Legislature(2017 - 2018)BARNES 124

01/26/2018 03:15 PM House LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
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Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved HB 180 Out of Committee
-- Public Testimony --
Moved HB 273 Out of Committee
-- Public Testimony --
Moved HB 274 Out of Committee
-- Public Testimony --
Moved HB 275 Out of Committee
-- Public Testimony --
                HB 240-PHARMACY BENEFITS MANAGERS                                                                           
[Contains discussion of SB 38.]                                                                                                 
4:23:40 PM                                                                                                                    
CHAIR KITO  announced that the  final order of business  would be                                                               
HOUSE  BILL NO.  240 "An  Act  relating to  the registration  and                                                               
duties  of pharmacy  benefits managers;  relating to  procedures,                                                               
guidelines,  and  enforcement  mechanisms  for  pharmacy  audits;                                                               
relating to the cost of  multi-source generic drugs and insurance                                                               
reimbursement procedures; relating to  the duties of the director                                                               
of  the division  of insurance;  and providing  for an  effective                                                               
4:24:03 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG, Alaska  State  Legislature, as  prime                                                               
sponsor,  introduced HB  240.   He indicated  that the  issue was                                                               
that Pharmacy  Benefit Managers (PBM) could  audit pharmacies and                                                               
there was  no process for adjudication.  The bill would set  up a                                                               
process of mediation, overseen by  a third party, the Director of                                                               
Insurance,  to  hear the  disagreement  and  determine a  correct                                                               
course  of  action.    Part   of  the  larger  picture  concerned                                                               
transparency  in how  prices were  established and  charged.   He                                                               
said he  felt the  bill would create  a process  for adjudication                                                               
and lead to a better understanding of the process.                                                                              
4:26:09 PM                                                                                                                    
SETH  WHITTEN,  Staff,  Representative David  Guttenberg,  Alaska                                                               
State Legislature,  presented HB 240 on  behalf of Representative                                                               
Guttenberg,  prime   sponsor.    He  paraphrased   the  sectional                                                               
analysis, [included in members' packets], which read as follows:                                                                
     Sec. 21.27.901. Registry  of pharmacy benefit managers;                                                                    
     scope  of  business  practice. Requires  that  pharmacy                                                                    
     benefits     managers    register     as    third-party                                                                    
     administrators  under  21.27  .630  and  describes  the                                                                    
     parameters  under  which  they  may  contract  with  an                                                                    
     insurer  or   network  pharmacies,  set  the   cost  of                                                                    
     multisource generic drugs and allows for appeals.                                                                          
     Sec. 21.27.905. Renewal  of registration. Establishes a                                                                    
     bi-annual renewal of a registration  fee for a pharmacy                                                                    
     benefits manager as set by the director.                                                                                   
     Sec.     21.27.910.    Pharmacy     audit    procedural                                                                    
     requirements.   Describes  the   procedural  and   time                                                                    
     requirements required of  the pharmacy benefits manager                                                                    
     and defines who conduct an audit and what                                                                                  
     records can may be provided by the pharmacy.                                                                               
     Sec. 21.27.915. Overpayment  or underpayment. Indicates                                                                    
     that a  pharmacy benefits manager shall  base a finding                                                                    
     of overpayment  or underpayment  on the  actual payment                                                                    
     and  not a  projection  of patients  served by  similar                                                                    
     circumstances.  It also  designates the  dispensing fee                                                                    
     Sec. 21.27.920. Recoupment.  Establishes how a pharmacy                                                                    
     benefits   manager  shall   base   the  recoupment   of                                                                    
     overpayments from a pharmacy.                                                                                              
     Sec.  21.27.925.  Pharmacy audit  reports.  Establishes                                                                    
     time  frames as  to  when preliminary  and final  audit                                                                    
     reports  shall  be  delivered to  a  pharmacy  and  the                                                                    
     response  time  for  any  discrepancies  found  in  the                                                                    
     Sec.   21.27.930.   Pharmacy   audit   appeal;   future                                                                    
     repayment.   A  written   appeals   process  shall   be                                                                    
     established  by a  pharmacy benefits  manager. It  also                                                                    
     states  that  future  repayment of  disputed  funds  or                                                                    
     other penalties imposed on a  pharmacy shall occur only                                                                    
     when all appeals have been exhausted.                                                                                      
     Sec. 21.27.935.  Fraudulent activity. Defines  what may                                                                    
     not  be  considered  fraud  by  the  pharmacy  benefits                                                                    
     Sec. 21.27.940.  Pharmacy audits;  restrictions. Adopts                                                                    
     restrictions on the requirements  of the entire Section                                                                    
     1  when applied  to an  audit in  which intentional  or                                                                    
     suspected  fraud is  demonstrated  in a  review of  the                                                                    
     claims  data.  In  addition, the  requirements  do  not                                                                    
     apply  to  any  claims   paid  for  under  the  medical                                                                    
     assistance program found in AS 47 .07.                                                                                     
     Sec.   21.27.945.   Drug   pricing   list;   procedural                                                                    
     requirements. The methodology and sources used to                                                                          
     determine  the drug  pricing list  will be  provided to                                                                    
     each  network  pharmacy  at   the  beginning  of  their                                                                    
     contract term  and updated accordingly by  the pharmacy                                                                    
     benefits manager. Basic  contact information shall also                                                                    
     be provided.                                                                                                               
     Sec.  21.27.950.  Multi-source   generic  drug  appeal.                                                                    
     Establishes a  process by which a  network pharmacy may                                                                    
     appeal  the reimbursement  for  a multi-source  generic                                                                    
     drug and procedures if their  appeal is denied. It also                                                                    
     sets the  limitations on the pharmacy  benefits manager                                                                    
     and  the insurance  division director  as  to how  many                                                                    
     days they  have to resolve  an appeal or a  request for                                                                    
     Sec.  21.27 .955.  Definitions.  Defines all  selective                                                                    
     wording as used in Section 1.                                                                                              
     Bill section 2. Adds a  new section on Applicability as                                                                    
     it applies to audits of pharmacies as conducted by                                                                         
     pharmacy benefits managers.                                                                                                
     Bill section 3.  Adds a new section  as to Transitional                                                                    
     Provisions for adopting Regulations.                                                                                       
     Bill  section  4.  Adds  a   new  section  stating  the                                                                    
     Revisor's Instructions.                                                                                                    
     Bill section 5. Effective  date clause for Bill section                                                                    
     Bill  section 6.  Effective date  clause  for this  Act                                                                    
     except as provided.                                                                                                        
4:27:55 PM                                                                                                                    
REPRESENTATIVE  SULLIVAN-LEONARD thought  the  PBMs were  brought                                                               
forward around  2000.  She asked  about the necessity of  the PBM                                                               
REPRESENTATIVE  GUTTENBERG  remarked  that  PBMs came  in  a  bit                                                               
earlier  and allowed  insurers to  bulk buy  drugs and  negotiate                                                               
better prices.  He said he  felt PBMs had evolved into a business                                                               
model that  increased costs.   He underlined  that he  thought it                                                               
was still  a justifiable process  for negotiating  better prices,                                                               
but with the many layers in the current system, it added costs.                                                                 
4:30:02 PM                                                                                                                    
CHAIR  KITO remarked  that there  would probably  be considerable                                                               
discussion regarding PBMs.                                                                                                      
REPRESENTATIVE GUTTENBERG  suggested viewing the  presentation by                                                               
Jane Conway  on HB  280, and its  companion legislation  [SB 38],                                                               
entitled "Pharmacy  Benefit Managers  and the  need for  fair and                                                               
reasonable standards over the practice of auditing pharmacies."                                                                 
4:30:41 PM                                                                                                                    
JANE CONWAY,  Staff, Senator  Giessel, Alaska  State Legislature,                                                               
presented  the   PowerPoint  presentation  [included   in  member                                                               
packets] regarding HB 240.                                                                                                      
MS. CONWAY  outlined in slide 2,  "PBM 101   What's  a PBM?" that                                                               
PBMs  are multibillion  dollar middlemen.   They  had started  in                                                               
1970 as  claims processers  and had  since become  intertwined in                                                               
almost every aspect of  the pharmaceutical/pharmacy supply chain.                                                               
PBMs are  virtually unregulated  at either  the state  or federal                                                               
levels   including in Alaska.   Additionally, they represent some                                                               
of the most profitable companies in the nation.                                                                                 
4:33:12 PM                                                                                                                    
MS. CONWAY  pointed to CSV  Caremark, which was the  state's PBM,                                                               
which showed 2017  revenue of $177.5 billion, and  had moved from                                                               
number  14 to  number seven  in the  Fortune 500  list.   Express                                                               
Scripts currently  ranked number  22, generating $100  billion in                                                               
2017.  Many PBMs were in the Fortune 500 list.                                                                                  
4:34:03 PM                                                                                                                    
MS.  CONWAY  spoke  to   AlaskaCare,  which  provides  healthcare                                                               
benefits  and  prescription drug  benefits  for  State of  Alaska                                                               
employees.   She mentioned a  request for proposal (RFP)  for PBM                                                               
which was around the corner.                                                                                                    
4:34:52 PM                                                                                                                    
MS.  CONWAY  moved  to  slide  5 and  described  what  PBMs  were                                                               
designed to do.  They were  put in place to reduce administrative                                                               
costs for  insurers, to validate patient  eligibility, administer                                                               
plan  benefits, negotiate  costs  between  pharmacies and  health                                                               
plans, and to audit pharmacies for fraud.                                                                                       
4:35:19 PM                                                                                                                    
MS.  CONWAY  moved  to  slide  6, "PBM's  Impact  on  Pharmacy  &                                                               
Patient."   PBMs develop pharmacy provider  networks.  Pharmacies                                                               
must accept  a PBM  contract.   Contracts truly  are "take  it or                                                               
leave it,  with  no room for negotiations.   PBMs influence which                                                               
drugs  are ultimately  dispensed regardless  of what  a physician                                                               
prescribes, via  a list of  approved drugs known  as formularies.                                                               
PBMs  collect money  from drug  manufacturers  for putting  their                                                               
drugs  on a  given formulary.   PBMs  restrict pharmacies  on how                                                               
many  pills they  can  dispense at  a given  time  based on  plan                                                               
4:36:37 PM                                                                                                                    
MS.  CONWAY addressed  slide 7,  which continued  to present  the                                                               
impacts of PBMs.   PBMs dictate how much pharmacies  will be paid                                                               
for  the  drugs  they  dispense  regardless  of  the  pharmacies'                                                               
acquisition  costs.    PBMs  have  free  reign  to  dictate  what                                                               
pharmacies  are  permitted  to  do in  a  given  network  thereby                                                               
driving patients  to particular  pharmacy options.   PBMs operate                                                               
their own  mail-order pharmacies  and can incentivize  or mandate                                                               
that  beneficiaries obtain  their  medications  only through  the                                                               
mail-order  option.   PBMs audit  pharmacies and  in most  cases,                                                               
there  are no  defined  rules  or regulations  over  what can  be                                                               
considered a recoupable offense.                                                                                                
4:37:32 PM                                                                                                                    
MS. CONWAY  moved to slide  8, showing  a diagram of  the payment                                                               
route between the  payer, the PBM, and the pharmacy.   The payer,                                                               
or insurer,  pays the  PBM $100  for the  prescription.   The PBM                                                               
goes to the pharmaceutical manufacturer  and negotiates the price                                                               
for the given drug.  In the  end, the pharmacy ends up paying out                                                               
of pocket for a  drug for which it thought it  would get a higher                                                               
4:39:17 PM                                                                                                                    
MS.  CONWAY progressed  to slides  9 through  11, "HB240/SB  38                                                                 
What Does a Fair Audit Bill  Do?"  The proposed legislation would                                                               
bring  fairness  to the  unregulated  and  expanding practice  of                                                               
pharmacy  audits.   It would  not allow  audits during  the first                                                               
seven calendar  days of  each month because  of the  high patient                                                               
volume, unless  the pharmacy  and auditor  agree otherwise.   The                                                               
bill is  designed to prevent  the targeting of minor  clerical or                                                               
administrative errors where no fraud,  patient harm, or financial                                                               
loss  has  occurred.   The  bill  would establish  submission  of                                                               
data/medical record  standards to  allow for  clarification where                                                               
discrepancies  are identified  and  establish  a reasonable  time                                                               
frame for the announcement of  an audit to allow proper retrieval                                                               
of records under review.                                                                                                        
MS.  CONWAY  added  that  it would  establish  an  audit  appeals                                                               
process for  pharmacies; establish guidelines for  PBMs to follow                                                               
regarding patient confidentiality;  and prohibit extrapolation in                                                               
assessing  fees/penalties.    Alaska  pharmacists  would  not  be                                                               
penalized for  providing mail-order  service to  their customers.                                                               
Local mail-order  service keeps  Alaska dollars  in Alaska.   The                                                               
proposed legislation  would not  prevent the recoupment  of funds                                                               
where fraud, waste, and abuse exist.                                                                                            
MS.  CONWAY  remarked  that  37 states  had  enacted  fair  audit                                                               
legislation  and that  32 states  had  enacted Maximum  Allowable                                                               
Cost  (MAC) transparency  legislation.   The  bill would  include                                                               
registration  of  PBMs  with  the State  of  Alaska  Division  of                                                               
Insurance, would  set-up guidelines for generic  drug MAC pricing                                                               
by  PBMs, and  would  establish  a mechanism  for  a pharmacy  to                                                               
appeal MAC  pricing.  She added  that there were two  states that                                                               
had passed this  legislation and been subsequently  sued by PBMs.                                                               
In both cases, the courts had ruled for the state.                                                                              
4:41:48 PM                                                                                                                    
MS. CONWAY pointed  to slides 12 and 13 showing  maps of the U.S.                                                               
indicating  which states  have passed  similar legislation.   She                                                               
deferred  to the  invited testimony  for  first-hand accounts  of                                                               
pharmacists dealing with the PBMs directly.                                                                                     
4:43:26 PM                                                                                                                    
MS. CONWAY progressed to slide  19, "Maximum Allowable Cost (MAC)                                                               
- 101:  What is  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, called  "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.  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 usually  contain both brand and generic  drugs.  A                                                               
MAC list  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.  For example,                                                               
one plan may  have a different MAC list even  though they utilize                                                               
the same PBM.                                                                                                                   
4:44:34 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD queried  whether PBM auditors are                                                               
required to have a degree in pharmacy.                                                                                          
4:44:58 PM                                                                                                                    
MR. WHITTEN  responded that one  of the requirements in  the bill                                                               
was that the auditors be pharmacists.                                                                                           
REPRESENTATIVE  SULLIVAN-LEONARD  surmised   that  presently  the                                                               
individuals  carrying out  audits  could be  pharmacists or  have                                                               
business degrees.                                                                                                               
MR. WHITTEN  clarified that  those carrying  out audits  were not                                                               
required to be pharmacists.                                                                                                     
4:45:52 PM                                                                                                                    
MS. CONWAY  continued to  slide 20,  "PBM Use  of MAC  as Revenue                                                               
Stream:"   Essentially, the  PBMs reimburse  low and  charge high                                                               
with  their MAC  price  lists, 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  reiterated that the PBM                                                               
negotiated with the  plan sponsors and with  the manufacturers at                                                               
two different prices.  The spread  between the two prices was the                                                               
revenue generator for the PBM.                                                                                                  
4:47:22 PM                                                                                                                    
REPRESENTATIVE WOOL  pointed out  that with a  middleman business                                                               
there had  to be a spread,  otherwise they would be  doing it for                                                               
free.   He did not  dispute that the spread  may be too  wide but                                                               
understood why it was there.                                                                                                    
MS. CONWAY  conceded that there was  no doubt the PBMs  provide a                                                               
service; however, they did so  at the expense of local pharmacies                                                               
which struggle under the current system.                                                                                        
4:48:39 PM                                                                                                                    
MS. CONWAY  moved to slide 21,  which continued "MAC 101."   When                                                               
the 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.   The MAC  lists can  be updated                                                               
daily so real-time  prices are often obsolete and  less than what                                                               
the pharmacist expected.   When prices increase,  PBMs often wait                                                               
weeks or  even months  before updating MAC  lists and  rarely, if                                                               
ever,  reimburse  pharmacies  retroactively,  yet  the  PBMs  act                                                               
swiftly  to update  MAC lists  when  drug costs  decrease.   This                                                               
significantly  jeopardizes   financial  viability   of  community                                                               
pharmacies.    In  fact,  84  percent  of  pharmacists  said  the                                                               
acquisition price  spiking and lagging reimbursement  trend has a                                                               
"very significant" impact on their  ability to remain in business                                                               
and to continue serving patients.                                                                                               
4:50:24 PM                                                                                                                    
MS. CONWAY  continued to slide  23.  MAC legislation  is designed                                                               
to reasonably address the above  concerns by providing clarity to                                                               
plan  sponsors  and  pharmacies  regarding  how  MAC  pricing  is                                                               
determined.    The  legislation would  update  and  establish  an                                                               
appeals  process in  which a  dispensing provider  can contest  a                                                               
listed MAC price.  Further,  it would provide standardization for                                                               
how products are  selected for inclusion on a MAC  list.  The MAC                                                               
process provides no transparency  for plan sponsors or contracted                                                               
retail network pharmacies.                                                                                                      
MS. CONWAY  added that retail  pharmacies are not  informed about                                                               
how  products  are added  or  removed  from  a  MAC list  or  the                                                               
methodology  that  determines  how  reimbursement  is  ultimately                                                               
calculated.    However, pharmacies  must  contract  with PBMs  to                                                               
provide  services and  participate in  plans without  having this                                                               
critical information.   In other  words, pharmacies  are required                                                               
to  sign contracts  not knowing  how they  will be  paid.   It is                                                               
equivalent to  agreeing to  the services of  a home  builder, not                                                               
knowing how you  will be paid or what materials  will be utilized                                                               
in the home's construction.                                                                                                     
4:51:18 PM                                                                                                                    
MS.  CONWAY  moved  to  slide  24,   "SB  38:  What  Does  A  MAC                                                               
Transparency Bill Do?"   A MAC Transparency  Bill sets reasonable                                                               
standards  on MAC  and requires  regular reporting  of MACs  to a                                                               
pharmacy  in  a  useable  format.    In  addition,  the  proposed                                                               
legislation  provides for  a  defined MAC  appeals  process.   It                                                               
neither  mandates that  a PBM  reimburse a  pharmacy at  a higher                                                               
amount nor represents  an administrative burden on the  PBM.  The                                                               
proposed bill  does not mandate  that a PBM approve  a pharmacy's                                                               
MAC appeal,  and it  will not  result in  increased costs  to the                                                               
healthcare system.                                                                                                              
4:53:35 PM                                                                                                                    
CHAIR KITO opened invited testimony.                                                                                            
4:53:46 PM                                                                                                                    
BARRY   CHRISTENSEN,  Co-Owner,   Island  Pharmacy,   Legislative                                                               
Committee for the Alaska  Pharmacists Association, testified that                                                               
the  bill  was   a  number  one  legislative   priority  for  the                                                               
membership as  many were hurting  from the practices  outlined in                                                               
the presentation.   He recounted  his family's personal  story as                                                               
local pharmacists.  The pharmacists  are not asking for more than                                                               
what  over  thirty other  states  have  done.   The  MAC  pricing                                                               
feature  is something  other  states  have on  their  books.   He                                                               
declared  that the  committee would  hear  testimony saying  that                                                               
PBMs  should not  be  regulated because  they  are not  insurance                                                               
companies.   He said he felt  this was "like saying  an orange is                                                               
not a fruit,  it's a citrus fruit." He underscored  that PBMs are                                                               
not currently  registered by  the Board of  Pharmacy and  are not                                                               
licensed or  registered by the state.   There was nothing  in the                                                               
bill that says MAC pricing goes  away.  The pharmacies are simply                                                               
looking for greater transparency.                                                                                               
4:57:14 PM                                                                                                                    
REPRESENTATIVE   SULLIVAN-LEONARD   asked   whether  it   was   a                                                               
requirement that all pharmacies use a PBM.                                                                                      
MR.  CHRISTENSEN  replied that  the  pharmacies  did not  need  a                                                               
middleman, but  that given the  insurance model which  uses PBMs,                                                               
they could not bill the insurance without them.                                                                                 
4:58:20 PM                                                                                                                    
REPRESENTATIVE WOOL referenced an  example in the presentation of                                                               
a  pharmacy sending  four appeals  to three  different PBMs.   He                                                               
asked  whether there  was a  PBM  for each  insurance company  or                                                               
payment policy.                                                                                                                 
MR. CHRISTENSEN  replied that  he knew  of over  100 PBMs  in the                                                               
state, each with different policies,  MAC pricing, and contracts.                                                               
One  of  the things  the  proposed  legislation was  seeking  was                                                               
REPRESENTATIVE WOOL asked about the frequency of audits.                                                                        
MR. CHRISTENSEN stated that a  pharmacy could be audited three or                                                               
four times a month, possibly more.                                                                                              
5:01:33 PM                                                                                                                    
SCOTT WATTS, Pharmacist, Ron's Apothecary,  remarked that he owns                                                               
two  pharmacies  in  Juneau  and stated  the  proposed  bill  was                                                               
essential  for  retail  pharmacies  looking for  a  fair  playing                                                               
field.   He spoke to  MAC pricing,  stating that recently  in the                                                               
state MAC prices  were drastically reduced but  the prices hadn't                                                               
changed.   The  pharmacies had  no recourse  and sending  several                                                               
hundred appeals had  not resulted in reimbursement.   All but two                                                               
appeals had come  back stating that the price  remained the same.                                                               
He  referenced  a  recent  conversation  with  a  PBM  which  had                                                               
responded  that  it  does  not give  information  out  except  to                                                               
pharmacies "with laws  on the books."  That  currently meant that                                                               
no one in Alaska would receive that information.                                                                                
MR.  WATTS relayed  that on  January 10,  [2018], pharmacies  had                                                               
received notification  that PBMs had  adjusted MAC pricing.   The                                                               
explanation had been that lower rates  were the result of the MAC                                                               
team's  best understanding  of marketplace  conditions.   He felt                                                               
that  they misunderstood  the market  conditions and  had lowered                                                               
rates to  below market  prices.   The PBM  had responded  that it                                                               
does not  do any retroactive  reimbursement.  The  pharmacies had                                                               
not seen a complete correction on those MAC prices.                                                                             
MR. WATTS  added that the  situation in  cities was bad  but that                                                               
rural Alaska pharmacies may not be able to survive.                                                                             
5:06:11 PM                                                                                                                    
REPRESENTATIVE  BIRCH  referenced   a  December  Forbes  article,                                                             
regarding CVS turning  industry "on its head"  by acquiring AETNA                                                               
for $69 billion  and remarked it was like "Jonah  ate the whale."                                                               
He asked Mr. Watts his perspective.                                                                                             
MR. WATTS replied that the takeover made him very nervous.                                                                      
REPRESENTATIVE BIRCH  asked whether the  PBM was a  subsidiary of                                                               
the insurer.                                                                                                                    
MR. WATTS  clarified that the  PBM is that with  which pharmacies                                                               
contracted;  the  insurer  is  who  had  the  contract  with  the                                                               
employer, which is where the lack of transparency could occur.                                                                  
5:08:21 PM                                                                                                                    
CHAIR KITO  clarified that the MAC  was the cost set  by PBMs and                                                               
the reimbursable  cost was  set by  the insurers.   He  asked for                                                               
MR. WATTS  replied that he  believed that  was correct.   The MAC                                                               
was set by  the PBM and what  the employer was paying  was set by                                                               
the insurer.                                                                                                                    
REPRESENTATIVE WOOL asked whether the  PBMs supplied the drugs or                                                               
merely worked out the payment.                                                                                                  
MR.  WATTS declared  that  the  PBMs did  not  supply the  drugs.                                                               
Drugs were obtained and paid for separately through wholesalers.                                                                
REPRESENTATIVE  WOOL addressed  comments that  smaller pharmacies                                                               
have a  harder time  than the bigger  chain pharmacies  and asked                                                               
whether that  was due  to price  structures or  because corporate                                                               
pharmacies were treated differently.                                                                                            
MR. WATTS  replied that  larger stores  can make  up some  of the                                                               
difference, but he was uncertain about different treatment.                                                                     
5:11:01 PM                                                                                                                    
GERALD  BROWN,  Owner,  Medical  Center  Pharmacy,  testified  in                                                               
support  of HB  240.   He explained  that the  proposed bill  was                                                               
attempting to ensure that pharmacists  were treated fairly and to                                                               
establish a code  of conduct for PBMs, which  were not registered                                                               
with  the state,  and which  were operating  without regulations.                                                               
The MAC portion of the bill was very dear to the pharmacies.                                                                    
He added that  there were no issues with auditing  for fraud, but                                                               
when an auditor  can take up to  two or three hours  of time even                                                               
when the pharmacy  is busy and request information  going back up                                                               
to ten years, it almost  required them to hire another pharmacist                                                               
just to  make up the  time that auditors took.   He said  he felt                                                               
the  auditors made  their own  rules  of conduct.   He  expressed                                                               
concern that there may be a harassment issue at stake.                                                                          
5:13:28 PM                                                                                                                    
MR. BROWN continued that the  MAC [pricing] was arbitrary; it was                                                               
not  well established;  and  pharmacies did  not  know where  the                                                               
costs came  from.  Regarding  PBMs he stated, "My  experience ...                                                               
has been they're  paying anywhere from 10 cents on  the dollar of                                                               
what  I purchase  the  medication  for, up  to  50  cents on  the                                                               
dollar."  Over the previous  month, he had seen 225 prescriptions                                                               
that were negative revenue claims.   He added, "Over $33 thousand                                                               
in  the last  year, comprising  around 2,200  prescriptions -  60                                                               
percent of  which were from  CVS Caremark prescriptions -  and 68                                                               
percent  of  those were  Alaska  retirees."    He added  that  68                                                               
percent  of the  time when  he  submits a  claim, it  is from  an                                                               
Alaska retiree or state beneficiary,  and he would get a negative                                                               
revenue.   The fees  did not match  the pharmacy  business model.                                                               
The  25-cent to  1-dollar dispensing  fee  did not  cover the  50                                                               
cents  for the  vial,  50  cents for  the  label,  plus fees  for                                                               
MR. BROWN referred to a  question regarding how the larger chains                                                               
were affected.  He thought  the larger pharmacies were losing $80                                                               
thousand to $100 thousand a month in negative revenue.                                                                          
MR. BROWN related that as of the  August 1, [2017], he had seen a                                                               
mushrooming of negative reimbursements for  over  $14 thousand in                                                               
negative  revenue.   With  a  dispensing fee  of  25  cents to  1                                                               
dollar, it  was hard for  a small business  to make up  the cost.                                                               
He said  he would  send the  MAC appeals  showing the  review and                                                               
response he received to the committee.                                                                                          
5:19:25 PM                                                                                                                    
MR. BROWN  added that shipping costs  were not the same  as those                                                               
for pharmacies across  the nation.  There was  no transparency in                                                               
what the rebates were.    The state of Alaska never  saw it.  The                                                               
PBM may  be receiving a  30-percent to 60-percent rebate,  but no                                                               
one  sees  it, and  yet  that  rebate and  the  end  cost of  the                                                               
prescription determine what goes on the formulary.                                                                              
REPRESENTATIVE WOOL asked whether  his health care provider would                                                               
determine which PBM would be utilized.                                                                                          
MR. BROWN responded in the affirmative.                                                                                         
REPRESENTATIVE  WOOL offered  that  it would  be more  worthwhile                                                               
"buying a  box of band aids  and taking the prescription  to Fred                                                               
MR. BROWN  agreed and explained  that it would be  less expensive                                                               
to  give clients  back their  prescription and  give them  twenty                                                               
dollars.  He gave an  example of an Alaska retiree's prescription                                                               
with a purchase  price of $546, for which he  had been reimbursed                                                               
$134,  for a  $414 loss.    He reiterated  that pharmacists  were                                                               
looking for appealable MAC prices.                                                                                              
5:24:09 PM                                                                                                                    
MICHELE MICHAUD, Chief Health  Official, Central Office, Division                                                               
of Retirement  and Benefits  (DRB), Department  of Administration                                                               
(DOA), mentioned  testimony stating that AlaskaCare  covers state                                                               
employees.   She clarified  it only  covers a  subset as  well as                                                               
retirees, and  that union  health trusts cover  some.   There are                                                               
other  public   employers  that  utilize  PBMs.     The  division                                                               
contracted with  AETNA and  CVS is the  contractor for  their PBM                                                               
5:24:45 PM                                                                                                                    
EMILY RICCI,  Health Care  Policy Administrator,  Central Office,                                                               
Division  of   Retirement  and  Benefits  (DRB),   Department  of                                                               
Administration (DOA),  stated that in general,  AlaskaCare covers                                                               
employee  and retiree  health plans.    It had,  in the  previous                                                               
year, spent  $236 million  on pharmacy  benefits between  the two                                                               
plans.  The  division relies heavily on  its contractors, whether                                                               
third-party administrators such as AETNA  or a PBM.  The services                                                               
are  periodically put  out for  a  competitive bid,  and in  2014                                                               
AETNA  and   its  subcontractor,  CVS,  became   the  third-party                                                               
administrator and the PBM for  the state's healthcare plans.  She                                                               
specified  that the  division  has been  working  with local  and                                                               
independent  pharmacies   as  well   as  with  CVS   Caremark  to                                                               
understand how to  address those price discrepancies.   She spoke                                                               
to  the complexity  of layers  in the  system.   AlaskaCare is  a                                                               
self-insured health  plan, meaning  that it pays  out all  of the                                                               
claims.   The division  relies on  contractors to  administer and                                                               
pay out  those claims,  but the  contract is with  the PBM.   She                                                               
added that  there were  other layers within  the system  as well,                                                               
including   wholesale   distributors    and   pharmacy   services                                                               
administration organizations.  The  division was hearing feedback                                                               
from  independent pharmacies  regarding pricing,  but it  did not                                                               
have all  of the input on  either side to determine  in aggregate                                                               
some  of  the pricing  and  relied  on contractors  to  determine                                                               
5:27:31 PM                                                                                                                    
CHAIR  KITO asked  whether Ms.  Ricci  was aware  that all  three                                                               
pharmacists  had   testified  that   costs  had   exceeded  their                                                               
reimbursement  for  providing  pharmaceuticals  and  whether  she                                                               
recognized the scope of the issue.                                                                                              
MS. RICCI answered  in the affirmative, adding  that the division                                                               
has  been working  to raise  the pharmacists'  concerns with  CVS                                                               
Caremark.  It  was understood that MAC pricing  was adjusted from                                                               
January 1,  [2018], and  the division  was working  to understand                                                               
which  factors  had  driven  the adjustments  and  what  kind  of                                                               
reconciliation process would occur.                                                                                             
CHAIR KITO asked  whether she continued to support  the fact they                                                               
were  not being  reimbursed for  costs  that did  not meet  their                                                               
expenses for pharmaceuticals which had been previously denied.                                                                  
MS. RICCI  responded that every  time that the division  had been                                                               
informed of  the reimbursement issues  from the  pharmacists, the                                                               
comments were forwarded to CVS Caremark.                                                                                        
CHAIR KITO remarked that it seemed like quite a large issue.                                                                    
5:28:58 PM                                                                                                                    
REPRESENTATIVE STUTES asked how long  the division had been aware                                                               
of the issue.                                                                                                                   
MS. RICCI  relayed that  the division was  first informed  of the                                                               
problem at  the end of  November [2017].   The division  had then                                                               
worked  to  review  its  claims data  to  determine  whether  the                                                               
division  was experiencing  pricing discrepancies  over the  same                                                               
time period.   She  described the  division's contracts  with the                                                               
PBM wherein it could see what  the division was being charged for                                                               
medication, but the  division was not informed of  the details of                                                               
the contracts between the PBM and the pharmacies.                                                                               
5:29:42 PM                                                                                                                    
REPRESENTATIVE BIRCH suggested  it would be helpful  to hear from                                                               
the PBMs.   He  mentioned three  Sam's Club  stores in  the state                                                               
that  had closed.   He  said he  thought this  was partly  due to                                                               
dynamic issues  happening in the  retail world rolling  down into                                                               
retail sales  in the pharmacy  world.  He  asked how much  of the                                                               
problem was  a big box store  against a local store  scenario and                                                               
wondered what the responsibility of the state was.                                                                              
5:31:25 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD  spoke to  the challenges  of the                                                               
pharmacies  and  queried whether  the  issue  could be  rectified                                                               
without the proposed regulation.                                                                                                
MS.  RICCI said  she  did not  know  what the  answer  was.   She                                                               
underlined  that the  division was  looking at  AlaskaCare plans.                                                               
There was a  concern that the current structure  did not evaluate                                                               
the  value of  the  independent pharmacies  highly  enough.   She                                                               
spoke to discussion of a  pilot project.  The division recognized                                                               
the added value of local, independent  pharmacies.  It also had a                                                               
fiduciary responsibility  to the health  plan and needed  to make                                                               
sure  that if  it were  paying more  for services,  it would  get                                                               
increased value.                                                                                                                
REPRESENTATIVE SULLIVAN-LEONARD  asked whether Ms.  Ricci thought                                                               
a pilot program would work.                                                                                                     
MS. RICCI answered that the division  had no position on the bill                                                               
but that she  felt the pilot program was  worth exploring whether                                                               
the legislation passed.                                                                                                         
5:34:04 PM                                                                                                                    
REPRESENTATIVE  WOOL mentioned  the fact  that pharmacists  buy a                                                               
lot of drugs.  Most people pay  with insurance and pay for a rate                                                               
negotiated by  the PBMs.   The pharmacists  were saying  that the                                                               
rate  of   reimbursement  changes  after  the   drugs  have  been                                                               
dispensed.  He  said he was surprised that the  division had only                                                               
heard of  the issue in December  as he had been  hearing about it                                                               
for years.                                                                                                                      
MS.  RICCI clarified  that the  division  had been  aware of  the                                                               
legislation regarding  MAC pricing as  it was the  second session                                                               
in  which it  was heard.   The  division had  been made  aware of                                                               
significant decrease in MAC pricing  that had been brought to the                                                               
division's attention  in a short  period of time.   Regarding the                                                               
specifics of  how MAC  prices were  established, she  deferred to                                                               
the  representative of  CVS Caremark.   She  underlined that  the                                                               
contracts that  the division negotiated are  available online, so                                                               
the  structure is  visible.   Generally,  the  plan negotiates  a                                                               
percentage  off  for  generic   drugs  dispensed  at  retail  and                                                               
dispensed at mail-order, in 30-day and 90-day supplies.                                                                         
REPRESENTATIVE WOOL  asked whether the rates  negotiated with the                                                               
PBM fluctuated at the sponsor end, or only at the retail end.                                                                   
5:37:33 PM                                                                                                                    
MS. MICHAUD  specified that  the contracts  that the  state holds                                                               
with AETNA and  its PBM, CVS, were based on  an aggregate pricing                                                               
scheme and  not on  individual drug cost;  therefore, it  did not                                                               
see the same fluctuations that the pharmacies did.                                                                              
5:38:08 PM                                                                                                                    
REPRESENTATIVE BIRCH  brought up  that at times  medical services                                                               
providers require a pretreatment  authorization.  This meant that                                                               
there were no surprises.  He  thought that having a set cost only                                                               
to discover a month later that  only half of that amount would be                                                               
paid for "would be a tough way to run a business."                                                                              
MS. MICHAUD  clarified that  pharmacy benefits  reimbursement was                                                               
typically set  at point  of sale.   Pharmacies  may buy  drugs in                                                               
advance without  knowing what the price  will be at the  point of                                                               
sale.   She  offered her  understand that  pharmacists should  be                                                               
able to look  up what the reimbursement would be  at the point of                                                               
sale.   She  added  that it  was  not months  down  the road  but                                                               
potentially months from when they purchase the drug.                                                                            
CHAIR KITO  stated that since CVS  was not online and  that there                                                               
were people  online to testify, he  would hold over the  bill but                                                               
hear more public testimony on Friday, February 2.                                                                               
5:41:11 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  concluded that  the issue  was complex                                                               
and  many times  counterintuitive.   He expressed  hope that  the                                                               
committee  would take  the time  to figure  it out  as the  state                                                               
needed to get a handle on it.                                                                                                   
[HB 240 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB180 Money Services Business 1.22.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 180
HB180 Sectional Analysis 5.2.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 180
HB180 Sponsor Statement 5.2.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 180
HB180 Support Document Money Services Act Powerpoint 5.8.17.pptx HL&C 1/26/2018 3:15:00 PM
HB 180
HB180 ver. A 5.2.17.PDF HL&C 1/26/2018 3:15:00 PM
HB 180
HB180 HLC Follow Up 5.15.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 180
HB180 Support Document Money Services Act Powerpoint 5.8.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 180
HB180 Fiscal note DCCED-DBS 1.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 180
HB273 Ver D 01.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 273
HB273 Fiscal Note DCCED-CBPL 1.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 273
HB273 Legislative Audit 01.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 273
HB273 Sponsor Statement 01.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 273
HB274 Sponsor Statement.pdf HL&C 1/26/2018 3:15:00 PM
HB 274
HB274 Version D.PDF HL&C 1/26/2018 3:15:00 PM
HB 274
HB275 Sponsor Statement 01.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 275
HB275 Version D 01.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 275
HB275 Fiscal Note DCCED-CBPL 1.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 275
HB275 Legislative Audit 10.11.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 275
HB240 Supporting Documents- PBM Business Model, 5.11.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Supporting Documents- PowerPoint, 5.11.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Supporting Documents- Storybook, 5.11.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 ver A.PDF HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Fiscal note DCCED DOI 1.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Fiscal note DOA DRB 1.18.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Sectional Analysis ver A 5.4.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Sponsor Statement 5.4.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Supporting Document-Response to Fiscal Notes 5.16.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Supporting Documents- Newsweek Article 5.16.17.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Opposition Letters 1.25.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Support Letters 1.25.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB275 Oppostion Letters 1.25.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 275
HB275 Support Letters 1.25.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 275
HB273 Support letters 1.19.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 273
HB240 opposition letter AHIP.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Supporting Documents-Time To Lift the Curtain On PBM Wheeling and Dealing 1.25.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Support Letters 1.26.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Supporting Document PowerPoint 1.26.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB240 Opposition Letters 1.26.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 240
HB275 Oppostion Letters 1.26.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 275
HB275 Support Letters 1.26.18.pdf HL&C 1/26/2018 3:15:00 PM
HB 275