PRINTER'S NO. 1247
No. 1067 Session of 2003
INTRODUCED BY WALKO, BEBKO-JONES, BELARDI, BELFANTI, BISHOP,
BROWNE, CAWLEY, COSTA, COY, CURRY, DeLUCA, DIVEN, FREEMAN,
GEORGE, GRUCELA, HARHAI, HORSEY, JAMES, KOTIK, LaGROTTA,
LAUGHLIN, LESCOVITZ, LEVDANSKY, McCALL, McILHATTAN, MELIO,
READSHAW, ROONEY, SCRIMENTI, SHANER, SOLOBAY, TANGRETTI,
THOMAS, TIGUE, WANSACZ, WASHINGTON AND YOUNGBLOOD,
APRIL 7, 2003
REFERRED TO COMMITTEE ON INSURANCE, APRIL 7, 2003
AN ACT
1 Regulating pharmacy benefit managers; and providing for powers
2 and duties of the Insurance Department and for enforcement.
3 TABLE OF CONTENTS
4 Chapter 1. Preliminary Provisions
5 Section 101. Short title.
6 Section 102. Purpose and intent.
7 Section 103. Definitions.
8 Section 104. Applicability and scope.
9 Chapter 3. Regulation of Pharmacy Benefit Managers
10 Section 301. Certificate of authority to act as PBM.
11 Section 302. Fidelity bond.
12 Section 303. Disclosure of ownership or affiliation.
13 Section 304. Records.
14 Section 305. Financial statement, filing fee and notice
15 requirements.
1 Section 306. Agreements between PBM and insurer.
2 Section 307. Agreements between PBM and pharmacist.
3 Section 308. Medication reimbursement costs; use of index
4 required.
5 Section 309. Timely payments to pharmacies and audits.
6 Section 310. Notice to covered person.
7 Section 311. Adjustment or settlement of claims, compensation
8 of PBM.
9 Chapter 5. Enforcement
10 Section 501. Grounds for suspension or revocation of
11 certificate of authority.
12 Section 502. Order of suspension or revocation of certificate
13 of authority and notice.
14 Section 503. Period of suspension, obligations during
15 suspension and reinstatement.
16 Section 504. Administrative fine in lieu of suspension or
17 revocation.
18 Chapter 21. Miscellaneous Provisions
19 Section 2101. Regulations.
20 Section 2102. Applicability of Unfair Trade Practices and
21 Consumer Protection Law.
22 Section 2103. Effective date.
23 The General Assembly of the Commonwealth of Pennsylvania
24 hereby enacts as follows:
25 CHAPTER 1
26 PRELIMINARY PROVISIONS
27 Section 101. Short title.
28 This act shall be known and may be cited as the Pharmacy
29 Benefit Manager Act.
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1 Section 102. Purpose and intent.
2 The purpose of this act is to establish standards and
3 criteria for regulation and licensing of pharmacy benefit
4 managers. This act is designed to promote, preserve and protect
5 the public health, safety and welfare by and through effective
6 regulation and licensing of pharmacy benefit managers.
7 Section 103. Definitions.
8 The following words and phrases when used in this act shall
9 have the meanings given to them in this section unless the
10 context clearly indicates otherwise:
11 "Board." The State Board of Pharmacy.
12 "Commissioner." The Insurance Commissioner of the
13 Commonwealth.
14 "Covered person." A policyholder, subscriber, enrollee or
15 other individual participating in a health benefit plan.
16 "Department." The Insurance Department of the Commonwealth.
17 "Health benefit plan." A policy, contract, certificate or
18 agreement offered or issued by a health carrier to provide,
19 deliver, arrange for, pay for or reimburse any of the cost of
20 health care services, including prescription drug benefits.
21 "Maintenance drug." A drug prescribed by a practitioner who
22 is licensed to prescribe drugs and used to treat a medical
23 condition for a period greater than 30 days.
24 "Multisource drug." A drug that is stocked and is available
25 from three or more suppliers.
26 "Pharmacist." Any individual properly licensed as a
27 pharmacist by the State Board of Pharmacy.
28 "Pharmacist services." Includes drug therapy and other
29 patient care services provided by a licensed pharmacist intended
30 to achieve outcomes related to the cure or prevention of a
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1 disease, elimination or reduction of a patient's symptoms or
2 arresting or slowing of a disease process as defined in the
3 rules of the State Board of Pharmacy.
4 "Pharmacy." Any appropriately licensed place within this
5 Commonwealth where drugs are dispensed and pharmacist services
6 are provided.
7 "Pharmacy benefit management plan." An arrangement for the
8 delivery of pharmacist services in which a pharmacy benefit
9 manager undertakes to pay for or reimburse any of the costs of
10 pharmacist services for a covered person on a prepaid or insured
11 basis which meets the following criteria:
12 (1) Contains one or more incentive arrangements intended
13 to influence the cost or level of pharmacist services between
14 the health benefit plan sponsor and one or more pharmacies
15 with respect to the delivery of pharmacist services.
16 (2) Requires or creates benefit payment differential
17 incentives for covered persons to use under contract with the
18 pharmacy benefit manager.
19 "Pharmacy benefit manager," or "PBM." A person, business or
20 other entity and any wholly or partially owned or controlled
21 subsidiary of a pharmacy benefit manager that administers the
22 prescription drug and device portion of health benefit plans on
23 behalf of a third party, including plan sponsors, insurance
24 companies, unions and health maintenance organizations in
25 accordance with a pharmacy benefit management plan.
26 "Usual and customary price." The price the pharmacist would
27 have charged a cash-paying patient, but not a patient where
28 reimbursement rates are set by a contract, for the same services
29 on the same date inclusive of any discounts applicable.
30 Section 104. Applicability and scope.
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1 (a) Applicability.--This act shall apply to a PBM that
2 provides claims processing services, other prescription drug or
3 device services, or both, to covered persons who are residents
4 of this Commonwealth.
5 (b) Construction.--Nothing in this act shall be construed to
6 apply to an employee welfare benefit plan as defined in section
7 3(1) of the Employee Retirement Income Security Act of 1974
8 (Public Law 93-406, 88 Stat. 829).
9 CHAPTER 3
10 REGULATION OF PHARMACY BENEFIT MANAGERS
11 Section 301. Certificate of authority to act as PBM.
12 (a) Certificate of authority required.--No person or
13 organization shall act or operate as a PBM in this Commonwealth
14 without a valid certificate of authority issued by the
15 department. The failure of any person to hold a certificate of
16 authority while acting as a PBM shall subject the person to a
17 fine of not less than $5,000 nor more than $10,000 for each
18 violation.
19 (b) Application.--Each person seeking a certificate of
20 authority to act as a PBM shall file with the department an
21 application for a certificate of authority upon a form to be
22 furnished by the department, which application shall include or
23 have attached the following information and documents:
24 (1) All basic organizational documents of the PBM, such
25 as the articles of incorporation, articles of association,
26 partnership agreement, trade name certificate, trust
27 agreement, shareholder agreement and other applicable
28 documents and all amendments to those documents.
29 (2) The bylaws, rules and regulations or similar
30 documents regulating the conduct or the internal affairs of
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1 the PBM.
2 (3) The names, addresses, official positions and
3 professional qualifications of the individuals who are
4 responsible for the conduct of the affairs of the PBM,
5 including all members of the board of directors, boards of
6 trustees, executive committee, other governing board or
7 committee, the principal officers in the case of a
8 corporation, the partners or members in the case of a
9 partnership or association and any other person who exercises
10 control or influence over the affairs of the PBM.
11 (4) A certificate issued by the board indicating that
12 the PBM's plan of operation is consistent with the act of
13 September 27, 1961 (P.L.1700, No.699), known as the Pharmacy
14 Act, and any regulations promulgated thereunder.
15 (5) Annual statements or reports for the three most
16 recent years, or any other information as the department may
17 require in order to review the current financial condition of
18 the applicant.
19 (6) If the applicant is not currently acting as a PBM, a
20 statement of the amounts and sources of funds available for
21 organization expenses and the proposed arrangements for
22 reimbursement and compensation of incorporators or other
23 principals.
24 (7) The name and address of the agent for service of
25 process in this Commonwealth.
26 (8) A detailed description of the claims processing
27 services, pharmacy services, insurance services, other
28 prescription drug or device services or other administrative
29 services to be provided.
30 (9) All incentive arrangements or programs such as
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1 rebates, discounts, disbursements or any other similar
2 financial program or arrangement relating to income or
3 consideration received or negotiated, directly or indirectly,
4 with any pharmaceutical company, that relates to prescription
5 drug or device services, including, at a minimum, information
6 on the formula or other method for calculation and amount of
7 the incentive arrangements, rebates or other disbursements,
8 the identity of the associated drug or device and the dates
9 and amounts of disbursements.
10 (10) A copy of the fidelity bond required under section
11 302.
12 (11) Any other information as the commissioner may
13 require.
14 (12) A filing fee of $5,000.
15 (c) Availability of contracts.--The applicant shall make
16 available for inspection by the department copies of all
17 contracts with insurers or other persons utilizing the services
18 of the PBM.
19 (d) Nonissuance.--The department shall not issue a
20 certificate of authority if it determines that the PBM or any
21 principal thereof is not competent, trustworthy, financially
22 responsible or of good personal and business reputation or has
23 had an insurance license or pharmacy license denied for cause by
24 any state.
25 (e) Period of validity.--A certificate of authority issued
26 under this section shall remain valid, unless suspended or
27 revoked by the department, so long as the PBM continues to do
28 business in this Commonwealth.
29 Section 302. Fidelity bond.
30 A PBM shall have and keep in full force and effect a fidelity
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1 bond equal to at least 10% of the amount of the funds handled or
2 managed annually by the PBM. However, the department, after due
3 notice to all interested parties and an opportunity for hearing
4 and after consideration of the record, may require an amount in
5 excess of $500,000, but not more than 10% of the amount of the
6 funds handled or managed annually by the PBM.
7 Section 303. Disclosure of ownership or affiliation.
8 Each PBM shall identify to the department any ownership
9 interest or affiliation of any kind with:
10 (1) Any insurance company responsible for providing
11 benefits directly or through reinsurance to any plan for
12 which the PBM provides services.
13 (2) Any parent companies, subsidiaries and other
14 entities or businesses relative to the provision of pharmacy
15 services or other prescription drug or device services.
16 Section 304. Records.
17 (a) Maintenance of records.--Every PBM shall maintain for
18 the duration of the written agreement and for five years
19 thereafter books and records of all transactions between the
20 PBM, insurers, covered persons and pharmacies.
21 (b) Access.--The department shall have access to books and
22 records maintained by the PBM for the purposes of examination,
23 audit and inspection. The information contained in the books and
24 records is confidential. However, the department may use the
25 information in any proceeding instituted against the PBM or
26 insurer.
27 (c) Financial examination.--The commissioner shall conduct
28 periodic financial examinations of every PBM in this
29 Commonwealth to ensure an appropriate level of regulatory
30 oversight. The PBM shall pay the cost of the examination.
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1 Section 305. Financial statement, filing fee and notice
2 requirements.
3 (a) Financial statement.--Each authorized PBM shall file
4 with the department a full and true statement of its financial
5 condition, transactions and affairs.
6 (b) Verification.--The annual financial statement shall be
7 verified by at least two officers of the PBM.
8 (c) Filing fee.--At the time of the filing its annual
9 statement, the PBM shall pay a filing fee of $1,000.
10 (d) Change of ownership.--The PBM must notify the department
11 in writing within five calendar days of any material change in
12 its ownership.
13 Section 306. Agreements between PBM and insurer.
14 (a) Written agreement required.--No person may act as a PBM
15 without a written agreement between the PBM and insurer.
16 (b) Prescription change.--No agreement shall mandate that a
17 pharmacist change a covered person's prescription unless the
18 prescribing physician and the covered person authorize the
19 pharmacist to make the change.
20 (c) Participation by pharmacist.--
21 (1) An insurer and PBM may not discriminate with respect
22 to participation in the network or reimbursement as to any
23 pharmacist that is acting within the scope of the
24 pharmacist's license or certification.
25 (2) A PBM shall not exclude an otherwise qualified
26 pharmacist from participation in a particular network solely
27 because the pharmacist declined to participate in another
28 plan or network managed by the PBM.
29 (3) A PBM shall not require a pharmacist or pharmacy to
30 participate in one contract in order to participate in
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1 another contract.
2 (d) Transfer of health benefit plan.--A PBM may not transfer
3 a health benefit plan to another payment network unless it
4 receives written authorization from the insurer.
5 (e) Nonliability.--The written agreement between an insurer
6 and PBM shall not provide that the pharmacist is responsible for
7 the actions of the insurer or PBM.
8 (f) Payments.--All agreements shall provide that when a PBM
9 receives payment for the services of the pharmacist that the PBM
10 shall act as a fiduciary of the pharmacy who provided the
11 services. The PBM shall distribute the funds in accordance with
12 the time frames provided in section 309.
13 (g) Maintenance of records.--Written agreements shall be
14 retained as part of the official records of both the PBM and the
15 insurer for the duration of the agreement and for five years
16 thereafter.
17 Section 307. Agreements between PBM and pharmacist.
18 (a) Prohibitions.--A pharmacist may not be terminated or
19 penalized by a PBM solely because of:
20 (1) Filing a complaint, grievance or appeal as permitted
21 under this act.
22 (2) Expressing disagreement with the PBM's decision to
23 deny or limit benefits to a covered person.
24 (3) Assisting a covered person who is seeking
25 reconsideration of the PBM's decision.
26 (4) Discussing alternative medications with a covered
27 person.
28 (b) Notice of termination.--Prior to the terminating of a
29 pharmacy from the network, a PBM must provide the pharmacy a
30 written explanation of the reason for the termination at least
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1 30 days prior to the termination date unless the termination is
2 based on the loss of the pharmacy's license to practice pharmacy
3 or cancellation of professional liability insurance or
4 conviction of fraud.
5 Section 308. Medication reimbursement costs; use of index
6 required.
7 PBMs shall use a current and nationally recognized benchmark
8 to base the reimbursement paid to network pharmacies for
9 medications and products. The reimbursement must be determined
10 as follows:
11 (1) For brand or single-source products, the average
12 wholesale price as listed in First DataBank or Facts &
13 Comparisons correct and current on the date of service
14 provided shall be used as an index.
15 (2) For generic drug or multisource products, maximum
16 allowable cost shall be established by referencing First
17 DataBank or Facts & Comparisons Baseline Price. Only products
18 that are compliant with pharmacy laws as equivalent and
19 generically interchangeable with a Food and Drug
20 Administration Orange Book rating of "A-B" may be reimbursed
21 from a maximum allowable cost price methodology. If a
22 multisource product has no baseline price, then it shall be
23 treated as a single-source branded drug for the purpose of
24 determining reimbursement.
25 Section 309. Timely payments to pharmacies and audits.
26 (a) Electronic payment.--If a PBM processes claims via
27 electronic review then it shall electronically transmit payment
28 within 14 calendar days of the claim's transmission to the
29 pharmacist. Specific time limits for the PBM to pay the
30 pharmacist for all other services rendered must be set forth in
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1 the agreement.
2 (b) Retroactive decisions.--Claims paid by the PBM shall not
3 be retroactively denied or adjusted after seven days from
4 adjudication of the claims except as provided in paragraph (c).
5 In no case shall acknowledgment of eligibility be retroactively
6 reversed.
7 (c) Exceptions.--The PBM may retroactively deny or adjust in
8 the event:
9 (1) the original claim was submitted fraudulently;
10 (2) the original claim payment was incorrect because the
11 provider was already paid for services rendered; or
12 (3) the services were not rendered by the pharmacist.
13 (d) Extrapolation audits.--The PBM may not require
14 extrapolation audits as a condition of participating in the
15 contract, network or program.
16 (e) Board review.--The PBM shall not recoup any moneys that
17 it believes are due as a result of the audit by setoff until the
18 pharmacist has the opportunity to review the PBM's findings and
19 concurs with the results. If the parties are unable to agree,
20 then the audit shall be subject to review by the board.
21 Section 310. Notice to covered person.
22 (a) General rule.--When the services of a PBM are utilized,
23 the PBM must provide a written notice approved by the insurer to
24 covered persons advising them of the identity of and
25 relationship among the PBM, the insured and the covered person.
26 (b) Rights of covered person.--The notice must contain a
27 statement advising the covered person of the person's right to
28 file a complaint, appeal or grievance with the department
29 concerning the PBM.
30 (c) Language.--The notice must be written in plain English,
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1 using terms that will be generally understood by the prudent
2 layperson.
3 (d) Copy of notice.--A copy of the notice shall be provided
4 to each pharmacy participating in the network.
5 Section 311. Adjustment or settlement of claims, compensation
6 of PBM.
7 Compensation to a PBM for any claim that the PBM adjusts or
8 settles on behalf of an insurer shall in no way be contingent on
9 claims experience. This section does not prohibit the
10 compensation of a PBM based on total number of claims paid or
11 processed.
12 CHAPTER 5
13 ENFORCEMENT
14 Section 501. Grounds for suspension or revocation of
15 certificate of authority.
16 (a) Mandatory suspension or revocation.--The certificate of
17 authority of a PBM shall be suspended or revoked if the
18 department determines that the PBM:
19 (1) Is in an unsound financial condition.
20 (2) Has used or is using methods or practices in the
21 conduct of its business so as to render its further
22 transaction of business in this Commonwealth hazardous or
23 injurious to insured persons or the public.
24 (3) Has failed to pay any judgment rendered against it
25 in this Commonwealth within 60 days after the judgment has
26 become final.
27 (b) Department discretion.--The department may, in its
28 discretion, suspend or revoke the certificate of authority of a
29 PBM if it finds that the PBM:
30 (1) Has violated any lawful rule or order of the
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1 department or any provision of this chapter.
2 (2) Has refused to be examined or to produce its
3 accounts, records and files for examination, or if any of its
4 officers has refused to give information with respect to its
5 affairs or has refused to perform any other legal obligation
6 as to examination, when required by the department.
7 (3) Has, without just cause, refused to pay proper
8 claims or perform services arising under its contracts or
9 has, without just cause, compelled covered persons to accept
10 less than the amount due them or to employ attorneys or bring
11 suit against the PBM to secure full payment or settlement of
12 claims.
13 (4) Has failed to reimburse pharmacists in a timely
14 manner as required by this act.
15 (5) Has failed to pay any fees or other financial
16 requirements levied by the department.
17 (6) Is or was affiliated with and under the same general
18 management or interlocking directorate or ownership as
19 another PBM which transacts business in this Commonwealth
20 without having a certificate of authority.
21 (7) At any time fails to meet any qualification for
22 which issuance of the certificate could have been refused had
23 the failure then existed and had been known to the
24 department.
25 (8) Has or any person on its behalf has advertised or
26 merchandised its services in an untrue, misrepresentative,
27 misleading, deceptive or unfair manner.
28 (9) Has been convicted of or has entered a plea of
29 guilty or nolo contendere to a felony relating to the
30 business of insurance or insurance administration in this
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1 Commonwealth or in any other state without regard to whether
2 adjudication was withheld.
3 (10) Is under suspension or revocation in another state.
4 (c) Grounds for immediate suspension.--The department may,
5 in its discretion, and without advance notice or hearing thereon
6 immediately suspend the certificate of any PBM if it finds that
7 one or more of the following circumstances exist:
8 (1) The PBM is insolvent or impaired.
9 (2) The fidelity bond required by section 302 is not
10 maintained.
11 (3) A proceeding for receivership, conservationship,
12 rehabilitation or other delinquency proceeding regarding the
13 PBM has been commenced in any state.
14 (4) The financial condition or business practices of the
15 PBM otherwise poses an imminent threat to the public health,
16 safety or welfare of the residents of this Commonwealth.
17 Section 502. Order of suspension or revocation of certificate
18 of authority and notice.
19 (a) Order.--The suspension or revocation of a certificate of
20 authority of a PBM shall be affected by order of the department
21 mailed to the PBM by registered, certified or overnight mail.
22 (b) Notice.--In its discretion, the department may cause
23 notice of the revocation or suspension to be published in one or
24 more newspapers of general circulation published in this
25 Commonwealth.
26 Section 503. Period of suspension, obligations during
27 suspension and reinstatement.
28 (a) Period of suspension.--A certificate of authority of a
29 PBM shall be suspended for a period not to exceed one year as is
30 fixed in the order of suspension, unless the suspension or the
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1 order upon which the suspension is based is modified, rescinded
2 or reversed.
3 (b) Obligations during suspension.--During the period of
4 suspension, the PBM shall file its annual statement and pay fees
5 as required under this act as if the certificate had continued
6 in full force.
7 (c) Reinstatement.--Upon expiration of the suspension
8 period, if within the period the certificate has not otherwise
9 terminated, the certificate shall automatically be reinstated,
10 unless the causes of the suspension have not been removed or the
11 PBM is otherwise not in compliance with the requirements of this
12 act.
13 Section 504. Administrative fine in lieu of suspension or
14 revocation.
15 (a) Fine.--If the department finds that one or more grounds
16 exist for the suspension or revocation of a certificate of
17 authority issued under this act, the department may in lieu of
18 the suspension or revocation impose a fine upon the PBM.
19 (b) Unintentional violation.--With respect to any
20 unintentional violation, the fine may not exceed $1,000 per
21 violation. In no event may the fine exceed an aggregate amount
22 of $5,000 for all unintentional violations arising out of the
23 same action. When a PBM discovers an unintentional violation,
24 the PBM shall correct the violation and, if restitution is due,
25 the restitution shall include interest at the rate of 12% per
26 year from either the date of the violation or the date of
27 inception of the policy of the affected person, at the option of
28 the PBM.
29 (c) Willful violation.--With respect to any knowing and
30 willful violation of a lawful order or rule of the department or
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1 this act, the department may impose a fine upon the PBM in an
2 amount not to exceed $5,000 for each violation. In no event may
3 the fine exceed an aggregate amount of $25,000 for all knowing
4 and willful violations arising out of the same action. In
5 addition to the fine, the PBM shall make restitution when due in
6 accordance with subsection (b).
7 (d) Failure to make restitution.--The failure of a PBM to
8 make restitution when due as required under this section
9 constitutes a willful violation of this act. However, if a PBM
10 in good faith is uncertain as to whether any restitution is due
11 or as to the amount of restitution due, it shall promptly notify
12 the department of the circumstances and the failure to make
13 restitution pending a determination of whether restitution is
14 due or the amount of restitution due will not constitute a
15 violation of this act.
16 CHAPTER 21
17 MISCELLANEOUS PROVISIONS
18 Section 2101. Regulations.
19 The department may promulgate regulations to carry out this
20 act. The regulations shall be subject to review in accordance
21 with the act of June 25, 1982 (P.L.633, No.181), known as the
22 Regulatory Review Act.
23 Section 2102. Applicability of Unfair Trade Practices and
24 Consumer Protection Law.
25 A violation of this act shall be deemed to be a violation of
26 the act of December 17, 1968 (P.L.1224, No.387), known as the
27 Unfair Trade Practices and Consumer Protection Law.
28 Section 2103. Effective date.
29 This act shall take effect in 60 days.
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