SB 38-PHARMACY BENEFITS MANAGERS  7:38:29 PM CHAIR COSTELLO reconvened the meeting and announced the consideration of SB 38. It was heard once last session and public testimony was open. 7:38:59 PM SENATOR CATHY GIESSEL, Alaska State Legislature, Juneau, Alaska, sponsor of SB 38, said this bill was offered in 2013 and 2014. She began carrying it in 2015 and this was the fourth year the bill was before the committee. It is a consumer protection bill that will protect Alaska health care professionals. This year her focus has been on restraining the cost of health care. Twenty percent of the cost of health care is in pharmaceuticals. SENATOR GIESSEL directed the committee's attention to slide 2 of the Pharmacy Benefit Managers and the Need for Fair and Reasonable Standards over the Practice of Auditing Pharmacies presentation. She said the topic is complex and she wanted to go over terms. She said pharmacy benefit managers (PBMs) were created in 1970 to help insurance companies and large employers manage the claims and benefits for their insured employees. Over time they have massively expanded into middlemen that stand between the consumer, the pharmacy, the insurance companies, and pharmaceutical manufacturers. In each of those transactions the PMBs capture money. That has driven them to the top of the lists of Fortune 500 companies. She said three PMBs control 80 to 90 percent of the pharmaceutical market. Alaska is only one of four states that does not oversee or regulate these entities. She said PMBs enforce the reimbursement rates for pharmacies. She referred to slide 19 in the presentation, which addresses 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") • Essentially, no two MAC lists are alike and each PBM has free reign to pick and choose products for their MAC lists. o A Formulary is a list of drugs that are covered for a particular insurance plan. Generally, it has no pricing attached to it. However, some drugs are chosen based on the cost of the medication. A formulary will usual contain both Brand and Generic Drugs. o A MAC list (Maximum Allowable Cost) is a listing of specific prices for each generically available drug. Usually a specific insurance plan has a specific MAC listing issued by the PBM. However, a PBM may have several different MAC lists depending on the plan (i.e., one plan may have a different MAC list even though they utilize the same PBM). SENATOR GIESSEL explained that a pharmacy shops around with wholesalers for the lowest costs for drugs. The PBMs have established the MAC which may or may not cover the costs of the drugs for the pharmacy. She noted that one of the pharmacies in Juneau lost $20,000 on unreimbursed costs in three months. SENATOR GIESSEL advised that the packets have quite a lot of national information on PBMs. One example of the loss to pharmacies is through the sale of Tamiflu. Pharmacies can appeal, but that takes an excessive amount of time, and the majority of appeals are declined. Pharmacies are being purchased by PBMs. They negotiate rebates with pharmaceutical manufacturers that go to the PBMs, not the consumer or pharmacy. Again, they are the middlemen capturing huge amounts of money. SENATOR GIESSEL said another feature of the PBMs is that they are prohibiting pharmacies from mailing prescriptions to their customers. A pharmacy in Juneau cannot mail a prescription to someone in Hoonah. If that person wants a drug mailed, that person must go through the PBM warehouse through the lower 48. That moves Alaska revenue to the lower 48. SENATOR GIESSEL said the PBM contracts are take it or leave it. There is no appeal and they allow egregious audits. Alaska's independent pharmacies are going away because this is an unsustainable business model. The number of independent pharmacies has decreased by 60 to 70 percent. These are typically in small, rural areas. She described the PBMs as mega monopolies and getting bigger by the day. It's to the point that Congress has taken an interest in PBMs. SENATOR GIESSEL said SB 38 will allow some regulation and oversight through the Division of Insurance. It will address audits, making them something pharmacies know are coming so they can prepare. There would be an appeal process and more transparency about the maximum allowable cost. She asked, "Where could a pharmacy get the prescription at the cost the PBM says they can get it at?" 7:49:33 PM SENATOR GARDNER said that she is infuriated as she learns more. There are parallels with SB 76 which has to do with alcohol licensing and use in Alaska. There's a clear delineation between the manufactures, the wholesalers, and retailers and who can sell to whom. She asked if it makes sense to say that a PBM cannot also be a retailer. SENATOR GIESSEL replied PBMs fall under federal jurisdiction of the Interstate Commerce Clause. SENATOR STEVENS asked if the 60 to 70 percent decrease in independent pharmacies is in Alaska or nationwide. SENATOR GIESSEL said that is in Alaska. 7:51:58 PM CHAIR COSTELLO continued public testimony on SB 38. 7:52:56 PM SCOTT WATTS, independent pharmacist, Juneau, Alaska, testified in support of SB 38. He said it is a critical issue for community pharmacy in Alaska. This bill doesn't try to do away with audits or PBMs; it is setting a fair playing field. They are in dire straits. The mail order provision is particularly important in Alaska. MAC pricing is needed to encourage lowest- cost purchasing of medications, but when they are unrealistically low, the pharmacist loses money or turns the business away. That is just the cost of the medication, not including the cost of dispensing. He provided an example that may be good news in Alaska. A memo stated that Alaska market conditions were not understood in 2017. MAC pricing went up but not retroactively. He received an outreach call from a PBM agent about an appeal. When he questioned the MAC pricing on a drug, he was told that information about what wholesaler sells the drug at that price would only be released to pharmacies in states with laws on the books that require it. SB 38 is setting a fair standard. 7:58:16 PM BARRY CHRISTENSEN, Alaska Pharmacist Association, Ketchikan, Alaska, testified in support of SB 38. He is a second-generation pharmacist and his daughter is in pharmacy school. She asks why Alaska is treated differently. This is the association's top legislative priority. It is something they have been working on for a while. Their small, independent pharmacies are hurting. It sets up guidelines that are in place for almost all the other states. 8:00:26 PM CYNTHIA LAUBACHER, Senior Director, Express Scripts, Sacramento, California, testified in opposition to SB 38. She said they are committed to meeting with stakeholders in Juneau as they did in 2013. They have a few concerns with the bill. The standard for fraudulent activity audit findings is extremely high. The MAC section has a number of problems. It would set up a system where they would reimburse pharmacies at invoice cost. Everyone would pay a higher cost. They cannot force a wholesaler to sell a medication to a local pharmacy at a particular price. SENATOR GARDNER asked if Express Scripts is a PBM. MS. LAUBACHER said yes, serving 80 million Americans worldwide. SENATOR MICCICHE asked how many Alaskans they serve. MS. LAUBACHER said she didn't know. TRICARE is part of their network, which serves people with the Department of Defense. SENATOR MICCICHE asked how many times she has offered to come to Alaska and how many meetings she has had. He related that one of the finest humans he knows owned a pharmacy. This is a huge issue to that person, who has since sold to a larger outfit and retired. Something doesn't seem right. He is very interested in the question he just asked. He's heard the PBMs talk about meetings and explaining things to folks. It is a little patronizing to Alaskans. He asked her to explain the other side of the story to him. MS. LAUBACHER said she has been to Juneau a number of times. There was a stakeholder meeting in 2013 and nothing came of it. It has been a standing offer, but no one has reached out. They consider pharmacists partners. 8:06:08 PM LEIF HOLM, Independent Pharmacist, North Pole, Alaska, testified in support of SB 38. He said he wants to reiterate everything that's been said in support of SB 38. Alaska pharmacies are losing the fight at a rapid pace. Express Scripts is the largest PBM in the country. These practices are detrimental to a rural state like Alaska. Since more than 40 states have passed similar legislation, the committee should consider the sincerity of PBMs like the one they just heard from. 8:08:11 PM DIRK WHITE, representing self, Sitka, Alaska, testified in support of SB 38. He said he and his wife are pharmacists and they strongly support SB 38. They have 38 employees, over half of whom have retirement and health care benefits. They are looking at downsizing because the benefit costs are high and PBMs have cut their margins to the bone. In the states that have passed this legislation, if costs went up they would have amended or repealed the law. That hasn't happened. He said the mail order requirements do not fit Alaska. TRICARE forces everyone to go mail order after the first prescription is filled. Sitka has a Coast Guard station and they can't serve that clientele after the first prescription. He urged the committee to pass the bill, so they can stay in business. 8:11:00 PM MARAL FARSI, CVS Health ("CVS"), Sacramento, California, testified in opposition to SB 38. She stated that CVS Health is a pharmacy in Alaska and a PBM. As a PBM they work in the interests of the State of Alaska to manage the cost of prescription drugs. They also provide services to large employers and Taft-Hartley Trusts in the state. CVS contracts are with the payers that are seeking some prescription drug benefit management. MS. FARSI said after listening to what has been said about PBMs, she is compelled to clarify some things. One is that SB 38 does not exist in any state across the country. There are PBM laws that exist in various forms, but in its totality SB 38 is not a law that exists anywhere. The provisions of this bill are cost drivers, specifically the provisions that would limit the ability to audit pharmacies, like what the IRS does for businesses or individuals. As a PBM, CVS is auditing for fraud and abuse. Most of the monitoring for waste happens telephonically. They try not to be intrusive, but audits are a standard part of most business models. MS. FARSI also clarified that they are seeing significant growth in the number of pharmacies in Alaska. Over the last five years, CVS Health network has seen an increase of 14 percent with the majority of those pharmacies being local and independent. She said it is frustrating to hear that PBMs are promoting the use of opioids. This could not be further from the truth. CVS's PBM is doing a lot and is out front in defaulting their clients to limit the first-time fills that patients get on acute conditions. They are trying to follow the CDC guidelines in only recommending a seven-day fill and a physician can override that easily, but they are not in the business of promoting opioids in any way. MS. FARSI said they are hearing a lot about the negative margins, but they are not hearing about the positive margins that pharmacies see in MAC reimbursements. Maximum Allowable Cost (MAC) rates fluctuate and much of that is due to marketplace conditions that currently exist with pharmaceutical manufacturers. They have all heard of the drug prices that escalate 600 percent overnight. CVS is doing its best to keep on top of those types of changes and make sure that their pharmacists are adequately reimbursed. She agreed with the testimony from Express Scripts that independent pharmacies are needed in the network. Decisions that are made regarding mail order pharmacy for chronic medication are made by the client. Clients choose different methods for how they set up their benefits because it is cost-advantageous to them. CVS cannot serve an adequate network to Alaskans without local independent pharmacies. MS. FARSI said they would like to work with the pharmacists in Alaska and come up with a solution that works for Alaska. They've done it in other states. It always occurs through a stakeholder process. Everybody comes to the table and figures out what works. CVS Health is willing to make that happen given the opportunity. 8:15:31 PM SENATOR GARDNER shared that when the IRS audited her, it was by appointment and she knew beforehand what the agency would look at. It was not a surprise and there was flexibility in scheduling, so it did not interfere with the normal flow of business. She pointed out that the pharmacists she has met and those who testified said they don't oppose being audited, but they wanted parameters for when and how and that the presumption of wrongdoing was problematic. She didn't believe there was a presumption of wrongdoing on IRS audits. MS. FARSI said they schedule audits. Clients expect no waste or abuse from pharmacies. They would like to figure out parameters with pharmacists. 8:17:25 PM CATHERINE KOWALSKI, representing self, Petersburg, Alaska, testified in support of SB 38. She said it is extremely important for pharmacies across the state. She and her sister run the pharmacy her father started and employ 15 and work with the hospital and assisted living facility. This bill is important to hold PBMs accountable and maintain jobs. The business model does not fit Alaska. PBMs have affected her practices. She would like to provide more patient-centered services but ends up chasing negative revenues and training staff to assist with those pursuits. Responding to the CVS representative, she said it seems that everyone is eager to meet, but in the past, it hasn't worked out. They talk and then move to kill the bills. They argue they aren't insurance companies, but they should be registered. If they were playing fair, they wouldn't be here. Since the PBMs fight so hard against the bill, it is clear the stakes are high. Accountability and transparency will decrease costs, increase savings, and provide guidelines for better business practice in the state. She enjoys making Petersburg her home and is committed to serving the community as long as she can. 8:21:33 PM CHAIR COSTELLO closed public testimony and held SB 38 in committee.