THE SENATE
S.B. NO.
2280
THIRTIETH LEGISLATURE, 2020
S.D. 1
STATE OF HAWAII
A BILL FOR AN ACT
RELATING TO PHARMACY BENEFIT MANAGERS.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that pharmacy benefit managers are companies that manage prescription drug benefits on behalf of health insurers and other payors. By negotiating with drug manufactures and pharmacies to control drug spending, pharmacy benefit managers have a significant behind-the-scenes impact in determining total drug costs for insurers, shaping patients' access to medications, and determining how much pharmacies are paid.
Because pharmacy benefit managers have the ability to negotiate larger rebates from manufacturers, pharmacy benefit managers may have an incentive to favor high-priced drugs over drugs that are more cost-effective. Furthermore, because pharmacy benefit managers often receive rebates that are calculated as a percentage of the manufacturer's list price, pharmacy benefit managers may receive a larger rebate for more expensive drugs than they do for ones that may provide better value at lower cost.
Drug manufacturers have argued that the growing rebates they pay pharmacy benefit managers are forcing them to raise list prices for their products. Additionally, a separate controversy involves a practice known as spread pricing, whereby pharmacy benefit managers are reimbursed by health plans and employers at a higher price for the generic drugs than what the pharmacy benefit managers actually pay pharmacies for these drugs, and the pharmacy benefit managers then keep the difference. Much like the information concerning rebates, a lack of transparency allows spread pricing to occur because the payment schedules pharmacy benefit managers generate for pharmacies are withheld from health plans.
The legislature further finds that independent and rural pharmacies are struggling due to decreased reimbursement rates for prescription drugs, as determined by pharmacy benefit managers. A 2019 analysis by the Pharmacists Society of the State of New York found that pharmacy benefit manager markups for medicaid prescriptions at independent pharmacies in the state doubled from 2016 to 2017. Additionally, according to research by the RUPRI Center for Rural Health Policy Analysis at the University of Iowa, more than sixteen per cent of rural independently owned pharmacies closed between 2003 and 2018, including over six hundred locations that served as their community's sole pharmacy. Reimbursement rates below the pharmacy's purchase cost for a drug is an unsustainable model that could force independent pharmacies out of business, especially pharmacies that do not have a supplemental retail market like many large pharmacy chains. Not only would these closures take a toll on local economies, they could also leave residents in less populated areas without a pharmacist to fill prescriptions and provide other vital services. Rural residents already have fewer options for health care services, and pharmacies in these communities are one of the few increasing reliable sources for clinical advice.
Accordingly, the purpose of this Act is to increase transparency and fairness; and promote, preserve, and protect the public health, safety, and welfare by:
(2) Prohibiting pharmacy benefit managers from engaging in self-serving business practices;
(4) Prohibiting pharmacy benefit managers from retaining any portion of spread pricing;
(5) Prohibiting a pharmacy benefit manager from reimbursing a 340B pharmacy differently than any other network pharmacy;
(6) Prohibiting a pharmacy benefit manager from reimbursing an independent or rural pharmacy an amount less than the rural rate for each prescription drug, under certain circumstances;
(8) Inserting language that provides, in responding to the State's request, any information provided in response to a data call from the Insurance Commissioner or designee shall be treated confidential and privileged;
(9) Increasing the pharmacy benefit managers' annual reporting requirements;
(10) Requiring the insurance commissioner to make annual reports to the legislature;
(11) Increasing pharmacy benefit manager registration and renewal fees; and
(12) Making certain violations of pharmacy benefit managers subject to the penalties provided in chapter 480 and chapter 481, Hawaii Revised Statutes.
SECTION 2. Chapter 346, Hawaii Revised Statutes, is amended by adding a new section to part II to be appropriately designated and to read as follows:
"§346- Pharmacy benefit managers; contracting pharmacies; reimbursements; maximum allowable cost basis; prohibition. (a) No contract for managed care entered into pursuant to this part, after June 30, 2020, shall contain a provision that authorizes a pharmacy benefit manager to reimburse a contracting pharmacy on a maximum allowable cost basis in accordance with section 328-106 or chapter 431S.
(b) Any provision of a contract for managed care authorized pursuant to this part to reimburse a contracting pharmacy for a drug on a maximum allowable cost basis in accordance with section 328-106 or chapter 431S that was in effect on or before June 30, 2020, shall be void."
SECTION 3. Chapter 431S, Hawaii Revised Statutes, is amended by adding four new sections to be appropriately designated and to read as follows:
"§431S- Pharmacy benefit manager business practices; prohibitions; independent or rural pharmacy reimbursement rate. (a) A pharmacy benefit manager shall be prohibited from penalizing, requiring, or providing financial incentives, including variations in premiums, deductibles, copayments, or coinsurance, to covered persons as incentives to use a specific retail pharmacy, specific mail service pharmacy, or other network pharmacy provider in which a pharmacy benefit manager has an ownership interest or that has an ownership interest in a pharmacy benefit manager.
(b) A pharmacy benefit manager shall not engage in unfair methods of competition pursuant to chapter 480, or unfair practices pursuant to chapter 481, in the conduct of pharmacy benefit management, as defined in section 431S-1. A violation of this section by a pharmacy benefit manager shall constitute a separate violation under chapter 480 and chapter 481.
(c) No pharmacy benefit manager shall retain any portion of spread pricing.
(d) A pharmacy benefit manager shall not reimburse a 340B pharmacy differently than any other network pharmacy based on its status as a 340B pharmacy. For purposes of this subsection, a "340B pharmacy" means a pharmacy that is authorized to purchase drugs at a discount under Title 42 United States Code section 256b.
(e) A pharmacy benefit manager shall not reimburse an independent or rural pharmacy an amount less than the rural rate for each prescription drug; provided that:
(1) Pharmacy benefit managers shall file with the commissioner a list of the rural rates for each prescription drug; and
(2) A pharmacy benefit manager shall be prohibited from changing the rural rate without providing thirty days' notice to all contracting independent or rural pharmacies of any change in the rural rate and filing a report with the commissioner identifying the rural rate changes.
§431S- Gag clause prohibited. A pharmacy benefit manager shall not prohibit a pharmacist or pharmacy from providing an insured individual with information on the amount of the insured's cost share for the insured's prescription drug and the clinical efficacy of a more affordable alternative drug if one is available. Neither a pharmacy nor a pharmacist shall be penalized by a pharmacy benefit manager for disclosing such information to an insured or for selling to an insured a more affordable alternative if one is available.
§431S- Data calls. In response to the State's request, any information provided in response to a data call from the commissioner or the commissioner's designee, shall be treated as confidential and privileged. The information provided shall not be subject to subpoena and shall not be subject to discovery or admissible in evidence in any private civil action, unless so ordered by the court. No waiver of privilege or confidentially shall occur as a result of responding to a data call.
§431S- Annual transparency report; commissioner report to the legislature. (a) No later than September 1, 2020, and annually thereafter, each pharmacy benefit manager registered under this chapter shall submit a transparency report containing data from the preceding calendar year to the commissioner that shall include:
(1) The names of each party with which the pharmacy benefit manager contracts to provide pharmacy benefit management, as defined in section 431S-1, and each party's number of locations;
(2) The aggregate amount of all rebates that the pharmacy benefit manager received from all pharmaceutical manufacturers for all covered entity clients and for each covered entity client;
(3) The aggregate administrative fees that the pharmacy benefit manager received from all pharmaceutical manufacturers for all covered entity clients and for each covered entity client;
(4) The aggregate retained rebates that the pharmacy benefit manager received from all pharmaceutical manufacturers and did not pass through to covered entities;
(5) The aggregate retained rebate percentage;
(6) The highest, lowest, and mean aggregate retained rebate percentage for all covered entity clients and for each covered entity client; and
(7) Utilization information, in a form prescribed by the commissioner, which shall be reported for each prescription drug and each type of payor prescribed by the commissioner, and shall include:
(A) The number of prescriptions paid;
(B) The total amount paid per prescription prior to rebates;
(C) The total rebates received prior to paying any rebates to a covered entity; and
(D) Number of covered lives.
(b) The insurance commissioner shall perform an annual examination of:
(1) The negative impacts on independent or rural pharmacies caused by pharmacy benefit managers; and
(2) The effects of transactions between health plan insurers and pharmacy benefit managers on health plan premiums.
(c) The commissioner shall submit a report to the legislature no later than twenty days prior to the convening of each regular session, which shall include:
(1) A summary of the information collected from the pharmacy benefit managers' annual transparency reports, including a list of all pharmacy benefit managers registered under this chapter; provided that the commissioner shall aggregate information from all pharmacy benefit managers so that it is not identifiable to any particular pharmacy benefit manager;
(2) Findings from the annual examination pursuant to subsection (b); and
(3) Recommendations and any proposed legislation."
SECTION 4. Section 431S-1, Hawaii Revised Statutes, is amended as follows:
1. By adding six new definitions to be appropriately inserted and to read:
""Aggregate retained rebate percentage" means the percentage of all rebates received from a manufacturer or other entity to a pharmacy benefit manager for prescription drug utilization that is not passed on to pharmacy benefit managers' covered entity clients. The percentage shall be calculated for each covered entity for rebates in the prior calendar year as follows:
(1) The sum total dollar amount of rebates received from all pharmaceutical manufacturers for all utilization of covered persons of a covered entity that was not passed through to the covered entity; and
(2) Divided by the sum total dollar amount of all rebates received from all pharmaceutical manufacturers for covered persons of a covered entity.
"Independent or rural pharmacy" means a retail pharmacy contracted by a pharmacy benefit manager to sell prescription drugs to beneficiaries of a prescription drug benefit plan administered by the pharmacy benefit manager that:
(1) Is not owned or operated by a publicly traded company;
(2) Is not directly affiliated with any chain pharmacy having more than fifty stores;
(3) Is located and licensed in this State; and
(4) Serves rural, uninsured, or underinsured patients.
"Mail service pharmacy" means a pharmacy, the primary business of which is to receive prescriptions by mail, telefax, or electronic submissions, and dispense medications to covered persons through the use of the United State Postal Service or other contract carrier services and that provides electronic, rather than face-to-face consultations, with patients.
"Network pharmacy" means a retail pharmacy located and licensed in the State and contracted by the pharmacy benefit manager to sell prescription drugs to beneficiaries of a prescription drug benefit plan administered by the pharmacy benefit manager.
"Rebates" means all price concessions paid by a manufacturer to a pharmacy benefit manager or covered entity, including rebates, discounts, and other price concessions that are based on actual or estimated utilization of a prescription drug. "Rebates" also includes price concessions based on the effectiveness of a drug as in a value-based or performance-based contract.
"Retail pharmacy" means a pharmacy, permitted by the board of pharmacy pursuant to section 461-14, that is open to the general public, dispenses prescription drugs to the general public, and makes available face-to-face consultations between licensed pharmacists and the general public to whom prescription drugs are dispensed."
2. By amending the definition of "covered entity" to read:
""Covered entity" means:
(1) A health benefits plan regulated under chapter 87A; health insurer regulated under article 10A of chapter 431; mutual benefit society regulated under article 1 of chapter 432; [or health maintenance organization regulated under chapter 432D; provided that a "covered entity" under this paragraph shall not include a health maintenance organization regulated under chapter 432D that owns or manages its own pharmacies;]
(2) A health program administered by the State in the capacity of a provider of health coverage; or
(3) An employer, labor union, or other group of persons organized in the State that provides health coverage to covered persons employed or residing in the State.
"Covered entity" shall not include any plans issued for coverage for federal employees or specified disease or limited benefit health insurance as provided by section 431:10A-607."
3. By amending the definition of "pharmacy benefit manager" to read:
""Pharmacy benefit manager" means any person, business, or entity that performs pharmacy benefit management, including but not limited to a person or entity [in a contractual or employment relationship with] under contract with a pharmacy benefit manager to perform pharmacy benefit management [for a covered entity.] as defined in this section, on behalf of a managed care company, nonprofit hospital or medical service organization, insurance company, third-party payor, or health program administered by the State and that is duly licensed pursuant to this chapter. "Pharmacy benefit manager" shall not include any health care facility licensed in this State, a health care provider licensed in this State, or a consultant who only provides advice as to the selection or performance of a pharmacy benefit manager."
SECTION 5. Section 431S-3, Hawaii Revised Statutes, is amended to read as follows:
"[[]§431S-3[]] Registration required. (a) Notwithstanding any law to the contrary, no person shall act or operate as a pharmacy benefit manager without first obtaining a valid registration issued by the commissioner pursuant to this chapter. The registration shall not be transferable.
(b) The commissioner may issue registration under this chapter if the commissioner is satisfied that the applicant possesses the necessary organization, background expertise, and financial integrity to supply the services sought to be offered pursuant to this chapter.
(c) The commissioner may issue a registration subject to restrictions or limitations upon the authorization, including the types of services that may be supplied or the activities in which the applicant may be engaged.
[(b)] (d) Each person seeking to register as a pharmacy benefit manager shall file with the commissioner an application on a form prescribed by the commissioner. The application shall include:
(1) The name, address, official position, and professional qualifications of each individual who is responsible for the conduct of the affairs of the pharmacy benefit manager, including all members of the board of directors; board of trustees; executive commission; other governing board or committee; principal officers, as applicable; partners or members, as applicable; and any other person who exercises control or influence over the affairs of the pharmacy benefit manager;
(2) The name and address of the applicant's agent for service of process in the State; [and]
(3) A nonrefundable application fee of [$140.] $500; and
(4) Any other information the commissioner deems necessary or helpful to determine whether the applicant has the necessary organization, background, expertise, and financial integrity to supply the services sought to be offered pursuant to this chapter.
(e) The commissioner may suspend, revoke, or place on probation a pharmacy benefit manager registered under this chapter if:
(1) The pharmacy benefit manager has engaged in fraudulent activity in violation of federal or state law;
(2) The commissioner receives consumer complaints that justify an action under this subsection to protect the safety and interest of consumers;
(3) The pharmacy benefit manager fails to pay required fees under this chapter;
(4) The pharmacy benefit manager fails to comply with any other requirement under this chapter; or
(5) The pharmacy benefit manager commits a violation of section 480-2 or section 481-1."
SECTION 6. Section 431S-4, Hawaii Revised Statutes, is amended by amending subsections (b) and (c) to read as follows:
"(b) When renewing its registration, a pharmacy benefit manager shall submit to the commissioner the following:
(1) An application for renewal on a form prescribed by the commissioner; and
(2) A renewal fee of [$140.] $500.
(c) Failure on the part of a pharmacy benefit manager to renew its registration as provided in this section shall result in a penalty of [$140] $500 and may cause the registration to be revoked or suspended by the commissioner until the requirements for renewal have been met."
SECTION 7. Section 431S-5, Hawaii Revised Statutes, is amended to read as follows:
"[[]§431S-5[]] Penalty. Any person who acts as a pharmacy benefit manager in this State without first being registered pursuant to this chapter shall be subject to a fine of [$500] $5,000 for each violation. The penalty prescribed in this section shall be cumulative and in addition to any other penalties prescribed by this chapter."
SECTION 8. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.
SECTION 9. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 10. This Act shall take effect on July 1, 2020; provided that section 2 of this Act shall be repealed on June 30, 2025.
Report Title:
Pharmacy Benefit Managers; Independent or Rural Pharmacies; Rural Rate of Reimbursement; Insurance Commissioner; Licensure; Reporting
Description:
Prohibits certain contracts for managed care entered into after June 30, 2020, from containing a provision that authorizes a pharmacy benefit manager to reimburse a contracting pharmacy on a maximum allowable cost basis, and voids any such provisions in existing managed care contracts. Prohibits pharmacy benefit managers from engaging in self-serving or deceptive business practices. Prohibits pharmacy benefit managers from engaging in unfair methods of competition or unfair practices. Prohibits pharmacy benefit managers from retaining any portion of spread pricing. Prohibits a pharmacy benefit manager from reimbursing a 340B pharmacy differently than any other network pharmacy. Prohibits a pharmacy benefit manager from reimbursing an independent or rural pharmacy an amount less than the rural rate for each drug under certain circumstances. Prohibits a pharmacy benefit manager from prohibiting a pharmacist to provide certain information to insureds. Increases pharmacy benefit managers' annual reporting requirements. Requires the insurance commissioner to file annual reports with the legislature. Increases pharmacy benefit manager registration and renewal fees. Makes certain violations of pharmacy benefit managers subject to the penalties provided in chapter 480 and chapter 481, Hawaii Revised Statutes. (SD1)
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.