03/31/2016 01:30 PM Senate LABOR & COMMERCE

               SB 175-PHARMACY BENEFITS MANAGERS                                                                            
                                                                                                                                
2:14:33 PM                                                                                                                    
CHAIR  COSTELLO   reconvened  the   meeting  and   announced  the                                                               
consideration  of  SB 175.  She  noted  that  this is  the  first                                                               
hearing and a committee substitute is forth coming.                                                                             
                                                                                                                                
2:15:43 PM                                                                                                                    
SENATOR  CATHY GIESSEL,  Alaska  State  Legislature, as  sponsor,                                                               
introduced  SB  175.  She  noted  that  the  Labor  and  Commerce                                                               
Committee is  very supportive of  small businesses in  Alaska, of                                                               
which  local pharmacies  are one.  Small businesses  are a  vital                                                               
part of Alaska's economy and that is  the focus of SB 175. It has                                                               
to  do  with  fair  and   reasonable  treatment  and  predictable                                                               
guidelines that  come from  an entity  called a  pharmacy benefit                                                               
manager (PBM). Local  pharmacies must deal with PBMs  in order to                                                               
run  their businesses.  Currently, there  are no  real guidelines                                                               
for  reimbursements  by PBMs  to  local  pharmacies so  PBMs  can                                                               
change reimbursement rates  and request audits at  will. They can                                                               
also refuse to respond to,  or pay pharmacies, for the dispensing                                                               
medications. Pharmacies have no legal  recourse at this point. SB
 will provide an avenue of  appeal to an unreasonable audit as                                                               
their last recourse.                                                                                                            
                                                                                                                                
She noted  support letters  from many  small pharmacies  and some                                                               
include examples of unfair treatment  by PBMs. Several pharmacies                                                               
have been  driven out  of business  by PBMs.  She also  noted the                                                               
four-page  letter  from  a   large  pharmaceutical  company  from                                                               
Washington,   DC,  that   outlines  reasons   not  to   pass  the                                                               
legislation. She  provided the history behind  the profitable PBM                                                               
industry.                                                                                                                       
                                                                                                                                
SENATOR  GIESELL  said  33  other   states  have  passed  similar                                                               
legislation demanding  transparency in  pricing and  fair audits.                                                               
She  concluded  that she  considers  PBMs  as "pharmacy  billion-                                                               
dollar middlemen."                                                                                                              
                                                                                                                                
JANE  CONWAY,   Staff,  Senator   Cathy  Giessel,   Alaska  State                                                               
Legislature,  presented  information  related   to  SB  175.  She                                                               
delivered a PowerPoint to explain  PBMs. She said PBMs started in                                                               
1970 as  claims processors and  have since become  intertwined in                                                               
almost every aspect of the  pharmaceutical supply chain. They are                                                               
almost  unregulated at  the  state and  federal  levels and  they                                                               
represent some of the largest companies in the nation.                                                                          
                                                                                                                                
She  listed  examples  of  PBM's   market  power  and  influence:                                                               
CVS/Caremark,  Express  Scripts,  and  OptumRX  control  over  70                                                               
percent of all U.S. scripts.                                                                                                    
                                                                                                                                
She said  PBMs are  designed to  reduce administrative  costs for                                                               
insurers,   validate   patient   eligibility,   administer   plan                                                               
benefits, negotiate  costs between  pharmacies and  health plans,                                                               
and  audit  pharmacies  for fraud.  PBMs  also  develop  pharmacy                                                               
provider networks, and pharmacies must accept PBM contracts.                                                                    
                                                                                                                                
She  noted   every  opposition  letter  talks   about  negotiated                                                               
contracts, but they  are really "take it or  leave it" contracts.                                                               
She cited an example.                                                                                                           
                                                                                                                                
MS. CONWAY  continued to say  that PBMs influence what  drugs are                                                               
dispensed, collect  money from  drug manufacturers,  and restrict                                                               
pharmacies on how  many pills they can dispense at  a given time.                                                               
They dictate how much pharmacies will  be paid for the drugs they                                                               
dispense,  have  free  reign  to   dictate  what  pharmacies  are                                                               
permitted to do in a  given network, operate their own mail-order                                                               
pharmacies, and audit pharmacies at will.                                                                                       
                                                                                                                                
2:23:19 PM                                                                                                                    
MS. CONWAY  explained how PBMs work.  The insurer hires a  PBM to                                                               
manage   drug   costs  and   it   negotiates   prices  for   both                                                               
insurers/manufacturers   and   insurers/pharmacies,   then   with                                                               
manufacturers,   and   finally  with   manufacturers/wholesalers.                                                               
Finally, the  PBM negotiates insurer reimbursement  for drugs and                                                               
dispensing fees with pharmacies.                                                                                                
                                                                                                                                
MS.  CONWAY said  SB 175  brings fairness  to audits  and doesn't                                                               
allow audits  during the first  seven days of each  month because                                                               
of high  patient volume. It  is designed to prevent  targeting of                                                               
clerical  errors and  it establishes  a  reasonable timeframe  to                                                               
prepare for an audit.                                                                                                           
                                                                                                                                
The  bill   also  establishes  an   audit  appeals   process  for                                                               
pharmacies and  guidelines for PBMs  to follow  regarding patient                                                               
confidentiality. Extrapolation  cannot be used in  assessing fees                                                               
and  penalties. Alaska  pharmacists  would not  be penalized  for                                                               
providing  mail-order service  to their  customers. Finally,  the                                                               
bill  does  not prevent  the  recoupment  of funds  where  fraud,                                                               
waste, and abuse exist.                                                                                                         
                                                                                                                                
She  noted  that  33  states  have  already  enacted  fair  audit                                                               
legislation and 24 states have  already enacted Maximum Allowable                                                               
Cost (MAC) transparency legislation.                                                                                            
                                                                                                                                
MS. CONWAY said  the bill will also require  registration of PBMs                                                               
with  the  Division  of  Insurance. It  sets  up  guidelines  for                                                               
generic drug MAC pricing, establishes  a mechanism for a pharmacy                                                               
to appeal  MAC pricing, and  prevents auditing  local pharmacists                                                               
out of a job.                                                                                                                   
                                                                                                                                
2:26:28 PM                                                                                                                    
She related  that there are  many stories from  pharmacists about                                                               
the  abuses of  PBMs. She  reviewed  an audit  from her  hometown                                                               
pharmacy in  Soldotna. The  PBM extrapolated  a .1  percent error                                                               
and came up with a $7,300  bill. The pharmacist found no recourse                                                               
but to sell his business to an outside company.                                                                                 
                                                                                                                                
2:28:15 PM                                                                                                                    
MS. CONWAY  turned to the  maximum allowable cost (MAC)  that can                                                               
be reimbursed  to the pharmacist  for dispensing  a prescription.                                                               
Typically,  PBMs  use  an  aggressively low  MAC  price  list  to                                                               
reimburse  their contracted  pharmacies and  a different,  higher                                                               
list of prices when they sell  to their clients or plan sponsors.                                                               
They  reimburse low  and charge  high, pocketing  the significant                                                               
spread between  the two  prices. Most  plan sponsors  are unaware                                                               
that multiple MAC  lists are being used and have  no real concept                                                               
of how much revenue the PBM retains.                                                                                            
                                                                                                                                
She said when  PBMs fail to update MAC lists  in a timely manner,                                                               
pharmacies are  forced to dispense  at a loss, sometimes  as high                                                               
as $100  or more, or not  dispense at all. When  prices increase,                                                               
PBMs often wait  weeks or even months before  updating MAC lists.                                                               
The  acquisition price  spike/lagging reimbursement  trend has  a                                                               
very  significant  impact on  pharmacies'  ability  to remain  in                                                               
business.  Neither plan  sponsors nor  contracted retail  network                                                               
pharmacies have any transparency into the MAC process.                                                                          
                                                                                                                                
2:30:52 PM                                                                                                                    
MS. CONWAY addressed what SB  175, a MAC transparency bill, does.                                                               
It  sets reasonable  standards  on what  can  be MAC'd,  requires                                                               
regular reporting of MACs to a  pharmacy in a useable format, and                                                               
provides for a defined MAC appeals process.                                                                                     
                                                                                                                                
It does not  mandate that a PBM reimburse a  pharmacy at a higher                                                               
amount, or  represent an  administrative burden  on the  PBM, nor                                                               
does it  mandate that a PBM  approve a pharmacy's MAC  appeal. It                                                               
does not result in increased costs to the healthcare system.                                                                    
                                                                                                                                
2:31:38 PM                                                                                                                    
She reviewed  the statistics on  the total pharmacies  in Alaska;                                                               
of the 84 pharmacies, 20 are independents.                                                                                      
                                                                                                                                
She said  that 24 states  have passed similar legislation  and 33                                                               
have passed fair and uniform pharmacy audits.                                                                                   
                                                                                                                                
2:32:33 PM                                                                                                                    
CHAIR COSTELLO opened public testimony.                                                                                         
                                                                                                                                
2:33:10 PM                                                                                                                    
JASON TAPLEY,  Community Pharmacist,  testified in support  of SB
. He  said he works for  SEARCH. He has had  5-10 audits where                                                               
he  has had  to prove  "that the  money was  yours," and  to show                                                               
documentation that  he could  recover the  costs. This  bill will                                                               
provide a clear, consistent process for these audits to occur.                                                                  
                                                                                                                                
2:35:13 PM                                                                                                                    
MARGARET  SODEN,  representing herself,  said  she  is a  retired                                                               
pharmacist  testifying in  support of  SB 175.  She recalled  her                                                               
fifty years  in the field  and the current policy  of third-party                                                               
billing. She said she has undergone  a number of audits, but with                                                               
proper notification  and conduct they  can be done and  cause the                                                               
least disruption.  She shared a  personal story of  undergoing an                                                               
audit in mid-winter  in Fairbanks and opined that  this bill will                                                               
establish some parameters for audits to make them easier.                                                                       
                                                                                                                                
2:38:56 PM                                                                                                                    
GERALD BROWN, representing  himself, said he is  a pharmacist and                                                               
business  owner  testifying  in  support  of SB  175.  A  lot  of                                                               
contracts are sent by PBMs  and this would provide some structure                                                               
for those  contracts, most of  which are  "take it or  leave it."                                                               
The  MAC provision  is  very important  because  of the  terrible                                                               
reimbursement reductions. The take it  or leave it contracts make                                                               
it impossible to negotiate.                                                                                                     
                                                                                                                                
2:41:56 PM                                                                                                                    
SCOTT  WATTS, Community  Pharmacy, said  he is  a business  owner                                                               
testifying  in strong  support of  SB 175.  The bill  establishes                                                               
strong standards for audits and  does away with the penalties for                                                               
clerical errors.  He provided an  example of a recent  audit that                                                               
contained  clerical errors  and the  pharmacy was  charged $6,000                                                               
recoupment for the entire prescription.                                                                                         
                                                                                                                                
He noted  that MAC pricings  need to  be updated or  the pharmacy                                                               
ends up dispensing at a lower  cost. There is currently no way to                                                               
get  through  to  a  PBM.  While the  contract  is  signed  by  a                                                               
pharmacist, there is no room for negotiation.                                                                                   
                                                                                                                                
2:44:48 PM                                                                                                                    
MOLLY GRAY, President,  Alaska Pharmacists Association, testified                                                               
in support  of SB 175. It  aligns with the pharmacy's  mission to                                                               
provide  quality care.  They are  asking  for a  standard set  of                                                               
rules for audits.                                                                                                               
                                                                                                                                
2:46:17 PM                                                                                                                    
DIRK  WHITE, representing  himself,  testified in  support of  SB
. He said  he has been a community hospital  pharmacist for 31                                                               
years. Their primary  issue is the low cost  reimbursement; it is                                                               
all  about  MAC  pricing.  Last  year  they  lost  $22,176.42  on                                                               
prescriptions in  the grocery store  pharmacy. He  provided other                                                               
examples of losses.                                                                                                             
                                                                                                                                
The said  the bill wouldn't  limit audits. He mentioned  that his                                                               
contract does not allow mail order prescriptions to rural areas.                                                                
                                                                                                                                
2:49:07 PM                                                                                                                    
CINDY LAUBACHER,  Express Scripts, testified in  opposition to SB
. She  voiced concern about  cost implications the  bill would                                                               
have  on  their  clients  and the  limitations  on  auditing.  It                                                               
restricts  the number  of claims  that  can be  reviewed and  the                                                               
lookback timeframe.                                                                                                             
                                                                                                                                
She  said  MAC  was  created  as a  means  of  incentivizing  the                                                               
purchase of generic drugs. That  became the industry standard for                                                               
reimbursing   pharmacies.   If    the   pharmacy   disputes   the                                                               
reimbursement,  they have  the opportunity  to request  an audit.                                                               
This  bill   would  destroy  any  incentive   to  prescribe  less                                                               
expensive medications.                                                                                                          
                                                                                                                                
2:51:48 PM                                                                                                                    
ERIC DOUGLAS, CVS  Health, testified in opposition to  SB 175. He                                                               
addressed misnomers  mentioned in  today's testimony. He  said SB
 is an  omnibus bill aimed at every  anti-PBM legislation that                                                               
has been  introduced. He  said there are  multiple audit  laws in                                                               
the U.S. He said CVS was not contacted to discuss this bill.                                                                    
                                                                                                                                
The  audit provision  in SB  175 is  not how  they operate.  They                                                               
don't extrapolate  and there is  an appeal process  available. He                                                               
disputed the  statement about  MAC reimbursement  levels. Generic                                                               
drugs are commoditized and they  set a maximum allowable cost. He                                                               
maintained that there  is an appeals process.  Putting PBMs under                                                               
the insurance  division regulations is wrong  because they aren't                                                               
insurance companies.                                                                                                            
                                                                                                                                
SENATOR  GIESSEL  asked   if  he  has  supported   this  type  of                                                               
legislation in any of the 33 states that have passed it.                                                                        
                                                                                                                                
MR.  DOUGLAS answered  no,  but they  have  supported some  audit                                                               
bills.                                                                                                                          
                                                                                                                                
2:57:07 PM                                                                                                                    
BARRY  CHRISTENSEN,  Co-Chair,  Alaska  Pharmacists  Association,                                                               
testified in  support of  SB 175.  He noted  that this  topic has                                                               
been discussed since 2008 when  a similar bill passed the Senate.                                                               
He  disputed the  statement that  there hadn't  been meetings  or                                                               
negotiations with PBMs; he recalled  a meeting Senator Egan held.                                                               
PBMs also have lobbyists in Juneau.                                                                                             
He noted he  submitted written testimony listing  reasons why the                                                               
bill is  needed. Pharmacies  in Alaska need  help with  the audit                                                               
process  and   the  amount  they're  getting   paid  for  generic                                                               
prescription drugs.                                                                                                             
                                                                                                                                
2:59:47 PM                                                                                                                    
JENNY  CASTILLO, Trust  Administrator,  Alaska Teamster  Employer                                                               
Welfare  Trust, testified  in opposition  to SB  175. She  stated                                                               
that  their PBM  performs infrequent  on-site audits;  the audits                                                               
are  multi-source  claim  reviews  and are  concurrent  to  claim                                                               
submissions  to  mitigate  client prolonged  risk  to  inaccurate                                                               
payments   and  decreased   repetitive   errors  through   timely                                                               
corrections. Their  PBM conducts  many audits and  the parameters                                                               
are   clearly  outlined.   The  relationship   is  a   negotiated                                                               
arrangement  and  should  remain  that  way.  It  should  not  be                                                               
legislated.                                                                                                                     
                                                                                                                                
3:01:59 PM                                                                                                                    
CHAIR COSTELLO  kept public testimony  open on SB 175.  She asked                                                               
if the administration has a position on the bill.                                                                               
                                                                                                                                
3:02:14 PM                                                                                                                    
CHRIS  MURRAY,   Program  Coordinator,  Division   of  Insurance,                                                               
Department  of  Commerce,   Community  and  Economic  Development                                                               
(DCCED), said he does not have a position on SB 175.                                                                            
                                                                                                                                
CHAIR COSTELLO asked if he agrees PBMs need regulation.                                                                         
                                                                                                                                
MR. MURRAY  said he  just recently learned  about this  issue and                                                               
isn't prepared to answer.                                                                                                       
                                                                                                                                
CHAIR COSTELLO  asked if  it is appropriate  for the  division to                                                               
regulate PBMs.                                                                                                                  
                                                                                                                                
MR. MURRAY said they would be able to do the job, should the                                                                    
legislation pass.                                                                                                               
                                                                                                                                
CHAIR COSTELLO held SB 175 in committee awaiting a committee                                                                    
substitute.