Call to Order and Roll Call
The second meeting of the Interim Joint Committee on Health and Welfare was held on Wednesday, July 15, 2015, at 1:00 p.m., at Our Lady of Peace in Louisville, Kentucky. Senator Julie Raque Adams, Co-Chair, called the meeting to order at 1:10 p.m., and the secretary called the roll.
Present were:
Members: Senator Julie Raque Adams, Co-Chair; Representative Tom Burch, Co-Chair; Senators Ralph Alvarado, Danny Carroll, David P. Givens, Denise Harper Angel, Jimmy Higdon, Reginald Thomas, and Max Wise; Representatives George Brown Jr., Bob M. DeWeese, Joni L. Jenkins, Mary Lou Marzian, Reginald Meeks, Phil Moffett, Tim Moore, Darryl T. Owens, Ruth Ann Palumbo, David Watkins, Russell Webber, Susan Westrom, and Addia Wuchner.
Guests: Jennifer Nolan, President, Our Lady of Peace; Martha Mather, Chief Operating Officer, Our Lady of Peace; Brad Lincks, Chief Nursing Officer, Our Lady of Peace; Louis Waterman, Board Member, KentuckyOne Health; Richard Schultz, Board Member, KentuckyOne Health; Sharon Hager, General Counsel, KentuckyOne Health; Don Lovasz, President, KentuckyOne Health Partners; Charlie Powell, President, KentuckyOne Medical Group; Brian Yanofchick, Senior Vice President, Mission Integration, KentuckyOne Health; Sherri Craig, Vice President, Advocacy & Public Policy; Susan Greenrose, parent of a child at Our Lady of Peace; Beth Jurek, Executive Director, Office for Policy and Budget, Cabinet for Health and Family Services; Phyllis Sosa, Staff Assistant, Department for Aging and Independent Living, Cabinet for Health and Family Services; Nicole Julal, Regional Director, Government Affairs, CVS Health; Allyson Blandford, Senior Manager, State Government Affairs, Express Scripts; Bob McFalls, Executive Director, Kentucky Pharmacists Association; Jonathan Van Lahr, Independent Pharmacist from Brandenburg, Kentucky and Member of the Kentucky Pharmacists Association Government Affairs Committee; George Hammons, Independent Pharmacist from Barbourville, Kentucky, and Past President of the Kentucky Pharmacists Association; and Rosemary Smith, Independent Pharmacist from Beattyville, Kentucky and President of the Kentucky Independent Pharmacy Alliance.
LRC Staff: DeeAnn Wenk, Miranda Deaton, Ben Payne, Jonathan Scott, Sarah Kidder, Gina Rigsby, and Cindy Smith.
Welcome Remarks
Jennifer Nolan, President, Our Lady of Peace, and Martha Mather, Vice President, Chief Operating Officer, Our Lady of Peace, welcomed the committee and gave an overview of the facility. Susan Greenrose, parent, gave an account of her son Austin’s experiences at Our Lady of Peace.
Approval of the Minutes of the June 17, 2015 Meeting
A motion to approve the minutes of the June 17, 2015 meeting was made by Representative Marzian, seconded by Senator Alvarado, and approved by voice vote.
Consideration of Referred Administrative Regulations
The following administrative regulation was referred on June 3, 2015 for consideration but deferred by the Cabinet for Health and Family Services prior to the committee’s June 17, 2015 meeting: 910 KAR 1:170 – establishes the standards of operation for the Supportive Services Program in Kentucky. Phyllis Sosa, Staff Assistant, Department for Aging and Independent Living, Cabinet for Health and Family Services, was present to answer questions. A motion to amend 910 KAR 1:170 was made by Representative Marzian, seconded by Representative Jenkins, and amended by voice vote.
The following administrative regulations were referred on July 1, 2015 for consideration: 201 KAR 21:090 & E – establishes a two year prechiropractic course of instruction to be completed prior to entry into chiropractic college; 202 KAR 7:701 – establishes the scope of practice for individuals certified or licensed by the Kentucky Board of Emergency Medical Services; and 921 KAR 3:045 – establishes issuance procedures used by the cabinet in the administration of SNAP.
A motion to approve 201 KAR 21:090 & E, 202 KAR 7:701, 910 KAR 1:170 as amended and 921 KAR 3:045 was made by Representative Marzian, seconded by Representative Jenkins, and approved by voice vote.
Legislative Hearing on Executive Order 2015-386 Relating to Reorganization of the Cabinet for Health and Family Services
Beth Jurek, Executive Director, Office for Policy and Budget, Cabinet for Health and Family Services, was present to answer questions. Senator Givens requested copies of the Medicaid managed care organizations contracts (MCO) and information on how the contracts will impact the cabinet’s budget.
In response to questions by Senator Givens, Director Jurek stated that the MCOs knew that the Request for Proposal (RFP) contained information about rates before the contracts were signed. Senator Givens requested information about the impact that the new contracts would have on the budget. Director Jurek stated that the cabinet took the 2016 budget into consideration when negotiating the contracts. He also requested information about the mechanism providers would have for resolutions of disagreements between providers and the MCOs.
A motion to accept Executive Order 2015-386 was made by Representative Marzian, seconded by Representative Jenkins, and accepted by voice vote.
Legislative Hearing on Executive Order 2015-387 Relating to the Establishment and Operation of the Kentucky Office of Health Benefit and Information Exchange
Beth Jurek, Executive Director, Office for Policy and Budget, Cabinet for Health and Family Services, was present to answer questions.
In response to questions by Senator Alvarado, Director Jurek stated that Kentucky knows the needs of citizens and can design health plans and an exchange better than the federal government. Kentucky would have to pay assessments for participation in the federal exchange. The ongoing cost of kynect is $28 million a year. The projected $383 million referenced in the 2014 Deloitte white paper referred to the Medicaid expansion. The exchange and the Medicaid expansion are two different programs. Kentucky used 100 percent federal funds for the startup of costs and to build an exchange that will interface with the federal exchange. Since Kentucky has already received funds to build an interface system with the federal government, the state would not receive more funds to build another interface system with the federal exchange. The cabinet has only used the funds appropriated for the exchange and has not used any intercabinet transfers for kynect. There is a three percent assessment charged on insurers if Kentucky participated in the federal exchange. Arkansas is going away from its private model of Medicaid because it has been too costly. Kentucky chose the Medicaid expansion model that would be the most cost effective.
In response to questions by Representative Moore, Director Jurek stated that the differences between the 2014 and 2015 executive orders relating to the Kentucky Office of Health Benefit and Information Exchange are that the title and the Kentucky Health Insurance Advisory Council formally established and attached to the Kentucky Department of Insurance in the Public Protection Cabinet merged with the newly created and established kynect Advisory Board that is administratively attached to the Office of Health Benefit and Information Exchange, and an additional consumer member was added to the kynect Advisory Board. Subsidies received by the state are from the federal government. The Governor drafted the executive order and then heard testimony from consumers and insurers. Kentucky had to participate in an exchange and opted to create a state exchange. If the executive order is not ratified in the 2016 Regular Session, it can be drafted with slightly different language, or since a decision to draft a new executive order is within the Governor’s executive statutory authority, a completely new executive order can be filed.
Representative Burch stated that the United States Supreme Court ruled that the Affordable Care Act is the law. Kentucky needs to make sure kynect stays in place and continues to serve the citizens of the Commonwealth. Kentucky will have to pay for an exchange whether the state continues with kynect or the federal government sets up an exchange in the state.
In response to questions by Senator Givens, Director Jurek stated that the 2014-2016 Budget of the Commonwealth can be found at the Office of State Budget Director’s web site: osbd.ky.gov. She would provide the committee with a break-down of kynect expenditures, but the majority of the budget is for personnel, operating expenses, and contracts. The start-up costs of the exchange were higher in the beginning. The cabinet is constantly challenged to make every dollar go as far as it possibly can. Since kynect has only been operating for a year, the funds currently budgeted are appropriate for now. Kentucky’s exchange is a national model that both consumers and insurance companies like, and a decision was made to continue kynect instead of opting to participate in a federal exchange.
In response to questions by Representative Marzian, Director Jurek stated that kynect has attracted more insurers to Kentucky.
In response to questions by Representative Meeks, Director Jurek stated that kynect is serving more people than Kentucky Access did partly due to federal subsidies. There is no pre-existing condition exclusion in kynect as was required to receive benefits in the Kentucky Access program. The cabinet is still working on problems with the small employer program.
In response to questions by Representative Wuchner, Director Jurek stated that the reason some other states have looked at multistate exchanges or merging into the federal exchange to save money is because of the problems they encountered in starting a state exchange. There are significant costs to merge into the federal exchange, and since Kentucky has already built an exchange, all costs to merge into the federal exchange would require state funds. Kentucky has been approached by other states about its technology used in the exchange. The exchange does not receive federal subsidies. Subsidies from the federal government are for people enrolled in qualifying health plans and depend on income level. There is no expiration date for the federal provision of subsidies.
In response to questions by Senator Danny Carroll, Director Jurek stated that Arkansas is looking for something other than its current private market model for the Medicaid program.
A motion to accept Executive Order 2015-387 was made by Representative Marzian and seconded by Representative Meeks. After a roll call vote of 11 yes votes and 11 no votes, the motion failed.
Pharmacy Benefit Management Overview
Nicole Julal, Regional Director, Government Affairs, CVS Health, Allyson Blandford, Senior Manager, State Government Affairs, Express Scripts, stated that a pharmacy benefit manager (PBM) provides pharmacy benefit services to its clients which allow them to offer affordable drug benefit plans. PBM clients include private sector employers, public sector entities, health plans, and union trust/Taft-Hartley plans. Plan sponsors typically hire consultants or brokers to navigate the request for proposal (RFP) process. PBMs compete to provide the best services and prices to win business. Pharmacy benefit management services include price, discount, and rebate negotiations, formulary management, mail-service pharmacies, drug utilization review, specialty pharmacy services, pharmacy retail networks, and claims processing. Currently more than 216 million Americans receive pharmacy benefits provided through PBMs. PBMS aggregate the buying clout of millions of enrollees, enabling plan sponsors and individuals to obtain lower prices for prescription drugs. PBMs save plan sponsors and consumers an average of 35 percent compared to expenditures made without pharmacy benefit management.
Maximum allowable cost (MAC) is used to reimburse pharmacies when generic drugs are dispensed. Medicaid originally developed MAC reimbursement process to normalize reimbursement and encourage efficient purchasing decisions. MAC reimbursement is the most used industry standard process for generic drug reimbursement. MAC lists are proprietary by PBM. Kentucky pharmacies have access to MAC information at any time. Kentucky was the first state to pass comprehensive MAC legislation in 2013 Senate Bill 107.
Cost sharing tools such as co-pays for prescription benefits are used to make prescription drugs affordable for the plan sponsor and the patient. Cost sharing allows for greater coverage and more efficient spending. Federal law established maximum out-of-pocket expenses to protect the patient. PBMs encourage plan sponsors to set fair and reasonable out-of-pocket maximums to allow access to medication. Mandated co-pay limits do not address the underlying problem of high drug prices set by drug manufacturers. Rising cost of drug prices determined by manufacturers make caps on cost-sharing unsustainable. Co-pay limits would lead to increased use of brand drugs if patients do not have to consider costs and drastically increase plan sponsor responsibility. Payers use copays to incentivize cost-efficient use by patients.
Some conditions such as anemia, cancer, growth deficiency, hemophilia, hepatitis, infertility, multiple sclerosis, pulmonary hypertension, and rheumatoid arthritis require specialty drugs. By 2018, specialty drugs will represent 50 percent of all drug expenditures. One key factor driving the trends will be an increase in utilization by an aging population and increased prices. Some solutions include a reduction in waste and adherence through formulary strategy, days’ supply design, and member cost share recommendations. Network management would save on unit cost discounts through exclusive specialty programs. Utilization management would provide significant savings through programs like prior authorization, drug quantity management, and preferred specialty management. Patient assistance programs would provide patient savings through foundation-based support programs.
PBMs keep prescription drug costs down for patients and plan sponsors. PBMs operate in a competitive marketplace with payers, manufacturers, pharmacy services administrative organizations (PSAOs), and providers. Restrictions on PBMs cost-savings tools would impact all payers, public and private, while providing no benefit to consumers.
In response to questions by Senator Adams, Ms. Blandford stated that the reason a generic drug price can fluctuate monthly is because drug prices change frequently, some daily. The manufacturer controls the price of the drug. The price can depend on whether a plan has co-pays or co-insurance. Co-pays and co-insurance both have caps. PBMs negotiate discounts not set drug prices. Ms. Julal stated that out-of-pocket expenses are different for upfront costs.
In response to a question by Senator Wise, Ms. Julal stated that 2013 Senate Bill 107 specifies the appeals process and time limits on updates. The appeals process applies only to fully-covered insurance plans, not to self-insured or state employee plans. Ms. Julal stated that the reimbursement rate is based on the cost of the drug as available in the marketplace.
In response to questions asked by Representative Wuchner, Ms. Blandford stated that specialty drugs are incredibly expensive. Major concerns are the rising cost of specialty drugs and amount spent overall for specialty drugs. There needs to be reasonable out-of-pocket expenses for patients who cannot afford the high cost of specialty drugs. Ms. Julal stated that the ACA sets guidelines on maximum out-of-pocket expenses, and co-pays and prescription benefits.
In response to questions by Representative Burch, Ms. Blandford stated that if someone could not afford a medication, one solution would be to ask their doctor if there is a generic drug available that would lower the cost of the medication. PBMs help payers manage benefits and the cost of drugs. PBMs are not manufacturers nor do they set prices for the drugs. PBMs do not work with physicians on prescribing practices, but help make decisions on formularies on behalf of clients.
In response to a question by Senator Adams, Ms. Blandford stated that PBMs have pricing guarantees built into the contract with a client and only make money when a client saves money. There are two pricing models used by clients. First is the pass through model where the client sees the discount and rebates upfront and the PBM gets paid an administrative fee per claim. Second is the spread pricing model where a client has to achieve savings overall not just per claim.
Independent Pharmacies
Bob McFalls, Executive Director, Kentucky Pharmacists Association, stated that Senate Bill 107 was passed in 2013 to address transparency in drug reimbursement costs by PBMs. PBMs were originally registered as third-party administrators to reduce administrative costs for insurers, validate patient eligibility, administer plan benefits, and negotiate costs between pharmacies and health plans. Over time, the role of PBMs has grown with a unique, strategic position between the insurer and provider that allows them to control practically every aspect of prescription drug transactions. PBMs are largely unrecognized by most consumers, plans, government entities, employees, employers, and human resource managers. PBMs impact more than 95 percent of drug coverage, and yet remain virtually an unknown and unregulated entity. The Pharmacy Benefit Management Institute reported 75 percent of the market share in terms of total equivalent prescriptions for 2014.
Retail pharmacists dispense a product without knowing the cost of the drug until it is sold. Pharmacists do not set the prices for drugs dispensed to patients, do not have access to prices for more than 80 percent of dispensed drugs, and have to deal with significant fluctuation in drug costs. The National Community Pharmacists Association notes significant fluctuations in generic drug costs with no associated correction in reimbursement. A MAC list refers to a health plan or PBM-generated list of products that establishes maximum amounts that a PBM will pay a pharmacy for reimbursement for certain generic drugs. There are no standardized criteria that PBMs use for the inclusion of drugs on MAC lists or for the factors used to determine how to set the maximum price. PBMs frequently have a MAC list for the health plan and one for the pharmacy within the same plan.
PBMs are required to disclose in the contracts with pharmacies the pricing indices used to calculate the reimbursement paid to the pharmacy for drug products. A MAC is used and disclosed in the contract with pharmacies to determine drug product, reimbursement to disclose what products are subject to MAC, and what the MAC is for each of the drugs. MAC lists have to be updated every 14 days and parameters are established for price appeals by pharmacies. The contract must include the sources used by the PBM to calculate drug product reimbursement paid for covered drugs, but most PBMs have not disclosed this information. Each contract between a PBM and pharmacy is required to include a process to appeal, investigate, and resolve disputes regarding MAC pricing. Most PBMs are still using the same appeals process used before SB 107 was enacted. Most MAC appeals are not investigated and resolved within the ten day requirement. If a MAC appeal is denied, a PBM is required to provide the reason for denial and identify the National Drug Code (NDC) of a drug product that may be purchased by the pharmacy at or below the MAC contract price. Most PMBs do not comply with this requirement. Contracts currently do not contain specific MAC lists or contain specific MAC pricing.
A PBM is required to review and make necessary adjustments to a MAC for every drug at least every 14 days. Since MAC lists are not published like Medicaid and posted, there is no way to determine if MAC pricing is being adjusted according to the timeline. Pharmacies have to wait until a prescription is filled and a claim is submitted before knowing the reimbursement rate. PBMs are required to provide pharmacies weekly updates to the list of drugs subject to MAC and the actual MAC for each drug. PBMs are not complying with requirements outlined in SB 107.
Jonathan Van Lahr, Independent Pharmacist from Brandenburg, Kentucky, and member of the Kentucky Pharmacists Association Government Affairs Committee, stated that PSAOs are different from PBMs. PBMs get money when a claim is filed. PBMs set reimbursement prices that are non-negotiable for pharmacists. Cost of reimbursement can change on a daily basis with no explanation. A pharmacist’s main concern is the patient. Senate Bill 107 states that a PBM has to give pharmacists a list of drugs and cost of each. It also states that a reason for denial has to be provided by PBMs to pharmacies. Pharmacies need a complete list of drugs for Medicaid reimbursement not on a drug by drug basis. PBMs have to provide a MAC list to pharmacies.
In response to questions by Senator Adams, Mr. Van Lear stated that the MAC is provided on a patient by patient basis. There should be specific reasons given for a denial. Three PBMs control 75 percent of the insurance market.
George Hammons, Independent Pharmacist from Barbourville, Kentucky, and Past President of the Kentucky Pharmacists Association, stated that it has become more difficult to take care of patients. There needs to be more transparency. Prescription brand name and generic medications continue to rise. Costs are rising dramatically for pharmacies. There are no reasons given by PBMs for denials of claims. The average wholesale price (AWP) has increased dramatically. Pharmacists are not involved in contract negotiations. PBMs are not a regulated by anyone.
Rosemary Smith, Independent Pharmacist from Beattyville, Kentucky, and President of the Kentucky Independent Pharmacy Alliance, stated that PBMs have unfair rules. PBMs are in the process of creating a specialty drug list. PBMs are allowed to own on-line pharmacies. The 1-800-HOTLINE number is unnecessary, because pharmacists are more qualified to counsel patients about medications. A PMB’s responsibility has changed over the past ten years. PBMs decide co-payments.
In response to questions by Senator Adams, Mr. McFalls stated the Kentucky Pharmacists Association met with PBMs in February 2015 to discuss Senate Bill 107. There needs to be more communication before more legislation is passed. It is better to speak to a local pharmacist than call a mail order representative about medication concerns.
In response to questions by Senator Danny Carroll, Mr. Van Lear stated that the role of the PBM has changed tremendously in past 30 years from being an intermediary of the insurance company. Some PBMs are larger than insurance companies today. Pharmacists are not involved in the contract negotiations by PBMs and insurance companies. There are no limitations on the activities of the PBMS on how far they can expand into the insurance market or other avenues. Three PBMs control 75 percent of the insurance market which impacts many patients. It is a federal anti-trust violation for a pharmacist to refuse to take a plan.
Adjournment
There being no further business, the meeting was adjourned at 4:23 p.m.