Legislature(2017 - 2018)ADAMS ROOM 519
04/12/2018 01:30 PM FINANCE
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CS FOR SENATE BILL NO. 37(FIN) "An Act relating to the Board of Pharmacy; relating to the licensing of certain entities and inspection of certain facilities located outside the state; relating to drug supply chain security; creating a position of executive administrator for the Board of Pharmacy; and providing for an effective date." 1:52:08 PM JANE CONWAY, STAFF SENATOR CATHY GIESSEL, SPONSOR, relayed that SB 37 brought Alaska into compliance with the Drug Quality Security Act (DQSA), which created a new license category for "Out-of-State Wholesale Drug Distributors" established in 2013 to provide oversight to large scale drug compounders. She expounded that currently, the Board of Pharmacy had no authority to regulate out-of-state wholesale drug distributors and the bill provided the authority. The legislation allowed Alaska to act to eliminate wholesalers looking for loopholes in the regulatory system and ensure that out-of-state applicants seeking licensure comply with the same regulations as Alaskan wholesalers. She reported that only one drug wholesaler operated in Alaska; McKesson Drugs Company. Ms. Conway relayed an incident relating to wholesale drug distributors. She detailed that in 2012, contaminated medications were distributed which resulted in the deaths of people from meningitis. In 2012, a nationwide fungal meningitis outbreak resulted in 751 patients in 20 states being diagnosed and 64 patients in 9 states dying. The outbreak was linked to a compounding facility in Massachusetts. It was found that the employees were producing medications in an unsafe manner in unsanitary conditions and the company allowed the medications to be shipped out anyway. The tragedy highlighted the dangers of unregulated, large scale compounders. She communicated that SB 37 ensured that prescriptions were pure, sanitary and safe. Passage of the bill would create a more secure drug supply chain and ensure that Alaskans were receiving non- counterfeit, unadulterated medications. She delineated that when a pharmacy, doctor, or hospital in Alaska ordered supplies of prescription medications, they may go to the one wholesale distributer in Alaska(McKesson), but they may also order from one of hundreds of others in the Lower 48. The bill required any out-of-state drug distributor or outsourcing facility to follow specific guidelines including: obtaining a license in Alaska, authorizing inspection by a designee of the board, appointing an agent before shipping, mailing, or delivering prescription drugs to a licensee in the state or advertising in the state. She pointed out that that last provision identified a responsible party (agent) to serve subpoenas for citing infractions or filing suit in case of problem. She continued that an outsourcing facility must comply with the Drug Quality and Security Act (DQSA) of 2013. She defined that an "outsourcing facility" was a facility in one geographical location that was engaged in the compounding of sterile drugs for a facility at another geographical location. They were companies that made large batches of compounded drugs that had the highest risk of contamination. The Division of Corporate, Business, and Professional Licensing (DCBPL) estimated that registering and regulating the drug wholesalers equated to approximately 400 new licensees. Ms. Conway offered that a provision of the bill created an executive administrator position for the Alaska Board of Pharmacy. The board had ever-increasing responsibilities under several healthcare reform bills and opioid response legislation that passed recently. The position would allow the board more capacity to respond more quickly to issues and concerns, manage the licensing of new wholesalers, implement statutes and regulations, and manage the multiple new responsibilities relating to the Prescription Drug Monitoring Program (PDMP). The board currently relied on the division for routine operations assistance. The position would be paid by the fees supplied by the wholesale drug distributor licensees along with current licensee fees and would not impact the general fund. 1:59:17 PM Representative Wilson questioned whether Ms. Conway was aware that the Massachusetts facility was inspected but no one performed any follow up. Ms. Conway deferred to a pharmacist online to answer the question. Representative Wilson was aware of the circumstances and relayed that the Massachusetts manufacturer was regulated and fined. She was concerned about the federal mandate requiring the legislation and wondered what repercussions the state would incur if the legislation was not adopted. Ms. Conway was unsure what the federal government would do. She suspected that the message to consumers would be that Alaska did not care about the quality of its medicine. She thought that Alaskan consumers expected the drugs to be manufactured in a regulated facility that maintained quality control. Representative Wilson declared that she did care but explained that her concern focused on requiring the state to perform the inspections. She thought the mandate would result in additional liability for the state. She asked whether her assumption was correct. Ms. Conway responded that it was possible that the state would perform inspections. However, since most other states required licensure the criteria adopted by other states would likely comply with Alaska's criteria. The inspection could just be a matter of reciprocity with other states licensure that would place an approved wholesaler in another state on an Alaskan list of approved facilities. Representative Wilson asked whether Ms. Conway was aware of any problematic incidents with wholesalers in Alaska. Ms. Conway was not aware of any incidents. She referred to a handout in member's packets titled "The Deadly Counterfeit Drug Trade Thrives in Alaska" (copy on file). She indicated that there were several places in the wholesale drug distribution process where counterfeiting actions could occur. Representative Wilson asked how the bill worked. She asked what provisions in the bill identified where the counterfeiting actions could occur and prevented the activity. 2:04:19 PM Ms. Conway responded that bill licensed the entities of the wholesale drug distributors, the outsourcing facilities, and the third-party logistical providers; all would be licensed under the bill. She maintained that the licensing of all entities handling the drugs prevented counterfeit activities. Representative Wilson mentioned that compounding drugs were recently excluded in the state's active employee health plan. She asked whether the legislation would cover compound drugs with passage of the bill. Ms. Conway deferred to the appropriate available testifier to answer the question. 2:06:08 PM Representative Kawasaki noted she had mentioned that currently there were 400 out-of-state drug wholesalers engaged in business activities in Alaska. He asked whether his statement was correct. Ms. Conway answered that the 400 number was an estimate. She relayed that Alaskan pharmacists avoided engaging with most of the out-of-state drug wholesalers because they did not know who were reputable. The division had informed her that many out-of- state companies were inquiring whether the state required licensing, some wanting to take advantage of the unlicensed environment. There was a limited number of suppliers that Alaska pharmacists would purchase drugs from and the bill would provide the larger estimated pool of wholesalers. Representative Kawasaki related a scenario where an out-of- state drug wholesaler did not want to become licensed in Alaska. He asked whether the bill contained transitional language that allowed an Alaskan heath care entity to continue to do business with them. Ms. Conway could not imagine a wholesaler not wanting to sell to vendors in Alaska and not obtaining a license. Representative Kawasaki restated his question. Ms. Conway responded that all but 4 other states required licensure so the wholesalers were registered in many other states and was common practice. Representative Kawasaki asked whether the out-of-state drug wholesaler regulations were standardized and similar in every state. Ms. Conway replied that the state of Alaska would apply the current set of regulations it applied to McKesson to the out-of-state drug wholesalers. 2:10:55 PM Representative Kawasaki asked why the Board of Pharmacy could not just allow out-of-state drug wholesalers that met the criteria of another state to operate in Alaska and gain an Alaskan license by merely qualifying for licensure in another state. He thought it would save the time and effort required to develop regulation and inspect facilities. Ms. Conway indicated that every state had adopted their own criteria; some maybe more or less stringent. She restated the possibility for reciprocity with states that had the same criteria as Alaska's. She expounded that there was a national certifier called the "Verified Accredited Wholesale Distributor" (VAWD) but was only used by 3 states due to the registration fee costs. However, 23 states accepted the certification. 2:13:27 PM Representative Pruitt guessed the transition time would be established through regulation. He cited the two effective dates in the bill, an immediate effective date allowing time to establish regulations and the hiring of an executive director. The second effective date was July 1, 2019 when the law would be implemented. He asked whether the July 1 date offered enough time "to allow the transition to take place." SARA CHAMBERS, DEPUTY DIRECTOR, DIVISION OF CORPORATIONS, BUSINESS AND PROFESSIONAL LICENSING, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via teleconference), thought the time frame was adequate for notifying involved entities and allowing them input in the board's public process for regulation adoption. Representative Pruitt asked whether the date provided enough time for the public to provide input on the proposed regulations. Ms. Chambers answered in the affirmative. 2:15:47 PM Co-Chair Foster OPENED public testimony. 2:16:32 PM RICHARD HOLT, CHAIR, ALASKA STATE BOARD OF PHARMACY, ANCHORAGE (via teleconference), testified on behalf of the board in support of the bill. He explained that the legislation provided the board two imperative authorities: to license out-of-state wholesale drug distributors who were shipping pharmaceuticals into the state, and out- sourcing facilities and whole sale logistics providers. The other authority allowed the board to hire an executive administrator using the licensing fees. The board determined that the licensure was necessary to fulfill its responsibility to ensure the practice of pharmacy was acting in the best interest of Alaskans. He emphasized that the out-of-state wholesalers shipped anything they wanted to the state because of the lack of oversight from the board. He relayed that the board's licensee examiner received many inquiries from out-of-state wholesalers asking whether the state required a license. He reiterated that the state was unaware of what the wholesalers were shipping into the state. He relayed that recently a registered out-of-state wholesaler turned its license back over to the state and choose to operate as an outsourcing facility to avoid oversight. He commented that the board's workload continued to increase, and the executive director position was necessary to assist the board in carrying out its statutory duties. He urged members to vote "yes" on the bill. Representative Kawasaki mentioned that the state typically joined interstate compacts for protections and efficiencies. He asked whether "it would be easier to dovetail" off the other 47 states that already required licensure. DR. Holt responded that when the board drafted regulations they examined the provisions other states adopted. The board would dovetail regulations that were appropriate but would tailor regulations to ensure Alaskan's safety and that they met the state's needs. 2:20:56 PM Representative Wilson asked if Dr. Holt felt that the bill would help restore state employee benefits for compounded drugs. Mr. Holt replied that the state currently had regulations for compounding in 12 AAC.52.440 [Alaska Administrative Codes]. He suggested that the issue was an insurance related issue. Representative Wilson conveyed that the employees received notice that the coverage was eliminated due to safety concerns, yet state retirees' compounded drug prescriptions were still covered. She hoped the bill would grant the state more confidence in the safety of compounded drugs. She appreciated all the work accomplished by the board. Dr. Holt affirmed that the bill would provide that state more assurances regarding the safety of compounding drugs. 2:23:11 PM LEIF HOLM, BOARD OF PHARMACY, NORTH POLE (via teleconference), wanted to echo Dr. Holt's sentiments on behalf of the board in support of the bill. He offered his testimony from the perspective of an independent pharmacists. He conveyed that ultimately, pharmacists wanted to have confidence that the medications they purchased were safe. He relayed that he restricted his purchasing with primarily one large wholesalers because he could not quickly asses where the small wholesalers' drugs were coming from. Pharmacists were always searching for the lowest prices but revealed that it was potentially dangerous with some of the "unscrupulous characters" that were making substandard drugs, and the situation was serious. He noted that the state currently regulated in- state wholesalers and he did not believe it would take much effort to implement the regulations. He mentioned the likelihood of the board reciprocally accepting other states standards and did not anticipate having to travel to another state to do inspections. He was available for questions. Representative Kawasaki asked how Dr. Holm currently determined who was a legitimate wholesaler. Dr. Holm voiced that the situation was difficult. He elaborated that he almost exclusively used the single wholesaler AmerisourceBergen Corporation but at times he had to use another wholesaler and was not able to reliably determine the reputation of another supplier. He wished he could rely on a state website that listed state licensed wholesalers. Representative Kawasaki asked how comfortable he was with using other state regulations and if he agreed that a wholesaler who was reputable for another state was probably a legitimate source for Alaska. Dr. Holm would agree as long as the standards mirrored Alaska's criteria. He deduced that he could go to another state's website to determine whether a wholesaler was licensed and then check the thoroughness of the regulations. He emphasized that he trusted the decisions the board made and would rather consult the state's licensure where he played a role. Representative Kawasaki surmised that the bill provided for an executive administrator at a range 23 attached to the new licensure and wanted to find a less expensive way to accomplish the licensing. He wondered whether there were model regulations from one state that the board approved of, whereby the board could adopt as their own rather than using an executive administrator. 2:29:49 PM Dr. Holm asked for a restatement of the concern. Representative Kawasaki wanted to find out whether there was a cheaper way to accomplish the licensure work by board regulation. Dr. Holm answered that the position was covered by the wholesale licensing fees. He noted that the profession was constantly evolving, and it was difficult to keep up with the changes. He countered Representative Kawasaki's notion that the board could do the regulatory work on their own. He remarked on the busy lives of board pharmacists. He shared that he had four jobs with his various pharmacies besides carrying out his board duties, which was very time consuming. He noted that other boards like the medical board and nursing board had an executive administrator. He reported that in person meetings were much more effective than teleconferenced meetings and reported that the board was restricted to two in person meetings per year. He believed that the executive position would act as a liaison, board work would be expedited, and thought it would be easier for the board to stay on top of what other states were doing. He would find it arduous to find the time to analyze many other states regulations. He acknowledged that he had volunteered for the board, but it did not mean the job did not require significant effort. 2:33:18 PM Representative Wilson wondered whether a complaint against an out-of-state wholesaler would force a state investigator to travel to the state to perform an investigation, which was typically a significant cost to the board. She asked whether the investigatory costs would be paid through the wholesale licensure or the profession's general licensure fees. Dr. Holm responded that he did not foresee a scenario that required an Alaskan inspector to travel out of state. He thought that as violations were occurring they would be reported to all states boards. Representative Wilson wondered how the licensure funds would be disbursed in the eventuality of an investigation. Dr. Holm did not know. He supposed that inspection costs would come out of the pharmacy licensure "pot" that included fees from the technicians, pharmacists, and wholesalers. Representative Wilson spoke about compounding prescriptions. She asked how much revenue Mr. Holm had lost because the state eliminated employee coverage for compounded medications. Dr. Holm answered he lost thousands of dollars in revenues and many patients were unable to obtain their medications due to high costs. Representative Wilson asked if the state would realize it made a mistake due to the safety guarantees embedded in the bill. Dr. Holm stated it depended on whether it was done for safety or financial reasons. He could not speak to exactly what would happen. Representative Wilson thanked Mr. Holm and acknowledged his work. 2:36:47 PM Representative Pruitt asked whether the board was comfortable with the licensure fee structure that would facilitate supporting a new executive director position. He asked whether the licensing fees would increase. Dr. Holm responded that the board did not expect an increase in existing licensing fees. The fees collected from the wholesale licenses were expected to fully fund the position. He spoke with wholesalers that supported the licensure and expected to pay licensing fees. Representative Pruitt recounted that there was an expectation the board would not need to increase license fees to pay for the executive director even though the director would carry out duties other than duties required for the wholesaler licensing. He continued that there was a problem with many boards where the current fee structure could not cover the cost of an investigation. He asked if the board was concerned that when out-of-state investigations did occur the wholesaler licensing fees would increase causing "push back" from the wholesalers. 2:40:15 PM Dr. Holm understood Representative Pruitt's point and thought it was hypothetical regarding investigations. He understood the larger investigatory issues pertaining to boards. He noted that the pharmacy board was a well-funded board that had never operated with a negative balance. He opined that the board would deal with the issue if or when it happened. He thought safety was the number one concern with moving forward with the licensure. Representative Pruitt agreed that safety should be the primary concern. He wanted the industry to know that the expectation of the state was the licensure used a "fee for service model" and fees could increase to cover board costs. He asked whether the board was comfortable with the structure. He supported moving the bill forward if the board was in support. Dr. Holm could not speak for everyone and could not speak to how the board would decide on future fee increases but he would support "whatever decision needed to be made by the board to make this happen." Representative Tilton referred to the fiscal note from DCCED that stated there was no fiscal impact on the public or private sectors in the state as the licensing would impact entities outside of the state [second paragraph on page 2 of the fiscal note]. She was concerned that a potential impact could happen in the future. She wondered whether any latent impact could increase costs to the consumer. Mr. Holm answered that he did not anticipate any fiscal impact on the wholesaler; the fees were minimal for a wholesaler. He deduced that the bill's impact could potentially lower costs by offering more possibilities for the pharmacists to source lower costs drugs. 2:44:50 PM BARRY CHRISTENSEN, ALASKA PHARMACIST ASSOCIATION, KETCHIKAN (via teleconference), spoke in support of the legislation on behalf of the association. He reported that the association attempted to address the issue through legislation for over four years. The membership felt strongly that the pharmacies needed the safety assurance and a trusted source to identify and verify wholesalers. He concurred with the previous statements regarding the inability to validate wholesalers. He added that the national association for the drug wholesale industry reported its support for the bill as currently written. He reiterated that the licensure was the standard practice. He appreciated the work of the board and endorsed the need for the administrative position. Co-Chair Foster CLOSED public testimony. Representative Wilson reiterated her question regarding the distribution of investigative costs under the new license. Ms. Conway understood that any investigatory cost was borne by the entity being investigated. She voiced that the sponsors envisioned that investigations would be carried out by contracting out an investigatory work to a qualified provider in the same state the investigation was necessary. She stated if there was a problem in California, they would contract with the proper entity in California. She did not envision "sending people out all across the nation to inspect." Representative Wilson remarked that investigations had been "lopsided" with most of the state's boards increasing licensing fees. She reiterated her question regarding how a costly investigation would affect the boards licensing fees. Ms. Conway deferred to Ms. Chambers for the answer. 2:50:53 PM Ms. Chambers answered that the division, which included all 43 of the state's license programs, did not have the statutory authority to recoup investigative costs directly from the entity being investigated. She relayed that penalties and fines imposed were deposited into the general fund. The statutes required that investigatory costs were born by all programs under their licensing board. The division tried to determine whether there were disproportionate investigatory costs per license type. She hypothesized that if investigative costs for out-of-state wholesalers were significantly higher than costs for Alaska pharmacies the division would work with the board to raise the wholesaler licensing fees. She relayed that HB 90 OCC. (Licensing Fees; Investigation Costs) was introduced to remedy the situation or there might be legislation in the future to address the problem. However, currently the division could not charge any investigative fees or recoup investigative costs; the money was recovered from the licensing program. Representative Wilson understood the issue. However, she wondered how wholesaler license investigatory costs would be split under the pharmacist licensure. Ms. Chambers responded that AS 08.01.065 required that fees were grouped together but allowed the discretion for the board to increase or lower fees according to license type. However, there was not explicit language that separated license type; the statute covered all licenses regulated under a particular board. Vice-Chair Gara reviewed the one previously published fiscal impact note from the DCCED, FN1 (CED). The bill reflected the cost recovered from board fees in the amount of $173.3 thousand in FY 2019 and decreased to $157.5 thousand in the out years. 2:55:14 PM Representative Kawasaki MOVED to REPORT CSSB 37(FIN) out of committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSSB 37(FIN) was REPORTED out of committee with a "do pass" recommendation and with a previously published fiscal impact note: FN2 (CED). 2:56:00 PM AT EASE 3:00:20 PM RECONVENED