only through the wholesaler. The PBM
negotiated prices with the manufacturer.
Representative Guttenberg added that multiple pharmacies
organized and purchased their drugs in bulk.
2:15:11 PM
Co-Chair Seaton was trying to follow the flow diagram. He
asked how the payer benefited. He did not find any monetary
advantage to the payer. He did not think the system made
sense for the payer. Representative Guttenberg agreed with
the statement.
Ms. Conway moved to slide 9: "HB240/SB 38 What Does a
Fair Audit Bill Do?":
• Brings fairness to the unregulated and expanding
practice of pharmacy audits
• Does not allow audits during the first seven calendar
days of each month because of the high patient volume,
unless the pharmacy and auditor agree otherwise
• Prevents the targeting of minor clerical or
administrative errors where no fraud, patient harm, or
financial loss has occurred
• Establishes submission of data/medical record
standards to allow for clarification where
discrepancies are identified
• Establishes a reasonable time frame for the
announcement of an audit to allow proper retrieval of
records under review
Ms. Conway elaborated that an audit could take days and
significant resources for a small pharmacy and notice of an
impending audit was fair.
Mr. Whitten interjected that the provisions in the bill
were not applicable if there was suspicion of fraud. He
added that PBMs played and "important role" in detecting
fraud and the bill did not impede their ability to do so.
2:19:09 PM
Ms. Conway moved to slide 10: "What Does a Fair Audit Bill
Do? cont.":
• Establishes an audit appeals process for pharmacies
• Establishes guidelines for PBMs to follow regarding
patient confidentiality
• Prohibits extrapolation in assessing fees/penalties
• Allows Alaska pharmacists to provide mail-order
service to their customers without penalization
• Local mail-order service keeps Alaska dollars in
Alaska
• Legislation does not prevent the recoupment of funds
where fraud, waste, and abuse exist
Ms. Conway specified that extrapolation happened when a PBM
discovered an audit discrepancy and extrapolated the number
of times it occurred instead of using actual data.
Representative Kawasaki referred to fraud, waste, and
abuse. He asked about a fiscal note from DOA, FN2 (ADM)
relating to the issue. He read from the analysis on page 2:
The bill may restrict the ability of PBMs to identify
waste, fraud or abuse patterns. This may cause the
AlaskaCare plans to pay for unnecessary or fraudulent
prescriptions.
The bill may restrict the ability of PBMs to recoup
overpayments, preventing the AlaskaCare plans from
recovering these funds.
Representative Kawasaki voiced that the analysis was
"completely contrary" to slides 9 and 10.
Mr. Whitten assured that the bill clearly stated that audit
protections were not applicable in the case of fraud.
2:22:10 PM
Ms. Conway highlighted slide 11 titled: What Does a Fair
Audit Bill Do? cont.
• 41 states have enacted fair audit legislation
• 36 states have enacted Maximum Allowable Cost (MAC)
transparency legislation
Bill will also include:
o Registration of PBMs with the State of Alaska
Division of Insurance
o Set-up guidelines for generic drug maximum
allowable cost (MAC) pricing by PBMs
o Establish a mechanism for a pharmacy to appeal
MAC pricing
• Don't audit local pharmacies out of business.
Their services are crucial in rural areas.
Ms. Conway emphasized that other states had identified
issues with PBMs and acted to mitigate the problems.
Co-Chair Seaton requested more information regarding MAC
pricing. Ms. Conway deferred the answer to a future slide.
Ms. Conway addressed slide 12 titled "Fair Pharmacy Audit
Legislation in The States" and slide 13 titled "States with
Generic Drug Pricing Transparency" that depicted maps of
the United States with the applicable states highlighted
provided by the National Community Pharmacists Association
(NCPA).
Ms. Conway indicated she would skip the next 4 slides that
contained real life accounts of unreasonable audits endured
by pharmacists and encouraged the committee members to
review the slides.
2:25:17 PM
Ms. Conway skipped to slide 19: "Maximum Allowable Cost
(MAC)":
• A "maximum allowable cost" or "MAC" list refers to a
payer or PBM - generated list of products that
includes the upper limit or maximum amount that a plan
will pay for generic drugs and brand-name drugs that
have generic versions available ("multi-source
brands")
• Essentially, no two MAC lists are alike and each PBM
has free reign to pick and choose products for their
MAC lists.
• A Formulary is a list of drugs that are covered for a
particular insurance plan. Generally, it has no
pricing attached to it. However, some drugs are chosen
based on the cost of the medication. A formulary will
usual contain both Brand and Generic Drugs.
• A MAC list (Maximum Allowable Cost) is a listing of
specific prices for each generically available drug.
Usually a specific insurance plan has a specific MAC
listing issued by the PBM. However, a PBM may have
several different MAC lists depending on the plan
(i.e. one plan may have a different MAC list even
though they utilize the same PBM).
Co-Chair Seaton referred to the maximum amount a plan would
pay and asked whether the amount was the maximum paid to
the pharmacy. Ms. Conway answered in the affirmative.
Representative Wilson asked who would develop the MAC list
or did the bill mandate that the PBMs must distribute the
MAC list to provide transparency. Mr. Whitten mentioned
that page 5 of the bill discussed the MAC pricing and
required the PBM to provide the list to the pharmacies and
list updates in a timely manner. Representative Wilson
deduced that the state would not monitor the actual cost
the PBM paid for the drugs on the MAC list or interfere
with that process. Mr. Whitten responded in the
affirmative. He added that the bill stated the "PBM shall
use the most up to date pricing data to calculate the
reimbursement and for multi-source generics that are sold
or marketed in the state for that period." Representative
Wilson thought the state was mandating the MAC pricing for
the PCMs via the use of formula. She declared that she
supported requiring PBMS to provide the pharmacies with a
list of MAC pricing but did not support any type of
requirement regarding what the pricing should be.
Representative Guttenberg responded that he agreed with
Representative Wilson and the bill was not attempting to
regulate MAC pricing.
Representative Kawasaki voiced that some of the invited
testifiers would help to answer committee member's
questions.
Representative Wilson asked whether public testimony would
be held over. Co-Chair Seaton answered in the affirmative.
2:31:29 PM
MICHELE MICHAUD, CHIEF HEALTH OFFICIAL, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
provided information regarding the state's AlaskaCare plan.
She indicated that the AlaskaCare plan covered slightly
less than 50 percent of all state employees; over 15
thousand individuals. In addition, her division
administered both the defined benefit and the defined
contribution retiree plans covering 86 thousand
individuals. She delineated that the state plans were
"self-insured", which meant the claims cost were paid
directly by the plan and the state bore the risk versus the
insurer bearing the risk for costs. The commissioner of DOA
was the plan administrator and the division managed the
plans. The state contracted with AETNA who subcontracted
with CVS. The contract was reviewed periodically, and
currently the state was in the procurement process for a
PBM starting in 2019.
2:33:38 PM
EMILY RICCI, CHIEF HEALTH POLICY ADMINISTRATOR, DIVISION OF
RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION,
added that between the two health plans: the retiree and
employee plans, the plans filled approximately 1 million
prescriptions and paid $240 to $250 million in pharmacy
benefits each year. She explained what PBMs did from her
perspective. Prescription Benefit Managers negotiated the
cost of drugs with the manufacturer and provided a point of
sale adjudication system, which electronically coordinated
the purchase at the pharmacy to determine the copayment.
She informed committee members that the number of state
employees covered under AlaskaCare was roughly 6 thousand
and the remaining were covered through health trusts; many
contracted with CVS Caremark as their PBM. She clarified
that the AlaskaCare plans maintained an "open formulary,"
which was unusual for commercial health plans. The state
also received rebates from the PBMs. She was aware of the
"black box" in the contracts between the PBM and the drug
manufacturer regarding information about the amount of the
rebates or negotiated prices. She offered that the division
negotiated the percentage of rebates with the PBM and the
money went into the retiree plan and the health trust. The
state received $28 million in rebates in the prior year.
The state attempted to address concerns when alerted to
problems; and the AlaskaCare plan negotiated the
elimination of restrictions on pharmacists sending
prescriptions to patients outside of their community within
the state.
Ms. Michaud expounded that the division negotiated an
aggregate rate that discounted a percentage off the average
wholesale costs with performance guarantees for the rebates
and generic dispensing rates and did not negotiate a per
prescription cost. She added that the contract did not
include "performance guarantees around MAC pricing." The
current contract allowed a "full rebate pass back" to the
state receiving 100 percent of the rebate along with a
guarantee that stipulated if the rebates fell below a
certain amount the PBM would pay additional money.
Ms. Ricci interjected that the state was not privy to the
contracts the PBMs had with the pharmacies nor with the
drug manufacturers.
Co-Chair Seaton asked if there was any reason why a new
contract could not include the other contract pricing
information. Ms. Ricci replied that the division requested
transparent pricing and identified receiving the pricing
information as a goal. The division was soliciting
different pricing models in the new bid for PBMs and
desired to achieve pricing transparency. Co-Chair Seaton
confirmed that the division wanted to obtain transparent
pricing going forward. Ms. Ricci answered in the
affirmative but added that the division had to balance its
fiduciary responsibility to the plan, therefore the
contract differential costs was a factor.
Representative Wilson asked how the division knew it
received 100 percent of the rebates if the amount for the
rebates the PBMs received were unknown. She responded that
the division included contractual guarantees and
implemented audits through benefit consultants that were
pharmacists who had worked for PBMs and were familiar with
how the PBMs typically paid claims. The division utilized
the available tools to monitor its contract but the pricing
between the PBM and drug manufacturer remained unknown.
Representative Wilson ascertained that without the total
pricing information it was impossible to know whether the
state received 100 percent of the rebates and deduced that
the audit was based on random data. Ms. Ricci corrected
that the contract required that the state receive 100
percent of the rebates and the division utilized the tools
it had to do the "best" it could to ensure full payment.
She offered to provide additional information.
Representative Wilson did not know "if the PBM was being
honest or not."
Representative Kawasaki referenced hearing that the PBM was
the subcontractor through AETNA and that the state was in
the procurement process for a PBN. He requested
clarification. Ms. Ricci answered that one of the changes
the state recently made was to "carve out" PBM services and
would not be subcontracting the service out moving forward.
2:40:56 PM
Representative Kawasaki asked for verification that the
state would maintain a separate bid for the insurer. Ms.
Ricci replied in the affirmative. She detailed that the
division would require the insurer to work with the state's
PBM. Representative Kawasaki wondered whether the division
had information regarding the other state employee health
trusts contracts with PBMs and how they compared with
AlaskaCare's. Ms. Ricci responded that she could not speak
to the health trust's contractual relationships.
Representative Kawasaki asked if legislation was necessary
for the division to directly contract with PBMs and enforce
the terms of the contract or whether it could be
accomplished contractually through the procurement code.
Ms. Ricci answered that the department did not take a
position on the bill and would utilize the contract to
protect the state's interest.
2:42:51 PM
Representative Ortiz understood that the administration did
not take a position on the bill. He related that [read from
a statement} the administration previously "indicated if
MAC pricing repeal legislation was passed the price of
generically available medications would go up because
wholesalers serving Alaskan pharmacies would automatically
increase prices. This would assume that there is or would
be collusion between the wholesale drug industry if they
all raised prices." He asked whether the statement was
fair. Ms. Ricci stated that her fiscal note or analysis had
never used the word collusion. She indicated that division
attempted to determine any possible fiscal impacts by
reviewing other state's fiscal notes and provisions in the
bill. In addition, the division asked the state's actuaries
to perform an analysis to better understand what other
states had experienced relative to adopting similar type of
legislation. She expected the completed analysis soon.
Representative Ortiz thought that some of the pharmacist's
support for HB 240 was motivated by not being reimbursed
for at least the cost of some medications. He asked whether
she agreed with the statement and felt that pharmacist
should be fully reimbursed. Ms. Ricci answered that the
division wanted to ensure that the plan reimbursed fairly
and was efficient and effective with state dollars, which
"sometimes required striking a delicate balance." She
reported that the division engaged in discussions with
independent pharmacists since November 2017, specifically
related to MAC pricing and were working with the PBMs to
identify where the pricing was low and what the recourse
was for claims paid before November. She noted that the PBM
adjusted prices on January 10, 2018 in response. The
division also wanted to figure out how to reimburse
pharmacies more directly. She related that entering the
"pharmaceutical reimbursement negotiation space" was
"difficult" at the division level. The division was
pursuing pilot projects to find a way to directly reimburse
pharmacists in recognition of their "unique value to the
plan" and to benefit the plan's members. She qualified that
the later approach would take time.
2:47:24 PM
Representative Guttenberg referenced an earlier question by
Co-Chair Seaton. He asked for clarification regarding the
state formulary and wondered what plans applied. Ms.
Michaud responded that each PBM had multiple formularies
depending on the plan and the state's plan had an open
formulary, which meant the there was no restriction on the
drugs covered. She could not speak to other plan's
formularies. Representative Guttenberg asked about the
formulary for the Department of Health and Social Services
(DHSS). Ms. Ricci responded that the formulary DHSS used
was different.
Representative Ortiz asked that whether the impact would be
different for the state versus the Alaska State Employees
Association Local 52 (ASEA) Health Trust if the bill
passed. Ms. Ricci indicated that it would vary depending on
the plan, negotiated prices and several other factors. She
hesitated to speak to other plans.
2:50:30 PM
Co-Chair Foster opened the discussion to invited testimony.
2:50:51 PM
BARRY CHRISTENSEN, ALASKA PHARMACISTS ASSOCIATION,
ANCHORAGE (via teleconference), thanked the sponsors for
their help in moving the bill forward. He spoke in support
of the bill. He relayed that his father had started the
pharmacy in Ketchikan 44 years ago, had state license
number 67, and was still working and his daughter was
attending pharmacy school. He relayed that he was the Co-
Chair of the Alaska Pharmacists Association (ACPA) and
mentioned that HB 240 was the associations priority. He
began by refuting some arguments that PBMs frequently held.
The PBMs contended that they were not insurers therefore,
should not be regulated. He maintained that they were part
of the insurance system and should be regulated and
registered. He referenced the take it or leave it nature of
the contract between the pharmacies and the PBMs. He noted
that there were roughly 100 PBMs, which was why the state
needed to establish universal "sidebars and guidelines" for
PBMs to follow. He agreed that the bill did not limit PBMs
authority to detect fraud, waste, and abuse. He related
that he received 30-day notice from the Internal Revenue
Service (IRS) of an impending audit and felt that the 10-
day notice the bill provided was the barely sufficient. He
reported the PBMs complained that MAC pricing transparency
would increase costs and cited a letter from the National
Community Pharmacists Association (NCPA) (copy on file)
that refuted the narrative. He reminded members that
community pharmacists were "real Alaskans" involved in
their communities and were "serving Alaskans.
2:55:32 PM
Representative Ortiz asked whether independent pharmacists
viewed passage of HB 240 as essential for the survival of
their businesses into the future. Dr. Christensen responded
affirmatively. He emphasized that passage of the bill was
the associations top legislative priority.
Representative Wilson thought Dr. Christensen had mentioned
regulating and registering PBMs. She did not view the bill
as regulating PBMs. She wondered whether he meant to say
registering and if the bill did regulate PBMs in any manner
she wanted to know how. Dr. Christensen responded that he
meant registering and did not advocate for the regulation
of PBMs but wanted set guidelines for audits and
transparency for generic drug pricing.
Representative Ortiz mentioned that the number of
independent pharmacists were declining. He asked whether
the potential negative impacts of losing access to
pharmacies in rural Alaska would be greater than in urban
areas. Dr. Christensen replied in the affirmative and
stressed that in rural areas pharmacists were relied on for
healthcare advice and services like flu shots.
2:59:01 PM
SCOTT WATTS, RON'S APOTHECARY, JUNEAU, spoke in favor of
the legislation. He agreed with the previous speaker that
the bill was a top priority for independent community
pharmacies around the state. The bill established
sideboards to help the pharmacist "survive." He brought up
the mail order provision and the fact that many contracts
prohibited community pharmacist from sending prescriptions
within the state via mail or small commuter airlines. He
applauded the state for allowing the practice but noted
that hundreds of other contracts prohibited shipping and
the bill standardized allowing the practice. He moved to
the MAC pricing issue and voiced that the pharmacies were
being reimbursed below the purchase price, which
represented a straight loss to the small pharmacy. He
alerted that in October 2017, Caremark PBM severly
decreased its maximum allowable costs, which represented
most of the pharmacies business and resulted in the loss of
thousands of dollars in revenue each month. He shared that
the administration heard their request for help, but
corrective action moved slowly, and pharmacies continued to
lose money. He pointed out that PBMs lacked an appropriate
appeals process for pharmacies to dispute incorrect MAC
prices and obtain proper payment. He reported that
effective January 10, 2018 CVS instituted major price
increases on 1,590 generic product identifiers that
reflected their current understanding of the market
conditions but currently, there was no appeals process for
the four months of reduced pricing and reimbursement. He
added that the pharmacists did not know they were losing
money on a prescription due to the point of sale system and
only had two options to either fill the prescription and
lose money or turn the patient away. HB 240 would provide
an appeals process. He offered that he had followed up with
the PBM and sent 500 hundred appeals. Currently only three
price adjustments were made. The PBM representative
informed Mr. Watt's that the adjustments were not
retroactive. He requested information on how to purchase
the drugs with the new pricing and was told that the
information was only given to pharmacies in states that had
a law requiring pricing information distribution, which
precluded Alaska. He believed that if the PBMs operated
fairly the laws would be unnecessary. He argued for a level
playing field and voiced that pharmacists needed fair
standards. He thanked the committee for its support.
Representative Wilson did not understand the appeals
process. She asked if the appeals process would award
adjustments if the pharmacist could prove they were
underpaid. Dr. Watts answered in the affirmative. He
offered that the appeals process allowed the pharmacist to
show that they could not purchase the medication below the
maximum allowable cost, but if the PBM had data countering
that the drug was available in the state under the MAC
price then the price stood, and the pharmacist would need
to find out how to obtain the drug at a lower cost.
Representative Wilson asked if a third party adjudicated
the appeals process. Mr. Watt responded that if the initial
appeals process was rejected the third party would
adjudicate.
Representative Kawasaki referred to page 6, subsection (a),
subsection (b), and subsection (C) of the bill that
described the multi-source drug appeals process. He read
directly from page 6, line 22, subsection (c) of the bill:
(c) A pharmacy benefits manager shall grant a network
pharmacy's appeal if an equivalent multi-source
generic drug is not available at a price at or below
the pharmacy benefits manager's list price from at
least one of the network pharmacy's contracted
wholesalers who operate in the state. If an appeal is
granted, the pharmacy benefits manager shall adjust
the reimbursement of the network pharmacy to equal the
pharmacy acquisition cost for each paid claim included
in the appeal.
Representative Kawasaki asked who the network pharmacy's
contracted wholesalers in the state were. He surmised that
the word shall mandated an appeal regardless of the
circumstances. He asked for Mr. Watts to comment. Dr. Watts
answered that a contracted wholesaler was a drug wholesaler
with the ability to sell within the state of Alaska.
Representative Kawasaki asked if there were many
wholesalers in the state. Mr. Watts responded that only one
major wholesaler operating within the state and other
wholesalers resided outside the state.
3:10:40 PM
Representative Kawasaki asked for further clarification
about the word shall. Dr. Watts provided an example. He
related that he had dispensed a medication with an $88.00
loss. He submitted the appeal to the PBM stating that the
MAC price was set too low for the Alaskan market. If the
PBM determined that the drug was available in Alaska for at
or below the MAC price he was not entitled to the
adjustment. Representative Kawasaki asked how an
independent pharmacy made money. Mr. Watts relayed that if
he didn't have a pharmacy license he would not want to
currently own a pharmacy. He stated that "it was not a good
business model at this time." He hoped that he would be
able to sell the medication above his purchase price.
Representative Guttenberg asked what other audit findings
cost pharmacists money besides drug price differences. Dr.
Watts responded that findings related to the correct days
supply and clerical issues causing the PBM to "take back"
the entire amount paid for the prescription when the error
only related to one day.
3:14:34 PM
Representative Guttenberg asked for clarification. Mr.
Watts answered that the PBM initially paid for the
prescription, but the audit result called for recoupment of
some of the funds, but the entire cost of the prescription
was taken.
In response to a question by, Co-Chair Seaton, Mr. Watts
restated the scenario that caused the recoupment of funds.
He relayed that payment was made to the pharmacy for a
filled prescription and after the audit, the money was
recouped back to the PBM, but he did not know whether the
money was returned to the plan. Co-Chair Seaton wanted to
determine whether the PBM was acting as if no prescription
was filled because they recouped the entire amount and the
PBM "did not pay for the drug at all." He wondered what the
PBM did with the funds and whether they repaid the plan and
made any profit from the scenario.
3:18:05 PM
AT EASE
3:18:44 PM
RECONVENED
WILL WHITEHEAD, FOODLAND PHARMACY, JUNEAU, spoke in favor
of the bill. He stated that HB 240 was not only about
protecting Alaskan pharmacies but also shed light on how
PBMs operated so the health care plans could make well
informed decisions. He voiced that PBMs had no oversight
and had a "conflict of interest" because they owned the
mail order service; the PBM was administering and filling
prescriptions under the plan. He provided an example. He
had recently filled a prescription for a generic medication
for an AlaskaCare member. The patient had a $45.02 copay
that represented 20 percent of what AlaskaCare paid for the
prescription that totaled $225.10. The pharmacy only
received the copay amount and no other reimbursement
amount. The pharmacy paid $35.07, therefore the PBM made
$180.08 and the pharmacy made $9.95. He emphasized that the
MAC price was set by the PBM and they could change or
adjust it at any time. He stated that the PBMs manipulated
the price to overcharge plans. He shared that he had filled
the exact same prescription in the same day for one active
state employee and one state retiree. The PBM "increased
the MAC price on the active employee in order to get the
copay amount up to the minimum level so they [PBM] could do
this upcharge and spread."
Representative Pruitt asked why PBMs existed. Mr. Whitehead
replied that the PBMs served an important role in a complex
system. He expounded that the PBM negotiated rebates from
the manufacturers for pharmacy networks because it would be
difficult for insurance companies to negotiate with
pharmacies individually.
3:22:35 PM
Representative Pruitt referred to an article [no source
stated] that concluded that PBMs no longer served a
purpose. He asked whether Mr. Whitehead felt PBMs still had
a purpose. Mr. Whitehead indicated that PBMs were necessary
for contracting purposes. Representative Pruitt related
that a similar situation existed in other industries. He
felt that the legislature was placed "in the middle of two
separate entities that had almost a feud amongst
themselves?" He asked whether there were aspects of the
bill both sides agreed on. Mr. Whitehead was unable to
answer for the PBMs. Representative Pruitt asked whether
there had been an attempt to get the issue resolved without
legislative intervention. Mr. Whitehead stated that the
PBMs did not respond to requests for negotiations.
Representative Pruitt maintained that he was not an expert
on the issue and was expected to mediate the issue as a
legislator. He wanted the two parties to work out the
issues amongst themselves.
3:24:57 PM
LEIF HOLM, PHARMACY OWNER, CHAIR, BOARD OF PHARMACY, NORTH
POLE (via teleconference), spoke in support of the
legislation. He relayed that he owned a pharmacy and was
the chair of the Board of Pharmacy in Alaska. He reported
that he owned three pharmacies in Fairbanks and North Pole
and expanded as a "telepharmacy" in a rural community. He
voiced that he was testifying from two positions: as an
independent community pharmacy owner and board chair. He
hoped that the telepharmacy model would extend pharmacy
services to underserved rural communities. However, current
PBM practices threatened the model and the existing
community pharmacies all over Alaska. He felt that the
legislation was not complex but how PBMs operated and its
affect on pharmacies was complicated. He recounted that the
bill provided for fair audit practices and took steps in
creating a pricing structure that was more transparent and
favorable to the pharmacists' purchase price. He believed
that the bill would curb negative reimbursements that
devastated community pharmacies. In addition, the bill
created a fairer reimbursement process that called for an
independent third-party review. He turned to his role as
the pharmacy board chair. He relayed that the board's
mission was to provide for the safety of Alaskans regarding
medications. The PBM's activities threatened access to
patient care if community pharmacies could not sustain
themselves due to the control the PBMs exert over them. He
was uncertain that his telepharmacy could remain open for a
year. He addressed previous comments he had heard during
the meeting. He emphasized that there was no opportunity
for contract negotiations with PBMS, appeals were typically
99 percent denied, and pricing lacked transparency. He
dealt with many reputable wholesalers and could not find a
price that met the reimbursable amount, which was time
consuming. He reiterated that the bill did not interfere
with finding fraud. He reported that the state spent $250
million on medications and included the costs for the mail
order pharmacy prescriptions owned by the PBMs. He stressed
that most of the millions paid to the PBMs were located out
of state. He commented that he still had many difficulties
with the state's plan. He declared that no other business
was expected to sell products at the same price paid for
it. He related a situation where he purchased a medication
for $29,000 made $50 on the transaction and waited weeks
for payment. He mentioned receiving negative
reimbursements. He believed the model was flawed and
"completely unsustainable." He thanked members for their
support of the bill.
Representative Wilson asked whether PBMs were always able
to fill prescriptions or if the practice evolved over time.
Dr. Holm reported that the practice evolved over time.
Representative Wilson asked whether the pharmacy board had
reached out to the PBMs within in the parameters allowed.
Dr. Holm responded in the negative and added that
reimbursements were not addressed by the board. He
communicated the board was concerned over patient access
impacts related to PBM practices.
3:32:54 PM
Co-Chair Seaton queried whether posting the MAC prices
daily would mitigate some issues. Dr. Holm responded that
the listing would be beneficial. He reported that generic
drug prices often took dramatic swings overnight and that
"any transparency would help." Co-Chair Seaton asked
whether prohibiting PBMs from the mail order business would
alleviate the pricing problems. Dr. Holm thought that would
be difficult to legislate because PBM mail order business
had become a "juggernaut". He noted that mail order
pharmacies do not work well in Alaska. Many of his
customers were either getting too much or not enough of
their medication and it lacked responsiveness to patients
needs. He shared that many of his customers would prefer to
deal with the community pharmacy, but the insurance
companies prohibited the pharmacies from sending out
prescriptions.
3:35:58 PM
Co-Chair Foster OPENED Public Testimony.
3:36:05 PM
ALLIEJO SHIPMAN, National Community Pharmacy Association,
WASHINGTON DC (via teleconference), stated the association
strongly supported the legislation. She read from a
prepared statement:
Good afternoon Mr. Chairman and members of the
committee.
My name is Allie Jo Shipman, and I am speaking on
behalf of the National Community Pharmacists
Association in strong support of House Bill 240. NCPA
represents the interests of America's community
pharmacists, including the owners of more than 22,000
independent community pharmacies across the United
States and in Alaska. NCPA has long championed the
need for greater oversight of pharmacy benefits
managers (PBMs) and many of their questionable
business practices due to the problems our members and
their patients encounter.
While there is a wealth of information I could provide
in support of the provisions included in House Bill
240, my testimony today will focus on information
related to the fiscal impact of the bill on the state.
The PBM industry continues to claim that requiring
greater transparency and reporting of generic drug
prices will result in increased costs to the state and
the overall healthcare system. NCPA asserts that
reporting of such information would not increase
costs, and we offer the following information from
independent and reputable sources as support:
The U.S. Center for Medicare and Medicaid Services, or
CMS, has said the following about generic drug pricing
transparency:
? "Updating maximum allowable cost prices for drugs at
least every 7 days generally should have a downward
pressure on overall drug costs."
? "We [CMS] do not agree with the commenters that the
requirement will necessarily increase costs"
Consumers Union has said the following:
? "Audits and industry analysts have found some PBMs
pocketing 50 percent or more of the price difference
between what the PBM actually pays a pharmacy for
prescriptions and what they charge their clients the
employer and consumer."
? "?today's complex and opaque contract arrangements
and pricing spreads increase costs to employers and
health plan enrollees and can lead to formulary
designs that inappropriately incentivize consumers
toward or away from certain medication choices."
The U.S. Department of Health and Human Services,
Centers for Disease Control and Prevention, National
Center of Health Statistics, has said the following:
? "Approximately 10 percent of our nation's health
spending is for outpatient prescription drugs and
clear, transparent information about clinical
effectiveness and pricing are paramount in ensuring
that we spend this money wisely. But ? the opaque
business practices that are commonplace in the PBM
industry can result in unfair arrangements between
employers and PBMs. Lacking a ready ability to audit
these business practices, the arrangements can drive
up costs for both employers and consumers and has the
potential to put the wrong prescription drugs into
consumers' hands."
None of these comments are pharmacy funded or biased,
yet all conclude that increasing transparency for
generic drug pricing or contracting would NOT result
in a cost increase, but instead that the current non-
transparent system is resulting in millions of dollars
blindly going to PBMs.
Also, to our knowledge, none of the 34 states that
have already enacted similar legislation have reported
a negative fiscal impact or repealed the law due to
costs. In fact, several of those states have decided
to STRENGTHEN provisions in the laws they already
have.
In conclusion, we believe House Bill 240 would not
drive up costs for the state. We believe it would
simply allow for a reasonable degree of transparency
and reporting so that Alaska's small business owners
and health care providers have access to pricing lists
that accurately reflect current marketplace figures.
Thank you.
Representative Pruitt restated his question regarding
whether there were provisions in the legislation that the
association and the PBMs could agree on. Ms. Shipman
related that the drastic price reductions that Alaskan
pharmacist had previously alluded to happened in most other
states. When the association attempted to contact the PBMs
in response to the price incident or any other they did not
receive a response. She reported that the association had
worked with the Centers for Medicare & Medicaid Services
(CMS); who required a MAC pricing update every seven days
for Medicare. She commented that it was often difficult to
reach PBMs on a national level but stated that it was
sometimes possible on a state to state level.
3:42:11 PM
Representative Pruitt deemed that the bill was before the
committee because of unreconcilable differences. He asked
whether PBMs would come to an agreement or compromise on
issues addressed in the bill now that the problems were
being discussed in the legislative arena. Ms. Shipman
answered that she could not speak to conversations or
negotiations between Alaska pharmacies and PDMs. She
believed the question would be better directed to ACPA. She
had not been part of the conversation in Alaska. She was
aware that her experience in other states was that once a
bill was introduced PBMs were more willing to find
negotiated compromises.
Representative Wilson asked whether the association was
more concerned that PDMs were making too much money or if
the issue was transparency. Ms. Shipman replied that the
issue related to fairness. She offered that pharmacists
engaged in good business practices by purchasing drugs at
the lowest possible cost. The inadequate reimbursement
practices led to an unsustainable business model for
pharmacists. She concluded that the issue was about
transparency, fairness, and creating a level playing field
for pharmacists. Representative Wilson surmised that Ms.
Shipman accepted the PBMs making huge profits providing the
pharmacist knew the reimbursement costs and recouped
profit. She asked if a pricing list was published and a
fair audit and appeals process was established, the two
requirements would be "game changers." Ms. Shipmen could
not speak to the level of profits that PBMs made. She
communicated that she wanted to ensure that the provisions
in the bill resulted in the pharmacies receiving fair
treatment.
3:46:45 PM
RICHARD PONESSE, SENIOR DIRECTOR, FINANCE GROUP, CVS
CAREMARK, PHOENIX (via teleconference), related that had
been in the business for over 25 years. He asserted that
PBMs were an "important part of the healthcare delivery
system," lowered net plan costs, assisted private, state,
and federal employer's affordable healthcare, and provided
coverage for as many people as possible. He believed that
PBMs delivered "the lowest net plan costs with the best
health outcomes." He argued that PBM's played an important
aspect in the delivery of drugs through drug utilization
review programs. He contended that the independent
pharmacies were critical to PBMs by adding enough
pharmacies to the network to provide services to the plans
members. He indicated that he oversaw the entire CVS MAC
team and was not afraid of fair MAC laws that addressed
some of the issues. He purported that some PBMs "did not
always play by the rules." He was concerned when there were
certain provisions in MAC bills that would increase costs.
He was not in favor of third party involvement in the
appeals process or granting an award if a pharmacist can
prove the reimbursement price was lower than an obtainable
purchase price. He had heard from pharmacists that there
was only one major wholesaler in Alaska, He believed that
such a law would drive up wholesale drug prices across the
board. He shared that major wholesalers frequently operated
using several different wholesaler price lists. He
maintained that it was "impossible" for PBMs to know all
the wholesale prices. He used his industry knowledge and
information provided by wholesalers to set MAC prices at a
reasonable reimbursement rate to provide the lowest net
plan cost and a profit for pharmacies. He explained that
MAC Lists existed because when a drug's patent expired
multiple manufacturers entered the market and charged
different prices for the same drug. The MAC pricing
structure was created to establish the best buying
practices across the industry. He averred that he should
not be forced to raise reimbursement rates, impacting plan
costs because one pharmacist was not able to purchase drugs
"as aggressively" as possible. He agreed that PBMs were not
without fault. He did not disagree with every MAC law. He
reiterated that he supported fair MAC laws and was always
in compliance with the laws. He opposed certain provisions
that increased reimbursement rates based on pharmacists'
drug invoices. He maintained that pharmacist received
rebates from wholesalers. He relayed that manufacturers'
pricing varied with pharmacies pricing method preferences.
He announced that there was not a monolithic price list
that showed what everyone paid for a drug within the
industry. He was aware the industry was complex and no one
law could address the issue. He contended that the
provision would increase costs.
3:54:22 PM
Representative Wilson was glad Mr. Ponesse was prepared to
work with pharmacists. She inferred from his testimony that
he would willingly provide a drug list. Mr. Ponesse
responded that he already provided the MAC list via a
portal that any pharmacist could access and find the
reimbursement rates. Representative Wilson assumed that the
list was kept current daily. Mr. Ponesse replied in the
affirmative and stated that he changed his MAC list weekly.
He also had a portal for the appeals process.
Representative Wilson asked whether the "audit procedures
and penalty matrix" was the same for every pharmacy. Mr.
Ponesse was not an expert on audits and could not answer
the question. Representative Wilson asked for follow up on
the question. She requested information on the number of
appeals received and how many were granted. Mr. Ponesse
agreed to provide the answers.
3:56:18 PM
Representative Ortiz referred to Mr. Ponesse's testimony in
support of independent pharmacies. He cited testimony that
reported the significant decrease in independent pharmacies
and noted that the pharmacists supported the bill as a
partial anecdote to the decline. He asked whether he
disagreed that the bill could mitigate some of the
pharmacist's problems or was he aware of other reasons for
the decline in independent pharmacies. Mr. Ponesse was not
familiar with the data and did not know if the information
regarding the decrease in pharmacies was accurate. He had
current data that showed an increase in independent
pharmacies in his network over the last 7 years and other
data to suggest that the number of independent pharmacies
had grown in other states. Representative Ortiz asked Mr.
Ponesse to point out the specific points he disagreed with
in HB 240. Mr. Ponesse responded that he disagreed with the
provisions relating to the appeals process and setting up
an independent board that overruled the appeal denial based
on a pharmacist's invoice that showed insufficient cost
recovery. He believed that the provisions increased plan
costs and incentivized wholesalers to increase their costs.
3:58:52 PM
Representative Pruitt wanted to better understand Mr.
Ponesse's testimony. He reiterated his question regarding
both sides finding agreement on some provisions in the
bill. He surmised that Mr. Ponesse thought that certain
aspects of the bill went "too far." Mr. Ponesse responded
in the affirmative. He supported legislation that required
PBMs to operate on a level playing field, allowed
pharmacists to see pricing before a claim was adjudicated,
and to respond to an appeal within a certain number of
days. He opposed provisions that he was certain would
increase costs. Representative Pruitt asked whether he had
spoken with a representative for the independent Alaskan
pharmacists and discussed the issues. Mr. Ponesse responded
in the negative. Representative Pruitt thought there was
still an opportunity for the parties to come to an
agreement. He was concerned about the pharmacists'
testimony regarding a lack of appeals process. He wondered
if he or someone else from CVS could help address and
remedy the appeals issue. Mr. Ponesse agreed to ask the CVS
retail network staff and auditors to talk with the
independent pharmacists to access the issues and try to
address the audit provisions in a manner that worked for
both parties.
4:02:32 PM
Representative Guttenberg had heard pharmacist testimony
relating that PBMs did not offer phone representatives to
help address the pharmacists' concerns. He asked if Mr.
Ponesse was aware of the issue. Mr. Ponesse answered in the
affirmative and added that CVS could not address the issues
in such a manner nor handle the volume of calls.
Representative Guttenberg asked whether Mr. Ponesse thought
that offering phone assistance might have solved the
problems. Mr. Ponesse responded in the negative.
Representative Ortiz referred to slide 12 that highlighted
states that adopted fair pharmacy audit legislation and
reported that most of the states were represented. He
suggested that HB 240 was similar to legislation other
states had adopted. He wondered whether PBMs had been
negatively impacted by the legislation adopted in other
states. Mr. Ponesse was unable to answer the question.
4:05:34 PM
JUSTIN RUFFRIDGE, PHARMACIST, SOLDOTNA PROFESSIONAL
PHARMACY, SOLDOTNA (via teleconference), supported the
legislation. He stated that he owned a pharmacy in Soldotna
and the Juneau Drug Company. He wanted to respond to some
of the testimony that he had heard from Mr. Ponesse. He
compared the process of pharmacists calling PBMs to
patients trying to find problem resolution via phone calls
to their health insurance company but occurring daily
multiple times each day. He declared that pharmacists were
not offered access to the PBMs. He emphasized that the
issues were "not a disagreement between equal parties." The
small pharmacists were "in a take it or leave it
agreements" with the PBMs. He stressed that the issues
would not exist today nor would the necessity for
legislation if the parties were equal and issues were
addressed by the PBMs. He voiced that "in so many ways the
pharmacists have become the subservient parties in the
negotiations." He referred to Mr. Ponesse's statement
regarding PBMs reviewing clinical outcomes and he "had
never seen that happen." He declared that pharmacists
addressed clinical outcomes every day. He reported that he
helped people daily with a variety of health issues from
hospice care to asthma. He only wanted fair and transparent
cooperation with PBMs. He stated that costs did not
increase in other states that enacted similar legislation
and wondered why legislation was necessary to access price
information. He believed that competition created lower
prices and not artificially created MAC pricing that
completely controlled the system. He did not feel the
situation was the proper way to provide medicine for the
country. He turned to his prepared testimony. He currently
had worked in the state for 10 years after graduating from
college and returning home. He believed that independent
pharmacists were unique and "wanted to be an integral part
of their communities." He listed all the ways the
pharmacists serve their communities in their jobs and
through volunteer efforts. He voiced that "pharmacy had
always been about community." However, the independent
pharmacists "new normal" was spending more time on audits
and "worrying whether they could stay in business." He
relayed that the PBMs "incessantly" send notices and
requests to pharmacies and in the current week, he had sent
60 pages of audits to three PBMs. He acknowledged that
audits played an important role in discovering fraud and
that there were bad actors. He emphasized that the
pharmacists that testified were not the ones committing
fraud and abuse. The pharmacists were asking for
transparency and fairness in the process. Audits were
necessary and a structure for how, why, and when they
occurred was also imperative. He reported that PBMs often
used audits to question "high dollar claims." He relayed
from his experience receiving an audit request that went
back 3 years. The PBM flagged 20 prescriptions out of 1,000
and all were claims for medications costing greater than
$1,500. He thought the incident exemplified that the audits
were not "fair or random." He shared that the CVS portal
for MAC pricing required a lot of information input before
the price was revealed. He emphasized that despite the MAC
price he dispensed the medicine because he wanted to help
people. He commented that the legislation allowed
pharmacies to appeal prices that were below their
acquisition prices and created a method to balance the
scale. No one knew how the MAC prices were generated and
they were not "based on reality." He believed the PBMs
applied "pressure" on the independent pharmacists and used
MAC pricing as a tool. Most PBMs currently offer nationwide
prescription distribution in the form of large centrally
located mail order pharmacies. However, the service was not
comparable to the service community pharmacies provided. He
stressed that losing local pharmacies was bad for the
state's economy and the communities they serve. He urged
members to put the legislation in place to protect local
pharmacies, encourage fair and just audit practices, and
enforce transparency in the pricing of medication.
4:14:04 PM
Representative Wilson deduced that the larger issue was the
pharmacy not being reimbursed for at least the cost of the
medication due to lack of access to lower prices. Dr.
Ruffridge responded in the affirmative. He offered that it
would be "absurd" for pharmacists to purchase drugs at
their highest price; they always sought the lowest prices.
He commented that when he used the portal to find a
reimbursement cost and it was lower than his purchase price
he still dispensed the medication and "he did it all day,
every day." He reported that 19 percent of the medications
he dispensed did not return his costs. He reiterated that
his appeals were left completely unanswered. He was
discouraged by the situation. In response to Mr. Ponesse's
testimony he pointed out that the bill was not about just
producing one invoice and demanding more reimbursement. He
interpreted the provision as gaining information regarding
where he could purchase the drugs at a lower cost. He
emphasized that pharmacists did not want to raise the cost
of health care. He reiterated that it was impossible to
determine where the MAC pricing came from.
4:16:38 PM
Representative Wilson was trying to understand if PBMs were
able to get prescriptions to Alaskans at lower costs
through mail order. Dr. Ruffridge answered that it was an
excellent question. He characterized drug pricing as a
"mess." In some cases, PBMs that operated a large centrally
located mail order pharmacy would "in appearance" offer
medications at a lower cost to incentivize the use of the
mail order pharmacy; PBMs charged a higher copay if the
patient used a retail pharmacy. However, the cost of the
medication did not change because they were purchased from
wholesalers of PBMs that had shareholder stakes in
wholesaler companies with a few exceptions. The acquisition
of drugs came from wholesalers who might offer a large PBM
a slightly lower rate but would not offer the rate to
smaller pharmacies. The PBM's profit margin came from the
discount rates. He referenced articles in the New York
Times, Washington Post, and other outlets that delineated
how PBMs profited.
4:19:42 PM
DIRK WHITE, PHARMACIST, SITKA (via teleconference), spoke
in support of the bill. He shared that he and his wife were
both pharmacists in Sitka and employed 30 people between
two pharmacies. He previously served two terms on the Board
of Pharmacy, one as Chairman. Their son was currently in
pharmacy school. He relayed that many states had passed
similar legislation and subsequently "tightened up" the
statue. He surmised that if there had been increases in
health and prescription costs the legislation would be
modified instead of tightened. He mentioned the MAC
reimbursement rate. Alaska was unique because pharmacists
paid air freight for their drug deliveries versus
pharmacies in the contiguous states that received same day
ground deliver. The Alaskan pharmacists were carrying more
inventory and paying more freight costs not factored into
their reimbursement costs. He spoke to member's calls for
negotiations. He relayed that in a prior year numerous
lengthy teleconference discussions took place between PBMs
and pharmacists related to an audit bill. The pharmacists
thought agreement had been reached but ultimately, none of
the PBMs had changed their position on the bill and they
were all against it. The conversations had been
unproductive.
Mr. White continued that the pharmacies were required to
reimburse proscriptions that were not picked up. He put the
inventory back on the shelf and the payment was reimbursed.
He shared that three weeks earlier he received a statement
from the PBM where they had taken back the copay from the
returned inventory, which the patient never paid. The
pharmacy technician spent 6 hours on the phoned dealing
with the PBM over the issue. He emphasized that
registration, standardized rules, transparency, and fair
reimbursement practices were necessary to create a level
playing field, so he can remain in business and pay his
employees. He shared that he paid $12 thousand per month to
provide health care benefits for his employees. He spoke in
support for the Division of Insurance to be an arbiter so
the pharmacist "had someone to turn to that could be our
ombudsman" when dealing with the "nebulous" corporations
that "turn a deaf ear" to the pharmacists needs.
4:25:53 PM
JERRY BROWN, SELF, FAIRBANKS (via teleconference), was
speaking on behalf of his wife, Nancy Brown. He shared that
they owned the Medical Center Pharmacy in Fairbanks and had
been in the industry for 40 years. He relayed that in the
1970's only about 30 percent of insurers covered
prescription drugs and currently 95 percent of insurance
provided coverage. He voiced that drug costs were
approximately 10 percent of the total health care dollars
spent and last year total drug costs totaled $260 million.
He reported that the plan sponsor only received a small
percent of the rebate and the PBMs kept the remainder
possibly up to 35 percent or more of the total cost. The
bill aimed at bringing transparency to the situation. He
shared that his pharmacy lost over $33 thousand in negative
reimbursements or 25.5 percent of all claims he submitted.
He reported that the chain pharmacies were experiencing the
same issues but sold large volumes of other items. He
stated that the issue was vital to the survival of his
small pharmacy. He received between $0.25 and $1. in
dispensing fees. His business was barely keeping up with
the costs of medication. He commented that if he went to a
bank with financials showing that 25 percent of the time he
made no profit or had negative reimbursements the banker
would asked, "Why be in business?" The PBMs were some of
the top corporations in the nation. They were not hurting
for profit. He quoted that PBMs paid their CEOs $9 million
to $66 million in bonuses in 2017. He suggested that the
profit came from rebates that operated in a Blackbox and a
"pay to play" scenario for the drug companies for
preferential treatment. He found the system "fundamentally
wrong" and that drugs should be chosen because it was in
the best interest of the patient not the PBM. He cited Mr.
Ponesse's testimony regarding lowering costs to the
sponsor. He argued that PBMs had a conflict: they owned the
mail order pharmacies. He informed committee members that
many state employee plans included a provision that only
allowed two Alaskan pharmacy visits, after that the plan
would not reimburse or cover the medication from an Alaskan
pharmacy. The beneficiary must use the mail order pharmacy
to obtain coverage. He noted several states where the mail
order companies were located who profited from the Alaskan
plans. He characterized the PBMs mail order business and
contract provision as "double dipping" and unfair. The
issue was not address in the current bill.
Mr. Brown continued by relating contract issues between
pharmacies an PBMs. He communicated that previously the
contracts were long detailed documents. He recently
received a contract that was "boiled down to one
paragraph." He paraphrased that the pharmacist was asked to
disregard previous contracts and included language stating
that the insurer established the rules, set the
reimbursement prices, and the prices could change at any
time without notification. He agreed that the contract was
a take it or leave it contract. He wondered how the MAC
prices were established and speculated they were using data
from the lowest priced drugs in the country; VA pharmacies,
the federal Department of Defense, chain pharmacies, Indian
Health, etc. The MAC prices he received were anywhere from
ten cents to fifty cents on the dollar of his purchase
price. He delineated that if his cost was $100 the MAC was
$50. He countered that he never saw a MAC price list and
was never told how they developed the prices. He emphasized
that the PBMs were not held accountable for an explanation
on how they derived the MAC pricing. His appeals were
answered by a terse statement that he read: "Price remains
on CVS health review of current market price range." He had
submitted over 240 appeals in the last four months, and he
had not received one change resulting from those appeals;
the adjustment still resulted in a negative balance. He
noted the difficulty in recouping the lost revenue and
expressed much dissatisfaction with MAC pricing and lack of
transparency. He referred to the updated MAC list released
on January 10, 2018 that was actually released in February
with only two adjusted prices and more recent MAC pricing,
which only reverted to the June 2017 level, before the MAC
pricing took a dramatic drop for four months. He wanted
transparency in the process. He maintained that Alaskan
retail pharmacies were subsidizing the PBMs who were
extremely profitable. He reported that his pharmacy had a
loss for every 1 in 4 prescriptions.
Co-Chair Foster invited testifiers to submit written
testimony.
4:42:30 PM
BILL HEAD, PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,
WASHINGTON DC (via teleconference), wanted to clarify "what
PBMs do." He maintained that PBMs do not purchase, store,
or distribute drugs nor set drug prices. He voiced that
PBMs serviced health plans that included employers, unions,
government plans, and Medicare Part B. He explained that
the health plan determined the benefit package. The
contract between the health plan and the PBM was
"completely transparent" to the plan. The PBM was audited
by the plan to determine whether it was abiding by the
terms of the contract. The terms of the contract always
required PBMS to conduct audits. He indicated that the
current state RPF (request for proposal) called for a
"robust fraud and abuse program." The rebates from the
manufacturer and savings from fraud detection went to the
employer resulting in lower premiums and copays. He pointed
out that the cost of prescription drugs had risen
dramatically since 2007; a 6 percent to 8 percent increase
per year. The PBMs had limited the increase for the plans
by 2 percent to 4 percent. He expressed interest in
participating in negotiations between the stakeholders. The
association had negotiated MAC and audit bills in 40
states. The Alaska bill was unique. He argued that it was
disingenuous to say that the bill had guidelines and not
regulations. There had not been an audit program that
placed the arbiter position in the Division of Insurance.
He believed that legitimate concerns were expressed. He
countered that transparency lead to collusion and anti-
competitive behavior. He relayed that the Federal Trade
Commission (FTC) concluded that transparency risked
increasing costs for health plans.
4:48:50 PM
Representative Wilson asked if the incentives were
reimbursed to the insurance companies. Mr. Head responded
that what was done with the money was decided by the health
plan that audited the PBM; the money could not be hidden or
misdirected. Representative Wilson asked why they would not
want 100 percent refunded. Mr. Head replied that the
reasons varied by plan and often benefitted the plans
health premium. Representative Wilson asked if he thought
the Alaskan pharmacists "had concerns over nothing." Mr.
Head apologized if he implied that. He stated that
regarding MAC pricing "you can't just pay every pharmacy
what they would like to get reimbursed? PBMs were just the
servicer for the client?" and indicated that plans costs
would increase. He reiterated that CVS issued a MAC price
list every 7 days. He restated that PBMs needed Alaskan
pharmacies in the network. Representative Wilson thought it
was "pretty disrespectful" to state that Alaskan
pharmacists "would take as much as they wanted" when they
were merely asking for fair reimbursement. She favored his
willingness to negotiate. She requested that he forward
information detailing what provisions he favored or opposed
in the bill.
4:52:50 PM
TOM WADSWORTH, SELF, EAGLE RIVER (via teleconference),
spoke in favor of the legislation. He relayed that he was
the assistant dean for the University of Alaska Anchorage
(UAA) Doctor of Pharmacy program and emphasized that he was
speaking on his own behalf. He thought similar bills had
come before the legislature at least 4 times prior to HB
240. He agreed with all the concerns expressed by the
previous pharmacist's testimony. He knew all the previous
testifiers and shared that they were stellar members of
their communities and "ran competent and caring" community
pharmacies. He reported that UAA's pharmacy program was new
and in 2020 the first graduating class of 5 pharmacists
would be the first Alaskan pharmacist raised and educated
in the state. He wanted to graduate competent and caring
Alaskan pharmacist that would serve rural and underserved
communities in the state. He stressed that due to the
current reimbursement policies independent pharmacies were
breathing their "last gasps" and would be extinct very
soon. He referred to Mr. Ponesse's testimony and speculated
that CVS was hoping the legislature would "kick the can
down the road" for another year and was not genuinely
interested in transparency. He believed that PBMs do serve
a purpose, but "it was not hard to see? who was getting fat
and who was starving?" He believed the bill was long
overdue. He reiterated his support of the legislation.
4:57:34 PM
Co-Chair Foster indicated he would keep public testimony
open. He relayed that the committee was waiting for the
actuarial analysis from DOA and its fiscal note would be
updated.
4:58:37 PM
HB 240 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day.
ADJOURNMENT
5:00:01 PM
The meeting was adjourned at 5:00 p.m.