Legislature(2017 - 2018)BARNES 124

02/02/2018 03:15 PM House LABOR & COMMERCE

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+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved HB 240 Out of Committee
-- Public Testimony --
                HB 240-PHARMACY BENEFITS MANAGERS                                                                           
4:07:40 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                                                               
4:08:21 PM                                                                                                                    
REPRESENTATIVE  DAVID   GUTTENBERG,  Alaska   State  Legislature,                                                               
presented HB  240 as  prime sponsor.   He explained  the proposed                                                               
legislation  is about  the  relationship  between pharmacies  and                                                               
pharmacy benefit  managers (PBMs).   He stated the  proposed bill                                                               
would give the  pharmacies a remedial place to go  when there was                                                               
a  conflict.   He  added  the  bill  would  put the  director  of                                                               
insurance in  the middle of  the process to adjudicate  issues in                                                               
the audit.   He stated it was modeled  after national legislation                                                               
that had  been passed in  around 23 states.   He said  he thought                                                               
one  of the  issues  the bill  would affect  was  the ability  to                                                               
understand the  pricing of  prescription drugs.   He said  it was                                                               
not transparent but was moving in that direction.                                                                               
4:09:42 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  remarked  the opponents  of  the  bill                                                               
raise  concerns  that  without  the  oversight  of  the  existing                                                               
system,  prices will  rise.   He asked  Representative Guttenberg                                                               
for his thoughts.                                                                                                               
REPRESENTATIVE GUTTENBERG  replied that there is  no oversight to                                                               
the  existing  system.    He  indicated  he  had  spoken  to  the                                                               
administrators  for the  state, and  they did  not know  what the                                                               
prices are or what  they pay.  He added they  don't know who gets                                                               
the rebate  or at what  percentage.   He reiterated there  was no                                                               
transparency.   He opined  the opposition  reflected PBMs  on the                                                               
top of the Forbes 500 list  were concerned that people are trying                                                               
to  understand  the  rising  cost  of  prescription  drugs.    He                                                               
reiterated there was no oversight in the state.                                                                                 
4:11:34 PM                                                                                                                    
CHAIR  KITO stated  that public  testimony  on HB  240 [had  been                                                               
opened on  January 26] and  that invited testimony would  also be                                                               
4:11:59 PM                                                                                                                    
BILL HEAD,  Pharmaceutical Care Management Association,  spoke in                                                               
opposition  to  HB   240.    He  explained   PBMs  contract  with                                                               
employers,  unions,  and  government  plans  to  administer  drug                                                               
benefits offered  by those entities.   He said PBMs  compete with                                                               
one  another by  finding  ways to  help payers  save  money.   He                                                               
stated it  was estimated  PBMs would help  save payers  over $650                                                               
billion over the next 10 years.   He underlined an important part                                                               
of what PBMs  do is negotiate costs with drug  manufacturers.  He                                                               
added PBMs  contract with pharmacies  to establish  networks that                                                               
ensure the widest access possible  for consumers and patients who                                                               
have drug  benefits.  He  said PBMs  are often required  to audit                                                               
entities to avoid  fraud, waste, and abuse, and  it was estimated                                                               
that nationally  3 percent to  10 percent of  healthcare spending                                                               
is lost to fraud, waste, and  abuse, which adds up to billions of                                                               
MR. HEAD  said one of  the main reasons his  organization opposed                                                               
HB  240  is  that  it  would  restrict  PBMs'  ability  to  audit                                                               
pharmacies and prevent  fraud, waste, and abuse.   He pointed out                                                               
that  Centers for  Medicare  & Medicaid  Services  (CMS) and  all                                                               
their contracts with Part D  plans require such auditing, as does                                                               
virtually any  plan that employs a  PBM.  He stated  the proposed                                                               
bill would add  costly regulations, which would add  costs to the                                                               
purchaser of  healthcare and their  enrollees.  He said  the bill                                                               
would  interfere  with  the  ability   for  private  entities  to                                                               
contract with a  PBM.  He concluded,  "At the end of  the day, it                                                               
comes  down to  PBMs helping  purchasers save  money on  the drug                                                               
benefits they offer their enrollees."                                                                                           
4:14:54 PM                                                                                                                    
CHAIR  KITO stated  Mr. Head  had  said the  proposed bill  would                                                               
prohibit PBMs  from auditing, but  it was his  understanding that                                                               
HB 240  put sideboards on  the audit  process.  He  asked whether                                                               
Mr. Head  could say specifically  within the bill where  it would                                                               
prohibit audits.                                                                                                                
MR.  HEAD stated  he had  misspoken and  clarified that  the bill                                                               
would interfere  with the  audit process.   He said  the proposed                                                               
bill  defeats  the purpose  of  detecting  fraud  if the  PBM  is                                                               
required to notify  the pharmacies of the audit.   He said he did                                                               
not  think other  entities  that have  audit  processes would  do                                                               
CHAIR KITO replied  he did receive audits every  year on workers'                                                               
compensation insurance payments and that  he was informed 30 days                                                               
before the audit.   He added he thought  creating some sideboards                                                               
creates predictability for  the industry and there  were too many                                                               
opportunities for fraud and abuse  "from the other side" if there                                                               
was no notice provided when someone was being audited.                                                                          
CHAIR  KITO informed  that pharmacists  in Alaska  were reporting                                                               
that  they were  being denied  reimbursement for  the drugs  they                                                               
purchase,  and they  were  having to  pay  out-of-pocket for  the                                                               
balance for drugs they had already  dispensed.  He asked Mr. Head                                                               
to speak to the issue.                                                                                                          
4:16:59 PM                                                                                                                    
MR.  HEAD answered  he  was not  familiar with  the  issue as  it                                                               
pertains to  Alaska, but  that generally  there are  processes in                                                               
place  for the  pharmacists  to  appeal to  the  PBM  and to  the                                                               
division  of   insurance  to   resolve  any   disputes  regarding                                                               
CHAIR KITO stated  the committee had heard  from three pharmacies                                                               
who had identified about 1,000 appeals pending.                                                                                 
MR. HEAD  answered that  suggested the process  was in  place but                                                               
was not as efficient as it should be.                                                                                           
CHAIR  KITO  asked  whether  PBMs   are  prohibited  from  owning                                                               
MR. HEAD answered many of them do own mail-order pharmacies.                                                                    
CHAIR KITO  said he thought there  may be a conflict  of interest                                                               
if the PBM could drive business to its own online pharmacy.                                                                     
MR.  HEAD  answered  PBMs  were  not  producing  money  but  were                                                               
providing a service to the purchaser  and were in fact audited by                                                               
the purchaser.                                                                                                                  
4:18:43 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  asked Mr.  Head whether he  believed it                                                               
was  accurate that  the proposed  bill is  consistent with  model                                                               
MR. HEAD  answered he  did not  know of  another state  that made                                                               
changes  to auditing  requirements or  allowed the  state to  get                                                               
directly  involved in  the contracts  between the  purchasers and                                                               
4:20:02 PM                                                                                                                    
REPRESENTATIVE  SULLIVAN-LEONARD said  she was  aware legislation                                                               
has passed in  other states to eliminate the PBM,  and the states                                                               
had found it  very cumbersome to replace the  service provided by                                                               
the PBM.  She asked Mr. Head to comment.                                                                                        
CHAIR KITO clarified there was  nothing in the proposed bill that                                                               
would eliminate PBMs.                                                                                                           
REPRESENTATIVE SULLIVAN-LEONARD restated her question.                                                                          
MR. HEAD stated  if PBMs did not exist it  would make things much                                                               
more difficult and more expensive for  the consumer.  He added it                                                               
was a service borne of  necessity, the elimination of which would                                                               
result in much higher costs to the purchaser.                                                                                   
4:22:42 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON remarked the  proposed bill seemed to be                                                               
a bill of rights for  pharmacists relative to the audit structure                                                               
and  asked whether  that  could be  accommodated  within the  PBM                                                               
MR. HEAD clarified  he is not an expert on  the audit process and                                                               
would like to  defer to someone with more experience.   He stated                                                               
PBMs were not  performing the audits for self-gain  but on behalf                                                               
of the purchaser with limited  funds to ensure those dollars were                                                               
being spent  in the most  cost-effective way.  He  underlined the                                                               
savings go to the purchaser and not to the PBM.                                                                                 
4:24:26 PM                                                                                                                    
REPRESENTATIVE WOOL asked whether he meant the consumer.                                                                        
MR.  HEAD  clarified he  meant  both  the  health plans  and  the                                                               
consumer.    He reiterated  the  PBM  was  saving money  for  the                                                               
organization  that provides  healthcare and  for the  consumer in                                                               
the long run through lower premiums and co-pays.                                                                                
REPRESENTATIVE  WOOL  remarked  36   states  had  passed  similar                                                               
legislation.  He  asked whether online pharmacies  are subject to                                                               
the same audits and whether  the mail-order pharmacies were self-                                                               
MR. HEAD  stated that would  be a  conflict of interest  and that                                                               
mail-order pharmacies are required to  have the same licenses and                                                               
follow  the same  rules as  any pharmacy,  including audits.   He                                                               
reminded that  mail-order was  not dispensing the  same way  as a                                                               
retail  pharmacy, which  ultimately means  the consumer  can save                                                               
money on prescriptions.                                                                                                         
4:28:07 PM                                                                                                                    
DOMINIC   GUGLIUZZA,  Vice   President,   Finance,  CVS   Health,                                                               
testified  in opposition  to HB  240.   He explained  one of  his                                                               
team's responsibilities  is to  calculate maximum  allowable cost                                                               
(MAC) price  used by the  claims processing systems  to reimburse                                                               
pharmacies for generic drugs.   He explained the team reviews the                                                               
marketplace  and  product  availability   for  generic  drugs  to                                                               
implement MAC changes, typically on a  weekly basis.  He added it                                                               
creates an opportunity for  additional market feedback, including                                                               
pharmacy feedback  through the  appeals process.   He  stated the                                                               
feedback could lead the team to  modify MAC prices.  He explained                                                               
the MAC  model was  established by the  Centers for  Medicare and                                                               
Medicaid Services to create incentive  for pharmacies to purchase                                                               
the  lowest-priced drugs.   He  stated he  believes HB  240 would                                                               
drive  up  consumer  costs  by   limiting  the  use  of  the  MAC                                                               
reimbursement  tool.   He  said restricting  which  drugs can  be                                                               
reimbursed using  MAC would  allow pharmacies  to be  overpaid at                                                               
brand rates for generic drugs  and would remove the incentive for                                                               
wholesalers to  sell drugs  at the  lowest prices  if wholesalers                                                               
know  that the  reimbursement level  will ensure  a profit  for a                                                               
pharmacy and therefore ensure their profit.                                                                                     
4:30:42 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON asked  in which section of  the bill MAC                                                               
pricing  is "undone,"  wherein  an  independent pharmacist  could                                                               
charge more than MAC pricing would allow.                                                                                       
MR. GUGLIUZZA said he believed  one of the sections would require                                                               
PBMs  to  change their  prices  based  on  the invoiced  cost  if                                                               
pharmacies appeal MAC  prices.  He stated  this could incentivize                                                               
wholesalers to avoid  purchasing at the lowest cost.   He added a                                                               
lot   of  pharmacies   use   [Pharmacy  Services   Administrative                                                               
Organizations] PSAOs,  which are owned by  wholesalers, to obtain                                                               
their  products.   He said  it could  incentivize wholesalers  to                                                               
keep prices  high if  they knew pharmacies  could appeal  and the                                                               
PBM would have to grant the appeal and change the cost.                                                                         
CHAIR  KITO posited  a  scenario in  which  a pharmacy  purchases                                                               
drugs on a  schedule and later dispenses that  medication but the                                                               
MAC price  changes in  the interim, causing  the pharmacy  to pay                                                               
out of  pocket.   He reiterated the  statement that  ensuring the                                                               
pharmacy  is responsible  for the  cost would  save the  consumer                                                               
money.  He suggested that   "too much activity in that vein could                                                               
actually put a pharmacy out of business."                                                                                       
4:33:24 PM                                                                                                                    
MR. GUGLIUZZA answered he thought  that would be a highly unusual                                                               
situation.   He  explained PBMs  do  not typically  have a  large                                                               
supply  of inventory.   He  added the  reverse could  occur where                                                               
there is  change in generic  price that makes it  more expensive.                                                               
He said the pharmacies were  still making money from an aggregate                                                               
4:34:47 PM                                                                                                                    
REPRESENTATIVE WOOL  asked whether  Mr. Gugliuzza  was suggesting                                                               
the appeals process would be created or enhanced.                                                                               
MR. GUGLIUZZA offered to describe the appeals process.                                                                          
REPRESENTATIVE WOOL responded he thought it would be useful.                                                                    
MR. GUGLIUZZA  explained CVS  has a  pharmacy portal  for appeals                                                               
which the  team monitors daily.   He said often  more information                                                               
is required for  evaluation, then a determination is  made, and a                                                               
response is given to the pharmacy.                                                                                              
4:37:10 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD  stated it  seemed that  there is                                                               
already  a process  in  place involving  a  private contract  and                                                               
specific manuals for pharmacies.  She  asked why there was a need                                                               
for "government intrusion."                                                                                                     
MR. GUGLIUZZA replied that he agreed with her statement.                                                                        
4:38:43 PM                                                                                                                    
LEIF  HOLM, Pharmacist,  testified  in  support of  HB  240.   He                                                               
stated he  is also state president  of the Board of  Pharmacy but                                                               
was  testifying as  a pharmacist.    He gave  his background  and                                                               
added  he started  the first  independent telepharmacy  in Healy,                                                               
Alaska.   He  stated pharmacists  live in  fear of  the PBMs  and                                                               
their tactics.   He  added pharmacists are  dependent on  PBMs as                                                               
only about  3 percent  of people pay  cash for  their medication.                                                               
He responded to the question  of government intrusion, stating it                                                               
was  because  contracts  were  "take  it or  leave  it"  with  no                                                               
negotiations.  He said he  thought PBMs were driving consumers to                                                               
mail-order pharmacy which they owned.                                                                                           
MR. HOLM stated that since  October [2017] there had been drastic                                                               
cuts  in reimbursement  of  MAC  prices.   He  added the  appeals                                                               
process is broken and that all his  appeals are denied.   He said                                                               
he felt he was doing more  work for less compensation.  He stated                                                               
pharmacies  have  closed  everywhere,  which was  a  concern  for                                                               
public  safety as  small towns  depend on  independent pharmacies                                                               
for access  to medication.   He  stated mail-order  pharmacy does                                                               
not work in  Alaska as prescriptions are lost,  frozen, or create                                                               
waste  due  to the  pharmacy  not  receiving updated  information                                                               
regarding  the  customer's  need   to  continue  to  receive  the                                                               
medication.   He  said he  thought it  was not  a good  model for                                                               
Alaska.  He described his telepharmacy  in Healy and said the way                                                               
he was  being reimbursed at  MAC prices he  did not know  that he                                                               
could  sustain the  model.   He said  he thought  the bill  would                                                               
create a fair playing field.                                                                                                    
4:44:35 PM                                                                                                                    
REPRESENTATIVE  BIRCH asked  whether there  are any  models which                                                               
show  how  pharmacists could  get  paid  for their  services  and                                                               
expertise beyond retail transactions.                                                                                           
MR. HOLM  answered that  pharmacists are  not currently  paid for                                                               
their expertise and there are no models that provide for that.                                                                  
4:46:56 PM                                                                                                                    
JUSTIN RUFFRIDGE,  Owner, Soldotna Professional  Pharmacy; Juneau                                                               
Drug Company, testified  in support of HB 240.   He stated he was                                                               
concerned  independent  pharmacies  could  be  misunderstood  and                                                               
wanted to  underline they only  want transparency from PBMs.   He                                                               
added  the  issue  of  PBMs  affects  all  pharmacies,  not  just                                                               
independents;     however,     independent    pharmacists     are                                                               
businessowners  and pharmacists  and have  a unique  prospective,                                                               
while other pharmacists working for  large stores may be shielded                                                               
from  the  problem through  corporate  structures.   He  remarked                                                               
audits  were originally  intended to  be random  fraud prevention                                                               
checks, whereas  pharmacies are now being  audited constantly and                                                               
were focused  on the  most expensive  brand drugs.   He  gave the                                                               
example of a request  for an audit going back 3  years by a major                                                               
PBM,  the information  for which  took 3  hours to  prepare.   He                                                               
stated  that  typically a  random  audit  would have  to  include                                                               
cheaper generic  drugs, but  he had been  able to  identify which                                                               
drugs would  be included in an  audit by price alone.   He stated                                                               
the example  showed the current  audit practices are not  fair or                                                               
random.    He  reiterated  pharmacies must  have  protections  in                                                               
4:52:25 PM                                                                                                                    
STEPHEN SREBERNAK,  Owner, Family  Pharmacy, spoke in  support of                                                               
HB 240.   He clarified he did  not know of anyone  who is against                                                               
audits as they  are useful tools to detect problems  of fraud and                                                               
waste.  He compared PBM audits  with Medicare audits.  He said he                                                               
thinks it makes sense  to have rules.  He stated  he did not know                                                               
where MAC  prices came from  and that  he was "losing  money left                                                               
and  right."   He  stated  he  feels  the appeals  process  isn't                                                               
working.    He said  he  had  sent in  over  300  appeals in  the                                                               
previous year and had not had  a single response.  He highlighted                                                               
that pharmacies perform a service  for communities.  He concluded                                                               
that the pharmacists were hoping for some transparency.                                                                         
4:55:00 PM                                                                                                                    
DIRK WHITE,  Pharmacist, spoke in support  of HB 240.   He stated                                                               
he had about 30-35 employees in  two locations in Sitka.  He said                                                               
pharmacies  need  to  have the  proposed  legislation  passed  as                                                               
pharmacists have no place to go  for redress because PBMs are not                                                               
registered or  licensed in the  state.  He said  pharmacists need                                                               
some government  division to get help.   He described one  of the                                                               
latest issues with reversing a  claim, saying a prescription gets                                                               
taken back  from the  PBM after  a patient does  not pick  up the                                                               
prescription.  He  added this time the PBM took  the co-pay if as                                                               
if  the  patient got  it.    He spoke  to  MACs  coming in  below                                                               
acquisition  costs,  meaning  the  pharmacy  was  losing  freight                                                               
costs, which were  about 3 percent.  He suggested  no business is                                                               
going to  buy a more  expensive product  than it needs,  so there                                                               
was no way  a MAC was going  to incentivize to "buy  better."  He                                                               
mentioned other  states that have passed  similar legislation and                                                               
suggested  if the  prices  had  gone up,  the  states would  have                                                               
repealed the legislation.                                                                                                       
5:00:44 PM                                                                                                                    
CATHERINE KOWALSKI,  Pharmacist, testified in support  of HB 240.                                                               
She  shared her  family history  in the  pharmacy industry.   She                                                               
spoke to moments when the  pharmacies in remote communities saved                                                               
lives.  She emphasized that  her business was struggling in terms                                                               
of time,  labor, and reimbursement  from PBMs.  She  remarked she                                                               
currently had 250 negative revenue  claims.  She cited that other                                                               
states had passed similar bills and  said Alaska needed to do the                                                               
5:04:17 PM                                                                                                                    
DEBBIE JOHNSON testified in support of  HB 240.  She relayed that                                                               
she lives in  a remote area of  Alaska off the road  system.  She                                                               
referred to  the section  in the  proposed legislation  stating a                                                               
pharmacy  should not  be penalized  for mailing  out drugs.   She                                                               
underlined that she does not have  a way to get medication except                                                               
through the mail or on float planes.                                                                                            
5:06:39 PM                                                                                                                    
CHAIR KITO closed public testimony on HB 240.                                                                                   
5:06:50 PM                                                                                                                    
REPRESENTATIVE SULLIVAN-LEONARD stated she  would like to do more                                                               
research on the  matter.  She asked whether HB  240 could be held                                                               
CHAIR  KITO  explained  that  the   bill  had  another  committee                                                               
referral and that he was compelled to move the bill forward.                                                                    
5:07:50 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON asked  whether  the state  had taken  a                                                               
position on HB 240.                                                                                                             
CHAIR KITO answered that the state  had not taken a position, but                                                               
that Emily Ricci from the  Department of Administration had given                                                               
testimony in the previous hearing of HB 240.                                                                                    
5:08:14 PM                                                                                                                    
REPRESENTATIVE  KNOPP indicated  he  was  convinced the  proposed                                                               
bill was  about clear and  transparent auditing, so he  was ready                                                               
to support the bill moving forward.                                                                                             
5:08:56 PM                                                                                                                    
REPRESENTATIVE WOOL moved to report  HB 240 out of committee with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There being  no objection, HB 240  was reported out of  the House                                                               
Labor and Commerce Standing Committee.                                                                                          

Document Name Date/Time Subjects
HB302 Sponsor Statement.pdf HL&C 2/2/2018 3:15:00 PM
HB 302
HB302 Fiscal Note DCCED CBPL 1.26.18.pdf HL&C 2/2/2018 3:15:00 PM
HB 302
HB302 Version A.PDF HL&C 2/2/2018 3:15:00 PM
HB 302
HB240 Supporting Documents-National Community Pharmacists Association Payments That Give You Fevers and Chills 1.29.18.pdf HL&C 2/2/2018 3:15:00 PM
HB 240
HB255 Sectional Analysis 1.23.18.pdf HL&C 2/2/2018 3:15:00 PM
HB 255
HB255 ver O 1.23.18.PDF HL&C 2/2/2018 3:15:00 PM
HB 255
HB255 Sponsor Statement 1.23.18.pdf HL&C 2/2/2018 3:15:00 PM
HB 255
HB255 Fiscal Note DOLWD MI 1.26.18.pdf HL&C 2/2/2018 3:15:00 PM
HB 255