Legislature(2017 - 2018)BELTZ 105 (TSBldg)
03/28/2017 01:30 PM Senate LABOR & COMMERCE
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearings | |
| HB48 | |
| SB93 | |
| SB38 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 48 | TELECONFERENCED | |
| *+ | SB 38 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 93 | TELECONFERENCED | |
| += | SB 51 | TELECONFERENCED | |
SB 38-PHARMACY BENEFITS MANAGERS
2:36:36 PM
CHAIR COSTELLO announced the consideration of SB 38. She stated
that the intent is to hear the introduction, take questions and
public testimony, and hold the bill for further consideration.
2:37:21 PM
SENATOR CATHY GIESSEL, Alaska State Legislature, sponsor of SB
38, stated that SB 38, which is about pharmacy benefit managers
(PBMs), covers: 1) the cost of health care in Alaska, 2) Alaska
hire, and 3) Alaska's small businesses.
She recognized that a group of pharmacy students from the
University of Alaska, Anchorage were in the audience.
CHAIR COSTELLO welcomed the students.
SENATOR GIESSEL displayed a graphic to show that pharmacy
benefit managers are the middlemen between the insurance company
and the pharmacy and leave the pharmacy in a position to be
reimbursed less than it pays for a prescription. She cited an
example of an insurance company that pays out $100 for a
prescription for which a pharmacy pays $60. The PBM captures $50
off the top and pays the pharmacy $50, essentially telling the
pharmacy to "eat" the $10 difference.
She stated that PBMs also audit pharmacies and sometimes make
egregious finds that can result in significant fines. She
highlighted that she is offering the bill by request of
pharmacists. She directed attention to articles in the packets
from Newsweek and Bloomberg. She concluded saying the bill will
allow the state to license PBMs and constrain action on minor
technical errors found during audits.
2:42:39 PM
SENATOR STEVENS asked if some agencies can avoid the use of a
PBM.
SENATOR GIESSEL responded that PBMs work for insurance
companies. She noted that the PBM that Aetna uses will not allow
covered consumers to order prescriptions by mail order from a
local Alaska pharmacy. It requires the use of pharmacies from
out-of-state.
SENATOR MEYER asked if similar legislation is used in other
states.
SENATOR GIESSEL said she believes that 37 states have passed
similar legislation. She directed attention to the map in the
packet.
SENATOR MEYER asked if this has saved money for consumers.
SENATOR GIESSEL deferred the question to her aide, Jane Conway.
JANE CONWAY, Staff, Senator Cathy Giessel, Alaska State
Legislature, said there are claims that the legislation will
increase health care costs, but the sponsor has been unable to
find data to substantiate that claim. However, similar
legislation may have helped local pharmacies stay afloat.
SENATOR GARDNER observed that a variation of this legislation
has been offered before.
SENATOR GIESSEL agreed.
CHAIR COSTELLO asked if the auditing practices that PBMs use are
based on some guidelines.
MS. CONWAY replied that PBMs are largely unregulated and have
few sidebars on their procedures.
CHAIR COSTELLO asked for an explanation of how PBMs manage
prescriptions.
SENATOR GIESSEL said they essentially ensure the person is an
insured, that the quantity of the prescription is appropriate,
and when they do the audits they check to see that the pharmacy
has charged the appropriate amount. She highlighted the
complaint with the audits that small clerical errors often
result in a fine. She suggested the committee ask the
pharmacists about their experience with these audits.
CHAIR COSTELLO asked if PBMs have access to the prescription
database.
SENATOR GIESSEL said she didn't know.
2:48:36 PM
SENATOR HUGHES said she was surprised to see that the State
Chamber of Commerce has reservations with the bill. She asked if
the pharmacists have attempted to work directly with the PBMs to
resolve the audit problems and payment arrangements.
SENATOR GIESSEL said pharmacists have tried but the contracts
are offered as take it or leave it. The pharmacies have no power
to negotiate.
SENATOR HUGHES asked if she has asked the state chamber why it
is taking the position it has.
SENATOR GIESSEL said her understanding is the state chamber
wanted to see what Congress would do with the Affordable Care
Act. She noted that Congress did not act on the AFC last week
and she was unaware of whether the state chamber continues to
have reservations.
SENATOR HUGHES asked if the bills Congress is currently working
on related to changing the Affordable Care Act include the issue
of PBMs.
MS. CONWAY said she didn't know if they were related to the
Affordable Care Act, but Congress is considering four pieces of
legislation that try to shine a light on the activities of
pharmacy benefit managers.
SENATOR STEVENS asked if the bill would change the way Aetna
works with its PBM.
MS. CONWAY said the indeterminate fiscal note from the
Department of Administration (DOA) posits that SB 38 might
increase costs. However, a letter in the packet from Barry
Christensen, a pharmacist from Ketchikan, refutes many of the
points in the letter from the state chamber. "I don't think the
pharmacists agree that this would actually be increasing costs
or changing anything that Aetna is doing. However, there could
be some good suggestions to our health plan that could help our
local pharmacies rather than be to the detriment of them in
terms of the mail order component," she said.
2:52:47 PM
SENATOR STEVENS asked how this would cause Aetna to act
differently than it does now.
SENATOR GIESSEL said Aetna will likely continue to have the PBM.
SB 38 does not address their existence; it seeks to address
their conduct.
SENATOR GARDNER expressed surprise that PBMs could get half of
the retail cost of a prescription. "No wonder the consumer is
paying so much," she said. She wondered if anyone would be
testifying about why PBMs, that are essentially auditors, should
get so much.
SENATOR GIESSEL replied, "That's the point of the bill."
2:54:33 PM
CHAIR COSTELLO invited Lori Wing-Heier to testify and noted that
one of the two fiscal notes mentions the role of the director of
the Division of Insurance.
2:55:24 PM
LORI WING-HEIER, Director, Division of Insurance, Department of
Commerce, Community and Economic Development (DCCED), stated
that if SB 38 were to pass, pharmacy benefit managers would be
required under Alaska statute to register as a third-party
administrator (TPA) and pay a biannual licensing fee. The
division tracks TPA activity and would be able to follow up if
there were consumer complaints.
She advised that SB 38 is not expected to be a great burden on
the state because not many TPAs are operating in the state and
the first part of the bill is just a licensing or registration
matter for the division. While the division does not know how
many audit appeals there will be, they would be handled through
the established procedures for appeals within the division.
CHAIR COSTELLO asked if the administration has a position on the
bill.
MS. WING-HEIER replied the division looks on it as a process
that can be handled internally and within existing statute. She
added that the position of the administration is reflected in
the indeterminate fiscal note from the Department of
Administration.
CHAIR COSTELLO, noting that a fiscal note doesn't generally
reflect a philosophical position, asked if she was aware that
the administration supports or does not support the bill.
MS. WING-HEIER said she was not aware of the administration's
position.
SENATOR MEYER asked if the legislature could require Aetna to
stop using PBMs.
MS. WING-HEIER suggested that the Division of Retirement and
Benefits could best answer that question then pointed out that
every insurance company uses a pharmacy benefit manager. She
described the bill as a consumer protection which is something
the administration supports. The bill has two parts; first is
the audit piece for the PBMs, which resembles the Fair Audit Act
and the second part is about pricing of generic drugs and the
impact that would have on any employer plan as well as the
individual market.
SENATOR MEYER asked how many insurance companies in Alaska
provide health insurance.
MS. WING-HEIER said less than six insurance companies currently
are writing for the public. This does not include those that are
writing for one or two accounts or ConocoPhillips or Fred Meyer,
for example.
SENATOR STEVENS asked what the PBMs do.
MS. WING-HEIER explained that a PBM negotiates the price from
the wholesaler or drug manufacturer to the pharmacist and the
insurance company is somewhere in the middle. She acknowledged
that the methodology of the charge is a little fuzzy regarding
what the PBM pays the pharmacist, what it receives from the
insurance company, and what it pays the wholesaler or drug
company.
SENATOR STEVENS said it's a shocking situation, but he would
hope that negotiating with the drug companies for a lower price
would ultimately benefit the consumer.
MS. WING-HEIER confirmed that their purpose is to obtain the
best possible cost so the consumer or the employer in an
employer-sponsored plan receives the benefit of the lowest cost.
SENATOR GARDNER asked if PBMs don't have an adverse incentive to
negotiate the lowest cost if they receive 50 percent of the
cost.
MS. WING-HEIER advised that rebates are common in
pharmaceuticals from providers to PBMs to the insurance
companies.
CHAIR COSTELLO asked if other states have similar legislation,
specifically regarding the role that the Division of Insurance
has in the bill.
MS. WING-HEIER said quite a few states have Fair Audit Acts and
most reside with insurance of licensing.
CHAIR COSTELLO invited Michele Michaud and Emily Ricci forward
to respond to the question relating to the Division of
Retirement and Benefits.
3:02:57 PM
EMILY RICCI, Chief Health Policy Administrator, Division of
Retirement and Benefits, Department of Administration (DOA),
introduced herself.
MICHELE MICHAUD, Chief Health Official, Division of Retirement
and Benefits, Department of Administration (DOA), introduced
herself.
CHAIR COSTELLO asked if they wanted to comment on the bill or
any questions or testimony they heard.
MS. MICHAUD answered no.
SENATOR MEYER asked if the state could ask Aetna not to use a
PBM.
MS. MICHAUD said if the Department of Law advised that would be
possible under the existing agreement with Aetna, it would still
take significant analysis to see if it would be in the best
interest of the plan.
SENATOR STEVENS asked how much the state's retirement programs
pay in pharmacy benefits each year.
MS. MICHAUD reported that the state spent $55 million on generic
medication last year and the overall pharmacy spend was close to
$300 million.
SENATOR STEVENS commented, "That would balance our budget right
there."
MS. RICCI added that she didn't know when the state health plans
first adopted PBMs to manage pharmacy benefits, but it is a
common practice among large employers. When she looked at other
options several years ago, she found that there isn't an easy
alternative to using a PBM to manage the pharmacy spend.
SENATOR GARDNER asked if a 50 percent cut is standard among
pharmacy benefit plans.
MS. RICCI deferred the question to Aetna or other pharmaceutical
experts in the room.
3:07:41 PM
CHAIR COSTELLO opened public testimony on SB 38.
3:08:03 PM
LEIF HOLM, Pharmacy Owner, North Pole, Alaska, testified in
support of SB 38. He reported that the three pharmacies he owns
in Interior Alaska are most affected by the MAC pricing that the
bill seeks to correct. He stated that passage of SB 38 will
regulate audit practices and correct questionable pricing
strategies which will be a step toward achieving transparency
with PBMs. It's the right thing to do to rein in PBMs and begin
to eliminate their abusive tactics that are ultimately costly
for health plan sponsors and patients, he said.
CHAIR COSTELLO advised that the committee would eagerly accept
any written testimony or response to questions that members
posed.
SENATOR STEVENS asked Mr. Holm to contact the committee to
describe abusive audit practices.
MR. HOLM agreed.
3:10:19 PM
MATTHEW KEITH, Vice President of Pharmacy Services, Geneva Woods
Pharmacy, Inc., Anchorage, Alaska, testified in support of SB
38. He said that Geneva Woods is a small independent pharmacy
that constantly struggles with the practices and abusive audits
that have been described. He questioned why the state shouldn't
regulate PBMs just as it regulates pharmacies, medical
practices, wholesalers, and insurance providers in the state. He
said SB 38 isn't about eliminating PBMs but rather it
establishes guardrails, so the negotiations are more reasonable
and fair. He noted that many PBMs own mail order pharmacies and
questioned whether the intent is to steer business in that
direction.
3:12:10 PM
SCOTT WATTS, Pharmacist and independent pharmacy owner, Juneau,
Alaska, said he has practiced pharmacy for 27 years and his
pharmacy daily dispenses medication below his cost because of
MAC price listing. He said that talking with the PBMs would be
the best way to resolve the issue, but most of the time these
departments do not have a phone number. He said that MAC price
listing is a way to keep costs down, but they need to be updated
more frequently to reflect the cost. It should not be borne on
the backs of the pharmacists to keep those prices down." He
explained that his out-of-town customers come in to have their
prescriptions filled when they are in town and would like to
have them refilled when they return home. However, some
contracts don't allow that, and the people must have their
prescriptions refilled from an out-of-state mail order pharmacy.
He cited an example of the pricing issue. When a customer
questioned their co-pay, he directed them to their health care
plan because the pricing is set by the PBMs when the
prescription is transmitted. The PBM responded that afternoon
telling the pharmacist he was in breach of contract by telling
the customer what the plan was paying for their prescription. He
said the PBMs have their reasons to not want the customer to be
aware of the price of their medication, but he feels customers
should have that information.
CHAIR COSTELLO said the committee would accept his written
testimony if he chose to submit it.
3:14:40 PM
GERALD BROWN, Pharmacist, Fairbanks, Alaska, said he owns an
independent pharmacy with his wife and they too are experiencing
the problems that have been discussed earlier. The MAC pricing
list does not reflect price increases for six months to a year,
so they are constantly under-reimbursed. It amounts to about
$1,000 per month for their small pharmacy. He reported that a
large chain pharmacy in town has been under-reimbursed by
$30,000 a month. "This is a prevalent problem with PBMs." He
explained that PBMs are like a credit card; Alaska Airlines
sponsors the card and VISA administers the benefit. The VISA
card, for example, is setting the co-pay amount. He said the
problem is that the pharmacies are getting about $0.45 to
dispense the prescription plus 21 percent less than cost. A bank
would not lend on that business model. Referencing the 50
percent that the PBMs capture, he clarified that the rebates
from the pharmaceutical company to the PBMs are generally
between 30 percent and 60 percent. "So now your formulators are
based not on therapeutics, but they're based on who gives us the
bigger rebates." The pharmacies don't generally see that; they
are just told how much they will be reimbursed. Further, the
amount the pharmacy receives may not reflect the cost the
pharmacy paid. He highlighted that the PBMs are certainly making
money and their executives are as well. Last year the CEOs for
these PBMs received bonuses ranging from $9 million to $49
million. He summarized that SB 38 simply seeks to give the PBMs
structure, so they can't squash the small businesses. "We don't
have a problem with the audits; we have a problem with the take
it or leave it attitude." These large organizations at the very
least should be required to register with the state.
SENATOR GARDNER asked if the bill addresses either the issue
that the back prices are met but the increases to the pharmacy
don't follow timely or the issue that formulas can be based on
who gives the largest rebate.
MR. BROWN said no.
3:19:44 PM
ERIC DOUGLAS, CVS Health, Illinois, said he is calling to
express concern with SB 38. He said many of the comments today
have been off the topic that the bill addresses and PBMs have
been portrayed inaccurately. He said PBMs save money and they
wouldn't be utilized if they didn't. He said CVS Health is
concerned that SB 38 would unintentionally promote fraud, waste,
and abuse because it inserts the state in private audit terms
that are well addressed in current contracts. It is also
inappropriate that the bill charges the director of the Division
of Insurance to be the arbiter of private contract disputes when
that division does not have expertise regarding generic
pharmaceutical reimbursement. The bill also establishes
requirements that would be impossible to meet. For example,
insuring that a specific pharmacy can buy a specific product
from a specific wholesaler at a specific price. This would
increase costs just as setting up a no loss guarantee on MACS
would. Noting that the Board of Pharmacy is defined in the
definitions but isn't used in the legislation, he said CVS
Health would not support the Board of Pharmacy having anything
to do with PBMs if there is a financial relationship between
pharmacy benefit managers and pharmacies.
3:22:35 PM
TOM WADSWORTH, Associate Clinical Professor, University of
Alaska Anchorage (UAA), said UAA has a pharmacy program and he
is the assistant dean of the program. He introduced the pharmacy
students in the audience as Alaskans and highlighted that the
founding principles of the program is to train Alaskans in
Alaska, so they serve Alaskans living in the rural areas of
Alaska. He said he supports SB 38 because the largest issue with
sending these students into rural areas is that there won't be
any pharmacies to go to. Brick and mortar pharmacies are in
jeopardy and pharmacists see patients seven times more often
than a doctor. He highlighted that pharmacists in these rural
communities only make their money be selling prescriptions and
as the profit margins have shrunk, the sustainability of these
businesses is in question. He offered his belief that PBMs serve
a good role in controlling formularies but the money they save
goes into a pot also controlled by the PBMs.
He concluded, "We need to see that pharmacists are reimbursed
for what they do for these communities, so they can be there to
serve the patients of these communities, particularly rural
Alaska."
CHAIR COSTELLO invited the pharmacy students to talk with her
after the meeting for the committee's Facebook page. "That's an
important message to get out. That we need more Alaska born and
raised pharmacists here in our state."
3:24:42 PM
BARRY CHRISTENSEN, RPh, Co-Chair Legislative Committee, Alaska
Pharmacists Association, Ketchikan, Alaska, stated that the
passage of SB 38 is important for Alaska pharmacies to remain
viable. Responding to Senator Stevens' request for an example of
an audit abuse practice, he explained that his pharmacy received
a large desk audit from a PBM that required submitting over 100
pages of documentation. The only secure option for transmitting
the material was through FAX and their machine could only handle
50 pages at a time. They informed the auditor that the
transmission was in two parts, yet the results of the audit
showed that only half of the documentation was considered. The
pharmacy received permission to resend the material, but the
auditor allowed just five days on the final audit findings for
appeal. The final findings included a $400 claim for a
prescription that was not part of the original audit. The PBM
gave the pharmacy less than 24 hours to get their documents and
a letter from that prescriber in the mail. He maintained that
this was not a fair turnaround time.
MR. CHRISTENSEN summarized that SB 38 will set standards for
PBMs and that is all the bill asks for.
3:27:34 PM
FRED BROWN, Health Care Cost Management Corporation of Alaska,
Fairbanks, Alaska, advised that he would not reiterate the
written testimony he submitted but would respond to some of the
comments made earlier in the hearing. He reported that his
organization has over 100,000 covered lives in Alaska and is
comprised of more than 25 self-funded plans. They offer a myriad
of options for member plans to select, among which is access to
prescription benefit management (PBM) plan. Thirteen of the
plans in Alaska use the PBM program his organization offers. The
total gross drug valuation for those 13 plans in 2016 was $74.1
million. Noting that earlier testimony stated that 50 percent of
that goes to the PBM, he reported that in 2016 their plans saved
49 percent of that total or about $37.8 million. He added, "If
the earlier descriptions are correct, then the PBM only made 1
percent." The point, he said, is that there is more to the story
than has been told.
CHAIR COSTELLO held SB 38 in committee with public testimony
open.