SB 286-PHARMACY BENEFITS MANAGERS  1:54:38 PM CHAIR ELLIS announced SB 286 to be up for consideration. SENATOR ELTON, sponsor of SB 286, said he hoped to begin and refine a dialogue. This bill is based on model legislation that has been done elsewhere and they already know of a few alignment issues need to occur between this bill and the existing structure. He said pharmacy benefit managers (PBM) are groups of businesses that people contract with to manager pharmacy and prescription drug insurance plans. These plan managers include the State of Alaska, the federal government and union groups. He said that PBMs are largely unregulated. The purpose of this bill is to provide transparency into their business model. SENATOR ELTON related that PBMs negotiate with drug manufacturers and pharmacies on behalf of health insurance plans, but those negotiations and arrangements aren't transparent. The danger is that PBMs receive financial remuneration from drug manufacturers and because those transactions aren't transparent, they don't pass any information to the contractor - information like allocation and recommendations on what drugs should be used. It doesn't allow the contractor, the state for instance, to know what kind of other profits the PBM is getting based on the contract it has with the state. He said another major concern is how PBMs might increase their profit margins. For instance, in many cases PBMs also have mail order drug stores and it's to their benefit to try and shift business from a pharmacy that may be located down the street that has a relationship with both the doctor and the person who is getting the drugs to the mail order firms. 1:58:36 PM SENATOR ELTON said the bill allows the Board of Pharmacy to regulate the terms of an agreement and lets the Division of Insurance access the PBM's books and records that are pertinent to the contract they have with the person providing the drug benefit. This gets back to the issue of alignment, and he didn't know if what worked in other states would work in Alaska. They need to discuss whether or not they want the Board of Pharmacy to get into this kind of business; it might be more appropriate for the Division of Insurance to fill this role. 1:59:25 PM He said 20 other states' attorney generals have sued PBMs to try and get the information; eight states plus the District of Columbia have adopted a similar transparency bill. He clarified that when he is talking about transparency, he is not talking about the state or any other contractor posting this information. He is talking about transparency between the contractor and the PMB itself. This information is proprietary and is not shared with the public. SENATOR ELTON said another important provision does not allow "extrapolation audits" by PBMs. He explained that PBMs or their agents can now go to a local pharmacy and audit its books, and if they find an error, even a keystroke error - and that may be a $25 error one way or the other - an extrapolation audit allows the PBM to charge for the prescription of the one drug. If the pharmacy has done 150 or 1,500 other prescriptions for this drug, the extrapolation audit allows the PBM to charge the pharmacy for an error on each transactions a single $25 or $50 error can cost a pharmacy $75,000 to $80,000. So this bill doesn't allow extrapolated audits; but it doesn't disallow audits. 2:03:00 PM SENATOR BUNDE asked if this bill in any way prohibited online purchases. SENATOR ELTON replied nothing in this bill prohibits people from shopping on line. He tried to convey that some PBMs have a business imperative to try and to create a situation in which they make it easier for people to buy their drugs through their subsidiary online, and because of that they might not have a business incentive to try to keep their local pharmacy going. He meant to suggest that there is no way the contractor could know something has happened without being able to pull back the veil that PBMs now have. 2:05:33 PM BARRY CHRISTIANSON, Co-chair, Legislative Committee, Alaska Pharmacy Association, said he is a practicing community pharmacist in Ketchikan and supported SB 286. It will help insure that Alaska patients, employers and pharmacists are being fairly treated by an industry that manages the processing of prescription drug benefits. The PBM industry started out simply acting as a conduit for claims processing between pharmacies and insurance companies. However, this simple model has ballooned into a myriad of other services that has made this industry a very profitable middle man in managed health care. The Association believes this profitability has come at the expense of patient care and has not lowered overall drug costs. It has been estimated that it takes 25-30 percent of pharmacy staff time every day to try to navigate the maze of "pharmacy benefit manager audits." This time is usually spent on the phone talking to a claims representative in another state or country. Yet for all of their efforts, their members every day bear the brunt of public comment about higher drug costs. They believe the transparency called for in SB 286 will help insure the manufacturer rebates negotiated by the PBMs will flow back to the plans' sponsor or employer. They also believe that the authorized substitution sections of the bill will help ensure that patients know they are receiving the most cost effective medication as approved by their prescriber. Far too often they see instances of drug substitutions being made by PBM-owned mail order pharmacies. While these substitutions are legal, they are not communicated to the patient. This can result in the patient continuing to take the original prescribed medication along with a substitute medication simply because they sound or look alike. An example is blood pressure drugs called Ramipril and Lisinopril. Lastly, he said SB 286 does not pad the pockets of Alaska pharmacies, but it sets up pricing guidelines based on national standards and time limits for pharmacy audits and payments. 2:09:00 PM MR. CHRISTIANSON said most Alaska pharmacists don't believe legislation is needed for every health care ill; since they are a heavily regulated profession. However, now is the time to consider regulating the PBM industry because it has had too many instances of unfair business practices. 2:09:37 PM REGINA BENJAMIN, Senior Director, Public Policy, National Community Pharmacists Association, Alexandria, VA, said some of her members are in Alaska and they support SB 286. She said her concern is that PBMs are the only entities that are involved in a variety of functions that impact the delivery and the cost of prescription drug benefits to the consumer, but they are largely unregulated. She said the most stringent regulation to date was found in a law passed in Maine. The PBMs were successful in tying that law up in court for several years, but it succeeded at every level of court action. Pharmacy Care Management Association (PCMA) is the trade association for the PBMs that challenged the law. The law finally became effective in June 2006. Now PCMA is also suing District of Columbia for a similar law. MS. BENJAMIN stated that now they have regulation by litigation and settlement. There have been two large settlements, one by 22 states attorneys general against Medco in 2004 and last month by PBS Caremark with 28 states and the District of Columbia. These settlements with consent orders involved substitutions and lack of transparency which this bill tries to regulate in Alaska. She said that 15 states over the last 3 or 4 years have passed some kind of legislation that has some minimal oversight of PBMs and states continue to look at the industry and debate whether it should be regulated. Some of the supporters of legislation are the National Legislative Association on Prescription Drug Prices, a group of bi-partisan legislators, Consumers Union, AARP, National Mental Health Association and in some cases the Medical Societies. She said this industry has a large impact on the cost of health care in this country, and with transparency employers will save money because they will realize mail order is not as cheap as they think it is based on the limited information they are given. 2:14:05 PM MS. BENJAMIN said SB 286 provides consumer protection especially in the area of substitution, which is a major problem. She explained the reason PBMs substitute medication is because they get a higher rebate on one drug than they do on another and they don't consider the medical ramifications for the person taking the drug. CHAIR ELLIS thanked her for her testimony and closed the public hearing saying he would hold the bill for further work.