Legislature(2011 - 2012)BELTZ 105 (TSBldg)
03/06/2012 01:30 PM Senate LABOR & COMMERCE
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| SB217 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 217 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 6, 2012
1:38 p.m.
MEMBERS PRESENT
Senator Dennis Egan, Chair
Senator Joe Paskvan, Vice Chair
Senator Linda Menard
Senator Bettye Davis
MEMBERS ABSENT
Senator Cathy Giessel
COMMITTEE CALENDAR
SENATE BILL NO. 217
"An Act establishing procedures and guidelines for auditing
pharmacy records; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 217
SHORT TITLE: PHARMACY AUDITS
SPONSOR(s): LABOR & COMMERCE
02/22/12 (S) READ THE FIRST TIME - REFERRALS
02/22/12 (S) L&C, FIN
03/01/12 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
03/01/12 (S) Heard & Held
03/01/12 (S) MINUTE(L&C)
03/06/12 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
LIS HAUCHEN, Northwest Regional Director
National Association of Chain Drug Stores (NACDS)
Olympia, WA
POSITION STATEMENT: Supported SB 217.
MICHAEL CARTIER, Executive Vice President
Envision Pharmaceutical Services
Sacramento, CA
POSITION STATEMENT: Testified in opposition to SB 217.
CHAD HOPE, Alaskan Pharmacist and Manager
Medicaid Program
Department of Health and Social Services (DHSS)
Anchorage, AK
POSITION STATEMENT: Commented on how SB 217 would affect
Alaska's Medicaid program.
AMY BRICKER, Senior Director
Network Auditors
Express Scripts
St. Louis, MO
POSITION STATEMENT: Opposed to SB 217.
DAVID DEDERICHS, Director
Department of Government Affairs
Express Scripts
State of Minnesota
POSITION STATEMENT: Opposed SB 217.
ERIC DOUGLAS
CVS Caremark
Chicago, IL
POSITION STATEMENT: Opposed SB 217.
RICHARD HOLM, Chair
Alaska Board of Pharmacy
North Pole, AK
POSITION STATEMENT: Unanimously supported SB 217.
TOM HODEL
Soldotna Professional Pharmacy
Soldotna, AK
POSITION STATEMENT: Supported SB 217.
DIRK WHITE, Member
Board of Pharmacy
Sitka, AK
POSITION STATEMENT: Was available to answer questions on SB 217.
MARGARET SODEN
Alaska Pharmacists Association
Fairbanks, AK
POSITION STATEMENT: Supported SB 217.
MATTHEW DILORETO, Director
State Government Affairs
National Community Pharmacists Association (NCPA)
Olympia, WA
POSITION STATEMENT: Stated strong support for SB 217.
ACTION NARRATIVE
1:38:55 PM
CHAIR DENNIS EGAN called the Senate Labor and Commerce Standing
Committee meeting to order at 1:38 p.m. Present at the call to
order were Senators Paskvan, Menard, Davis and Chair Egan.
SB 217-PHARMACY AUDITS
1:39:15 PM
CHAIR EGAN announced the consideration of SB 217. He said the
committee would continue to hear public testimony, but would not
take final action on the bill today.
LIS HAUCHEN, Northwest Regional Director, National Association
of Chain Drug Stores (NACDS), Olympia, WA, noted that she had
submitted written testimony. She said of the 88 pharmacies in
Alaska, 54 of them are chains. NACDS represents Carrs, Costco,
Health Mart Systems, Target, Walgreens and Wal-Mart, all
operating in the State of Alaska.
She hit some of the highlights in SB 217 that sets up a standard
by which pharmacies are audited and allows for appeal in case of
disagreement. She stated that NACDS is not opposed to audits
based on fraud, unlawful billing practices and abuse.
She said she would focus her comments on the similarities
between SB 217 and a similar bill currently before the Utah
State Senate on which CareMark and Express Scripts have both
negotiated and agreed to. The notice in the Utah bill (HB 76) is
10 days, whereas the bill before this committee is two weeks.
Audits cannot take place without permission from the pharmacy in
the first 5 days of the month in Utah compared to the first 7
days in Alaska. The look back period for audits in Utah is
limited to 18 months, one of the negotiated points with Care
Mark and Express Scripts, versus the 24 month look back as
outlined in the Alaska legislation. Neither bill allows for the
collection of dispensing fees if the correct person received the
correct drug for the correct reason as prescribed. Both bills
require a 60-day preliminary audit finding to be submitted to
the pharmacy and both bills give 30 days for the pharmacies to
respond by either appealing the findings or providing additional
information. Both bills establish an appeals process for
appealing the preliminary findings; the Utah bill requires a
final audit 120 days after the appeal process, whereas the
Alaska bill requires the final audit within 90 days.
MS. HAUCHEN respectfully asked the committee to support SB 217
and said she would be happy to answer questions.
1:43:21 PM
MICHAEL CARTIER, Executive Vice President, Envision
Pharmaceutical Services, Sacramento, CA, said they are currently
providing comprehensive pharmacy services to State of Alaska
employees, retirees and dependents and opposed SB 217. He
explained that in Alaska they are responsible for the effective
administration of the pharmaceutical benefit; that includes the
oversight of the pharmacy network including audits. Some
colleagues view audits as a time consuming exercise, but they
are a necessary contractual requirement by their clients and
government payers.
He said Envision is both a pharmacy benefit management (PBM)
company and an insurance company licensed in Alaska to provide
benefits to Medicare beneficiaries. In that role, they follow
their contractual and regulatory requirements explicitly.
Responding to previous anecdotal testimony, Mr. Cartier
confirmed that within the scope of an audit they do not receive
any additional revenue stream or additional profits. Any monies
that are recovered are the property of a client or the
government sponsor and are passed back to them in their
entirety.
He said Envision does not use any methods where a small sample
of claims is extrapolated to an entire claim set to estimate
recoveries. They do not pay any auditor based on a percent of
audit savings identified or collected. Auditors are employees of
Envision. They do not identify miner clerical errors and use
them as a means to disqualify an entire claim. A clerical error
by itself has no ill intent if no harm is done to any of the
parties involved.
MR. CARTIER explained that dispensing fees are a part of the
reimbursement for a valid prescription claim and that
eliminating them from an audit recovery, if a claim is
determined to be invalid, would be a violation of federal
guidelines. He suggested the committee review the Academy of
Managed Care Pharmacies audit guidelines model for pharmacy
claims; this is a coalition of both insurers and retail
pharmacies, most notably the National Community Pharmacists
Association, which authored the model legislation in 15 or 20
other states. He thought it was an attempt to try to remove the
adversarial relationship that may exist between insurers, PBMs,
and retail pharmacies.
1:47:06 PM
SENATOR PASKVAN asked the shortest notice Envision has given in
the last three years.
MR. CARTIER replied Envision had not conducted an onsite audit
in Alaska in the last three years, but they had done some desk
audits, which are electronic.
SENATOR PASKVAN asked if he opposed the policy of a 14-day
notice period.
MR. CARTIER replied, "No. I think there should be a reasonable
notice period for both parties." Probably, the most frequently
used notice timeframe is 30 days.
SENATOR PASKVAN asked what specific portions of SB 217 Envision
didn't advocate for.
MR. CARTIER replied excluding dispensing fees, because in most
cases the dispensing fee is part of the reimbursement. Another
was requiring that the audit must be conducted by or in
consultation with a pharmacist licensed in the state. He also
clerical errors should be better defined.
SENATOR PASKVAN asked how much it costs for a California
pharmacist to be co-licensed under Alaska law or in more than
one state.
MR. CARTIER replied that pharmacists have to take a licensing
exam to maintain a license in more than one state. California
has its own exam and does not have reciprocity with other
states. You could take an exam that has reciprocity for many
states and thereby enjoy a joint licensing. It would have a fee
and have the costs associated with studying for the test.
SENATOR PASKVAN said he was trying to figure out if Alaska's
system is part of a multi-state exam.
MR. CARTIER deferred the question to someone on the Alaska Board
of Pharmacy.
1:51:30 PM
SENATOR PASKVAN said Envision is voluntarily providing pharmacy
care to the State of Alaska, and he wanted to know what is
onerous about a state requiring its auditors to be licensed
under the law of the state where they have voluntarily entered
to make money.
MR. CARTIER said he didn't know if there were any onerous
circumstances.
1:52:47 PM
CHAD HOPE, Alaskan Pharmacist and Manager, Medicaid Program,
Department of Health and Social Services (DHSS), Anchorage, AK,
stated that the department had no particular position on the
bill, but SB 217 would apply to the Medicaid program as well as
the PBMs. In that regard, there are some issues and potential
conflicts the committee should be aware of. He noted that he
submitted testimony in writing.
MR. HOPE said several provisions of this bill don't conflict
with current practices and can reasonably be accommodated, such
as giving 30 days' notice to an audit, and accommodating audit
schedules with a pharmacy's work flow. The DHSS has an
established appeals process and doesn't seek recovery of
overpayments until the appeals process has been exhausted, nor
does it charge interest on overpayments in that time.
However, he said, a couple of provisions appear to be in
conflict with the state's current practices or state or federal
law. He said the term "audit" is PMS driven and explained that
currently, the Medicaid program is involved with at least four
types of audits and the Medicaid Integrity Contractor audits
(MIC) for one have another federal component. The Recovery Audit
Contractor (RAC) audits established by the Affordable Care Act
have yet another function; and then there are audits under the
state law in AS 47.05.200 where the Medicaid program itself is
conducting the audits through a contractor. Each of these audits
has its own objective and wouldn't be able to adhere to the same
standards.
MR. HOPE said another section of concern in SB 217 was the
limitation on using extrapolation, because that is the most
efficient way of conducting pharmacy audits. He explained that
pharmacies generate significantly more claims than most provider
types and extrapolation allows DHSS to examine a large number of
claims without overly burdening the pharmacies or the
department. DHSS is not overly aggressive or abusive in the use
of extrapolation and does not apply a single average overpayment
to all pharmacy claims. They use what is called the "lower bound
of a 90th percentile one-sided confidence interval" statistics
rather than a mid-point or an average error factor. In simple
terms, it's a much less aggressive approach and extrapolates a
lower amount rather than a higher amount. Also, he noted that
the prohibition against recouping dispensing fees potentially
leads to the Medicaid program having to pay a pharmacy a
dispensing fee for a fraudulent claim that was never dispensed
to a recipient.
Finally, he said, the recovery audit contractors (RAC) audits is
a new type of audit that the Medicaid program is required to
conduct and they must by law be paid on a contingency fee basis.
1:57:05 PM
CHAIR EGAN said the bill drafter believed the bill did not apply
to Medicaid and a forthcoming CS would clarify that.
SENATOR PASKVAN asked if he agreed that Medicaid is entitled to
supremacy under the U.S. Constitution and federal law as to the
application of federal law.
MR. HOPE replied that his knowledge and application of law isn't
what it could be; he had been told that the federal audit would
potentially not be covered under this, but that state audits in
AS 47.05.200 potentially would.
1:58:26 PM
AMY BRICKER, Senior Director, Network Auditors, Express Scripts,
St. Louis, MO, stated opposition to SB 217. She said Express
Scripts uses extrapolation as part of the audit process that is
required by federal programs. They service the Tri-care benefit
for the Department of Defense and represent clients that are on
Medicare and Medicaid that exercise the right to extrapolate.
She said they don't conduct clinical audits. The bill mentions
that clinical judgment should be determined by an Alaskan
pharmacist and that is not part of the scope of their audits.
They have found that unintentional errors sometimes develop into
a trend or pattern and limiting their ability to audit will
limit their ability to identify fraud in the system.
MS. BRICKER said Express Scripts has only audited one-third of
one percent of all claims that were processed in Alaska. So this
is not onerous or overly burdensome for the pharmacy community.
Express Scripts looks at claims that "stick out" as outliers and
leverage their system to identify those claims; they don't pick
randomly.
2:01:03 PM
SENATOR PASKVAN asked the shortest notice Express Scripts has
given in the last three years.
MS. BRICKER replied they give a two-week notice for traditional
audits. If they believe there is fraud or abuse they don't give
any notice.
2:01:43 PM
DAVID DEDERICHS, Director, Department of Government Affairs,
Express Scripts, MN, testified in opposition to SB 217. He said
as a PBM, they administer the prescription drug benefit for over
50 million Americans. Their mission is simply to make drugs
safer and more affordable in the prescription sphere.
He said that some of their clients pertinent to Alaska include
Fortune 500 companies, labor unions and government entities;
Tri-Care with the U.S. Department of Defense is their largest
client. All 13 million active and retired military personnel and
their families receive their prescription drug benefit through
Express Scripts. The reason he mentioned this is because many of
those troops are stationed in Alaska.
MR. DEDERICHS said that retail pharmacies are integral to the
success of their company. They contract with over 56,000
pharmacies across the country to provide as much access as
possible to clients and ultimately their beneficiaries. They
adjudicate 750 million prescription transactions each year and
over 90 percent of those occur at the retail pharmacy level.
Pharmacies are a critical partner and Express Scripts' audits of
them are not capricious or random.
He said auditing is part of their clients' contractual
requirement to make sure they aren't paying for any unnecessary
pharmacy claims, whether that is through fraud, waste or abuse.
Sophisticated systems and algorithms are used to look for
"outlier crank claims" that can be found pretty easily in
pharmacy transactions. He said that 100 percent of recovered
funds go directly back to their clients and that Express Scripts
has an internal audit department and doesn't contract at all
with outside consultants. Audits are not a money generating
mechanism for them.
MR. DEDERICHS said their auditors are pharmacists and they
understand that pharmacists at the retail level are busy working
transportation, stocking shelves, filling orders and doing HR
work in addition to conducting their very important business.
Finally, he said SB 217 mandates contract terms which would be
more appropriately negotiated at a contracting table.
He clarified that in reference to an earlier comment Express
Scripts does not support Utah's audit bill and doesn't do
extrapolation as a company, but some of their federal programs
require them to do it. It is not done arbitrarily.
2:05:36 PM
ERIC DOUGLAS, CVS Caremark, Chicago, IL, noted that he had
submitted written testimony and didn't support SB 217. He said
CVS does not extrapolate under any circumstances and their
contracts have a thorough appeals process for every pharmacy
during the audit process. They do not collect interest on
audited claims and onsite audits are always conducted by a
licensed pharmacist. Their argument against having pharmacists
licensed in the State of Alaska conducting audits in Alaska is
that those pharmacists aren't filling prescriptions or
dispensing in Alaska when they are conducting an audit;
therefore, making them be licensed in Alaska isn't necessary. If
they were an actively practicing pharmacy, that would be the
case. In the instance where a mail order pharmacy is mailing
prescriptions into Alaska the pharmacists absolutely are
licensed by the Alaska Board of Pharmacy (because in that case
they are practicing pharmacy).
He noted that CVS Caremark opposed the bill as originally
drafted, but the only incorrect statement he heard from any CVS
was about the number of months allowed for an audit look back.
Utah uses a 24-month look back, but that provision was parsed
out, and 24 months is what all the other states' that have
passed audit laws use. The reason Utah parsed it out differently
was because the author wanted it that way. Express Scripts,
Medco and a couple of other PBMs still have issues with the Utah
bill, and to his knowledge, CVS Caremark is the only PBM that
has signed off on that bill.
SENATOR PASKVAN asked his thoughts generally on Alaska
establishing its own procedures and guidelines for auditing
pharmacy records.
MR. DOUGLAS answered that generally CVS Caremark's position is
that these provisions are better served for contracts rather
than being dictated by statute. He said he was always open to
discussing any provisions, but at this point CVS couldn't
support the bill.
2:09:41 PM
RICHARD HOLM, Chair, Alaska Board of Pharmacy, North Pole, AK,
stated that the board, at its February 17 meeting, unanimously
supported SB 217. The board felt that this is an industry that
has been too unregulated for too many years; there is very
little transparency in the way they operate. Envision currently
administers the state's pharmaceutical benefit, but it could be
a different company next year. For instance, from the state's
standpoint, these companies can tell you that all of the funds
they recover in an audit go back to the client, but there is no
way to check on that, and the state would like to be able to see
if the funds are truly being recovered. He said a lot of states
are moving in that direction.
2:12:00 PM
TOM HODEL, Soldotna Professional Pharmacy, Soldotna, AK, stated
support for SB 217. He described an audit he'd been going
through for the last year. In February 2011, he received notice
of a desk audit on over 100 prescriptions from the year 2008.
This letter came from a contracted firm hired by one of the
PBMs. After many hours of evening and weekend work, he pulled
all of the information and sent it into the audit company. A few
months later he was notified that they would also be performing
an onsite audit of his records. So in October, two auditors
arrived and he spent the entire day pulling records for them. He
was amazed at their lack of knowledge concerning pharmacy and
said they certainly weren't pharmacists.
Another month went by and he received their report. Out of the
over 100 prescriptions worth over $100,000 in claims they had an
issue with 4 prescriptions with a total of $85. He then got to
the last page and found out that they used an extrapolation
formula and that $85 turned into $7,300. He said one $40 error
was legitimate and he appealed the other three, because they
were "very nitpicky." They also rejected that.
MR. HODEL related that now, a few weeks ago, he received a
letter requesting him to send them a check for $7,300 in "so-
called over payments" by March 8, so he hired a lawyer to appeal
using the extrapolation method for this audit. Using it is
totally unfair as there has never been a pattern of sustained
high payment. He asked for their support of SB 217 that would
bring standards and fairness to the audit procedure.
DIRK WHITE, Member, Board of Pharmacy, Sitka, said he was
available to answer questions on SB 217.
2:14:51 PM
MARGARET SODEN, Alaska Pharmacists Association, Fairbanks, AK,
said she previously testified in support of SB 217 and had
submitted a letter describing an experience she had with an
audit. She said sometimes pharmacy audits are a little bit
complicated and require getting a lot of records that in
Fairbanks often means going out in the cold winds, and having
the 14-day notice would be helpful to Fairbanks pharmacists.{
2:16:20 PM
MATTHEW DILORETO, Director, State Government Affairs, National
Community Pharmacists Association (NCPA), Olympia, WA, stated
strong support for SB 217. He said NCPA represents about 23,000
community pharmacies nationwide and about 40 community
pharmacies in Alaska that are responsible for about $157 million
in revenue. He stated that NCPA is not against auditing
businesses; they fully understand that audits need to occur to
catch fraud, waste and abuse. But that is not what this
legislation is about; rather it's about PBMs that are over
aggressive in their auditing of community pharmacies and
pharmacies in general.
MR. DILORETO said it's their position that audits are a
moneymaker for the PBM industry that deals with major
corporations; for example, CVS Caremark in 2011 was a $97
billion industry. He said if they look into the real life
stories of community pharmacies they would see examples of what
is being discussed. One is the story of an NCPA member, a small
business owner, who was penalized $14,000 for not using a
physician's number in his computer system. The catch was that
this particular prescription was from a certified nurse
practitioner; so there was no physician number. The NCPA member
contacted his insurance company and was told everything was
okay, that he could use the RMP number. He also attached the
nurse practitioner's license to the prescription and documented
the phone call. Even after going through all these additional
steps, he was still hit with the audit and he had to settle for
$12,000. He said there are many other stories, and he had
personally dealt with audits up to $255,000 for nothing more
what is being called an administrative clerical error. That is
really what this legislation is about, fair and reasonable
standards on an audit practice.
One thing that is brought up frequently is the notice to prepare
for an audit and he said even the IRS gives a person two-week's
notice for their audits. This is definitely being discussed in
other states, and Utah is one of them; 15 states currently have
passed fair legislation. Two other states contacted him today to
strengthen their audit provisions.
He pointed out that NCPA sat on a committee that someone had
said they developed some other guidelines that could possibly be
looked at by Alaska, but that is inaccurate. NCPA was involved,
but had strong concerns with what was presented at the end of
that report and felt it didn't go far enough in addressing the
issues.
CHAIR EGAN, finding no questions, said that completed public
testimony and the he would take action when legislators returned
from their conferences.
2:22:10 PM
SENATOR DAVIS said she had no problems with that, but she didn't
have enough information to make a decision. A number of people
are opposed to it and no one has said what is wrong with it or
what changes should be made. She thought the two sides should
get together and share their concerns; the pharmacies have
already done that but she hadn't heard from the other side.
SENATOR PASKVAN observed that his perception is that these are
adhesion contracts where there is no negotiation but a take it
or leave it proposition. There is unequal bargaining strength
between pharmacies and PBMs. He hadn't heard what the PBMs don't
like, only that they didn't want this legislation passed.
CHAIR EGAN reiterated that public testimony was complete and
announced he would hold SB 217.
2:24:08 PM
There being no further business to come before the committee,
Chair Egan adjourned the Senate Labor and Commerce Standing
Committee meeting at 2:24 p.m.
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