Health Care Task Force (08/03/2005)

Final
STAFF SUMMARY OF MEETING

HEALTH CARE TASK FORCE

Date:	08/03/2005	ATTENDANCE

Time:	09:08 AM to 03:54 PM	Butcher	X
		Clapp	X
Place:	LSB A	Gordon	X
		Johnson	E*
This Meeting was called to order by		McCluskey	E
	Senator Keller	Mitchell	X
		Tochtrop	X
This Report was prepared by		Todd	X
	Susan Liddle	Frangas	X
		Keller	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
Pharmacy Benefit Managers Overview of Health Care Task Force Nat'l Perspective - Pharmacy Managers Sunrise Report on Pharmacy Benefit Managers Need for Regulation of PBMs - Discussion PBM Perspective from Pharmacy Management Companies PBMs from the Perspective of Health Plans PBMs from the Perspective of Business PBMs from the Consumer Perspective Public Testimony		- - - - - - - - -

09:09 AM -- Overview of Health Care Task Force

Senator Keller provided opening remarks and discussed the topics that the Health Care Task Force will be studying at it's four meetings that will be conducted for the remainder of the year. She indicated that the committee would be looking at the issue of regulating Pharmacy Benefit Managers at today's meeting, then the task force would examine hospital-related issues at the September 1 meeting, telemedicine and rural health issues at the September 27 meeting, and then a fourth meeting would be scheduled at a later date in order to provide the committee the opportunity to discuss any potential legislation that results from the discussions up to that time.

Two Legislative Council Staff memoranda were distributed to the committee - one provides an overview of the Health Care Task Force and the other provides background information about Pharmacy Benefits Managers (Attachment A and Attachment B).

09:12 AM -- National Perspective in the Issue of Pharmacy Benefit Managers

Richard Cauchi, Program Director, Health Program, National Conference of State Legislatures (NCSL), introduced himself and distributed a background briefing document (Attachment C) and a hard copy of his Power Point presentation (Attachment D) that provides a national perspective of the issue of Pharmacy Benefit Managers (PBMs). Mr. Cauchi talked about what Pharmacy Benefit Management companies are and what services they provide. There are about 60 PBMs in the country, with three large companies (CareMark, ExpressScripts, and MedCo) that have a national scope. Around 69 percent of the U.S. population participate in health plans that have PBMs overseeing their prescription plans. Mr. Cauchi stated that PBMs: negotiate lower prices by contract; design and manage preferred drug lists; operate mail-order pharmacies; run most state employee pharmaceutical plans; and, in 2004, the Medicare Modernization Act began its drug discount card programs which are mostly managed by PBMs.

09:21 AM

Senator Keller asked Mr. Cauchi about how the negotiations between PBMs and the pharmaceutical companies, and then the agreements between health plans and employers work. Mr. Cauchi responded and talked generally about how the agreements and contracts are entered. He also discussed the Medicare and Medicaid relationship with PBMs.

09:25 AM

Representative Clapp requested that Mr. Cauchi provide further information about preferred drug lists. Senator Mitchell discussed what he understood Mr. Cauchi to have said related to the relationship between PBMs and the private sector versus the public sector. Mr. Cauchi stated that state employee programs can work the same as a private sector health plans.

09:29 AM

Mr. Cauchi continued with his Power Point presentation further discussing the Medicare drug benefit in the coming years. He further discussed the federal Medicare Modernization Act, which is an optional program, and the impact on dual-eligible individuals (those receiving both Medicare and Medicaid).

Mr. Cauchi discussed why state legislatures have become involved in the regulation of PBMs. He stated that in the last 15 years or so PBMs have become a bigger factor in the arena of prescription drugs, but that legislatures have only really become involved in the issue since 2002. Prior to that it was seen as more of a contractual or procedural issue. Bills seeking to "level the playing field" have been introduced in the last several years, initiated in some cases by the retail pharmacies to regulate PBMs and to have transparency of the business dealings of the PBMs and their contracts with the pharmaceutical companies. He walked through some statistics about how many PBM bills have been introduced and passed across the country. He stated that while 32 states have considered PBM bills in some form, only 7 states and the District of Columbia have enacted PBM laws, the contents of which vary.

09:38 AM

Mr. Cauchi provided specific detail about laws in South Dakota, Maine, Vermont, and North Dakota that regulate PBMs in different ways including allowing disclosure of rebate and revenue information. Representative Frangas asked whether there is any data related to cost-savings that have been realized due to these new laws. Mr. Cauchi commented that all of these laws are pretty recent, so data is likely not yet available. Senator Mitchell asked whether when the bills were being discussed there was any cost-savings data anticipated upon passage of the law. Mr. Cauchi responded that there was likely financial savings data discussed when he bills were debated, but some of it may have been more anecdotal.

09:46 AM

Mr. Cauchi provided additional detail about the Vermont law which requires any PBM that contracts with the state to disclose detailed financial information. Mr. Cauchi concluded his remarks.

09:50 AM -- Overview of the Sunrise Report on Pharmacy Benefit Managers

Julie Hoerner, Deputy Director, Department of Regulatory Agencies (DORA), and Brian Tobias, Policy Analyst, DORA, provided an overview of a 2004 sunrise report that had been prepared related to the regulation of PBMs. A copy of the sunrise report is available on the DORA web site at: http://www.dora.state.co.us/opr/archive/2004PharmacyBenefitManagers.pdf. Ms. Hoerner also distributed an excerpt from a report prepared by the Federal Trade Commission and Department of Justice entitled Improving Health Care: A Dose of Competition(Attachment E). Ms. Hoerner stated that the sunrise report utilized this July 2004 report when researching the issue of PBM regulation.

Mr. Tobias reviewed the criteria that are used when determining whether to regulate a profession or occupation. He stated that when researching the need for regulation of PBMs, DORA had looked at the issue of drug switching, but did not find evidence that this was widespread. The committee asked how the survey was conducted and whether it adequately shows whether the problem of drug-switching was causing harm. Mr. Tobias stated that the survey was anonymous in order to encourage honest responses, therefore in the few cases where harm was reported, there was no way to follow up with that respondent to find more detail. Senator Johnson mentioned that the survey also would not show if the patient would have reacted to the original drug even before the switch. Representative Butcher directed the committee to Appendix B on page 47 of the sunrise report where the statistics of the survey results appear.

10:04 AM

Mr. Tobias continued discussing the sunrise review including the financial issues surrounding PBM contracts and the development of formularies by the PBM. Mr. Tobias gave a hypothetical example of how drug discounts are realized by the PBM and then passed along to the health plan. He stated that the sunrise review could find no direct evidence of harm, but that harm is possibly foreseeable, specifically related to the development of formularies. He responded to a question about how DORA surveyed this aspect of the sunrise report. Senator Mitchell commented on the hypothetical example Mr. Tobias gave indicating that any savings that a consumer sees is a good thing even if the PBM is making a profit on this negotiation. Mr. Tobias stated that some issues arise when the PBM only offers one drug to the health plan when in fact there is another drug that is a therapeutically equivalent available as well, that may even be less expensive, but it is not offered at all.

10:14 AM

Mr. Tobias concluded by stating that the regulation being proposed by RxPlus was not determined to be a necessary method, but in the sunrise report, DORA does suggest some alternatives. Senator Mitchell asked about the DORA suggestion related to imposing a fiduciary duty on PBMs, and whether the duty would be to the employee or the class of employees. Mr. Tobias discussed a federal law (ERISA) which requires that self-insured employers have a fiduciary duty to employees.

10:34 PM - Discussion of the Need for Regulation of PBMs

Mark Kinney, Executive Director of RxPlus Pharmacies, discussed his organization's support for the regulation of PBMs. RxPlus was the organization that requested the sunrise report that Mr. Tobias summarized earlier. Mr. Kinney talked further about the issue of drug switching that occurs with PBMs. He added that MedCo was involved in a lawsuit in which the decision that was rendered included a restriction on the number of times that the PBM could switch medications each year. This agreement affected the twenty states that were involved in the lawsuit. Mike Feeley, an attorney, helped Mr. Kinney respond to a question from Senator Mitchell related to the MedCo lawsuit decision.

10:42 AM

Mr. Kinney continued talking about problems related to the lack of transparency of the business dealings of PBMs. The committee discussed the issues that Mr. Kinney was raising related to the sunrise report, including the assertions that harm was occurring to employees in Colorado.

10:49 AM

Mr. Kinney talked about a University of Michigan study released June 18, 2005, related to the cost of drugs as managed by PBMs and how they were not necessarily saving money. He stated that when there is nothing to hide, transparency should not be a problem. He requested that the task force consider a basic oversight regulatory scheme.

10:55 AM

Mike Feeley, general counsel for RxPlus Pharmacies, provided a handout which summarized his testimony related to litigation around the country related to PBMs (Attachment F). He walked through several lawsuits that have been settled or that are pending action, including the Merck-MedCo lawsuit that was referenced in Mr. Kinney's testimony, and the lawsuit related to the Maine law. Mr. Feeley discussed the Maine law stating that there are some problems with that law since the fiduciary duty in that state goes both to the employee and the plan sponsor. He stated that Colorado's HB 05-1300 would have made the fiduciary duty to the plan sponsor. He talked about the arguments used by the pharmaceutical industry when opposing the regulation of PBMs.

11:03 AM

Senator Mitchell commented on Mr. Feeley's statements indicating that free market economics should allow PBMs to operate without government regulation. Mr. Feeley concurred that proprietary information is not the government's business, but added that transparency of business dealings is in the best interest of the consumer. He added that there is no intention of allowing government to intrude where it should not. Senator Mitchell stated that he did not understand why this regulation of PBMs is being touted when there seems to be little support or evidence that there is a problem out there. Mr. Kinney responded that the drug switching and issues like that are important to disclose. Mr. Feeley also commented on how PBMs have been allowed to develop over time without regulation. Senator Mitchell and Mr. Feeley discussed the activities of the Pharmacy Board and the Attorney General related to this type of regulation. Mr. Kinney talked about the PBM mail order pharmacies and the fact that they are not licensed in Colorado, rather just regulated.

11:13 AM

Mark Riley, Executive Director of the Arkansas Pharmacy Association, provided a Power Point presentation entitled "A No Nonsense Guide to Pharmacy Benefit Managers" which walked through the history of how PBMs developed in the 1980's to help insurance companies manage pharmacy benefits, and how they have evolved over time (no hard copy of Mr. Riley's presentation was provided). He talked about the estimated rebate amounts that his organization thinks PBMs receive from their contracts with pharmaceutical companies. His presentation addressed maximum allowable costs (MAC) and average allowable price (AWP), and he provided some scenarios that are actually used by PBMs. He stated that his scenarios point out the amount of money that PBMs are retaining for each transaction.

11:29 AM

Senator Keller asked Mr. Riley whether the employer would be paying this additional money for each transaction regardless, either to the PBM or to the pharmacy. Mr. Riley agreed, but stated that his point was that the incentive to raise prescription prices exists. There was considerable discussion about the financial issues that Mr. Riley had raised. Representative Butcher questioned how Mr. Riley's presentation related to PBMs in Colorado. Mr. Riley responded stating that the problems he is showing in today's presentation are happening with PBMs across the country.

11:43 AM

Mr. Riley continued the presentation discussing National Drug Code (NDC) numbers that appear on each prescription. He stated that PBMs are manipulating these numbers by, for example, repackaging drugs. He also discussed the rebate issues surrounding PBMs including the reclassification of rebates. He summarized his comments stating that prescription prices have continued rising under the management of these PBMs, and maybe there is a connection between the two. He responded to questions and stated that the disclosure requirements in Arkansas are by contract rather than by legislation.

11:57 AM

Representative Frangas asked Mr. Riley whether transparency could lead to a type of collusion or price fixing. Mr. Riley stated that he had not heard of that issue. He added that if a state simply requires PBMs to show how much money they pay to the pharmacy it would provide the needed transparency to allow employers to see whether they are getting a good deal. Senator Mitchell commented that a bill requiring regulation of PBMs failed in Arkansas with employer groups coming out in opposition to the bill. Mr. Riley concurred, and reiterated that in Arkansas disclosure issues are handled via the PBM contracts.

12:02 PM

The committee recessed until 1:15 p.m.

01:20 PM -- The Perspective of PBMs from Pharmacy Benefit Management Companies

Peter Harty, Vice President of Government Affairs, MedCo, distributed a handout with details about his presentation (Attachment G). He stated that after the presentation earlier in the day, the members of the task force may be thinking that PBMs make a huge profit. He stated that MedCo last year earned a 1.2 percent profit. He added that about 10 years ago, the profit margin for PBMs was much higher, but in the last decade the competition in the PBM market has actually driven the costs of prescriptions down further. He walked through the hard copy of the Power Point slides. He discussed the services that PBMs provide and the benefits to both consumers and employers that result from these services.

01:30 PM

Mr. Harty continued his discussion about the formularies that are established by a PBM. He stated that MedCo manages the pharmacy benefits for about 60 million people across the country, so pharmaceutical companies are eager to provide drugs that are on the PBMs formulary so that they can access this customer base. Senator Mitchell asked how Health Savings Accounts (HSAs) interact with PBMs. Mr. Harty indicated that he would need to find out about this and get back to the committee.

01:36 PM

Mr. Harty talked about how PBMs negotiate discounts with retail pharmacies. Representative Butcher asked additional questions about the relationship with pharmacies, including the issue of mail order prescriptions versus dealing directly with a pharmacist. Mr. Harty stated that MedCo's data indicate that approximately 17 percent of MedCo's prescriptions are filled through a mail order pharmacy, so 83 percent are still filled through a pharmacy directly.

01:42 PM

Mr. Harty discussed how PBMs contract with health plans. He reiterated that there are about 60 PBMs nationwide. The health plan puts out an RFP that includes detail about what sort of benefits the health plan wants. The PBMs then decide if they want to bid on the RFP. He added that PBMs do not deal directly with small employers, rather the small employer will contract with a provider such as Anthem to negotiate these benefits for the small employer. Mr. Harty discussed the audit process for PBMs, stating that the audit aspect is an important part of the contract with the PBM. He added that this audit provision is in every contract he has seen.

01:51 PM

Mr. Harty discussed legislative and regulatory initiatives across the country, indicating that many efforts have failed. He stated that PBMs must comply with pharmacy laws in each state, are regulated by the federal HIPAA law for privacy issues, and fall under other regulations of each state. He stated that further legislation to regulate PBMs is not needed. Clients of the PBMs have access to the books and records of the PBM to be sure that they are receiving the services they are paying for. He addressed some problems that could occur if public access was allowed to all negotiations between the PBM and the pharmaceutical company. Senator Mitchell commented on the issue of disclosing the records of PBMs to everyone rather than just to their clients.

02:02 PM

Mr. Harty continued to discuss the issue of mandating disclosure and transparency of the business workings of PBMs. He continued with a discussion of therapeutic interchange, stating that a PBM will not "switch" a prescription without the approval of the patient's doctor.

02:08 PM

Allen Horne, Vice President of Government Affairs, Caremark Rx, discussed the interchange of drugs and the role of the PBM in determining this interchange. Representative Butcher commented on her personal situation as a retired employee who is on several medications and she finds that the PBM (MedCo) provides the generic version of whatever the doctor prescribes to her without contacting her physician. Mr. Horne and Mr. Harty explained that generic drugs may be substituted without a physician's approval because they contain the same active ingredients as the brand name drug. A physician only needs to be contacted when a switch to an alterative drug is made. They also stated that a law already exists that makes drug switching illegal and that further legislation may not be needed. She stated that the drug switching issue is a problem that could be helped by allowing prescriptions to be filled at local pharmacies where the patients could interact directly with the pharmacist.

02:18 PM

Representative Clapp asked whether PBMs ever pay pharmacists to switch from one drug to another. Mr. Harty indicated that PBMs never reimburse pharmacists for suggesting one drug over another, rather the customer can ask for a different drug (like the name brand) and then the customer would need to pay the difference in the cost. He and Mr. Horne stated that there are dispensing fees that may be impacted depending on which drug is dispensed, but that there is no financial incentive for pharmacies to switch drugs. Mr. Harty then talked about the pending litigation in a few states. He added that none of these cases have been adjudicated to a final decision, thus there is not enough reason from that to pass legislation regulating PBMs. He addressed the multi-state settlement referenced earlier today that impacts about 20 states. He talked about how MedCo will do business in those states relating to required disclosure and communication with members. Senator Mitchell commented on this.

02:28 PM

Mr. Horne also commented on some of the lawsuits that are pending against PBMs. He stated that PBMs do not see raising prices being in the best interests of either the PBM or the customer. Representative Clapp asked whether there is any state or federal legislation looking at prohibiting pharmacies from running their own PBM. Mr. Harty commented on this indicating that there is no prohibition on pharmacies doing this.

02:35 PM -- PBMs from the Perspective of Health Plans

Dr. Jeff Rumph, Associate Medical Director, Anthem Blue Cross and Blue Shield, and Dr. Dee Delapp, a clinical pharmacist working for Anthem's prescription management division, came to the table to discuss the relationship between a health plan and a PBM. Dr. Rumph responded to questions from the committee, including why Anthem set up its own PBM rather than working with one of the 60 companies that are in the market. Dr. Delapp responded that with the technology issues within a company as big as Anthem, it is actually more cost-effective to create its own PBM in its own system. Dr. Rumph added that between 5 and 6 percent of Anthem's clients use the mail order pharmacy benefits in Colorado.

02:53 PM -- PBMs from the Perspective of Business

Ralph Pollock, Chairman, Business Council on Health Care Competition, provided a handout of slides from a Power Point presentation (Attachment H). He explained why employers support PBMs including the fact that PBMs help control costs, they help manage prescription benefits, and they help improve the safety and health of their employees. He asked that the committee not support legislation to regulate PBMs, rather to let the existing business relationships continue and allow the market to work. He responded to questions from the committee.

03:06 PM -- PBMs from the Consumer Perspective

A.W. Schnellbacher, representing AARP, stated that AARP supports more transparency in the workings of PBMs and believes that the state should adopt guidelines that restrict PBMs from offering any incentives to doctors or pharmacies. He distributed a fact sheet about PBMs (Attachment I) and a copy of his testimony (Attachment J). Senator Keller asked whether AARP has conducted any studies on PBMs. Mr. Schnellbacher responded that AARP had not done this type of study, but that drug formularies or preferred drug lists need to be based on scientific evidence and that there needs to be more transparency in how the formularies are developed. In addition, any cost sharing and/or rebates need to be passed along to the consumer.

03:18 PM

Rex Wilmouth, representing CoPIRG, a consumer organization, stated that there have been problems with the three largest PBMs that have about 80 percent of the market. He stated that CoPIRG supports passing rebates along to the health plans and wants to see more transparency and accountability with PBMs. Senator Keller asked whether requiring PBMs to submit their plans to the Insurance Commissioner, and then not having this information generally available to the public, would help with this goal. Mr. Wilmouth stated that this would be a good step.

03:21 PM

Julia Greene, Director of Coloradans for Health Care, an organization that advocates for employees, stated that her organization supports transparency of the workings of PBMs, that regulation and privacy protections need to be balanced, and that there should be privacy protections for the PBMs.

03:24 PM

Timothy Parsons, an attorney representing large self-funded plans (such as construction workers covered by labor unions), discussed the need to control the cost of health care for employees and employers, adding that making the PBM deals more open will help ensure that costs are not being inflated. Employees are covered by ERISA, but the PBMs are not. He clarified that every employer is subject to ERISA regulation, not just large employers. Lack of disclosure makes it difficult to compare one PBM to another. Mr. Parsons responded to questions from the committee.

03:34 PM -- Public Testimony

Val Kalnins, Colorado Pharmacists Society, stated that his organization supports transparency in PBMs. He referred to the handout from Mr. Harty of MedCo that was distributed earlier today indicating that one of the slides was misleading related to a GAO study that was cited. He stated that some of the data in Mr. Harty's handout does not seem objective.

03:44 PM

Gerry Frank, representing Bishop's Promise Consortium, discussed his nonprofit organization that is seeking to enhance the power of consumer's to direct their health care. He stated that he is seeking legislative support for his organization. He responded to questions from the committee.

03:54 PM -- Recess