January 27, 2010, Introduced by Reps. Calley, Liss, Kurtz, McMillin, Ball and Opsommer and referred to the Committee on Health Policy.
A bill to define and regulate certain persons managing
pharmacy benefits for certain governmental entities; to provide for
certain powers and duties for state departments and agencies; to
provide for the certification of and imposition of regulatory and
other requirements upon certain persons; and to provide for
remedies and penalties.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 1. This act shall be known and may be cited as the
"transparency in government pharmacy benefit manager act".
Sec. 3. As used in this act:
(a) "Board" means the Michigan board of pharmacy created in
part 177 of the public health code, 1978 PA 368, MCL 333.17701 to
333.17780.
(b) "Commissioner" means the commissioner of the office of
financial and insurance regulation.
(c) "Covered entity" means a nonprofit hospital or medical
service organization; insurer; health coverage plan or health
maintenance organization; a health program administered by OFIR or
the state in the capacity of provider of health coverage; or other
group of persons that is a governmental entity and that provides
health coverage to covered individuals who are employed or reside
in the state and includes any person, corporation, business,
company, association, health care group, network, or any
governmental entity that provides prescription drugs or medical
supplies, or both. Covered entity does not include a health plan
that provides coverage only for accidental injury, specified
disease, hospital indemnity, medicare supplement, disability
income, long-term care, or other limited benefit health insurance
policies and contracts.
(d) "Covered individual" means a dependent or other individual
provided health coverage through a policy, contract, or plan by a
covered entity.
(e) "Covered person" means a member, participant, enrollee,
contract holder, or policyholder or beneficiary of a covered entity
who is provided health coverage by the covered entity.
(f) "Governmental entity" means the state of Michigan, a
school district, a state university, a county, a city, a village,
and a township.
(g) "Health benefit plan" means a policy, certificate,
contract, or a certificate or agreement issued by a covered entity
to provide, deliver, arrange for, pay for, or reimburse any of the
cost of health care services, including prescription drug benefits.
(h) "Maintenance drug" means a drug prescribed by a
practitioner who is licensed to prescribe drugs and used to treat a
medical condition for a period greater than 30 days.
(i) "Multisource drug" means a drug that is stocked and is
available from 3 or more suppliers.
(j) "OFIR" means the office of financial and insurance
regulation.
(k) "Person" means an individual, sole proprietorship,
partnership, corporation, association, organization, limited
liability company, or other entity.
(l) "Pharmacist" means that term as defined in section 17707 of
the public health code, 1978 PA 368, MCL 333.17707.
(m) "Pharmacist services" includes drug therapy and other
patient care services provided by a licensed pharmacist intended to
achieve outcomes related to the cure or prevention of a disease,
elimination or reduction of a patient's symptoms, or arresting or
slowing of a disease process as defined in the rules promulgated by
the board.
(n) "Pharmacy" means that term as defined in section 17707 of
the public health code, 1978 PA 368, MCL 333.17707.
(o) "Pharmacy benefits management" means the administration or
management of prescription drug benefits provided by a covered
entity for the benefit of covered individuals, including, but not
limited to, construction and management of formularies, negotiation
with and management of provider networks, determination of consumer
cost-sharing requirements, communication of benefit status to
consumers, claims processing, and negotiated rebates and discounts.
(p) "Pharmacy benefits manager" or "PBM" means a person,
business, or other entity that performs pharmacy benefits
management for covered individuals who are employed by a
governmental entity. PBM includes a person or entity acting for a
PBM in a contractual or employment relationship in the performance
of pharmacy benefits management regarding a covered entity.
(q) "Practice of pharmacy" means that term as defined in
section 17707 of the public health code, 1978 PA 368, MCL
333.17707.
(r) "Usual and customary price" means the price the pharmacist
would have charged a cash paying patient for the same services on
the same date inclusive of any discounts applicable, but does not
include a patient where reimbursement rates are set by a contract.
Sec. 5. (1) A person shall not act or operate, or offer to act
or operate, as a PBM in this state regarding prescription drugs for
a covered entity whose covered individuals are employed by a
governmental entity without a valid certificate of authority issued
under this act. A person failing to hold such a certificate while
acting as a PBM is subject to a civil fine as provided for in
section 31.
(2) A person applying for a certificate of authority to act as
a PBM shall file a completed application with the commissioner,
which application shall include or attach the following:
(a) All basic organizational documents of the PBM.
(b) The names, addresses, official positions, and professional
qualifications of the individuals who are responsible for the
conduct of the affairs of the PBM, including all members of the
board of directors, board of trustees, executive committee, other
governing board or committee, the principal officers in the case of
a corporation, the partners or members in the case of a partnership
or association, and any other person who exercises control or
influence over the affairs of the PBM.
(c) Annual statements or reports for the 3 most recent years,
or such other information as the commissioner may require in order
to review the current financial condition of the applicant.
(d) If the applicant is not currently acting as a PBM, a
statement of the amounts and sources of funds available for
organization expenses, and the proposed arrangements for
reimbursement and compensation of officers or other principals.
(e) The name and address of the agent for service of process
in the state.
(f) A detailed description of the claims processing services,
pharmacy services, insurance services, other prescription drug or
device services, audit procedures for network pharmacies, or other
administrative services to be provided.
(g) All incentive arrangements or programs such as rebates,
discounts, disbursements, or any other similar financial program,
or arrangement relating to income or consideration received or
negotiated, directly or indirectly, with any pharmaceutical
company, that relates to prescription drug or device services,
including, at a minimum, information on the formula or other method
for calculation and amount of the incentive arrangements, rebates,
or other disbursements, the identity of the associated drug or
device, and the dates and amounts of such disbursements.
(h) Such other information as the commissioner may require.
(i) A certificate of compliance from the board.
(3) The applicant shall make available for inspection by the
commissioner copies of all contracts with insurers, pharmaceutical
manufacturers, or other persons utilizing the services of the PBM
for pharmacy benefit management services. Certain contracts are
subject to approval as provided in section 9.
(4) The commissioner shall not issue a certificate of
authority if he or she determines that the PBM or any of its
principals or officers is not competent, trustworthy, financially
responsible, or of good personal and business reputation or has had
an insurance license or pharmacy license denied for cause by any
state.
(5) A PBM shall maintain a fidelity bond equal to at least 10%
of the amount of the funds handled or managed annually by the PBM.
However, the commissioner may require an amount in excess of
$500,000.00, but not more than 10% of the amount of the funds
handled or managed annually by the PBM. A copy shall be provided to
the commissioner.
Sec. 7. (1) Each PBM seeking to become certificated in the
state must submit its plan of operation for review in a format to
be furnished by the commissioner. The commissioner may promulgate
rules under the administrative procedures act of 1969, 1969 PA 306,
MCL 24.201 to 24.328, to set minimum standards regarding the format
required, the filing fee for the certificate of compliance, the
requirements for recertification, and any other information that it
may require.
(2) Upon review of the submission of the plan of operation,
the commissioner shall determine if it complies with the rules
adopted under subsection (1).
(3) If the filing under subsection (2) meets with the
commissioner's approval, the commissioner shall issue a certificate
of compliance to the PBM. Subsequent material changes in the plan
of operation, as determined by the commissioner, must be filed with
the commissioner.
Sec. 9. (1) Each PBM shall disclose to the commissioner any
ownership interest or affiliation of any kind with any of the
following:
(a) Any insurance company responsible for providing benefits
directly or through reinsurance to any plan for which the PBM
provides services.
(b) Any parent companies, subsidiaries, other entities or
businesses relative to the provision of pharmacy services, other
prescription drug or device services, or a pharmaceutical
manufacturer.
(2) A PBM must notify the commissioner in writing within 5
calendar days of any material change in its ownership.
(3) A PBM shall disclose the following agreements:
(a) Any agreement with a pharmaceutical or device manufacturer
to favor the manufacturer's products or devices over a competitor's
products or to place the manufacturer's drug or device on any of
the PBM's lists or formularies, or to switch the drug or device
prescribed by the patient's health care provider with a drug or
device agreed to by the PBM and the manufacturer.
(b) Any agreement with a pharmaceutical manufacturer to share
manufacturer rebates and discounts with the PBM or to pay money or
other economic benefits to the PBM.
(c) Any agreement or practice to bill the health benefit plan
for prescription drugs or devices at a cost higher than that which
the PBM pays the pharmacy.
(d) Any agreement to share revenue with a mail order or
internet pharmacy company.
(e) Any agreement to sell prescription drug data, including
data concerning the prescribing practices of the health care
providers in the state.
(4) A PBM shall disclose all financial terms and arrangements
for remuneration of any kind that apply between the PBM and any
prescription drug or device manufacturer or labeler, including, but
not limited to, rebates, formulary management and drug-switch or
substitution programs, education support, claims processing or
pharmacy network fees that are charged from retail pharmacies, and
data sales fees.
Sec. 11. (1) A PBM shall maintain, for the duration of the
written agreement and for 2 years thereafter, books and records of
all transactions between the PBM, insurers, covered persons,
pharmacists, and pharmacies.
(2) The commissioner shall have access to books and records
maintained by the PBM for the purposes of examination, audit, and
inspection. The information contained in the books and records is
confidential. However, the commissioner may use the information in
any proceeding instituted against the PBM or an insurer.
(3) The commissioner shall conduct periodic financial
examinations of every PBM in this state to ensure an appropriate
level of regulatory oversight. The PBM shall pay the cost of the
examination, which shall be deposited in a special fund to provide
all expenses for the regulation, supervision, and examination of
all entities subject to regulation under this act.
Sec. 13. (1) Each PBM holding a certificate of authority shall
file with the commissioner an annual statement on or before March 1
of each year. The statement shall be in such form and contain such
matters as the commissioner prescribes and include the filing fee
established by rule of the commissioner. The statement shall
include the total number of persons subject to management by the
PBM during the year, the number of persons terminated during the
year, the number of persons covered at the end of the year, and the
dollar value of claims processed.
(2) The statement filed under subsection (1) shall disclose
all incentive arrangements or programs, including, at a minimum,
information on the formula or other method for calculation and
amount of the incentive arrangements, rebates, or other
disbursements, the identity of the associated drug or device, and
the dates and amounts of such disbursements. The incentive
arrangements include, but are not limited to, rebates, discounts,
disbursements, or any other similar financial program or
arrangement relating to income or consideration received or
negotiated, directly or indirectly, with any pharmaceutical
company, involving prescription drug or device services.
Sec. 15. (1) A person shall not act as a PBM for a person
without a written agreement between that person and the PBM.
(2) A PBM shall not require a pharmacist or a pharmacy to
participate in 1 contract in order to participate in another
contract and shall not exclude an otherwise qualified
pharmacist or pharmacy from participation in a particular network
solely because the pharmacist or pharmacy declined to participate
in another plan or network managed by the PBM.
(3) A PBM shall file a copy with the commissioner of all
agreements with pharmacies for approval by the commissioner not
less than 30 days before the execution of the agreement. The
agreement is considered approved unless the commissioner
disapproves it within the 30-day period.
(4) The written agreement between the covered entity and the
PBM shall not provide that the pharmacist or pharmacy is
responsible for the actions of the covered entity or the PBM. All
agreements shall provide that, when the PBM receives payment for
the services of the pharmacist or pharmacy, the PBM shall act as a
fiduciary of the pharmacy or pharmacist providing the services. The
PBM shall distribute the funds in accordance with the time frames
provided in this act and rules promulgated under this act.
Sec. 17. (1) When the services of a PBM are utilized, the PBM
shall provide a written notice approved by the covered entity to
covered persons advising them of the identity of, and relationship
between, the PBM, the covered entity, and the covered person.
(2) The notice in subsection (1) shall comply with all of the
following:
(a) Contain a statement advising the covered person that the
PBM is regulated by the OFIR and has the right to file a complaint,
appeal, or grievance with the commissioner concerning the PBM.
(b) Include the toll-free telephone number, mailing address,
and electronic mail address of the OFIR.
(c) Be written in plain English, using terms that will be
generally understood by the prudent layperson, and a copy must be
provided to the OFIR and each pharmacist or pharmacy participating
in the network.
(3) When a PBM requests a substitute prescription for a
prescribed drug to a covered individual, the following provisions
apply:
(a) The PBM may substitute a lower-priced generic and
therapeutically equivalent drug for a higher-priced prescribed
drug.
(b) With regard to substitutions in which the substitute drug
costs more than the prescribed drug, the substitution must be made
for medical reasons that benefit the covered individual. If a
substitution is being made under this subdivision, the PBM, after
disclosing to the covered individual the cost of both drugs and any
benefit or payment directly or indirectly accruing to the PBM as a
result of the substitution and any potential effects on a patient's
health and safety including side effects, shall obtain the approval
of the prescribing health professional or of that person's
authorized representative.
(c) The PBM shall transfer in full to the covered entity any
benefit or payment received in any form by the PBM as a result of a
prescription drug substitution under subdivision (a) or (b).
Sec. 19. (1) A PBM shall provide to a covered entity all
financial and utilization information requested by the covered
entity relating to the provision of benefits to covered individuals
through that covered entity and all financial and utilization
information relating to services to that covered entity. A PBM
providing information under this section may designate that
material as confidential. Information designated as confidential by
a PBM and provided to a covered entity under this section shall not
be disclosed by the covered entity to any person without the
consent to the PBM, except that disclosure may be made when
authorized by an order of a court of competent jurisdiction.
(2) A PBM shall disclose to the covered entity the following:
(a) All financial terms and arrangements for remuneration of
any kind that apply between the PBM and any prescription drug
manufacturer or labeler, including, but not limited to, rebates,
formulary management and drug-switch or substitution programs,
educational support, claims processing, and pharmacy network fees
that are charged from retail pharmacies and data sales fees.
(b) Whether there is a difference between the price paid to
retail pharmacy and the amount billed to the covered entity for a
prescription drug purchase.
(3) The covered entity may audit the PBM's books and records
related to the rebates or other information provided in subsections
(1) and (2).
(4) A PBM shall exercise good faith and fair dealing toward
the covered entity performing its duties.
Sec. 21. (1) A PBM shall not terminate or penalize a
pharmacist or pharmacy for doing any of the following:
(a) Filing a complaint, grievance, or appeal as permitted
under this act.
(b) Expressing disagreement with the PBM's decision to deny or
limit benefits to a covered person.
(c) Assisting a covered person to seek reconsideration of the
PBM's decision to deny or limit benefits.
(d) Discussing alternative medications.
(2) Prior to terminating a pharmacy or pharmacist from the
network, the PBM shall provide the pharmacy or pharmacist a written
explanation of the reason for the termination. The notice described
in this subsection shall be provided at least 30 days before the
termination date unless the termination is based on any of the
following:
(a) The loss of the pharmacy's license to practice pharmacy.
(b) The cancellation of the pharmacy's professional liability
insurance.
(c) Conviction of fraud as reported to the board.
(3) Termination of a contract between a PBM and a pharmacy or
pharmacist, or termination of a pharmacy or pharmacist from a PBM's
provider network, does not release the PBM from the obligation to
make any payment due to the pharmacy or pharmacist for pharmacist
services rendered.
Sec. 23. (1) PBMs shall use a current and nationally
recognized benchmark to base the reimbursement paid to network
pharmacies for medications and products. The reimbursement shall be
determined as follows:
(a) For brand or single source products, the average wholesale
price as listed in first data bank (Hearst publications) or facts
and comparisons (formerly medispan), correct and current on the
date of service provided, for use as an index.
(b) For generic drug or multisource products, maximum
allowable cost shall be established by referencing first data
bank/facts and comparisons baseline price.
(2) If a multisource product has no first data bank/facts and
comparisons baseline price, then it shall be treated as a single
source branded drug for the purpose of determining reimbursement.
Sec. 25. (1) If a PBM processes claims via electronic review,
then it shall electronically transmit payment within 7 calendar
days of that claim's transmission to the pharmacist or pharmacy.
Specific time limits for the PBM to pay the pharmacist for all
other services rendered must be set forth in the agreement.
(2) Within 24 hours after a price increase notification by a
manufacturer or supplier, the PBM shall adjust its payments to the
pharmacist or pharmacy consistent with the price increase.
(3) Claims paid by the PBM shall not be retroactively denied
or adjusted after 7 days from adjudication of those claims except
as provided in subsection (4). In no case shall acknowledgment of
eligibility be retroactively reversed.
(4) The PBM may retroactively deny or adjust under any of the
following circumstances:
(a) The original claim was submitted fraudulently.
(b) The original claim payment was incorrect because the
provider was already paid for services rendered.
(c) The services were not rendered by the pharmacist or
pharmacy.
(5) The PBM may not require extrapolation audits as a
condition of participating in the contract, network, or program.
(6) The PBM shall not recoup any money that it believes is due
as a result of the audit by setoff until the pharmacist or pharmacy
has the opportunity to review the PBM's findings and concurs with
the results. If the parties cannot agree, then the audit shall be
subject to review by the commission.
Sec. 27. (1) A PBM shall not intervene in the delivery or
transmission of prescriptions from the prescriber to the pharmacist
or pharmacy for the purpose of doing any of the following:
(a) Influencing the prescriber's choice of therapy.
(b) Influencing the patient's choice of pharmacist or
pharmacy.
(c) Altering the prescription information, including, but not
limited to, switching the prescribed drug without the express
authorization of the prescriber.
(2) An agreement shall not mandate that a pharmacist or
pharmacy change a covered person's prescription unless the
prescribing physician and the covered person authorize the
pharmacist to make the change.
(3) The covered entity and the PBM may not discriminate with
respect to participation in the network or reimbursement as to any
pharmacist or pharmacy that is acting within the scope of its
license.
(4) The PBM may not transfer a health benefit plan to another
payment network unless it receives written authorization from the
insurer.
(5) A PBM shall not discriminate when contracting with
pharmacies on the basis of copayments or days of supply. A contract
shall apply the same coinsurance, copayment, and deductible to
covered drug prescriptions filled by any pharmacy, including a mail
order pharmacy or pharmacist who participates in the network.
(6) A PBM shall not discriminate when advertising the names of
pharmacies that are participating. Any list of participating
pharmacies shall be complete and all-inclusive.
(7) A PBM shall not mandate on any pharmacist or pharmacy
basic record keeping that is more stringent than that required by
state or federal laws, rules, or regulations.
Sec. 29. (1) The commission shall promulgate rules under the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328, for formal investigation of complaints concerning the
failure of a PBM to comply with this act.
(2) Any complaint shall be resolved and determined under the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328.
Sec. 31. A person failing to hold a certificate of authority
issued under this act while acting as a PBM is subject to a civil
fine of not less than $5,000.00 or more than $10,000.00 for each
violation.
Sec. 33. (1) All benefits payable under a pharmacy benefits
management plan shall be paid as soon as feasible but not less than
7 days after receipt of a clean claim when the claim is submitted
electronically.
(2) Payments to the pharmacy or pharmacist for clean claims
are considered to be overdue if not paid within 7 days. If any
clean claim is not timely paid, the pharmacy benefits manager must
pay the pharmacy or pharmacist interest at the rate of 10% per
annum commencing the day after any claim payment or portion thereof
was due until the claim is finally settled or adjudicated in full.
Sec. 35. Compensation to a PBM for any claims that the PBM
adjusts or settles on behalf of an insurer is not contingent on
claims experience. This section does not prohibit the compensation
of a PBM based on total number of claims paid or processed.
Sec. 37. The commissioner may promulgate rules under the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328, to carry out the provisions of this act. The rules may
include the definition of terms, use of prescribed forms, reporting
requirements, prohibited practices, administrative fines, license
sanctions, and enforcement procedures.
Sec. 39. This act takes effect October 1, 2011.