SB 175-PHARMACY BENEFITS MANAGERS  2:14:33 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of SB 175. She noted that this is the first hearing and a committee substitute is forth coming. 2:15:43 PM SENATOR CATHY GIESSEL, Alaska State Legislature, as sponsor, introduced SB 175. She noted that the Labor and Commerce Committee is very supportive of small businesses in Alaska, of which local pharmacies are one. Small businesses are a vital part of Alaska's economy and that is the focus of SB 175. It has to do with fair and reasonable treatment and predictable guidelines that come from an entity called a pharmacy benefit manager (PBM). Local pharmacies must deal with PBMs in order to run their businesses. Currently, there are no real guidelines for reimbursements by PBMs to local pharmacies so PBMs can change reimbursement rates and request audits at will. They can also refuse to respond to, or pay pharmacies, for the dispensing medications. Pharmacies have no legal recourse at this point. SB 175 will provide an avenue of appeal to an unreasonable audit as their last recourse. She noted support letters from many small pharmacies and some include examples of unfair treatment by PBMs. Several pharmacies have been driven out of business by PBMs. She also noted the four-page letter from a large pharmaceutical company from Washington, DC, that outlines reasons not to pass the legislation. She provided the history behind the profitable PBM industry. SENATOR GIESELL said 33 other states have passed similar legislation demanding transparency in pricing and fair audits. She concluded that she considers PBMs as "pharmacy billion- dollar middlemen." JANE CONWAY, Staff, Senator Cathy Giessel, Alaska State Legislature, presented information related to SB 175. She delivered a PowerPoint to explain PBMs. She said PBMs started in 1970 as claims processors and have since become intertwined in almost every aspect of the pharmaceutical supply chain. They are almost unregulated at the state and federal levels and they represent some of the largest companies in the nation. She listed examples of PBM's market power and influence: CVS/Caremark, Express Scripts, and OptumRX control over 70 percent of all U.S. scripts. She said PBMs are designed to reduce administrative costs for insurers, validate patient eligibility, administer plan benefits, negotiate costs between pharmacies and health plans, and audit pharmacies for fraud. PBMs also develop pharmacy provider networks, and pharmacies must accept PBM contracts. She noted every opposition letter talks about negotiated contracts, but they are really "take it or leave it" contracts. She cited an example. MS. CONWAY continued to say that PBMs influence what drugs are dispensed, collect money from drug manufacturers, and restrict pharmacies on how many pills they can dispense at a given time. They dictate how much pharmacies will be paid for the drugs they dispense, have free reign to dictate what pharmacies are permitted to do in a given network, operate their own mail-order pharmacies, and audit pharmacies at will. 2:23:19 PM MS. CONWAY explained how PBMs work. The insurer hires a PBM to manage drug costs and it negotiates prices for both insurers/manufacturers and insurers/pharmacies, then with manufacturers, and finally with manufacturers/wholesalers. Finally, the PBM negotiates insurer reimbursement for drugs and dispensing fees with pharmacies. MS. CONWAY said SB 175 brings fairness to audits and doesn't allow audits during the first seven days of each month because of high patient volume. It is designed to prevent targeting of clerical errors and it establishes a reasonable timeframe to prepare for an audit. The bill also establishes an audit appeals process for pharmacies and guidelines for PBMs to follow regarding patient confidentiality. Extrapolation cannot be used in assessing fees and penalties. Alaska pharmacists would not be penalized for providing mail-order service to their customers. Finally, the bill does not prevent the recoupment of funds where fraud, waste, and abuse exist. She noted that 33 states have already enacted fair audit legislation and 24 states have already enacted Maximum Allowable Cost (MAC) transparency legislation. MS. CONWAY said the bill will also require registration of PBMs with the Division of Insurance. It sets up guidelines for generic drug MAC pricing, establishes a mechanism for a pharmacy to appeal MAC pricing, and prevents auditing local pharmacists out of a job. 2:26:28 PM She related that there are many stories from pharmacists about the abuses of PBMs. She reviewed an audit from her hometown pharmacy in Soldotna. The PBM extrapolated a .1 percent error and came up with a $7,300 bill. The pharmacist found no recourse but to sell his business to an outside company. 2:28:15 PM MS. CONWAY turned to the maximum allowable cost (MAC) that can be reimbursed to the pharmacist for dispensing a prescription. Typically, PBMs use an aggressively low MAC price list to reimburse their contracted pharmacies and a different, higher list of prices when they sell to their clients or plan sponsors. They reimburse low and charge high, 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. She said when PBMs fail to update MAC lists in a timely manner, pharmacies are forced to dispense at a loss, sometimes as high as $100 or more, or not dispense at all. When prices increase, PBMs often wait weeks or even months before updating MAC lists. The acquisition price spike/lagging reimbursement trend has a very significant impact on pharmacies' ability to remain in business. Neither plan sponsors nor contracted retail network pharmacies have any transparency into the MAC process. 2:30:52 PM MS. CONWAY addressed what SB 175, a MAC transparency bill, does. It sets reasonable standards on what can be MAC'd, requires regular reporting of MACs to a pharmacy in a useable format, and provides for a defined MAC appeals process. It does not mandate that a PBM reimburse a pharmacy at a higher amount, or represent an administrative burden on the PBM, nor does it mandate that a PBM approve a pharmacy's MAC appeal. It does not result in increased costs to the healthcare system. 2:31:38 PM She reviewed the statistics on the total pharmacies in Alaska; of the 84 pharmacies, 20 are independents. She said that 24 states have passed similar legislation and 33 have passed fair and uniform pharmacy audits. 2:32:33 PM CHAIR COSTELLO opened public testimony. 2:33:10 PM JASON TAPLEY, Community Pharmacist, testified in support of SB 175. He said he works for SEARCH. He has had 5-10 audits where he has had to prove "that the money was yours," and to show documentation that he could recover the costs. This bill will provide a clear, consistent process for these audits to occur. 2:35:13 PM MARGARET SODEN, representing herself, said she is a retired pharmacist testifying in support of SB 175. She recalled her fifty years in the field and the current policy of third-party billing. She said she has undergone a number of audits, but with proper notification and conduct they can be done and cause the least disruption. She shared a personal story of undergoing an audit in mid-winter in Fairbanks and opined that this bill will establish some parameters for audits to make them easier. 2:38:56 PM GERALD BROWN, representing himself, said he is a pharmacist and business owner testifying in support of SB 175. A lot of contracts are sent by PBMs and this would provide some structure for those contracts, most of which are "take it or leave it." The MAC provision is very important because of the terrible reimbursement reductions. The take it or leave it contracts make it impossible to negotiate. 2:41:56 PM SCOTT WATTS, Community Pharmacy, said he is a business owner testifying in strong support of SB 175. The bill establishes strong standards for audits and does away with the penalties for clerical errors. He provided an example of a recent audit that contained clerical errors and the pharmacy was charged $6,000 recoupment for the entire prescription. He noted that MAC pricings need to be updated or the pharmacy ends up dispensing at a lower cost. There is currently no way to get through to a PBM. While the contract is signed by a pharmacist, there is no room for negotiation. 2:44:48 PM MOLLY GRAY, President, Alaska Pharmacists Association, testified in support of SB 175. It aligns with the pharmacy's mission to provide quality care. They are asking for a standard set of rules for audits. 2:46:17 PM DIRK WHITE, representing himself, testified in support of SB 175. He said he has been a community hospital pharmacist for 31 years. Their primary issue is the low cost reimbursement; it is all about MAC pricing. Last year they lost $22,176.42 on prescriptions in the grocery store pharmacy. He provided other examples of losses. The said the bill wouldn't limit audits. He mentioned that his contract does not allow mail order prescriptions to rural areas. 2:49:07 PM CINDY LAUBACHER, Express Scripts, testified in opposition to SB 175. She voiced concern about cost implications the bill would have on their clients and the limitations on auditing. It restricts the number of claims that can be reviewed and the lookback timeframe. She said MAC was created as a means of incentivizing the purchase of generic drugs. That became the industry standard for reimbursing pharmacies. If the pharmacy disputes the reimbursement, they have the opportunity to request an audit. This bill would destroy any incentive to prescribe less expensive medications. 2:51:48 PM ERIC DOUGLAS, CVS Health, testified in opposition to SB 175. He addressed misnomers mentioned in today's testimony. He said SB 175 is an omnibus bill aimed at every anti-PBM legislation that has been introduced. He said there are multiple audit laws in the U.S. He said CVS was not contacted to discuss this bill. The audit provision in SB 175 is not how they operate. They don't extrapolate and there is an appeal process available. He disputed the statement about MAC reimbursement levels. Generic drugs are commoditized and they set a maximum allowable cost. He maintained that there is an appeals process. Putting PBMs under the insurance division regulations is wrong because they aren't insurance companies. SENATOR GIESSEL asked if he has supported this type of legislation in any of the 33 states that have passed it. MR. DOUGLAS answered no, but they have supported some audit bills. 2:57:07 PM BARRY CHRISTENSEN, Co-Chair, Alaska Pharmacists Association, testified in support of SB 175. He noted that this topic has been discussed since 2008 when a similar bill passed the Senate. He disputed the statement that there hadn't been meetings or negotiations with PBMs; he recalled a meeting Senator Egan held. PBMs also have lobbyists in Juneau. He noted he submitted written testimony listing reasons why the bill is needed. Pharmacies in Alaska need help with the audit process and the amount they're getting paid for generic prescription drugs. 2:59:47 PM JENNY CASTILLO, Trust Administrator, Alaska Teamster Employer Welfare Trust, testified in opposition to SB 175. She stated that their PBM performs infrequent on-site audits; the audits are multi-source claim reviews and are concurrent to claim submissions to mitigate client prolonged risk to inaccurate payments and decreased repetitive errors through timely corrections. Their PBM conducts many audits and the parameters are clearly outlined. The relationship is a negotiated arrangement and should remain that way. It should not be legislated. 3:01:59 PM CHAIR COSTELLO kept public testimony open on SB 175. She asked if the administration has a position on the bill. 3:02:14 PM CHRIS MURRAY, Program Coordinator, Division of Insurance, Department of Commerce, Community and Economic Development (DCCED), said he does not have a position on SB 175. CHAIR COSTELLO asked if he agrees PBMs need regulation. MR. MURRAY said he just recently learned about this issue and isn't prepared to answer. CHAIR COSTELLO asked if it is appropriate for the division to regulate PBMs. MR. MURRAY said they would be able to do the job, should the legislation pass. CHAIR COSTELLO held SB 175 in committee awaiting a committee substitute.