SENATE BILL NO. 38 "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." 9:32:05 AM SENATOR CATHY GIESSEL, SPONSOR, introduced the legislation. She stated that Alaska had the highest health care costs in the country, and furthered that the United States had the highest health care costs in the world. She announced that it was not utilization that drove the cost of health, rather the cost of that health care. She announced that pharmaceutical costs made up of approximately 20 percent of health care costs. She stated that administrative costs were another large cost driver. She remarked that the bill addressed both of those items. She felt that it was imperative that Alaska addressed those costs. The bill was a consumer protection bill. She explained that pharmacy benefit managers (PBMs) served as middlemen for health insurance plans between pharmaceutical manufactures and retailers. She announced that PBMs were designed to perform administrative duties for insurers; validate patient eligibility; administer plan benefits; and negotiate costs between pharmacies and health care plans. She added that PBMs also audited for fraud. She felt that creating networks of multiple pharmacies, the PBMs had leveraged their size and power to negotiate contracts between drug manufacturers and retail outlets. The PBMs could secure rebates or kickbacks on certain drugs, and were responsible for determining which drugs were covered by different health care plans. She stated that the PBM market had become highly consolidated. The focus seemed to be less about serving consumers and more about increasing company profits. She felt that there was egregious and anticipative behavior by PBMs that had harmed consumers and community pharmacist with increased cost and unreasonable business practices. Co-Chair MacKinnon wondered whether there would be a sectional analysis or an overview of the bill. 9:34:53 AM JANE CONWAY, STAFF, SENATOR CATHY GIESSEL, stated that she would provide an overview. Ms. Conway discussed, "Pharmacy Benefit Managers" (copy on file). Ms. Conway looked at slide 2, "SB 38 is a": ? consumer protection bill shines a light on PBM opaque auditing and MAC pricing practices to help drive prescription costs down ? small-business protection bill components of this bill helps ensure viability of critical small-town Alaska pharmacies and access to health care Ms. Conway highlighted slide 3, "What's a PBM?": PBMs are multi-billion dollar middlemen Started in1970 as claims processers, now intertwined in almost every aspect of the pharmaceutical/pharmacy supply chain Virtually unregulated, state or federal level Today, the top PBMs represent some of the most profitable companies in the nation Ms. Conway addressed slide 4, "Examples of PBM's Market Power/Influence": CVS/Caremark (AK State Plan Pharmacy Benefit Manager) 2017 - 7th most profitable U.S. company in Fortune 500 2017 Revenue: $177.5 Billion Express Scripts Holding ESH generated $100.3 billion in revenue in 2017 Number 22 ranking Ms. Conway discussed slide 5, "State of Alaska Health Care Plan." She stated that the picture was a State of Alaska health care plan card. She noted that AETNA was the health care plan, and contracted with CVS Caremark to handle the prescriptions. Ms. Conway highlighted slide 6, "PBMs were designed to:" reduce administrative costs for insurers validate patient eligibility administer plan benefits negotiate costs between pharmacies and health plans audit pharmacies for fraud Ms. Conway discussed slide 7, "PBM's Impact on Pharmacy and Patients": PBMs develop pharmacy provider networks with contracts Pharmacies must accept a PBM contract Many contracts truly are "take it or leave it." If they don't sign it, they lose all the customers covered by that plan PBMs influence what drugs are dispensed regardless of what a physician prescribes by using a list of PBM- approved drugs known as "formularies" PBMs receive rebates from drug manufacturers for putting their drugs on a given formulary Ms. Conway looked at slide 8, "PBM's Impact on Pharmacy and Patients": PBMs dictate how much pharmacies will be paid for the drugs they dispense regardless of the pharmacies' acquisition costs PBMs have free reign to dictate what pharmacies are permitted to do in a given network thereby driving patients to particular pharmacy options PBMs operate their own mail-order pharmacies and can incentivize or mandate that customers obtain their medications only through the mail-order option 9:38:59 AM Ms. Conway addressed slide 9. She noted that there were three aspects to the scenario in terms of the transactions. She explained how the drug was priced out. Ms. Conway highlighted slide 10, "National Academy of State Health Policy:" ? 80 pieces of legislation currently introduced in state legislatures across the country to regulate PBM practices. Even the White House is paying attention. ? The fair audit provisions of SB 38 are consistent with legislation in other states ? The PBM requirements for setting pharmacy drug reimbursement rates, including appeals, are similar to other states Ms. Conway looked at slide 11, "Fair Pharmacy Audit Legislation in the States." She noted that Alaska was one of the few states that had not adopted fair pharmacy legislation. Ms. Conway highlighted slide 12, "States With Generic Drug Pricing Transparency Legislation Enacted." She stated that the blue dots had enacted generic drug pricing transparency, and noted that Alaska was in the minority on that map. Ms. Conway discussed slide 13, "Maximum Allowable Cost (MAC)": A "maximum allowable cost" or "MAC" list refers to a payer or PBM -generated list of products that includes the upper limit or maximum amount that a plan will pay for generic drugs and brand-name drugs that have generic versions available ("multi-source brands"). A PBM may have several different MAC lists, depending on the plan Essentially, no two MAC lists are alike and each PBM has free reign to pick and choose products for their MAC lists. Sometimes the MAC list is confused with the "formulary." A Formulary is a list of all the drugs that are covered by a particular insurance plan. Generally it has no pricing attached to it. A formulary will usual contain both Brand and Generic Drugs. 9:44:19 AM Ms. Conway highlighted slide 14, "PBM Use of MAC as Revenue Stream": Because of this lack of clarity, PBMs can use their MAC lists to generate significant revenue Typically, they utilize an aggressively low MAC price list to reimburse their contracted pharmacies and a different, higher list of prices when they negotiate prices with their clients or plan sponsors Essentially, the PBMs reimburse low and charge high with their MAC price lists, 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 Ms. Conway looked at slide 15, "MAC Pricing": When the PBMs fail to update MAC lists in a timely manner, pharmacies are often forced to dispense at a loss, sometimes as high as $100 or more on a single prescription, or not dispense at all (The MAC lists can be updated at any time usually decreased- so real time prices are often obsolete and less than what the pharmacist expected) When prices increase, PBMs often wait weeks or even months before updating MAC lists and rarely, if ever, reimburse pharmacies retroactively, yet the PBMs act swiftly to update MAC list when drug costs decrease This significantly jeopardizes financial viability of community pharmacies In fact, 84 percent of pharmacists said the acquisition price spike/lagging reimbursement trend is a "very significant" impact on their ability to remain in business and to continue serving patients Ms. Conway looked at slide 16, "MAC Pricing": MAC legislation is designed to reasonably address concerns by: Providing clarity to plan sponsors and pharmacies with/regard to how MAC pricing is determined and updated Establishing an appeals process by which a dispensing pharmacist can contest a listed MAC price Providing standardization for how products are selected for inclusion on a MAC list The MAC process provides no transparency for plan sponsors or contracted retail network pharmacies. They are required to blindly agree to contracts. Ms. Conway skipped slide 17, "MAC Pricing." Ms. Conway discussed slide 18, "SB 38: What Does A MAC Transparency Bill Do?" Sets reasonable standards Requires regular reporting of MACs to a pharmacy in useable format Provides for a defined MAC appeals process A MAC Transparency Bill Does NOT: Mandate that a PBM reimburse a pharmacy at a higher amount Represent an administrative burden on the PBM Mandate that a PBM approve a pharmacy's MAC appeal Result in increased costs to the healthcare system There is no documented evidence or analysis nationally that MAC pricing legislation has increased healthcare costs. Ms. Conway looked at slide 19, "SB 38 What Does a Fair Audit Bill Do? Brings fairness to the unregulated and expanding practice of pharmacy audits Does not allow audits during the first seven calendar days of each month because of the high patient volume, unless the pharmacy and auditor agree otherwise Prevents the targeting of minor clerical or administrative errors here no fraud, patient harm, or financial loss has occurred Establishes submission of data/medical record standards to allow for clarification where discrepancies are identified Establishes a reasonable time frame for the announcement of an audit to allow proper retrieval of records under review Ms. Conway highlighted slide 20, "What Does a Fair Audit Bill Do?" Establishes an audit appeals process for pharmacies Establishes guidelines for PBMs to follow regarding patient confidentiality Prohibits extrapolation in assessing fees/penalties Allows Alaska pharmacists to provide mail-order service to their customers without penalization Local mail-order service keeps Alaska dollars in Alaska Legislation does not prevent the recoupment of funds where fraud, waste, and abuse exist 9:50:06 AM Ms. Conway discussed slide 21, "SB 38: Summary": 40 states have enacted fair audit legislation 34 states have enacted Maximum Allowable Cost (MAC) transparency legislation Bill will also include: Registration of PBMs with the State of Alaska Division of Insurance Set-up guidelines for generic drug maximum allowable cost (MAC) pricing by PBMs Establish a mechanism for a pharmacy to appeal MAC pricing appeal denials Don't audit local pharmacies out of business. Their services are crucial in our rural areas. Ms. Conway highlighted slide 22, "This legislation has been the Alaska Pharmacists": Association's Number 1 Priority bill for past 10 years. Sponsored by Senator Kim Elton, Senator Dennis Egan, and now, Senator Giessel In your packets you will see numerous articles. Those are just the tip of the iceberg. Nationally, the opaque "black box" practices of PBMs are now under intense scrutiny. All one needs to do is Google "Pharmacy Benefit Manager" and you will see countless articles on this emerging concern. NCSL is now tracking these trends. In a few states now, PBMs have sued states because of their PBM legislation and have lost. It is even more crucial to support this legislation in Alaska because of the critical service that independent pharmacies provide to its rural clientele. ? Rich Holt Chair, AK State Board of Pharmacy ? Barry Christensen - AK Pharmacist Association Legislative Chair ? Emily Ricci Dept. of Administration, Retirement and Benefits ? Lori Wing-Heier Director, Division of Insurance Senator von Imhof looked at slide 20, and looked to the third bullet point, "prohibits extrapolation in assessing fees and penalties." She explained that the extrapolation was a federal issue with Medicaid. She felt that the PBMs were not directing that issue. Ms. Conway replied that the Medicaid plans and audits did not apply under the bill. She shared that the Department of Health and Social Services (DHSS) hired private contractors to conduct those audits. Senator von Imhof surmised that there could technically be two different audits for pharmacy: one for private insurers that would not use extrapolating techniques; and one auditor under Medicaid that would use extrapolation techniques. Ms. Conway agreed, but deferred to the experts available online. Senator Stevens assumed that the native corporations were also exempt in the bill. Ms. Conway replied in the affirmative. She stated that they were more internal with the clinics and hospitals that were regulated on a federal level. 9:55:26 AM LORI WING-HEIER, DIRECTOR, DIVISION OF INSURANCE, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, noted that the subject had been in legislation in many different states. She stated that the organizations allowed for little insights. She noted the concerns from the pharmacists about the costs of what was reimbursed; the extrapolations; and the costs of the audit. She stated that PBMs initially saved money, but were initially mail-order pharmacies. Eventually PBMs changed to community pharmacists that adjusted the prices. She remarked that there was no insight into the PBMs, and there was a desire to control without inadvertently increasing the cost of health care. 9:57:21 AM EMILY RICCI, CHIEF POLICY ADMINISTRATOR, DIVISION OF RETIREMENT AND BENEFITS, DEPARTMENT OF ADMINISTRATION, Noted that the bill had been around for a significant number of years. She shared that there was work with the independent pharmacists, the contractor AETNA, and CVS Caremark. She noted that the division had a relationship with the PBM; and that PBM had contractual relationships with different pharmacies. The pharmacies had additional contractual relationships with wholesale distributors and purchasing services administrative organizations. She furthered that the PBMs had additional contractual relationships with the drug manufacturers. She stressed that none of those entities were privy to the relationships of the other entities. Therefore there was a narrow perspective of the drug claims paid on the state's side. She stressed that there was a fiduciary responsibility to the plan. Senator von Imhof noted that PBMs and pharmacists had recently attempted to come to an agreement, and wondered whether there was success in that effort. Ms. Ricci replied that she was aware of an effort two or three years prior, and did not know the content of those discussions. She assumed that the effort was not successful. SB 38 was HEARD and HELD in committee for further consideration.