HB 240-PHARMACY BENEFITS MANAGERS  4:07:40 PM CHAIR KITO announced that the final order of business would be 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." 4:08:21 PM REPRESENTATIVE DAVID GUTTENBERG, Alaska State Legislature, presented HB 240 as prime sponsor. He explained the proposed legislation is about the relationship between pharmacies and pharmacy benefit managers (PBMs). He stated the proposed bill would give the pharmacies a remedial place to go when there was a conflict. He added the bill would put the director of insurance in the middle of the process to adjudicate issues in the audit. He stated it was modeled after national legislation that had been passed in around 23 states. He said he thought one of the issues the bill would affect was the ability to understand the pricing of prescription drugs. He said it was not transparent but was moving in that direction. 4:09:42 PM REPRESENTATIVE JOSEPHSON remarked the opponents of the bill raise concerns that without the oversight of the existing system, prices will rise. He asked Representative Guttenberg for his thoughts. REPRESENTATIVE GUTTENBERG replied that there is no oversight to the existing system. He indicated he had spoken to the administrators for the state, and they did not know what the prices are or what they pay. He added they don't know who gets the rebate or at what percentage. He reiterated there was no transparency. He opined the opposition reflected PBMs on the top of the Forbes 500 list were concerned that people are trying to understand the rising cost of prescription drugs. He reiterated there was no oversight in the state. 4:11:34 PM CHAIR KITO stated that public testimony on HB 240 [had been opened on January 26] and that invited testimony would also be heard. 4:11:59 PM BILL HEAD, Pharmaceutical Care Management Association, spoke in opposition to HB 240. He explained PBMs contract with employers, unions, and government plans to administer drug benefits offered by those entities. He said PBMs compete with one another by finding ways to help payers save money. He stated it was estimated PBMs would help save payers over $650 billion over the next 10 years. He underlined an important part of what PBMs do is negotiate costs with drug manufacturers. He added PBMs contract with pharmacies to establish networks that ensure the widest access possible for consumers and patients who have drug benefits. He said PBMs are often required to audit entities to avoid fraud, waste, and abuse, and it was estimated that nationally 3 percent to 10 percent of healthcare spending is lost to fraud, waste, and abuse, which adds up to billions of dollars. MR. HEAD said one of the main reasons his organization opposed HB 240 is that it would restrict PBMs' ability to audit pharmacies and prevent fraud, waste, and abuse. He pointed out that Centers for Medicare & Medicaid Services (CMS) and all their contracts with Part D plans require such auditing, as does virtually any plan that employs a PBM. He stated the proposed bill would add costly regulations, which would add costs to the purchaser of healthcare and their enrollees. He said the bill would interfere with the ability for private entities to contract with a PBM. He concluded, "At the end of the day, it comes down to PBMs helping purchasers save money on the drug benefits they offer their enrollees." 4:14:54 PM CHAIR KITO stated Mr. Head had said the proposed bill would prohibit PBMs from auditing, but it was his understanding that HB 240 put sideboards on the audit process. He asked whether Mr. Head could say specifically within the bill where it would prohibit audits. MR. HEAD stated he had misspoken and clarified that the bill would interfere with the audit process. He said the proposed bill defeats the purpose of detecting fraud if the PBM is required to notify the pharmacies of the audit. He said he did not think other entities that have audit processes would do that. CHAIR KITO replied he did receive audits every year on workers' compensation insurance payments and that he was informed 30 days before the audit. He added he thought creating some sideboards creates predictability for the industry and there were too many opportunities for fraud and abuse "from the other side" if there was no notice provided when someone was being audited. CHAIR KITO informed that pharmacists in Alaska were reporting that they were being denied reimbursement for the drugs they purchase, and they were having to pay out-of-pocket for the balance for drugs they had already dispensed. He asked Mr. Head to speak to the issue. 4:16:59 PM MR. HEAD answered he was not familiar with the issue as it pertains to Alaska, but that generally there are processes in place for the pharmacists to appeal to the PBM and to the division of insurance to resolve any disputes regarding contracts. CHAIR KITO stated the committee had heard from three pharmacies who had identified about 1,000 appeals pending. MR. HEAD answered that suggested the process was in place but was not as efficient as it should be. CHAIR KITO asked whether PBMs are prohibited from owning pharmacies. MR. HEAD answered many of them do own mail-order pharmacies. CHAIR KITO said he thought there may be a conflict of interest if the PBM could drive business to its own online pharmacy. MR. HEAD answered PBMs were not producing money but were providing a service to the purchaser and were in fact audited by the purchaser. 4:18:43 PM REPRESENTATIVE JOSEPHSON asked Mr. Head whether he believed it was accurate that the proposed bill is consistent with model legislation. MR. HEAD answered he did not know of another state that made changes to auditing requirements or allowed the state to get directly involved in the contracts between the purchasers and PBMS. 4:20:02 PM REPRESENTATIVE SULLIVAN-LEONARD said she was aware legislation has passed in other states to eliminate the PBM, and the states had found it very cumbersome to replace the service provided by the PBM. She asked Mr. Head to comment. CHAIR KITO clarified there was nothing in the proposed bill that would eliminate PBMs. REPRESENTATIVE SULLIVAN-LEONARD restated her question. MR. HEAD stated if PBMs did not exist it would make things much more difficult and more expensive for the consumer. He added it was a service borne of necessity, the elimination of which would result in much higher costs to the purchaser. 4:22:42 PM REPRESENTATIVE JOSEPHSON remarked the proposed bill seemed to be a bill of rights for pharmacists relative to the audit structure and asked whether that could be accommodated within the PBM model. MR. HEAD clarified he is not an expert on the audit process and would like to defer to someone with more experience. He stated PBMs were not performing the audits for self-gain but on behalf of the purchaser with limited funds to ensure those dollars were being spent in the most cost-effective way. He underlined the savings go to the purchaser and not to the PBM. 4:24:26 PM REPRESENTATIVE WOOL asked whether he meant the consumer. MR. HEAD clarified he meant both the health plans and the consumer. He reiterated the PBM was saving money for the organization that provides healthcare and for the consumer in the long run through lower premiums and co-pays. REPRESENTATIVE WOOL remarked 36 states had passed similar legislation. He asked whether online pharmacies are subject to the same audits and whether the mail-order pharmacies were self- audited. MR. HEAD stated that would be a conflict of interest and that mail-order pharmacies are required to have the same licenses and follow the same rules as any pharmacy, including audits. He reminded that mail-order was not dispensing the same way as a retail pharmacy, which ultimately means the consumer can save money on prescriptions. 4:28:07 PM DOMINIC GUGLIUZZA, Vice President, Finance, CVS Health, testified in opposition to HB 240. He explained one of his team's responsibilities is to calculate maximum allowable cost (MAC) price used by the claims processing systems to reimburse pharmacies for generic drugs. He explained the team reviews the marketplace and product availability for generic drugs to implement MAC changes, typically on a weekly basis. He added it creates an opportunity for additional market feedback, including pharmacy feedback through the appeals process. He stated the feedback could lead the team to modify MAC prices. He explained the MAC model was established by the Centers for Medicare and Medicaid Services to create incentive for pharmacies to purchase the lowest-priced drugs. He stated he believes HB 240 would drive up consumer costs by limiting the use of the MAC reimbursement tool. He said restricting which drugs can be reimbursed using MAC would allow pharmacies to be overpaid at brand rates for generic drugs and would remove the incentive for wholesalers to sell drugs at the lowest prices if wholesalers know that the reimbursement level will ensure a profit for a pharmacy and therefore ensure their profit. 4:30:42 PM REPRESENTATIVE JOSEPHSON asked in which section of the bill MAC pricing is "undone," wherein an independent pharmacist could charge more than MAC pricing would allow. MR. GUGLIUZZA said he believed one of the sections would require PBMs to change their prices based on the invoiced cost if pharmacies appeal MAC prices. He stated this could incentivize wholesalers to avoid purchasing at the lowest cost. He added a lot of pharmacies use [Pharmacy Services Administrative Organizations] PSAOs, which are owned by wholesalers, to obtain their products. He said it could incentivize wholesalers to keep prices high if they knew pharmacies could appeal and the PBM would have to grant the appeal and change the cost. CHAIR KITO posited a scenario in which a pharmacy purchases drugs on a schedule and later dispenses that medication but the MAC price changes in the interim, causing the pharmacy to pay out of pocket. He reiterated the statement that ensuring the pharmacy is responsible for the cost would save the consumer money. He suggested that "too much activity in that vein could actually put a pharmacy out of business." 4:33:24 PM MR. GUGLIUZZA answered he thought that would be a highly unusual situation. He explained PBMs do not typically have a large supply of inventory. He added the reverse could occur where there is change in generic price that makes it more expensive. He said the pharmacies were still making money from an aggregate perspective. 4:34:47 PM REPRESENTATIVE WOOL asked whether Mr. Gugliuzza was suggesting the appeals process would be created or enhanced. MR. GUGLIUZZA offered to describe the appeals process. REPRESENTATIVE WOOL responded he thought it would be useful. MR. GUGLIUZZA explained CVS has a pharmacy portal for appeals which the team monitors daily. He said often more information is required for evaluation, then a determination is made, and a response is given to the pharmacy. 4:37:10 PM REPRESENTATIVE SULLIVAN-LEONARD stated it seemed that there is already a process in place involving a private contract and specific manuals for pharmacies. She asked why there was a need for "government intrusion." MR. GUGLIUZZA replied that he agreed with her statement. 4:38:43 PM LEIF HOLM, Pharmacist, testified in support of HB 240. He stated he is also state president of the Board of Pharmacy but was testifying as a pharmacist. He gave his background and added he started the first independent telepharmacy in Healy, Alaska. He stated pharmacists live in fear of the PBMs and their tactics. He added pharmacists are dependent on PBMs as only about 3 percent of people pay cash for their medication. He responded to the question of government intrusion, stating it was because contracts were "take it or leave it" with no negotiations. He said he thought PBMs were driving consumers to mail-order pharmacy which they owned. MR. HOLM stated that since October [2017] there had been drastic cuts in reimbursement of MAC prices. He added the appeals process is broken and that all his appeals are denied. He said he felt he was doing more work for less compensation. He stated pharmacies have closed everywhere, which was a concern for public safety as small towns depend on independent pharmacies for access to medication. He stated mail-order pharmacy does not work in Alaska as prescriptions are lost, frozen, or create waste due to the pharmacy not receiving updated information regarding the customer's need to continue to receive the medication. He said he thought it was not a good model for Alaska. He described his telepharmacy in Healy and said the way he was being reimbursed at MAC prices he did not know that he could sustain the model. He said he thought the bill would create a fair playing field. 4:44:35 PM REPRESENTATIVE BIRCH asked whether there are any models which show how pharmacists could get paid for their services and expertise beyond retail transactions. MR. HOLM answered that pharmacists are not currently paid for their expertise and there are no models that provide for that. 4:46:56 PM JUSTIN RUFFRIDGE, Owner, Soldotna Professional Pharmacy; Juneau Drug Company, testified in support of HB 240. He stated he was concerned independent pharmacies could be misunderstood and wanted to underline they only want transparency from PBMs. He added the issue of PBMs affects all pharmacies, not just independents; however, independent pharmacists are businessowners and pharmacists and have a unique prospective, while other pharmacists working for large stores may be shielded from the problem through corporate structures. He remarked audits were originally intended to be random fraud prevention checks, whereas pharmacies are now being audited constantly and were focused on the most expensive brand drugs. He gave the example of a request for an audit going back 3 years by a major PBM, the information for which took 3 hours to prepare. He stated that typically a random audit would have to include cheaper generic drugs, but he had been able to identify which drugs would be included in an audit by price alone. He stated the example showed the current audit practices are not fair or random. He reiterated pharmacies must have protections in place. 4:52:25 PM STEPHEN SREBERNAK, Owner, Family Pharmacy, spoke in support of HB 240. He clarified he did not know of anyone who is against audits as they are useful tools to detect problems of fraud and waste. He compared PBM audits with Medicare audits. He said he thinks it makes sense to have rules. He stated he did not know where MAC prices came from and that he was "losing money left and right." He stated he feels the appeals process isn't working. He said he had sent in over 300 appeals in the previous year and had not had a single response. He highlighted that pharmacies perform a service for communities. He concluded that the pharmacists were hoping for some transparency. 4:55:00 PM DIRK WHITE, Pharmacist, spoke in support of HB 240. He stated he had about 30-35 employees in two locations in Sitka. He said pharmacies need to have the proposed legislation passed as pharmacists have no place to go for redress because PBMs are not registered or licensed in the state. He said pharmacists need some government division to get help. He described one of the latest issues with reversing a claim, saying a prescription gets taken back from the PBM after a patient does not pick up the prescription. He added this time the PBM took the co-pay if as if the patient got it. He spoke to MACs coming in below acquisition costs, meaning the pharmacy was losing freight costs, which were about 3 percent. He suggested no business is going to buy a more expensive product than it needs, so there was no way a MAC was going to incentivize to "buy better." He mentioned other states that have passed similar legislation and suggested if the prices had gone up, the states would have repealed the legislation. 5:00:44 PM CATHERINE KOWALSKI, Pharmacist, testified in support of HB 240. She shared her family history in the pharmacy industry. She spoke to moments when the pharmacies in remote communities saved lives. She emphasized that her business was struggling in terms of time, labor, and reimbursement from PBMs. She remarked she currently had 250 negative revenue claims. She cited that other states had passed similar bills and said Alaska needed to do the same. 5:04:17 PM DEBBIE JOHNSON testified in support of HB 240. She relayed that she lives in a remote area of Alaska off the road system. She referred to the section in the proposed legislation stating a pharmacy should not be penalized for mailing out drugs. She underlined that she does not have a way to get medication except through the mail or on float planes. 5:06:39 PM CHAIR KITO closed public testimony on HB 240. 5:06:50 PM REPRESENTATIVE SULLIVAN-LEONARD stated she would like to do more research on the matter. She asked whether HB 240 could be held over. CHAIR KITO explained that the bill had another committee referral and that he was compelled to move the bill forward. 5:07:50 PM REPRESENTATIVE JOSEPHSON asked whether the state had taken a position on HB 240. CHAIR KITO answered that the state had not taken a position, but that Emily Ricci from the Department of Administration had given testimony in the previous hearing of HB 240. 5:08:14 PM REPRESENTATIVE KNOPP indicated he was convinced the proposed bill was about clear and transparent auditing, so he was ready to support the bill moving forward. 5:08:56 PM REPRESENTATIVE WOOL moved to report HB 240 out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, HB 240 was reported out of the House Labor and Commerce Standing Committee.