HOUSE BILL NO. 240 "An Act relating to the registration and duties of pharmacy benefits managers; relating to procedures, guidelines, and enforcement mechanisms for pharmacy audits; relating to the cost of multi-source generic drugs and insurance reimbursement procedures; relating to the duties of the director of the division of insurance; and providing for an effective date." 2:34:47 PM Co-Chair Foster invited Representative Guttenberg and his staff to the table. 2:35:26 PM AT EASE 2:36:19 PM RECONVENED REPRESENTATIVE DAVID GUTTENBERG, SPONSOR, turned it over to his staff to review the changes. SETH WHITTEN, STAFF, REPRESENTATIVE DAVID GUTTENBERG, reviewed the changes in the proposed work draft: Page 6, lines 22-25: Changes language dealing with pharmacies' appeals of pharmacy benefits manager's reimbursements for multi-source generic drugs below pharmacy acquisition cost. Version A (Sec. 21.27.950(c)) of the bill states that: "(c) A pharmacy benefits manager shall grant a network pharmacy's appeal if an equivalent multi- source generic drug is not available at a price at or below the pharmacy benefits manager's list price from at least one of the network pharmacy's contracted wholesalers who operate in the state." Version D (Sec. 21.27.950(c)) is changed to read: "(c) A pharmacy benefits manager may grant a network pharmacy's appeal if an equivalent multi- source generic drug is not available at a price at or below the pharmacy benefits manager's list price for purchase from national or regional wholesalers who operate in the state." Page 7, line 18: Version A of the bill provides a definition establishing that "board" means the Board of Pharmacy. This is the only place in the bill where the terms "board" or "Board of Pharmacy" are used. This language is deleted in Version D. Page 9, line 6: Updates conforming language in the bill. Version A of the bill contains revisers' instructions to change "AS 21.27.900" to "AS 21.27.990" in AS 21.97.900(26). There is no reference in AS 21.97.900(26) to AS 21.27.900. This substitution needs to be made in AS 21.97.900(27). Page 9, line 8: Updates the effective date to July 1, 2019. Co-Chair Seaton asked about the change on page 6, line 23- 25. In the last line, it changed from "at least one of the network pharmacy's contracted wholesalers who operate in the state" to "for purchase from national or regional wholesalers who operate in the state." He wanted to understand the impact of that change. Mr. Whitten responded that the change came into play after speaking with the Department of Administration and hearing their concerns about the way the specific provision worked. In legislation in other states, the provision was stated more generally. As long as it was a national or regional wholesaler doing business in the state, making the provision broad helped alleviate some concerns about how it would be interpreted. 2:39:24 PM Co-Chair Seaton MOVED to ADOPT proposed committee substitute for HB 240, Work Draft (30-LS0868\D). There being NO OBJECTION, it was so ordered. Mr. Whitten reviewed the sectional analysis: Bill section 1. Adds a new section concerning Pharmacy Benefits Managers. Sec. 21.27.901. Registry of pharmacy benefit managers; scope of business practice. Requires that pharmacy benefits managers register as third-party administrators under 21.27 .630 and describes the parameters under which they may contract with an insurer or network pharmacies, set the cost of multisource generic drugs and allows for appeals. Sec. 21.27.905. Renewal of registration. Establishes a bi-annual renewal of a registration fee for a pharmacy benefits manager as set by the director. Sec. 21.27.910. Pharmacy audit procedural requirements. Describes the procedural and time requirements required of the pharmacy benefits manager and defines who conduct an audit and what records can may be provided by the pharmacy. Sec. 21.27.915. Overpayment or underpayment. Indicates that a pharmacy benefits manager shall base a finding of overpayment or underpayment on the actual payment and not a projection of patients served by similar circumstances. It also designates the dispensing fee limitations. Sec. 21.27.920. Recoupment. Establishes how a pharmacy benefits manager shall base the recoupment of overpayments from a pharmacy. Sec. 21.27.925. Pharmacy audit reports. Establishes time frames as to when preliminary and final audit reports shall be delivered to a pharmacy and the response time for any discrepancies found in the audits. Sec. 21.27.930. Pharmacy audit appeal; future repayment. A written appeals process shall be established by a pharmacy benefits manager. It also states that future repayment of disputed funds or other penalties imposed on a pharmacy shall occur only when all appeals have been exhausted. Sec. 21.27.935. Fraudulent activity. Defines what may not be considered fraud by the pharmacy benefits manager. Sec. 21.27 .940. Pharmacy audits; restrictions. Adopts restrictions on the requirements of the entire Section 1 when applied to an audit in which intentional or suspected fraud is demonstrated in a review of the claims data. In addition, the requirements do not apply to any claims paid for under the medical assistance program found in AS 47.07. Sec. 21.27.945. Drug pricing list; procedural requirements. The methodology and sources used to determine the drug pricing list will be provided to each network pharmacy at the beginning of their contract term and updated accordingly by the pharmacy benefits manager. Basic contact information shall also be provided. Sec. 21.27.950. Multi-source generic drug appeal. Establishes a process by which a network pharmacy may appeal the reimbursement for a multi-source generic drug and procedures if their appeal is denied. It also sets the limitations on the pharmacy benefits manager and the insurance division director as to how many days they have to resolve an appeal or a request for review. Sec. 21.27 .955. Definitions. Defines all selective wording as used in Section 1. Bill section 2. Adds a new section on Applicability as it applies to audits of pharmacies as conducted by pharmacy benefits managers. Bill section 3. Adds a new section as to Transitional Provisions for adopting Regulations. Bill section 4. Adds a new section stating the Reviser's Instructions. Bill section 5. Effective date clause for Bill section 3. Bill section 6. Effective date clause for this Act except as provided. Co-Chair Foster relayed the list of available testifiers. Representative Wilson asked about appeals and how they would be handled. 2:44:52 PM LORI WING-HEIER, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, responded that in respect to appeals, the way the bill was currently written and based on the current statute, appeals would automatically go to the Office of Administrative Hearings (OAH). The department had had discussions with OAH and made them aware. Representative Wilson referenced AS 21.27.950. She wondered about the number of days the pharmacy benefits manager (PBM) and the insurance division director had to resolve an appeal or a request for review. She wondered if the division would set a time frame in conjunction with the PBM. Ms. Wing-Heier replied that the division would still be involved after an appeal was given if the PBM disagreed with the findings of OAH. Timeliness would still apply. Representative Wilson had heard that the Department of Administration (DOA) was going to become more active and might look at the rebates that came back. She asked if there would ever be a circumstance where one state agency went to another state and had some sort of appeal. Ms. Wing-Heier responded that a pharmacist could come to the division for an appeal. An insured plan provider could also request an appeal of their cost for a pharmaceutical drug through the division's external review process. It was a bit of a quandary as to when the state would have its own appeals. The division worked for the insured plans including the individual market, the small group, and the large group. The state was self-insured with Alaska Care. Many employees were in union trust. The division did not have direct authority because the plans were Employee Retirement Income Security Act (ERISA) plans or self- insured plans. She conveyed that Title 21 generally only applied to insured plans. It was a much narrower scope in terms of the number of people. Representative Wilson thought there were 2 entities. She asked if the self-insured plan providers would be affected by the bill. Ms. Wing-Heier responded that the PBMs, even under contract to a union trust or any group, would be required to register with the division. However, registration did not always give the state regulatory authority. The division would work with the PBM, but the state did not have control over the contract between the trust or a large self-insured employer and the PBM. The state would have sight into the contract between the insurance company and the PBM. Representative Wilson mentioned that the state had prescription insurance. She asked if the state would go through the same appeal process via OAH if it had an issue similar to the issues pharmacies were having. Ms. Wing-Heier responded that presently the state would go through the OAH process. She suggested directing the question to the Department of Revenue (DOR) to find out their intent. 2:49:13 PM Representative Wilson asked about the pharmacy audit appeal which was being set up by the PBM. She was curious why the PBM was not handling all appeals including generic drug appeals. She reviewed the language in AS 21.27.930. She asked for clarification. Representative Guttenberg relayed that self-insured entities, including the state, hired PBMs. The statute was about the relationship between the PBM and the pharmacy. If a pharmacist was audited by the PBM and they disagreed, the pharmacist would have a place to file an appeal. Many different things could be addressed in an appeal including reimbursement rates. One pharmacist had stated that in some instances it was more cost-effective to give a client $20 to go to a chain pharmacy than to fill their prescription because of reimbursement rates. The focus of the legislation was between one contractor like the state and the pharmacy. 2:52:49 PM Representative Wilson highlighted her understanding of the bill. An appeal process was set up in AS 21.27.930 in case a pharmacy did not agree with a PBM's audit conclusions. The pharmacy would go before an OAH judge to present its case. The judge would hear from the pharmacy and the PBM to decide. She wondered if the pharmacy would go to the Division of Insurance if it disagreed with the decision of the OAH judge. Ms. Wing-Heier replied that when something went to OAH on behalf of the Division of Insurance it came back, and the director had the final say if the pharmacy continued the appeal. It did not come back to the Division of Insurance if everyone agreed with the decision at the OAH level. It was hoped that with this legislation a number of appeals would be worked out between the pharmacy and the PMB based on its parameters. She reported that OAH would hear the first appeal between the two and, if they still did not render an agreement, the director would make a final decision. The following step would be court. Representative Guttenberg underscored that the goal was not to micromanage the process. The bill would be consistent with what was already in place. 2:54:34 PM Co-Chair Seaton asked about page 5, line 21 of the bill. He did not see anything that required the pricing list to be updated electronically. The bill required that the list be updated once every 7 days. He asked if the intention was for the work to be done electronically with the exception of pharmacies without electronic communications. He did not see anything about broadband mentioned in the bill. The information could be sent in the mail and there would still be a disconnect in terms of time. He wondered if it would be beneficial to include language in the bill. Representative Guttenberg replied that he had not heard of any pharmacies not online. He thought it was necessary to have online access to look up insurance information and pricing. He suggested having the technology was a basic function of a pharmacy. He was unaware of an issue in the rural clinics. Co-Chair Seaton had only brought the issue up because of an unrelated issue having to do with the Department of Environmental Conservation and sharing information electronically or thorough the mail. He thought the goal of the bill was that the PBM and the pharmacist had pricing information simultaneously. He suggested a clarification might be in order while the bill was still in the House Finance Committee. Representative Guttenberg had received feedback about updating the list at reasonable intervals. He had heard concerns about stability if the list was updated too frequently. Prices went up and down. Co-Chair Seaton asked Ms. Wing-Heier if the Division of Insurance thought the legislation was workable. He wondered if there was anything the division wanted to see changed. Ms. Wing-Heier indicated that similar legislation had been proposed in the past. The concept was not new and other states were passing PBM models. The division did not see any problems with the bill presently. Co-Chair Foster OPENED Public Testimony. 3:00:58 PM MARAL FARSI, CVS HEALTH, CALIFORNIA (via teleconference), opposed the legislation. CVS Health believed the bill would be a cost driver to the state. It increased governmental oversight of private business-to-business contracts. The language changing the word "shall" to "may" increased confusion as to the purpose of the provision in its entirety. The presence of the statute meant that with some sort of initial rule-making or some level of enforcement, the clause would stand. The provision would still be a cost driver. She believed the audit capacity in the bill was weakened and left the door open to fraud, waste, and abuse. Ms. Farsi continued that there was a blanket registration for PBMs and involvement by government agencies on prescription drug prices, which was a complex and volatile environment. She thought the bill attempted to delegate how appeals were settled in a system that had already been agreed to in contracts with pharmacies. It allowed the state to involve itself in private contracts between businesses in ways it had consequences for other business- to-business contracts. She provided an example pertaining to reimbursement prices. The bill would tie the CVS's hands in multiple ways. The bill in its current form did not exist in any other state. In states where a law addressing pharmacy reimbursements and audits existed, CVS had worked very closely with legislators and pharmacists to come up with a solution. CVS had requested the opportunity to work with the legislature to craft an appropriate bill but had not been given the chance. She asked for the opportunity to craft an appropriate policy for all involved. Vice-Chair Gara asked if CVS Health was a pharmacy benefits manager. Ms. Farsi replied that CVS was a multi-armed pharmacy innovation company. She elaborated that the company had chain pharmacies and a pharmacy benefit manager. She assured the committee that CVS had a strict firewall between both sides of its business. In Alaska CVS acted as the pharmacy benefit manager for the state plan. Vice-Chair Gara had learned of a practice that pharmacy benefit managers had prohibited pharmacies from telling a consumer that they could get a lower price for a prescription drug by paying cash than they could through their co-pay through their insurance. It was a national problem. He asked if such gag orders preventing pharmacists from revealing certain information to their customers existed in Alaska. Ms. Farsi indicated that CVS Health did not participate in that practice. The company permitted pharmacists to offer the lowest price drug to their patients whether it was the price under their cost share or the cash price of the drug. She indicated CVS would have no objection to a bill that addressed that particular practice. There were probably PBMs that allowed that practice. However, CVS was not one of them. 3:06:35 PM BILL HEAD, PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION, GLENDALE, CALIFORNIA (via teleconference), opposed the bill. He indicated he had provided information with specific details of the bill. He suggested that he would be willing to come to Juneau to further discuss in detail those items that were problematic. He wanted to add to the response already made about pharmacists not being allowed to share pricing information with their customers. His company did not support such practices and would support language to ensure that pharmacists could provide pricing information to their customers. He thanked the committee for its time. 3:08:40 PM CATHERIN KOWALSKI, PETERSBURG REXALL DRUG, PETERSBURG (via teleconference), had been in the family business since 1965. She disagreed with CVSs information regarding cost drivers. She opined that if it was really an issue, she would be seeing it and she had not. She indicated that there were bills with similar language across the state. She reported that 40 states had adopted them. She argued that there had already been discussions on the issue. She thought it was time for the state to move on. She thought it was important to get back to serving customers. Representative Ortiz asked if he knew Ms. Kowalski as Ms. Warhatch. Ms. Kowalski responded positively. Representative Ortiz asked if her family had operated its business as an independent pharmacy since 1969. Ms. Kowalski indicated he was correct. Representative Ortiz asked if she was calling in support and need of the bill in order to help maintain the existence of independent pharmacies in the state. She responded in the affirmative. 3:11:41 PM JUSTIN RUFFRIDGE, SOLDOTNA PHARMACY, SOLDOTNA (via teleconference), spoke in support of the legislation. He had provided testimony in the last hearing of the bill. He supported HB 240 and relayed that it was absolutely needed. Much of what the PBM presence had been stating had already been tried. As a pharmacist, he had attempted to be an easy person to work with He liked to be able to operate a business that offered great care and great services to people in rural areas. He felt the issue was at risk due to some unfair practices that have been left unchecked. It will drive independent pharmacies out of the state. He wanted some sideboards around what was allowed. He wanted to have a means in which to be heard. He appreciated the efforts in putting the legislation forward. He was available for questions. Vice-Chair Gara understood that there was a practice that did not allow some pharmacists who had contracts with PBMs to tell a consumer that there was a lower cost alternative than to pay the co-pay for a pharmaceutical drug. He asked Mr. Ruffridge if he was aware of it. Mr. Ruffridge felt that he was an appropriate person to ask. He had a contract in front of him which contained a type of gag order. It stated that pricing as a whole had to be kept a secret in a black box. The pharmacist was not allowed to share the information with any other pharmacy or patients. In the case of driving up healthcare costs, the lack of transparency was driving up costs. He reported that when he was asked what a customer's insurance paid, he responded that he did not provide the information because he could be in violation of a contract. He indicated there were a number of PMB's that had a gag order in place. Vice-Chair Gara expressed concerns about gag orders. He asked if there was a circumstance that would allow a pharmacist to tell a client about a cheaper way to buy a pharmaceutical than through their insurance. He wondered if there would be an opportunity to offer a different price to patients if gag orders did not exist. Mr. Ruffridge responded that if his staff noticed if a cheaper price was available, they would fill the prescription for cash for the patient and not inform them. It was his goal to offer the cheapest price. He did not want to overcharge for medications and knew what the pharmacy was paying for them. He let patients know that the pharmacy actively sought to give patients the best price possible. 3:17:33 PM CINDY LAUBACHER, EXPRESS SCRIPTS, SACRAMENTO, CALIFORNIA (via teleconference), had traveled to Juneau to talk with legislators to discuss the bill. There were many provisions in the bill that were acceptable. However, there were several problematic provisions as well. Express Scripts would like to sit down to discuss those areas of concern. The company was committed to the process of coming to an agreement. She relayed that Express Scripts did not have gag clauses in their contracts. The company's contracts require pharmacies to dispense at the lessor of cash or the patient co-pay and would be supportive of language reflecting this policy. She reiterated that Express Scripts was committing to sitting down to further discuss the legislation. Representative Ortiz asked if Ms. Laubacher if she was familiar with a letter from the Pharmaceutical Care Management Association dated, March 2, 2018. Ms. Laubacher responded that she could pull up the letter. Representative Ortiz relayed that on page 1 of that letter the organization showed concern with the section that addressed AS 21.27.910. The section required entities to provide pharmacies with advanced written notice 10 business days before an audit. According to the letter, it would give individuals ample time to hide evidence of fraudulent activities or to evade authorities altogether. He asked if it was the position of Express Scripts and fellow PBMs that independent pharmacists would hide fraudulent evidence. Ms. Laubacher responded that as a general rule PBMs were looking for fraud, waste, and abuse on behalf of its clients. Typically, there were concerns about giving prior notice of audits. However, Express Scripts did not have a problem with the provision in the bill. The only problem the company had with the section was that it wanted additional clarification about on-site audits. She explained that there were two types of audits that occurred. There were on-site audits where the company looked at a large batch over a long period. They were full- scale audits conducted by the company for all of its clients at the same time. There were also desk audits which occurred regularly. The purpose of desk audits was to let a pharmacy know about potential mistakes. Any issue would be resolved immediately so that it would not resurface in the larger audit. Express Scripts did not have a problem with the 10-day notice as long as there was language in the bill that indicated the notice would not apply in cases of suspected fraud in AS 21.27.940. 3:23:05 PM RICHARD HOLT, ALASKA BOARD OF PHARMACY, ANCHORAGE (via teleconference), supported the legislation. The board saw it as an opportunity to have open and honest conversations with pharmacists and patients. He was available for questions. 3:23:53 PM JERRY BROWN, SELF, FAIRBANKS (via teleconference), spoke in support of the bill. He owned an independent pharmacy in Fairbanks. He thought the bill provided side boards to the auditing process and gave pharmacists a method of recourse for any appeal that was unfairly determined. He provided an example having to do with reimbursement rates. He had appealed his case but was denied. The appeal decision claimed he could find the drug somewhere else that would cost him less. It was a multiple source item but not available through the manufacturer. In his example, he lost $23 filling the prescription. He wanted to be able to have some recourse because the PBM ends up becoming the judge, jury, and prosecutor in the appeal process. 3:25:32 PM BARRY CHRISTENSEN, ALASKA PHARMACIST ASSOCIATION, KETCHIKAN (via teleconference), reported the association's priority was to see the bill pass. He had been at the table with the PBMs. He appreciated the efforts of the committee. He supported the bill and the amendments. 3:26:54 PM Co-Chair Foster CLOSED Public Testimony on HB 240. Co-Chair Foster indicated amendments were due on Wednesday April 4th by 5:00 pm. Co-Chair Foster indicated that committee would not be hearing HB 129. The bill would be taken up on Wednesday, April 4, 2018 at 1:30 p.m. Representative Wilson asked about another bill coming back up in committee. 3:28:29 PM AT EASE 3:28:44 PM RECONVENNED Co-Chair Foster would let the committee know the following day. He discussed the agenda for the following day.