SB 8-PHARMACY AUDITS  5:42:43 PM  CHAIR DUNLEAVY announced the consideration of SSSB 8, sponsored by Senator Dennis Egan. "An Act establishing procedures and guidelines for auditing pharmacy records; and providing for an effective date." He noted this was the first hearing on the bill. 5:44:55 PM SENATOR DENNIS EGAN, sponsor of SSSB 8, stated that a very similar version of this bill unanimously passed the Senate last year. Because of time constraints, it didn't make it through the process. He clarified that the bill does not stop the auditing of pharmacies; it seeks to make the audits fair. SSSB 8 incorporates the result of discussions between pharmacy benefits managers and pharmacists that took place earlier this year, although not every issue was resolved. The bill also incorporates requests of the administration. 5:46:16 PM DANA OWEN, Staff, Senator Dennis Egan, sponsor of SSSB 8, introduced SSSB 8 reading the following into the record: Passage of SSSB 8 will establish procedures and guidelines for auditing pharmacy records, so that all pharmacies are held to fair standards. It has been introduced at the request of the Alaska Pharmacists Association. Pharmacists acknowledge that audits are a good tool to protect the public and detect fraud or abuse, but sometimes audits are unreasonable and used in a way that deprives them of fair reimbursement for their services. For example, there may be times when pharmacists give someone the right drug in the right dose, but because of a clerical or typographical error in billing, they may not get paid what they are due. Where there are disagreements between an auditor and a pharmacy, the measure would allow for an appeal in the case. In response to their history of pharmacy audit abuses, 22 states have now enacted reforms similar to those proposed in SSSB 8. More are considering such measures. This legislation would help protect all pharmacies in Alaska, but would especially help small business pharmacies who, because of their smaller pool of assets, often face dire consequences from an unreasonable audit. SSSB 8 would set requirements for auditing pharmacy records by an insurer, a managed care company, a third-party payor, or a pharmacy benefits manager. Supporters of this measure include the Alaska Pharmacists Association and the National Community Pharmacists Association. [The bill has since received support from the Alaska Nurse's Association and the Alaska Nurse Practitioners Association.] 5:49:06 PM MR. OWEN delivered a PowerPoint presentation about pharmacy benefit managers (PBMs) and the need for fair and reasonable standards over the practice of auditing pharmacies. He explained that PBMs are designed to reduce administrative costs for insurers, validate patient eligibility, administer plan benefits and negotiate costs between pharmacies and health plans. Employers/insurers sign contracts with PBMs to manage the pharmacy benefit provided to employees. PBMs then "contract" with pharmacies, set pharmacy reimbursement rates, create a list of approved drugs (formulary), and reimburse pharmacies for dispensed drugs. He explained how the PBM works. Step 1 an insurer hires the PBM to manage drug costs. The PBM acts as a go-between for both insurers and manufacturers and insurers and pharmacies. Step 2 the PBM negotiates prices with manufacturers. The manufacturers agree to prices and pay rebates to the PBM for preferred placement on the insurer's formulary. The PBM splits the rebate with the insurer. Step 3 the pharmacy negotiates how much the pharmacy will have to pay the manufacturers and wholesalers to get the drugs. Step 4 the PBM negotiates the insurer reimbursement for drugs and dispensing fees with pharmacies. This determines how much pharmacies will earn for dispensing the drugs. MR. OWEN reviewed the Alaska pharmacy infrastructure. The state has 40 independent pharmacies and 59 chain pharmacies or 94 total pharmacies. There are 56 independent pharmacists and 217 chain pharmacists for a total 273 community pharmacists. The total pharmacy employment is 11,469. He discussed what Alaskan pharmacists are up against. Today 95 percent of consumers with pharmaceutical drug benefits receive these benefits through a PBM. Before the merger of two of the largest PBMs in 2012 - Express Scripts and Medco - the vast majority of benefits were managed by Express Scripts, CVS/Caremark, and Medco Health Solutions. In 2011 Morgan Stanley reported that nine out of ten top employer health plans were managed by one of the "big three" PBM. In 2012 revenue for the merged Express Scripts and Medco Health Solutions was more than $116 billion. Total revenue for CVS/Caremark was more than $107 billion. This shows what small community pharmacies face when they deal with a pharmacy benefits manager. MR. OWENS said not all PBMs operate fairly. Examples of PBM tactics include: non-transparent, "take it or leave it" contracting; self-owned, beneficiary mandated mail-order operations; restricting beneficiary access to certain pharmacies; and predatory, unregulated auditing of pharmacies. SSSB 8 focuses on pharmacy auditing. It is appropriate to audit pharmacies; however, PBMs that compete in the same market for the same consumers cannot ethically audit their competitors. This refers mostly to mail-order pharmacies. Auditors are required to be objective. Judgment should not be based on the interest of the auditor or the interests of others. PBMs by nature of their business, cannot maintain objectivity when they are auditing their competition. Audits can be important mechanisms for monitoring pharmacies and ensuring safe practices. Audits should: detect fraud, unlawful billing practices and abuse; be standardized and conducted in a way that does not interfere with the health care services being provided by pharmacists; be adequately noticed (minimum of two weeks); use the same standards to audit similarly situated pharmacies; be conducted by or in consultation with a licensed pharmacist when decisions may involve clinical or professional judgment; limit examination of claims to those within two years of submission; and base the findings of over/under payment on the actual amount. 5:54:38 PM SENATOR MICCICHE asked why it's a fact that PBMs by the nature of their business, cannot maintain objectivity when they are auditing their competition. MR. OWEN explained that it's a conflict of interest if a PBM is auditing a pharmacy and it also operates a mail-order pharmacy that is in direct competition with that pharmacy. SENATOR MICCICHE acknowledged that it may be difficult to maintain objectivity, but wondered if there was some process issue that makes it impossible to be objective. MR. OWEN replied it wasn't a process issue, it was about conflict of interest. 5:56:00 PM At ease 5:56:00 PM VICE-CHAIR MICCICHE reconvened the meeting. MR. OWEN reviewed what pharmacy audits should do. Audits should: detect fraud, unlawful billing practices and abuse; be standardized and conducted in a way that does not interfere with the health care services being provided by pharmacists; and be adequately noticed with a minimum of two weeks. The same standards should be used to audit similarly situated pharmacies, and they should be conducted by or in consultation with a licensed pharmacist when decisions may involve clinical or professional judgment. Audits should limit examination of claims to those within two years of submission, and they should base findings of over/under payment on the actual amount. MR. OWEN reviewed what should not occur in an audit. Audits should not: be held during the first five days of any month; be conducted within 90 days of a prior audit that found no fault; penalize a pharmacy because a prescription is mailed or delivered at the request of a patient; target simple administrative errors where no harm occurred and there was no financial loss or ill intent intended; or extrapolate costs using a probability equation. 5:57:54 PM MR. OWEN stated that Alaskans should have confidence in how pharmacies are monitored. They should be monitored to ensure patient safety and uncover abuse or fraud. A monitoring goal should not be to increase the bottom line of PBMs. He provided an example of what SB 8 is attempting to prevent. Tom Hodel, owner of Soldotna Professional Pharmacy reported the following: In August 2011, two auditors arrived at our store. I spent the entire day answering their questions, pulling files, and finding documentation. They were not very knowledgeable in pharmacy practices, so it took quite a long time. I was very pleased when I read the first few pages of the final report. Out of over $103,000 in claims reviewed, we had only $89 in errors. However, when I got to the last page - using the "one-sided confidence extrapolation method" (their name for this - they said I owed over $7,300! I called the auditors to no avail. Being told to repay over $7,000 is just not right! MR. OWEN offered to answer questions. 5:59:05 PM At ease 5:59:12 PM VICE-CHAIR MICCICHE reconvened the meeting and requested a sectional analysis. MR. OWEN provided a sectional analysis. Section 1 adds a new Sec. 08.80.477 regarding pharmacy audits that has 19 paragraphs. Paragraph (1) says the auditor shall provide the pharmacy or pharmacist with notice of the audit of at least two weeks. Paragraph (2) says that the audit may not be scheduled during the first five business days of a month because of high volume of prescriptions that are filled during that time. Paragraph (3) says audits may not be conducted within 90 days of an audit in which no errors were found. Paragraph (4) says the audit of a claim must occur within two years after the date the claim was submitted. Paragraph (5) provides that audits that involve clinical or professional judgment shall be conducted by or in consultation with a licensed pharmacist. Paragraph (6) says the auditor shall use similar standards and parameters for each audit. Paragraph (7) says the auditor may not use extrapolation to establish penalties. Paragraph (8) says that a finding of under or overpayment may not be based on a projection. Paragraph (9) places limits on the cases when dispensing fees may be recovered. Paragraph (10) says the auditor may not assess a penalty solely because a prescription is mailed at the request of a patient as part of a routine business practice of the pharmacy. Paragraph (11) says a pharmacy may not be subject to recoupment for a clerical or record-keeping error unless the error results in actual financial harm to a party. Paragraph (12) says the preliminary audit report shall be delivered to the pharmacy within 120 days after the audit is completed. Paragraph (13) says no interest may accrue to either party during the audit period. Paragraph (14) allows a pharmacy at least 30 days following the preliminary audit report to address discrepancies. Paragraph (15) says there must be an established written appeal process by which a pharmacy may appeal an unfavorable audit. Paragraph (16) says the pharmacy shall receive the final audit report within 90 days after the receipt of the pharmacy's response to the preliminary report. Paragraph (17) says the auditor may not be compensated based on a percentage of what is recovered. Paragraph (18) says the auditor shall provide a copy of the final report to an affected health benefit plan sponsor if requested by the plan sponsor. Paragraph (19) says patient information accessed during an audit shall be kept confidential. Section 2 is the applicability section. The Act applies to pharmacy audits conducted on or after the effective date. Section 3 is the effective date of January 1, 2014. VICE-CHAIR MICCICHE opened public testimony. 6:14:07 PM CINDY LAUBACHER, Express Scripts, reviewed the five areas of concern she outlined in the written testimony she submitted on March 26, 2013. Section 1(a). The provisions of the bill should be limited to on-site audits. Section 1(a)(3). This language prohibits an audit within 90 days of an error-free audit. This limits the auditor's ability to identify and stop fraud waste, and abuse. Section 1(a)(10). This prohibits recovering payments to pharmacies for prescriptions that are mailed or delivered as a routing business practice. Because Alaska has unique circumstances, mail order prescriptions are allowed under certain circumstances, but not as a normal business practice. Section 1(a)(17). This paragraph prohibits plan sponsors from paying for audits based on a percentage of the amount recovered. The amount of compensation is determined by clients. Express Scripts does not pay auditors on a percentage basis. She requested the committee consider the alternative language that was offered in her letter. Section 1(a)(19). This paragraph relates to fraud. 6:17:30 PM BARRY CHRISTENSEN, Pharmacist, Alaska Pharmacist Association (APA), stated that [SSSB 8] represents a modified version of a bill that died last year. Over the summer the APA met in good faith with opponents to reach this compromise legislation. He offered his belief that the bill represents the bottom line of what Alaska pharmacists feel is needed to bring fairness to the unregulated and expanding practice of pharmacy audits. This legislation has the support from small mom and pop pharmacies, larger chain pharmacies, and the Alaska State Board of Pharmacy. 6:20:04 PM FRED BROWN, Esq., Executive Director, Health Care Cost Management, Inc., noted that he submitted written testimony on March 28, 2013. He reported that HCCMCA membership is comprised of more than 35 health benefit plans in Alaska and the Pacific Northwest. These organizations are mostly state, borough, municipal, and school district sponsored plans. The Taft Hartley health benefit trust also participates in the organization. The member funds represent 72,000 employees and 171,000 covered lives. More than 40 percent of the participants live and work in Alaska. Most of these funds contract with pharmacy benefits managers (PBMs) as a means to help control rising drug costs. He said HCCMCA supports the sponsor's goal of achieving reasonable audit standards, but thus far has not been invited to the discussion concerning how to accommodate the concerns of the various parties. He described the current draft as out of balance, and referred the committee to his letter that details HCCMCA's full opposition to the bill. 6:22:38 PM BARBARA HUFF TUCKNESS, Director, Governmental and Legislative Affairs, Teamsters 959, stated that the administrator of the Alaska Teamster Health Plan submitted a letter opposing SB 8. She expressed appreciation for being invited to participate in the discussions that led to changes in the bill, and hope that additional changes would be made that would allow their PBMs to reduce costs. In the past year, the Teamster's health plan experienced a 30 percent increase in cost. The cost of health benefits was $42 million, 12 percent of which was prescription drugs. The concern regarding audits is that the PBMs need to be allowed to do the jobs they are hired to do, although there should be fair practices. She highlighted that the Teamsters have hired PBMs since 1980 and have never had a complaint from a pharmacist. the Teamsters can't support SB 8 in its current form because it doesn't allow PBMs to operate effectively and efficiently in Alaska. 6:25:27 PM PATRICIA CENTER, Professional Practice Director, Alaska Nurses Association (ANA), said she is also a member of the Alaska Nurse Practitioner Association (ANPA). She noted the packets should include letters of support from the ANA president and the president of the Alaska Nurse Practitioner's Association.{ She said it appears that pharmacists are under assault from a number of sides, and the audits are an additional threat to local pharmacies. SB 8 does a good job of establishing basic rules of engagement between auditors and pharmacies. 6:27:07 PM MARK SELBY, Pharmacist, CBS Caremark, expressed concern with five sections of the bill. In Section 1(a), audits should be limited to on-site. In Section 1(a)(3), the prohibition against conducting an audit within 90 days of an error free audit ties their hands on researching errors. The third concern relates to Section 1(a)(10) regarding mail orders for retail pharmacies. Mail order pharmacies are a different class of pharmacy and they shouldn't be encouraged to flock to Alaska. The fourth concern relates to auditor compensation in Section 1(a)(17). Auditors should not be paid on a bounty. The fifth concern relates to a quick review. He directed attention to the letter from CVS Caremark in the packets. 6:29:14 PM MATT DIORETO, National Community Pharmacists Association (NCPA), testified in support of SB 8. He said the NCPA has been working on this legislation with pharmacists of Alaska for about two years. He reported that 23 states have enacted similar legislation and about 3 states have bills in committee. He addressed some of the concerns from the opposition. First is the claim that the bill will increase costs, but pharmacists do not set reimbursement. Nothing in the bill has to do with the cost of medication or services. He noted that this was the first time NCPA has worked in a state where a union plan has opposed this type of legislation because of cost. He offered to provide a recent document from the Center for Medicare and Medicaid Services that said the growing practice of post audit claim challenges from pharmacies was distorting plan payments, compromising plan data integrity, and impairing their ability to oversee the programs. He asked the committee to take favorable action on the bill. 6:32:05 PM JULIE MCDONALD, Pharmacist, Whale Tail Pharmacy, Craig, Alaska, stated support for SB 8. She said she and other pharmacists don't oppose audits themselves, but they want them done fairly and in a manner that does not infringe on their ability to provide direct patient care. She has observed contracts where the audit section completely complies with the provisions in SB 8. Therefore, the proposed regulations and standards are not unreasonable for insurance companies. This is not the case with nationwide insurance companies, particularly those that own their own pharmacies, which makes SB 8 necessary. What will occur is the information on how audits will be handled will be put in provider manuals rather than the contract itself. This provider manual can be amended at any time without the consent of the pharmacy. Another common issue is the audit terms will be placed in the contract, but when a pharmacy tries to amend the terms, the insurance company will not respond. She cited examples. 6:34:43 PM At ease 6:35:08 PM VICE-CHAIR MICCICHE reconvened the meeting. 6:35:26 PM TOM HODEL, owner, Soldotna Professional Pharmacy, testified in support of SB 8. He said pharmacies are not attempting to do away with audits, because they are a necessary mechanism to protect against fraud and abuse. They are asking for fairness in the process. He discussed the audit that Mr. Owen described earlier. 6:37:05 PM DURK WHITE, Pharmacist, Sitka, Alaska, testified in support of SB 8. He said he and his wife operate two pharmacies and employ 38 people. He said the provision about mail order prescriptions was initially a sticking point because of the unique circumstances in rural Alaska. He described several situations that mail order pharmacies can't cover. Referring to the claims of abuse of prescriptions, he questioned how some PBMs could determine a prescription is invalid due to a clerical error and they'll recoup the money if the prescription is totally valid under the rules and regulations of the Board of Pharmacy. 6:40:25 PM VICE-CHAIR MICCICHE closed public testimony and held SB 8 in committee.