Interim Joint Committee on Banking and Insurance


Minutes of the<MeetNo1> 3rd Meeting

of the 2017 Interim


<MeetMDY1> September 26, 2017


Call to Order and Roll Call

The<MeetNo2> 3rd meeting of the Interim Joint Committee on Banking and Insurance was held on<Day> Tuesday,<MeetMDY2> September 26, 2017, at<MeetTime> 10:00 AM, in<Room> Room 149 of the Capitol Annex. Representative Bart Rowland, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Tom Buford, Co-Chair; Representative Bart Rowland, Co-Chair; Senators Rick Girdler, Dennis Parrett, Dorsey Ridley, Albert Robinson, John Schickel, and Dan "Malano" Seum; Representatives Will Coursey, Jim DuPlessis, Joseph M. Fischer, Jeff Greer, Dennis Keene, Adam Koenig, Chad McCoy, Michael Meredith, Wilson Stone, Scott Wells, and Addia Wuchner.


Guests: Trevor Ray, PharmD, Midway Pharmacy, Leitchfield; Alyson Roby, PharmD, Medica Pharmacy, Bardstown; Patrick O’Connor, Deputy Commissioner, Kentucky Department of Insurance; Deb McGrath, Executive Director, Epilepsy Foundation of Kentuckiana, and Johnathan Van Lahr, PharmD, Save Rite Drugs, Irvington.


LRC Staff: Sean Donaldson, Jessica Sharpe, and Dawn Johnson.


Approval of Minutes

A motion by Senator Seum and second by Senator Schickel to approve the minutes of the August 22, 2017, meeting carried by voice vote.


Pharmacy Benefit Managers Clawback Provisions

Deb McGrath, Executive Director, Epilepsy Foundation of Kentuckiana explained the clawback practices of pharmacy benefit managers (PBM) that force patients to pay more than their medication costs to boost profits at the expense of consumers, businesses, and taxpayers. Patients are unaware they are paying more as pharmacists are contractually prohibited from disclosing this information or and that paying with cash may, at times, be more cost effective. Several states have passed legislation to prevent this practice.


Jonathan Van Lahr, PharmD, Save Rite Drugs, Irvington gave examples of clawback practices used by PBMs. PBMs can affect a prescriber’s or pharmacists Star ratings. He suggested modeling Louisiana’s legislative language protecting independent pharmacists from PBM clawback practices. There is no mechanism identifying payments pharmacies receive or the PBM’s net return. Dr. Van Lahr said that his pharmacy sometimes makes more selling snacks than filling certain prescriptions.


Responding to Chairman Rowland’s questions, Dr. Van Lahr said three PBMs control 85 percent of the market. Pharmacists do not have access to PBM prescription payment data.


In response to Representative Greer’s question, Dr. Van Lahr explained the cost of electronic refills versus his company reimbursements. Some prescriptions result in a gross profit of only 29 cents.


Responding to Representative Koenig’s questions, Dr. Van Lahr said independent pharmacists cannot negotiate contracts with PBMs. To address the problem, more transparency would be helpful as well as Department of Medicaid Services’ control of contracts.


Confirming Representative DuPlessis’ comment, Dr. Van Lahr said pharmaceutical rebates meant for consumers often go to the PBM. Often the PBM requires pharmacists to dispense a brand name drug versus the generic which is significantly less expensive. Doing this results in the PBM receiving the brand name rebate which exceeds the price difference of the generic medication. Representative DuPlessis questioned whether state programs such as Medicaid have the same experiences with PBMs, ultimately costing taxpayers more.


Responding to Senator Ridley’s question, Dr. Van Lahr said the clawback is usually on lower cost generic drug citing the example of a patient payment of $30, of which the pharmacy is reimbursed $4.05, with the remaining $25.95 going back to the PBM.


Senator Buford said for the past few legislative sessions he has attempted to abolish PBMs as they are no longer cost effective. Independent pharmacies should not be have their prices dictated by a large corporate pharmacy.


Patrick O’Connor, Deputy Commissioner of the Department of Insurance, provided an overview of the prescription drug supply chain background, the reimbursement model, and prescription drug pricing.


Deputy Commissioner O’Connor explained Senate Bill 117, passed in 2016, legislation that addressed issues in the prescription reimbursement process through licensure of pharmacy benefit managers, provided the Department of Insurance regulatory authority over PBMs, and defining the maximum allowable cost process including the appeals process. Mr. O’Connor reviewed common appeal issues including PBMs not responding to an appeal within the statutory timeframe and pharmacies unable to purchase subject drugs at or below maximum allowable cost established by the PBM. Department actions include responding to complaints within authority provided by SB 117 while simultaneously promulgating a regulation required by SB 117 that will impart different requirements on PBMs. The regulation includes a clearly defined appeals process, maximum allowable cost lists, and definition of annual reporting requirements. The department’s goal is to create a system workable for all parties that keeps everyone informed, resulting in reduced appeals and complaints.


Speaking on behalf of Senator Max Wise, Senator Jimmy Higdon said control of outpatient pharmacy benefits should be given back to the Department of Medicaid. Senator Wise prefiled a bill to move outpatient pharmacy benefits from Managed Care Organizations (MCO) back to the Department of Medicaid. If enacted, the legislation will not affect current contracts. The state is not experiencing problems with the PBM contracted with to administer the fee-for-service pharmacy benefit, since the Department Medicaid makes the decisions and improves the reimbursement structure. Senator Higdon said the current system, put in place seven years ago, is no longer cost effective. He noted that 1.4 million Kentuckians are covered by Medicaid at a significant cost to the Commonwealth.


Alyson Roby, of Medica Pharmacy, an independent pharmacy in Bardstown relayed her experience with the implementation of SB 117. She said PBMs continue to require the substitution of generic drugs that are not substitutable under Kentucky law. While occurring less frequently, PBMs continue to reimburse below cost for these drugs even though reimbursement should be based on its equivalency. She explained that PBMs continue to ignore appeals and hopes they will fully comply with SB 117 when the regulation goes into effect.


Trevor Ray, Midway Pharmacy, Leitchfield described to members the significant decrease in reimbursement rates pharmacists now face through three of the managed care organizations that use CVS Caremark. Initially, Passport reimbursements rates were above acquisition costs. However, under CVS Caremark contracting rates decreased 86 percent and the dispense fee decreased to 45 cents from $2. The percentage of below cost reimbursements increased from four to 32 percent. He said Passport claims account for 25 percent of his pharmacy’s total business. Dr. Ray described his experience of filing appeals that were all initially denied. After filing complaints through the Department of Insurance only a few appeals were overturned the following few months. When pharmacists filed complaints with Passport, CVS Caremark reduced reimbursement amounts again causing his company’s under reimbursements increase to 45 percent. Passport’s response was to recommend a $2 dispensing fee and a return to June reimbursement levels. CVS Caremark responded by increasing the dispensing fee to 70 cents. Mr. Ray said there is a complete lack of transparency.


Dr. Ray asked that the general assembly recognize that a pharmacy should never be reimbursed below cost to dispense a medication, a practice that continues despite the efforts of the general assembly. He suggested that federal and state governments acknowledge that if reimbursement rates are close to acquisition cost the dispensing fee should be between $9 and $13. Many states have adopted this guideline. He said Kentucky’s independent pharmacists support returning pharmacy oversight to the Department of Medicaid. Dr. Ray said if the problem is not fixed quickly, many independent pharmacies may have to close.


Representative Meredith said the fact that pharmacists are asking that prescription management be placed back under the Department of Medicaid shows there is a significant problem.


Senator Buford suggested pharmacists with appeals complaints should be certain to file them to accurately reflect the problems they are experiencing.


Responding to Representative Stone’s question, Senator Buford said PBMs began as a cost effective measure for the state but have gradually become an overwhelming bureaucracy for the doctor, pharmacy, and patient to deal with. Dr. Ray said smaller PBMs are more transparent according to Passport management.


Responding to Representative Greer’s question Senator Buford said the committee will be hearing from pharmacy benefit managers.


In response to Representative Fisher’s question about a competitor, such as CVS, setting reimbursement rates, Dr. Roby said many anti-trust claims have been filed against CVS but none have been successful.


There being no further business, the meeting adjourned at 12:30 PM.