ALASKA STATE LEGISLATURE  HOUSE HEALTH AND SOCIAL SERVICES STANDING COMMITTEE  April 5, 2012 3:05 p.m. MEMBERS PRESENT Representative Wes Keller, Chair Representative Bob Herron Representative Beth Kerttula Representative Bob Miller Representative Charisse Millett MEMBERS ABSENT  Representative Alan Dick, Vice Chair Representative Paul Seaton COMMITTEE CALENDAR  HOUSE BILL NO. 227 "An Act relating to generic drug pricing for medical assistance recipients; and providing for an effective date." - HEARD & HELD PREVIOUS COMMITTEE ACTION  BILL: HB 227 SHORT TITLE: DRUG PRICING: MEDICAL ASSIST. RECIPIENTS SPONSOR(s): REPRESENTATIVE(s) HERRON 04/05/11 (H) READ THE FIRST TIME - REFERRALS 04/05/11 (H) HSS, FIN 04/05/12 (H) HSS AT 3:00 PM CAPITOL 106 WITNESS REGISTER LINDA SYLVESTER, Lobbyist Kito, Inc. Juneau, Alaska POSITION STATEMENT: Testified during discussion of HB 227. RON MILLER, Regional Pharmacy Manager Safeway Anchorage, Alaska POSITION STATEMENT: Testified in opposition to HB 227. CHAD HOPE Pharmacy & Ancillary Programs Medical Assistance Administration Division of Health Care Services Anchorage, Alaska POSITION STATEMENT: Testified during discussion of HB 227. ACTION NARRATIVE 3:05:12 PM CHAIR WES KELLER called the House Health and Social Services Standing Committee meeting to order at 3:05 p.m. Representatives Keller, Herron, Miller, and Kerttula were present at the call to order. Representative Millett arrived as the meeting was in progress. HB 227-DRUG PRICING: MEDICAL ASSIST. RECIPIENTS  3:05:41 PM CHAIR KELLER announced that the only order of business would be HOUSE BILL NO. 227, "An Act relating to generic drug pricing for medical assistance recipients; and providing for an effective date." [In the committee packet was the proposed committee substitute (CS) for HB 227, Version 27-LS0552\B, Mischel, 3/16/12.] 3:06:00 PM LINDA SYLVESTER, Lobbyist, Kito, Inc., said that the proposed bill, HB 227, offered the State of Alaska the opportunity to potentially save millions of dollars by having generic and name brand drug companies competitively bid for inclusion on the state preferred drug list for medical assistance recipients. She paraphrased from the sponsor statement, which read in part: Over the last 25 years, the United States' generic pharmaceutical industry has grown into a multi-billion dollar industry, providing United States Food and Drug Administration (FDA) approved generic versions of brand-name medicines. With every prescription filled with a generic drug, the consumer receives a product similar to its brand-name equivalent - with the same quality and the same result, but at a much lower cost. Typical savings range 30-80%. For most brand-name products there are multiple generics produced by multiple manufacturers and these drugs vary greatly in price. While the Alaska Medicaid program has encouraged the use of generic drugs by its internal mechanisms such as the Preferred Drug List (PDL) and other tools, some interested parties believe it has not yet taken advantage of open market competition among generic manufacturers whose pricing of generic drugs vary greatly. HB 227 requires that the Department of Health & Social Services (DHSS) list on its Preferred Drug List (PDL) only generic and brand name drugs that have gone through an open and competitive bid process, to realize the lowest cost possible for the Alaska Medicaid Program. By treating generics equally as a commodity and requiring competitive bidding, some advocates believe the cost of the drugs will be driven down and the State can be assured it is getting the lowest possible price for its product. What that cost might be in unknown - and the only way to ensure that the State of Alaska pays the lowest price is to subject these commodities to open and competitive bid. 3:08:20 PM REPRESENTATIVE KERTTULA asked why this was not currently in effect. MS. SYLVESTER, in response, said that the PDL had been instituted at the federal level for cost savings, and that states were encouraged to use the less expensive generic drugs. She explained that, as generic drugs had proliferated, the natural progression had been to the competitive bid process. 3:09:41 PM CHAIR KELLER asked how many companies would sell the same generic drug. MS. SYLVESTER explained that generic drug companies were based both in the United States and internationally, and that when the drug "comes off label" the formula becomes available and anyone can apply with the FDA to manufacture the drug. This resulted in multiple generic drugs for the same name-brand drug, and the market demand for the name-brand drug would eventually diminish. 3:10:26 PM CHAIR KELLER offered his understanding that the low profit margin on generic drugs did not support competition against other generic drugs. MS. SYLVESTER explained that the name brand drug does the testing and the marketing, so that the generic drug does not have that cost, and the market has already been established. She pointed out that, as the cost for manufacturing the generic drug was unknown, it was still unknown for how low the price would go with competition. 3:11:53 PM CHAIR KELLER questioned whether DHSS was getting the best value in its purchase of drugs. MS. SYLVESTER offered her belief that the possibility for cost savings should be explored. 3:12:13 PM REPRESENTATIVE MILLER pointed out that, while a doctor could prescribe a drug, and the pharmacist could offer a comparable generic drug at a lower price, this did not guarantee how much the insurance company would pay for either. He reported that other factors, including the length of time for the prescription, and the strength of the dosage, also entered into the possible cost savings. MS. SYLVESTER, in response to Representative Miller, said that, although streamlining the process would be a noble effort, it was not covered in the proposed bill. 3:13:51 PM CHAIR KELLER asked if the pharmaceutical supplier offered package deals for a mix of generic and brand name drugs. MS. SYLVESTER offered her belief that Alaska participated in multi-state contracts which were managed by Magellan Health Services. She declared that it was a very complex process, and the proposed bill would encourage the pursuit of competitive bidding within the current business practices of DHSS. 3:14:58 PM RON MILLER, Regional Pharmacy Manager, Safeway, declared that Safeway was opposed to the proposed bill, specifically the competitive bidding process. He declared that there were three major drug wholesalers in Alaska, and each had its own individual generic brand. He explained that, as Safeway had a contract with one drug wholesaler, the competitive bidding process could offer the contract to another drug wholesaler, and then Safeway possibly would not be able to offer that same drug at a competitive price. CHAIR KELLER asked to clarify that Safeway would not be able to have competitive pricing, unless their drug wholesaler was awarded the competitive bid. MR. MILLER explained that companies had exclusive contracts with drug wholesalers. In a competitive bidding process, Safeway could be excluded from that distribution if its wholesaler was not the winning bidder. In response to Chair Keller, he said that this would apply to each specific generic drug, as the competitive price would only be offered to those businesses with contracts to the drug wholesaler with the winning bid. 3:18:18 PM REPRESENTATIVE HERRON asked why Safeway would not be able to purchase from any drug wholesaler. MR. MILLER replied that, as Safeway had a contract with a specific wholesaler, it could only buy from that wholesaler. 3:19:15 PM REPRESENTATIVE MILLER asked for further explanation as to why Safeway would not be able to include a contract with an additional drug wholesaler. MR. MILLER said that it was an exclusive contract, and it would be the decision of their wholesaler whether or not to add the specific generic drug to their offering. CHAIR KELLER offered his belief that the pharmaceutical market was far removed from health care. 3:21:43 PM CHAD HOPE, Pharmacy & Ancillary Programs, Medical Assistance Administration, Division of Health Care Services, said that DHSS had the same concerns as Safeway to the access by Medicaid recipients for drug purchases. He pointed out that limited access to generic brands could result in Medicaid recipients not having access to their medication, or that Medicaid could be required to purchase the significantly more expensive brand-name version because a pharmacy could not obtain the generic drug contract. He reported that DHSS currently had a pricing mechanism which set a maximum reimbursement price for each product and achieved the best possible price to the department for generic drugs. He questioned whether the proposed legislation would offer any additional savings. 3:23:51 PM REPRESENTATIVE HERRON, as the sponsor of proposed HB 227, asked if the state did not want a competitive process. MR. HOPE offered his belief that, although the administration did not have a position, there were many concerns with the current proposed bill. REPRESENTATIVE HERRON asked for a list of the concerns. MR. HOPE, in response, said that he would supply that list. 3:24:57 PM CHAIR KELLER asked for an explanation to the aforementioned price mechanism by DHSS. 3:25:26 PM CHAIR KELLER specifically asked for the DHSS list of concerns to proposed HB 227 and for more information regarding its existing pricing mechanism and its ability to maintain a reduced cost to the State of Alaska. He confirmed that the current draft of proposed HB 227 in front of the committee was Version B. MR. HOPE expressed his agreement to provide the list of concerns. 3:26:36 PM CHAIR KELLER closed public testimony. CHAIR KELLER said that HB 227 was held over. 3:26:59 PM ADJOURNMENT  There being no further business before the committee, the House Health and Social Services Standing Committee meeting was adjourned at 3:26 p.m.