2023 -- H 5078

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LC000180

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     STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2023

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A N   A C T

RELATING TO INSURANCE -- CONTROL OF HIGH PRESCRIPTION COSTS --

REGULATION OF PHARMACY BENEFIT MANAGERS

     

     Introduced By: Representatives J Lombardi, Hull, and Kislak

     Date Introduced: January 12, 2023

     Referred To: House Corporations

     It is enacted by the General Assembly as follows:

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     SECTION 1. Title 27 of the General Laws entitled "INSURANCE" is hereby amended by

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adding thereto the following chapter:

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CHAPTER 20.12

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CONTROL OF HIGH PRESCRIPTION COSTS -- REGULATION OF PHARMACY BENEFIT

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MANAGERS

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     27-20.12-1. Legislative findings.

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     The general assembly finds and declares:

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     (1) About forty percent (40%) of Americans struggle to afford their regular prescription

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medicines, with one-third (1/3) saying they have skipped filling a prescription one or more times,

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because of the cost.

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     (2) COVID-19 has exacerbated this problem by causing job and health insurance loss and

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delaying routine care.

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     (3) Pharmacy benefit managers (PBMs) are employed by for-profit companies that manage

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prescription drug benefits for more than two hundred sixty-six million (266,000,000) Americans

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on behalf of private insurers, Medicare Part D drug plans, government employee plans, large

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employers, and Medicaid managed care organizations (MCOs).

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     (4) PBMs began in the 1970s as small independent middlemen between insurers and

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pharmacies, taking a set fee for processing claims.

 

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     (5) Today, three (3) PBMs control eighty percent (80%) of the market and are part of large

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vertically integrated conglomerates that include health insurance companies and pharmacies:

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     (i) CVS Caremark – thirty-two percent (32%) market share – parent company: CVS

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(Aetna);

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     (ii) Express Scripts – twenty-four percent (24%) market share – parent company: Cigna;

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and

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     (iii) OptumRx – twenty-one percent (21%) market share – parent company: UnitedHealth.

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     (6) Revenues of top PBM conglomerates exceed those of top pharmaceutical manufacturers

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and PBM conglomerates such as CVS, United Health Group and Cigna are ranked fourth, fifth and

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thirteenth, respectively, on the Fortune 500 list ranking largest corporations by revenue.

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     (7) PBMs drive revenues for their parent companies, e.g., CVS Health’s Pharmacy Services

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(PBM) segment will make forty-six percent (46%) of three hundred twenty-four billion dollars

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($324,000,000,000) in 2021 revenues for the company and remains key to its revenue growth.

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     (8) PBMs harm consumers and taxpayers because:

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     (i) PBMs have a conflict of interest and put drugs on formularies to get higher legal

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kickbacks ("rebates") from drug manufacturers rather than choose the most effective or affordable

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drugs for consumers.

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     (ii) Drug manufacturers cover PBM rebates by raising list prices for drugs and rebates –

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adding an estimated thirty cents ($0.30) per dollar to the price consumers pay for prescriptions.

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     (iii) Maximum allowable cost ("MAC") prices are the upper limits that a PBM will pay a

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pharmacy for generic drugs and brand name drugs that have generic versions available (multi-

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source brands). PBMs use arbitrary and opaque MAC pricing to charge insurers (including state

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Medicaid) more than what they reimburse pharmacies and are allowed to pocket the difference

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("the spread").

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     (9) PBM conglomerates own retail, mail order and specialty pharmacies and work against

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consumer interests by:

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     (i) Setting low reimbursements for their competitors, causing local independent pharmacies

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to disappear;

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     (ii) "Steering" customers to their affiliated mail order and specialty pharmacies, e.g., by

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requiring a higher copay if the patient obtains the drug from a non-affiliated pharmacy; and

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     (iii) Not allowing pharmacists to discuss cheaper options ("gag orders").

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     (10) PBMs can make government oversight impossible by hiding profits in multiple ways,

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e.g., by:

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     (i) Keeping their negotiated discounts and rebates as well as maximum allowable cost

 

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(MAC) lists confidential;

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     (ii) Disguising profits, e.g., as "rebate management fees" and "savings"; and

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     (iii) Controlling their own audits, e.g., by having the right to veto auditors, determine

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frequency of audits, and requiring auditors to sign "confidentiality agreements".

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     (11) PBMs use "utilization management" that adversely affects clinical outcomes by

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making providers spend excessive time on administrative tasks, delaying and discouraging patient

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care, such as:

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     (i) "Prior authorization," which requires patients to get third-party approval prior to getting

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the medicine prescribed by their health care provider;

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     (ii) "Step therapy," also known as "fail-first," "sequencing," and "tiering," which requires

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patients to start with lower-priced medications before being approved for originally prescribed

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medications; and

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     (iii) "Non-medical drug switching" which forces patients off their current therapies for no

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reason other than to save insurers money, including by increasing out-of-pocket costs, moving

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treatments to higher cost tiers, or terminating coverage of a particular drug.

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     (12) PBMs can profit from a federal program ("Section 340B") meant to help low-income

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patients by engaging in "discriminatory reimbursement," e.g., offering 340B entities lower

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reimbursement rates than those offered to non-340B entities.

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     (13) Multiple states besides Rhode Island are aggressively regulating PBMs, e.g., Ohio,

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Kentucky, New York, Pennsylvania, and Virginia.

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     (i) Other states have taken actions including:

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     (A) Imposing transparency reporting requirements;

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     (B) Investigating PBMs;

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     (C) Carving out PBMs from managing Medicaid pharmacy benefits;

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     (D) Prohibiting spread pricing;

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     (E) Restricting PBM rebates;

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     (F) Prohibiting PBM "claw backs";

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     (G) Restricting Section 340B reimbursements; and

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     (H) Limiting "utilization management."

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     (14) A recent United States Supreme Court case, Rutledge v. PCMA, supports states taking

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more actions to regulate PBMs.

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     (15) Rhode Island policymakers have essentially ignored PBMs and their effects on the

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cost of prescription drugs, see, e.g., office of health insurance commissioner and Rhode Island cost

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trends project health care cost analyses.

 

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     (16) Five (5) year Rhode Island managed care organization (MCO) contracts with an

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estimated cost of one billion seven hundred million dollars ($1,700,000,000) per year were

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scheduled to expire and be renewed in April 2022, and were missing PBM oversight and

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restrictions, e.g., they did not require PBMs to identify their spread pricing profits and they did not

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make all statutory limits on prior authorizations also apply to Medicaid managed care PBMs.

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     27-20.12-2. Legislative intent.

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     The intent of this legislation is to:

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     (1) Ensure PBMs provide sufficient information to the state to allow accurate analyses of

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PBM costs and benefits for Rhode Island consumers and taxpayers.

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     (2) Restrict PBM practices that lead to overcharging, including, "spread pricing," "claw

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backs," "pharmacy steering," discriminatory reimbursements, manufacturer rebates, and Section

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340B discriminatory practices.

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     (3) Restrict PBM and affiliated companies from imposing harmful utilization management

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practices on patients including, prior authorization, step therapy and non-medical drug switching.

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     (4) Establish enforcement procedures and penalties to ensure consumer and taxpayer

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protection and PBM compliance with this chapter.

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     27-20.12-3. Definitions.

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     As used in this chapter:

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     (1) "Other manufacturer revenue(s)" means, without limitation, compensation or

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remuneration received or recovered, directly or indirectly, from a pharmaceutical manufacturer for

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administrative, educational, research, clinical program, or other services, product selection

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switching incentives, charge-back fees, market share incentives, drug pull-through programs, or

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any payment amounts related to the number of covered lives, formularies, or the PBM’s

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relationship with the payer.

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     (2) "Rebate(s)" means all price concessions paid by a manufacturer or any other third party

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to PBMs including rebates, discounts, credits, fees, manufacturer administrative fees, or other

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payments that are based on actual or estimated utilization of a covered drug or price concessions

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based on the effectiveness of a covered drug.

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     27-20.12-4. Implementation.

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     (a) PBMs shall provide state authorities and the general public information on a quarterly

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or more frequent basis that permits an accurate determination of the costs and benefits of PBMs for

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Rhode Island taxpayers and consumers.

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     (b) The executive office of health and human services (EOHHS) shall carve out PBMs

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from Medicaid Managed Care Organization (MCO) contracts set to renew after July 1, 2023.

 

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     (c) PBMs shall cease activities that result in "spread pricing" profits, including creating

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multiple maximum acquisition cost (MAC) lists that list higher prices for insurer to PBM

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reimbursements and lower prices for PBM to pharmacy reimbursements for the same drug.

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     (d) PBMs shall implement administrative-fee only compensation, i.e., a set per-member-

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per-month (PMPM) fee that is the sole compensation for services performed.

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     (e) PBMs shall implement pharmacy pass-through pricing. For covered claims paid by

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PBMs, the payers shall reimburse the PBM an amount equal to the actual amount the PBM pays to

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the dispensing pharmacy, including any contracted dispensing fee. In no event shall payers owe the

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PBM more than the amount the PBM paid to the dispensing pharmacy, including any contracted

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dispensing fee.

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     (f) PBMs shall implement one hundred percent (100%) pass-through of manufacturer-

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derived revenues.

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     (g) PBMs shall pay or credit payers one hundred percent (100%) of all manufacturer-

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derived revenue PBMs receive, including rebates and other manufacturer revenues.

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     (h) PBMs shall not charge payers any management or administrative fees associated with

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obtaining, collecting, or negotiating any manufacturer-derived revenue.

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     27-20.12-5. Requirements for pharmacy benefits managers.

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     PBMs shall:

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     (1) Cease taking money that consumers paid pharmacies as co-pays in excess of what

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pharmacies paid to acquire a drug (i.e., taking "claw backs") and any such funds shall be returned

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to consumers;

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     (2) Cease reimbursing affiliated pharmacies more than non-affiliated pharmacies for the

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same drugs;

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     (3) Cease "pharmacy steering," i.e., steering consumers to affiliated pharmacies (including

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mail order and specialty pharmacies), e.g., by requiring a higher copay if the patient obtains the

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drug from a non-affiliated pharmacy;

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     (4) Prioritize benefits to consumers and not PBM or affiliated company profits in

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determining placement of drugs on formularies;

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     (5) Cease profiting from a federal program ("Section 340B") meant to help low-income

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patients by engaging in "discriminatory reimbursement," e.g., offering 340B entities lower

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reimbursement rates than those offered to non-340B entities; and

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     (6) Cease "utilization management" strategies that delay and discourage patient care, and

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adversely affect clinical outcomes, including, prior authorizations, step therapy and non-medical

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drug switching.

 

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     27-20.12-6. Compliance -- Rules and regulations.

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     (a) The executive office of health and human services (EOHHS), the department of

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business regulation (DBR), and the office of health insurance commissioner (OHIC), shall ensure

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that PBMs comply with the provisions of this chapter by the promulgation of any rules and

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regulations they deem necessary.

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     (b) The office of the auditor general shall hire and supervise financial consultants with

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expertise about PBMs to conduct or oversee audits that determine whether PBM costs to the state

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are excessive and whether PBMs are in compliance with the provisions set forth in this chapter.

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     (c) The attorney general is hereby authorized to undertake appropriate civil and criminal

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investigations of and actions against PBMs and affiliates to enforce the provisions of this chapter.

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     SECTION 2. This act shall take effect upon passage.

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N   A C T

RELATING TO INSURANCE -- CONTROL OF HIGH PRESCRIPTION COSTS --

REGULATION OF PHARMACY BENEFIT MANAGERS

***

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     This act would regulate pharmacy benefit managers' (PBMs) policies and practices through

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rules and regulations promulgated by the executive office of health and human services (EOHHS),

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the department of business regulation (DBR), and the office of health insurance commissioner

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(OHIC), relating to accurate costs and pricing reporting, restricting discriminatory practices and

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establishing consumer protections with enforcement for violations by the office of the attorney

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general.

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     This act would take effect upon passage.

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