00 SENATE BILL NO. 286 01 "An Act relating to creation and regulation of pharmacy benefits managers, and 02 authorizing the board of pharmacy to cooperate with the division of insurance in 03 regulating pharmacy benefits managers." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05  * Section 1. AS 08.80.030(b) is amended to read: 06 (b) In order to fulfill its responsibilities, the board has the powers necessary 07 for implementation and enforcement of this chapter, including the power to 08 (1) elect a president and secretary from its membership and adopt rules 09 for the conduct of its business; 10 (2) license by examination or by license transfer the applicants who are 11 qualified to engage in the practice of pharmacy; 12 (3) assist the department in inspections and investigations for 13 violations of this chapter, or of any other state or federal statute relating to the practice 14 of pharmacy; 01 (4) adopt regulations to carry out the purposes of this chapter; 02 (5) establish and enforce compliance with professional standards and 03 rules of conduct for pharmacists engaged in the practice of pharmacy; 04 (6) determine standards for recognition and approval of degree 05 programs of schools and colleges of pharmacy whose graduates shall be eligible for 06 licensure in this state, including the specification and enforcement of requirements for 07 practical training, including internships; 08 (7) establish for pharmacists and pharmacies minimum specifications 09 for the physical facilities, technical equipment, personnel, and procedures for the 10 storage, compounding, and dispensing of drugs or related devices, and for the 11 monitoring of drug therapy; 12 (8) enforce the provisions of this chapter relating to the conduct or 13 competence of pharmacists practicing in the state, and the suspension, revocation, or 14 restriction of licenses to engage in the practice of pharmacy; 15 (9) license and regulate the training, qualifications, and employment of 16 pharmacy interns and pharmacy technicians; 17 (10) issue licenses to persons engaged in the manufacture and 18 distribution of drugs and related devices;  19 (11) certify that a pharmacy benefits manager's plan of operation  20 complies with this chapter for the purpose of applying for a certificate of  21 authority under AS 21.27.910;  22 (12) in consultation with the division of insurance, adopt  23 regulations establishing the permitted and prohibited terms of an agreement with  24 a pharmacy benefits manager under AS 21.27.930; and  25 (13) adopt regulations for investigating complaints relating to the  26 activities of a pharmacy benefits manager under AS 21.27.965. 27  * Sec. 2. AS 21.27 is amended by adding new sections to read: 28 Article 10. Pharmacy Benefits Managers.  29 Sec. 21.27.905. Pharmacy benefits manager; certificate of authority. (a) A 30 pharmacy benefits manager is a person that 31 (1) procures prescription drugs at a negotiated rate and dispenses the 01 prescription drugs to covered persons in the state; or 02 (2) administers or manages prescription drug benefits provided by a 03 covered entity for the benefit of a covered person, including claims processing 04 services and prescription drug and medical device services. 05 (b) Pharmacy benefits that may be managed by a pharmacy benefits manager 06 include 07 (1) mail service pharmacy programs; 08 (2) claims processing services; 09 (3) retail network management and payment of claims to pharmacies 10 for prescription drugs dispensed to covered persons; 11 (4) clinical formulary development and management services; 12 (5) rebate contracting and administration services; 13 (6) patient compliance, therapeutic intervention, and generic 14 substitution programs; and 15 (7) disease management programs involving prescription drug use. 16 (c) In (a) of this section, "person" includes a person acting for a pharmacy 17 benefits manager under a contractual or employment relationship. 18 Sec. 21.27.910. Certificate of authority; fidelity bond. (a) A person acting as 19 a pharmacy benefits manager shall obtain a certificate of authority issued by the 20 division. 21 (b) A person seeking a certificate of authority to act as a pharmacy benefits 22 manager shall file an application on a form furnished by the division that includes the 23 following: 24 (1) the organizational documents of the applicant, including articles of 25 incorporation, articles of organization, articles of association, bylaws, a partnership 26 agreement, a trade name certificate, a trust agreement, a shareholder agreement, 27 member agreements, and amendments to organizational documents; 28 (2) the names, addresses, official positions, and professional 29 qualifications of the persons responsible for the conduct of the affairs of the applicant, 30 including the names of members of the board of directors, managers or members of a 31 limited liability company, trustees, executive committee members, members of 01 another governing board or committee, officers, partners, members, and any other 02 person who exercises control or influence over the affairs of the pharmacy benefits 03 manager; 04 (3) a certificate of compliance issued by the Board of Pharmacy 05 indicating that the applicant's plan of operation is consistent with AS 08.80 (Pharmacy 06 Act) and regulations adopted under AS 08.80; 07 (4) annual statements or reports for the three most recent years, and 08 other information the division may require in order to review the current financial 09 condition of the applicant; 10 (5) if the applicant is not currently acting as a pharmacy benefits 11 manager, a statement of the amounts and sources of funds available for organization 12 expenses and the proposed arrangements for reimbursement and compensation of 13 incorporators or other principals; 14 (6) the name and address of the agent for service of process in the 15 state; 16 (7) a detailed description of the claims processing services, pharmacy 17 services, insurance services, prescription drug or device services, audit procedures, or 18 other administrative services to be provided; 19 (8) all incentive arrangements, rebates, discounts, disbursements, or 20 other similar financial programs relating to income or consideration received by an 21 applicant or negotiated by an applicant and a pharmaceutical company, including 22 formulas or other methods for calculating amounts paid under an incentive 23 arrangement, rebate, discount, or other payment arrangement; the identity of the 24 associated drug or device that is the subject of each arrangement, rebate, discount, or 25 disbursement; and the date and amount of each disbursement; 26 (9) other information the director may require; 27 (10) a filing fee of $5,000. 28 (c) The applicant shall make available for inspection by the division copies of 29 all contracts with insurers, pharmaceutical manufacturers, or other persons using the 30 services of the pharmacy benefits manager. 31 (d) The division may not issue a certificate of authority if the division 01 determines that the pharmacy benefits manager or its principals 02 (1) are not competent, trustworthy, financially responsible, or of good 03 personal and business reputation; or 04 (2) have had an insurance license or pharmacy license denied for cause 05 by any state. 06 (e) A pharmacy benefits manager shall maintain a fidelity bond in an amount 07 equal to or greater than 10 percent of the amount of the funds handled or managed 08 annually by the pharmacy benefits manager. 09 Sec. 21.27.915. Disclosure of ownership, affiliation, and agreements. (a) A 10 pharmacy benefits manager shall disclose to the division an ownership interest or 11 affiliation with 12 (1) an insurance company responsible for providing benefits directly or 13 through reinsurance to a plan for which the pharmacy benefits manager provides 14 services; 15 (2) a parent company, subsidiary, or other business related to the 16 services provided by the pharmacy benefits manager; or 17 (3) a prescription drug or device manufacturer. 18 (b) A pharmacy benefits manager shall disclose to the division an agreement 19 (1) to favor a manufacturer's product; 20 (2) to place a manufacturer's drug on a pharmacy benefits manager's 21 preferred list or formulary; 22 (3) to substitute a drug prescribed by the patient's health care provider 23 with another drug; 24 (4) to share manufacturer rebates or discounts with the pharmacy 25 benefits manager; 26 (5) to pay money or other economic benefits to the pharmacy benefits 27 manager; 28 (6) to bill or an agreement to the practice of billing a health plan for 29 prescription drugs at a cost higher than the pharmacy benefits manager pays a 30 pharmacy; 31 (7) to share revenue with a mail order or Internet pharmacy company; 01 or 02 (8) to sell prescription drug data, including data concerning the 03 prescribing practices of health care providers. 04 (c) A pharmacy benefits manager shall notify the division in writing within 05 five calendar days after a material change in ownership, affiliation, or an agreement 06 described in this section. 07 Sec. 21.27.920. Maintenance of records; access; confidentiality; financial  08 examination. (a) A pharmacy benefits manager shall maintain books and records of 09 all transactions between a pharmacy benefits manager and an insurer, covered person, 10 pharmacist, or pharmacy for the duration of a written agreement and for two years 11 after the termination of the agreement. 12 (b) The division shall have access to the books and records maintained by the 13 pharmacy benefits manager for the purposes of examination, audit, and inspection. 14 (c) The information contained in the books and records described in (a) of this 15 section is confidential; however, the division may use the information in a judicial or 16 administrative proceeding instituted against a pharmacy benefits manager or an 17 insurer. 18 (d) The director shall conduct periodic financial examinations of a pharmacy 19 benefits manager to ensure an appropriate level of regulatory oversight. The pharmacy 20 benefits manager shall pay the director for the cost of the examination. The director 21 shall deposit money collected under this subsection in the general fund. 22 Sec. 21.27.925. Annual statement; filing fee. (a) A pharmacy benefits 23 manager shall file with the division an annual statement on or before March 1 of each 24 year. 25 (b) The statement required under (a) of this section must be in the form and 26 contain the matters the division prescribes and must include 27 (1) the filing fee established by the division; 28 (2) the total number of persons subject to management by the 29 pharmacy benefits manager during the prior year; 30 (3) the number of agreements with pharmacists or pharmacies 31 terminated by the pharmacy benefits manager during the year; 01 (4) the number of persons covered by the services of the pharmacy 02 benefits manager at the end of the year; 03 (5) the dollar value of claims processed; and 04 (6) a description of each incentive arrangement, including 05 arrangements for rebates, discounts, disbursements, or similar arrangements relating to 06 income or consideration received or negotiated with a pharmaceutical company for 07 prescription drug or device services, including the method for calculation of the 08 incentive arrangement, rebate, or other disbursement, the identity of the prescription 09 drug or device, and the date and amount of each disbursement.  10 Sec. 21.27.930. Agreements; prohibited provisions; approval. (a) A 11 pharmacy benefits manager may only act under the terms of a written agreement 12 approved by the division. 13 (b) An agreement between an insurer and a pharmacy benefits manager may 14 not provide that a pharmacist or pharmacy is responsible for the actions of the insurer 15 or the pharmacy benefits manager. 16 (c) A pharmacy benefits manager may not require a pharmacist or pharmacy 17 to participate in one contract in order to participate in another contract. 18 (d) If an agreement provides that the pharmacy benefits manager receives 19 payment for the services of a pharmacist or pharmacy, the pharmacy benefits manager 20 acts as a fiduciary of the pharmacist or pharmacy that provided the services. 21 (e) A pharmacy benefits manager may not exclude an otherwise qualified 22 pharmacist or pharmacy from participation in a particular network solely because the 23 pharmacist or pharmacy declined to participate in another plan or network managed by 24 the pharmacy benefits manager. 25 (f) The division, in consultation with the Board of Pharmacy, shall establish 26 permitted and prohibited terms of an agreement with a pharmacy benefits manager. 27 (g) An agreement contract must apply the same coinsurance, copayment, and 28 deductible to covered drug prescriptions filled by any pharmacy, including a mail 29 order pharmacist or pharmacy that participates in a network. 30 (h) An agreement may not require a pharmacist or pharmacy to change a 31 covered person's prescription unless the prescribing physician and the covered person 01 authorize the pharmacist to make the change. 02 (i) A pharmacy benefits manager shall file with the division a copy of each 03 agreement under which it operates for approval by the division not less than 30 days 04 before the execution of the agreement. A contract shall be considered approved unless 05 the division disapproves it within 30 days after it is filed. 06 Sec. 21.27.935. Prohibited practices. (a) A pharmacy benefits manager may 07 not 08 (1) intervene in the delivery or transmission of prescriptions from the 09 prescriber to the pharmacist or pharmacy for the purpose of influencing the 10 prescriber's choice of therapy, influencing the patient's choice of pharmacist or 11 pharmacy, or altering the prescription information; 12 (2) switch a prescribed drug without the express authorization of the 13 prescriber; 14 (3) transfer a health benefit plan to another payment network unless 15 the pharmacy benefits manager receives written authorization from the insurer; 16 (4) discriminate when advertising which pharmacies are participating 17 pharmacies; 18 (5) require basic record keeping by any pharmacist or pharmacy that is 19 more stringent than required by state or federal laws or regulations; or 20 (6) discriminate when contracting with pharmacies based on 21 copayments or days of supply. 22 (b) An insurer and a pharmacy benefits manager may not discriminate against 23 a pharmacist or pharmacy that is acting within the scope of a license or certification 24 with respect to participation in the network or reimbursement. 25 Sec. 21.27.940. Agreement termination. (a) An agreement between a 26 pharmacy benefits manager and a pharmacist or pharmacy may not be terminated, and 27 a pharmacy benefits manager may not penalize a pharmacist or pharmacy, solely 28 because of filing a complaint, grievance, or appeal. 29 (b) An agreement between a pharmacy benefits manager and a pharmacist or 30 pharmacy may not be terminated and a pharmacist or pharmacy may not be penalized 31 because the pharmacist or pharmacy expresses disagreement with a pharmacy benefits 01 manager's decision to deny or limit benefits to a covered person, because the 02 pharmacist or pharmacy assists a covered person to seek reconsideration of the 03 pharmacy benefits manager's decision, or because the pharmacist or pharmacy 04 discusses alternative medications with a covered person. 05 (c) Before terminating an agreement with a pharmacist or pharmacy that 06 results in the exclusion of a pharmacist or pharmacy from a network, the pharmacy 07 benefits manager shall give the pharmacist or pharmacy a written explanation of the 08 reason for the termination at least 30 days before the termination date. However, the 09 agreement may be terminated immediately if the termination is based on 10 (1) the loss of the pharmacist's or pharmacy's license to practice 11 pharmacy; or 12 (2) a licensee's conviction of fraud. 13 (d) Termination of an agreement between a pharmacy benefits manager and a 14 pharmacist or pharmacy does not release a pharmacy benefits manager from the 15 obligation to make a payment due to the pharmacist or pharmacy for services 16 rendered. 17 Sec. 21.27.945. Medication reimbursement costs. (a) A pharmacy benefits 18 manager shall use a current and nationally recognized benchmark on which to base the 19 reimbursement paid to network pharmacies for medications and products. The 20 reimbursement must be determined as follows: 21 (1) for a brand name or single source product, the index is the First 22 DataBank or the Facts and Comparisons average wholesale price effective on the date 23 of service; 24 (2) for a generic drug or multisource product, the maximum allowable 25 cost is established by reference to the First DataBank or Facts and Comparisons 26 baseline price. 27 (b) Only products that comply with pharmacy laws as equivalent and 28 generically interchangeable with a Federal FDA Orange Book rating of "A-B" may be 29 reimbursed using a maximum allowable cost price method. 30 (c) If a multisource product does not have a baseline price, the multisource 31 product shall be treated as a single-source branded drug for the purpose of determining 01 reimbursement. 02 Sec. 21.27.950. Payments; audits. (a) If a pharmacy benefits manager 03 processes a claim electronically, the pharmacy benefits manager shall electronically 04 transmit payment on or before seven calendar days after the claim is transmitted to the 05 pharmacist or pharmacy. 06 (b) Time limits for payment to a pharmacist or pharmacy by a pharmacy 07 benefits manager that processes claims nonelectronically must be set out in the 08 agreement between the pharmacy benefits manager and the pharmacist or pharmacy. 09 (c) A pharmacy benefits manager shall adjust the price charged to a 10 pharmacist or pharmacy within 24 hours after a price increase notification received 11 from a manufacturer or supplier. 12 (d) Except as provided in (f) of this section, claims paid by a pharmacy 13 benefits manager may not be retroactively denied or adjusted after seven days after 14 adjudication of the claims. 15 (e) A determination of eligibility may not be retroactively reversed. 16 (f) A pharmacy benefits manager may retroactively deny or adjust a claim if 17 (1) the original claim was submitted fraudulently; 18 (2) the original claim payment was incorrect because the provider was 19 already paid for services rendered; or 20 (3) the services were not rendered by the pharmacist or pharmacy. 21 (g) A pharmacy benefits manager may not require an extrapolation audit as a 22 condition of participating in a contract, network, or program. 23 (h) A pharmacy benefits manager may not recoup money the pharmacy 24 benefits manager believes to be owed as a result of an audit by setoff until the 25 pharmacist or pharmacy has the opportunity to review the pharmacy benefits 26 manager's findings and concurs with the results. If the parties disagree, the results of 27 the audit are subject to review by the director. 28 Sec. 21.27.955. Disclosures to covered persons. (a) If a covered entity uses 29 the services of a pharmacy benefits manager, the pharmacy benefits manager shall 30 provide a written notice to a covered person that is approved by the insurer. The notice 31 must advise the covered person of the identity of, and relationship between, the 01 pharmacy benefits manager, the covered entity, the insurer, and the covered person. 02 (b) The notice required in (a) of this section must contain 03 (1) a statement advising the covered person that the pharmacy benefits 04 manager is regulated by the division; 05 (2) a statement that the covered person has the right to file a complaint, 06 appeal, or grievance with the division concerning the pharmacy benefits manager; and 07 (3) the telephone number, mailing address, and electronic mail address 08 of the division. 09 (c) The notice required in (a) of this section must be written in plain English, 10 using terms that are generally understood by a layperson, and a copy must be provided 11 to the division and to each pharmacist or pharmacy participating in a network. 12 Sec. 21.27.960. Authorized substitutions. (a) If a pharmacy benefits manager 13 requests a substitute prescription for a drug prescribed to a covered person, the 14 pharmacy benefits manager may substitute a lower-priced generic and therapeutically 15 equivalent drug for a higher-priced prescribed drug. 16 (b) If the substitute drug costs more than the prescribed drug, the substitution 17 must be made for medical reasons that benefit the covered person. 18 (c) A pharmacy benefits manager shall obtain the approval of the prescribing 19 health professional or the prescribing health professional's authorized representative 20 for a prescription drug substitution. A pharmacy benefits manager shall disclose to the 21 covered person the cost of the original drug and the cost of the substitute drug, any 22 benefit or payment accruing to the pharmacy benefits manager as a result of the 23 substitution, any potential effects on a patient's health that may occur as a result of the 24 substitution, the safety of the substitution, and the side effects of the original drug 25 compared to the side effects of the substitute drug. 26 (d) The pharmacy benefits manager shall compensate the covered entity for 27 any benefit or payment received by the pharmacy benefits manager as a result of a 28 prescription drug substitution under this section. 29 Sec. 21.27.965. Complaint process. (a) The division and the Board of 30 Pharmacy shall each adopt regulations establishing procedures for investigation of 31 complaints concerning the activity of a pharmacy benefits manager. 01 (b) The division shall refer to the Board of Pharmacy a complaint involving a 02 professional issue under the jurisdiction of the Board of Pharmacy or a patient health 03 or safety issue. 04 (c) The Board of Pharmacy shall refer to the division a complaint involving a 05 business, financial, or insurance issue. 06 Sec. 21.27.970. Compensation for claim adjustment. (a) Compensation to a 07 pharmacy benefits manager for claims adjusted or settled on behalf of an insurer may 08 not be based on claims experience. 09 (b) This section does not prohibit the compensation of a pharmacy benefits 10 manager based on the total number of claims paid or processed. 11 Sec. 21.27.975. Duty to the covered entity. (a) A pharmacy benefits manager 12 shall provide to a covered entity the financial and use information requested by the 13 covered entity relating to providing pharmacy benefits to a covered person for the 14 covered entity. 15 (b) A pharmacy benefits manager providing information under this section 16 may designate the information provided under (a) of this section as confidential. 17 Information designated as confidential by a pharmacy benefits manager and provided 18 to a covered entity under this section may not be disclosed by the covered entity to any 19 person without the consent to the pharmacy benefits manager, except that disclosure 20 may be made when authorized or required by a court. 21 (c) A pharmacy benefits manager shall disclose to the covered entity all 22 financial terms and arrangements for remuneration of any kind that apply between the 23 pharmacy benefits manager and any prescription drug manufacturer or labeler, 24 including rebates, formulary management and drug-switching or drug-substitution 25 programs, educational support, claims processing and pharmacy network fees charged 26 by retail pharmacies, and data sales fees. 27 (d) A pharmacy benefits manager shall disclose to the covered entity whether 28 there is a difference between the price paid to a retail pharmacy and the amount billed 29 to the covered entity. 30 (e) A covered entity may audit the pharmacy benefits manager's records 31 related to the rebates or other information provided in this section. 01 Sec. 21.27.980. Fees; penalty. (a) The division may by regulation 02 (1) assess reasonable fees from a pharmacy benefits manager for the 03 costs of administering this program; and 04 (2) establish reasonable penalties, including suspending the certificate 05 of authority or license of a pharmacy benefits manager that fails to pay the appropriate 06 fees. 07 (b) If the director determines, after a hearing under AS 21.06.170 - 21.06.230, 08 that a person has acted as a pharmacy benefits manager without obtaining a certificate 09 of authority to act as a pharmacy benefits manager under AS 21.27.910, the person is 10 subject to a civil penalty of not less than $5,000 and not greater than $10,000 for each 11 violation. 12 Sec. 21.27.985. Definitions. In AS 21.27.905 - 21.27.985, 13 (1) "Board of Pharmacy" or "board" means the Board of Pharmacy 14 established under AS 08.80.010; 15 (2) "covered entity" 16 (A) means 17 (i) a nonprofit hospital or medical service corporation, 18 health insurer, health benefit plan, or health maintenance organization; 19 (ii) a health care program administered by the state in 20 the capacity of provider of health coverage; or 21 (iii) an employer, labor union, or other group that 22 provides health coverage to individuals who are employed or reside in 23 the state; 24 (B) does not include 25 (i) a self-funded plan that is exempt from state 26 regulation under 29 U.S.C. 1001 et seq. (Employment Retirement 27 Security Act of 1974, as amended); 28 (ii) a plan issued for coverage for federal employees; or 29 (iii) a health care plan that provides coverage only for 30 accidental injury, specified disease, hospital indemnity, Medicare 31 supplement, disability income, or long-term care, or another limited 01 benefit health insurance policy or contract; 02 (3) "covered person" means a member, policy holder, subscriber, 03 enrollee, beneficiary, or dependent participating in a health care plan; 04 (4) "health care plan" means a policy, contract, certificate, or 05 agreement offered or issued by a health carrier to provide, deliver, arrange for, pay for, 06 or reimburse the costs of health care services, including prescription drug benefits; 07 (5) "pharmacist" has the meaning given in AS 08.80.480; 08 (6) "pharmacy" has the meaning given in AS 08.80.480; 09 (7) "practice of pharmacy" has the meaning given in AS 08.80.480. 10  * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to 11 read: 12 REVISOR'S INSTRUCTION. The revisor of statutes is requested to renumber 13 AS 21.27.900 as AS 21.27.990.