Transparency in Pharmacy Benefits
HEALTH CARE TASK FORCE
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01:33 PM -- Transparency in Pharmacy Benefits
The committee reconvened. Brad Young, Rx Plus Pharmacies, began his presentation related to pharmacy benefit managers (PBMs) and distributed four handouts to the committee (Attachments G through J). He asked the committee to request an audit of PBMs that provide services to the state and referenced findings from a similar audit in Texas. Mr. Young then discussed the Health Care Task Force meeting from 2005 concerning pharmacy benefits. He said that PBMs are a middleman between patients, pharmacies, and employers. According to Mr. Young, PBMs are unregulated as far as their financial operations, but are regulated concerning mail-order operation. Mr. Young discussed other states' efforts to regulate PBMs. In response to Senator Foster's question, Mr. Young described PBM's as managing a pharmaceutical benefit for an insurance company or self-funded company. PBMs are the entities that pay the pharmacy on behalf of the insurance company. Representative Massey asked if independent pharmacies contract with PBMs. Mr. Young said that contracts are done between pharmacies and the PBM and are negotiated by the independent pharmacy or a chain pharmacy. Mr. Young described Senate Bill 06-164, which would have created certain disclosure and regulatory requirements of PBMs, and reiterated his support for an audit of PBMs that contract with the state. Representative Kerr asked who would conduct the audit and how the audit would be requested. Mr. Young described the audit process and goals, and expressed his desire for the committee to request the audit. Representative Kerr further discussed the audit process and how an audit is considered by the audit committee and assigned to an auditor or an outside contractor.
Mr. Young introduced a video presentation by Dr. Mark Riley from the National Community Pharmacists Association. Dr. Riley described his work with a PBM in Arkansas and gave an overview of the history of the PBM industry. Dr. Riley described the various costs involved in filling a prescription, including the cost of the drug, profit to the pharmacy, and costs associated with middlemen and administration. He discussed the rise in the percentage of health care costs that go towards prescription drugs and how that affects the costs to employers that provide health benefits. He described how pharmaceutical costs are going up, but pharmacists are getting paid less, and noted his belief that this is due to PBMs.
Mr. Young introduced the next section of the video, in which Dr. Riley discussed the spread between the amount of money a pharmacist is paid for providing a drug and the amount that the PBM bills the insurance company. According to Dr. Riley, these costs are set according to a schedule and the difference in these costs is profit for the PBM. Dr. Riley described the incentive for PBMs to pay pharmacies less for filling prescriptions to increase the spread, and how this lack of compensation puts more pressure on pharmacists to fill brand name drugs rather than lower-cost generic drugs. Dr. Riley discussed the need to eliminate spread pricing and provide greater transparency in pricing.
Mr. Young introduced the next segment of the video concerning rebates. Representative Kerr asked about the time frame before a generic drug is available. Val Kalnins, Executive Director of the Colorado Pharmacists Society, came to the table and stated that it can take 17 years from the time the drug is developed and tested. The drug might be on the market from 5 to 10 years, depending on how long the testing and safety review takes. Representative Frangas asked why independent pharmacies are concerned about PBMs. Mr. Young said that PBMs put mandatory mail order requirements in contracts, and described the Texas audit results on unfair mail order tactics. Representative Frangas asked why there is not an effort to introduce legislation on mail order, and Mr. Young said that it is more important to pursue transparency in pricing. Mr. Young said that 85 percent of drugs go through an insurance claim of some sort, and that pharmacists are getting smaller and smaller reimbursements.
Senator Foster asked when PBMs were enacted, and Mr. Young said that PBMs came about as a business practice and originally operated as a processing system for prescription payments. Senator Foster then asked how Senate Bill 09-166, which would have created the Prescription Drug Ethics Act, relates. Mr. Young said that PBMs provide a check on pricing, manage information, and centralize data on patients, but that he is concerned that there needs to be a check on how the information is used. Representative Kerr asked about laws in other states concerning pharmacy audits and why Colorado should undertake an audit. Mr. Young said that he would like PBM contracts with the State of Colorado to be audited just like in Texas, and that representatives from PBMs and pharmacists should be included in the audit process. Representative Frangas asked how state agencies would know about PBM practices. Mr. Young said that the auditor would have to find information that is in the contracts and other information on PBM financials.