PRINTER'S NO. 805
No. 714 Session of 2005
INTRODUCED BY WALKO, DeLUCA, CALTAGIRONE, CURRY, FABRIZIO,
FRANKEL, FREEMAN, GERGELY, GOODMAN, GRUCELA, JAMES, JOSEPHS,
PALLONE, SHANER, STABACK, STURLA, TANGRETTI, WHEATLEY,
YOUNGBLOOD, BELARDI, COSTA AND PISTELLA, MARCH 1, 2005
REFERRED TO COMMITTEE ON INSURANCE, MARCH 1, 2005
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.
16 Section 306. Agreements between PBM and insurer.
17 Section 307. Agreements between PBM and pharmacist.
1 Section 308. Medication reimbursement costs; use of index
2 required.
3 Section 309. Timely payments to pharmacies and audits.
4 Section 310. Notice to covered person.
5 Section 311. Adjustment or settlement of claims, compensation
6 of PBM.
7 Chapter 5. Enforcement
8 Section 501. Grounds for suspension or revocation of
9 certificate of authority.
10 Section 502. Order of suspension or revocation of certificate
11 of authority and notice.
12 Section 503. Period of suspension, obligations during
13 suspension and reinstatement.
14 Section 504. Administrative fine in lieu of suspension or
15 revocation.
16 Chapter 21. Miscellaneous Provisions
17 Section 2101. Regulations.
18 Section 2102. Applicability of Unfair Trade Practices and
19 Consumer Protection Law.
20 Section 2103. Effective date.
21 The General Assembly of the Commonwealth of Pennsylvania
22 hereby enacts as follows:
23 CHAPTER 1
24 PRELIMINARY PROVISIONS
25 Section 101. Short title.
26 This act shall be known and may be cited as the Pharmacy
27 Benefit Manager Act.
28 Section 102. Purpose and intent.
29 The purpose of this act is to establish standards and
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1 criteria for regulation and licensing of pharmacy benefit
2 managers. This act is designed to promote, preserve and protect
3 the public health, safety and welfare by and through effective
4 regulation and licensing of pharmacy benefit managers.
5 Section 103. Definitions.
6 The following words and phrases when used in this act shall
7 have the meanings given to them in this section unless the
8 context clearly indicates otherwise:
9 "Board." The State Board of Pharmacy.
10 "Commissioner." The Insurance Commissioner of the
11 Commonwealth.
12 "Covered person." A policyholder, subscriber, enrollee or
13 other individual participating in a health benefit plan.
14 "Department." The Insurance Department of the Commonwealth.
15 "Health benefit plan." A policy, contract, certificate or
16 agreement offered or issued by a health carrier to provide,
17 deliver, arrange for, pay for or reimburse any of the cost of
18 health care services, including prescription drug benefits.
19 "Maintenance drug." A drug prescribed by a practitioner who
20 is licensed to prescribe drugs and used to treat a medical
21 condition for a period greater than 30 days.
22 "Multisource drug." A drug that is stocked and is available
23 from three or more suppliers.
24 "Pharmacist." Any individual properly licensed as a
25 pharmacist by the State Board of Pharmacy.
26 "Pharmacist services." Includes drug therapy and other
27 patient care services provided by a licensed pharmacist intended
28 to achieve outcomes related to the cure or prevention of a
29 disease, elimination or reduction of a patient's symptoms or
30 arresting or slowing of a disease process as defined in the
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1 rules of the State Board of Pharmacy.
2 "Pharmacy." Any appropriately licensed place within this
3 Commonwealth where drugs are dispensed and pharmacist services
4 are provided.
5 "Pharmacy benefit management plan." An arrangement for the
6 delivery of pharmacist services in which a pharmacy benefit
7 manager undertakes to pay for or reimburse any of the costs of
8 pharmacist services for a covered person on a prepaid or insured
9 basis which meets the following criteria:
10 (1) Contains one or more incentive arrangements intended
11 to influence the cost or level of pharmacist services between
12 the health benefit plan sponsor and one or more pharmacies
13 with respect to the delivery of pharmacist services.
14 (2) Requires or creates benefit payment differential
15 incentives for covered persons to use under contract with the
16 pharmacy benefit manager.
17 "Pharmacy benefit manager," or "PBM." A person, business or
18 other entity and any wholly or partially owned or controlled
19 subsidiary of a pharmacy benefit manager that administers the
20 prescription drug and device portion of health benefit plans on
21 behalf of a third party, including plan sponsors, insurance
22 companies, unions and health maintenance organizations in
23 accordance with a pharmacy benefit management plan.
24 "Usual and customary price." The price the pharmacist would
25 have charged a cash-paying patient, but not a patient where
26 reimbursement rates are set by a contract, for the same services
27 on the same date inclusive of any discounts applicable.
28 Section 104. Applicability and scope.
29 (a) Applicability.--This act shall apply to a PBM that
30 provides claims processing services, other prescription drug or
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1 device services, or both, to covered persons who are residents
2 of this Commonwealth.
3 (b) Construction.--Nothing in this act shall be construed to
4 apply to an employee welfare benefit plan as defined in section
5 3(1) of the Employee Retirement Income Security Act of 1974
6 (Public Law 93-406, 88 Stat. 829).
7 CHAPTER 3
8 REGULATION OF PHARMACY BENEFIT MANAGERS
9 Section 301. Certificate of authority to act as PBM.
10 (a) Certificate of authority required.--No person or
11 organization shall act or operate as a PBM in this Commonwealth
12 without a valid certificate of authority issued by the
13 department. The failure of any person to hold a certificate of
14 authority while acting as a PBM shall subject the person to a
15 fine of not less than $5,000 nor more than $10,000 for each
16 violation.
17 (b) Application.--Each person seeking a certificate of
18 authority to act as a PBM shall file with the department an
19 application for a certificate of authority upon a form to be
20 furnished by the department, which application shall include or
21 have attached the following information and documents:
22 (1) All basic organizational documents of the PBM, such
23 as the articles of incorporation, articles of association,
24 partnership agreement, trade name certificate, trust
25 agreement, shareholder agreement and other applicable
26 documents and all amendments to those documents.
27 (2) The bylaws, rules and regulations or similar
28 documents regulating the conduct or the internal affairs of
29 the PBM.
30 (3) The names, addresses, official positions and
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1 professional qualifications of the individuals who are
2 responsible for the conduct of the affairs of the PBM,
3 including all members of the board of directors, boards of
4 trustees, executive committee, other governing board or
5 committee, the principal officers in the case of a
6 corporation, the partners or members in the case of a
7 partnership or association and any other person who exercises
8 control or influence over the affairs of the PBM.
9 (4) A certificate issued by the board indicating that
10 the PBM's plan of operation is consistent with the act of
11 September 27, 1961 (P.L.1700, No.699), known as the Pharmacy
12 Act, and any regulations promulgated thereunder.
13 (5) Annual statements or reports for the three most
14 recent years, or any other information as the department may
15 require in order to review the current financial condition of
16 the applicant.
17 (6) If the applicant is not currently acting as a PBM, a
18 statement of the amounts and sources of funds available for
19 organization expenses and the proposed arrangements for
20 reimbursement and compensation of incorporators or other
21 principals.
22 (7) The name and address of the agent for service of
23 process in this Commonwealth.
24 (8) A detailed description of the claims processing
25 services, pharmacy services, insurance services, other
26 prescription drug or device services or other administrative
27 services to be provided.
28 (9) All incentive arrangements or programs such as
29 rebates, discounts, disbursements or any other similar
30 financial program or arrangement relating to income or
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1 consideration received or negotiated, directly or indirectly,
2 with any pharmaceutical company, that relates to prescription
3 drug or device services, including, at a minimum, information
4 on the formula or other method for calculation and amount of
5 the incentive arrangements, rebates or other disbursements,
6 the identity of the associated drug or device and the dates
7 and amounts of disbursements.
8 (10) A copy of the fidelity bond required under section
9 302 (relating to fidelity bond).
10 (11) Any other information as the commissioner may
11 require.
12 (12) A filing fee of $5,000.
13 (c) Availability of contracts.--The applicant shall make
14 available for inspection by the department copies of all
15 contracts with insurers or other persons utilizing the services
16 of the PBM.
17 (d) Nonissuance.--The department shall not issue a
18 certificate of authority if it determines that the PBM or any
19 principal thereof is not competent, trustworthy, financially
20 responsible or of good personal and business reputation or has
21 had an insurance license or pharmacy license denied for cause by
22 any state.
23 (e) Period of validity.--A certificate of authority issued
24 under this section shall remain valid, unless suspended or
25 revoked by the department, so long as the PBM continues to do
26 business in this Commonwealth.
27 Section 302. Fidelity bond.
28 A PBM shall have and keep in full force and effect a fidelity
29 bond equal to at least 10% of the amount of the funds handled or
30 managed annually by the PBM. However, the department, after due
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1 notice to all interested parties and an opportunity for hearing
2 and after consideration of the record, may require an amount in
3 excess of $500,000, but not more than 10% of the amount of the
4 funds handled or managed annually by the PBM.
5 Section 303. Disclosure of ownership or affiliation.
6 Each PBM shall identify to the department any ownership
7 interest or affiliation of any kind with:
8 (1) Any insurance company responsible for providing
9 benefits directly or through reinsurance to any plan for
10 which the PBM provides services.
11 (2) Any parent companies, subsidiaries and other
12 entities or businesses relative to the provision of pharmacy
13 services or other prescription drug or device services.
14 Section 304. Records.
15 (a) Maintenance of records.--Every PBM shall maintain for
16 the duration of the written agreement and for five years
17 thereafter books and records of all transactions between the
18 PBM, insurers, covered persons and pharmacies.
19 (b) Access.--The department shall have access to books and
20 records maintained by the PBM for the purposes of examination,
21 audit and inspection. The information contained in the books and
22 records is confidential. However, the department may use the
23 information in any proceeding instituted against the PBM or
24 insurer.
25 (c) Financial examination.--The commissioner shall conduct
26 periodic financial examinations of every PBM in this
27 Commonwealth to ensure an appropriate level of regulatory
28 oversight. The PBM shall pay the cost of the examination.
29 Section 305. Financial statement, filing fee and notice
30 requirements.
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1 (a) Financial statement.--Each authorized PBM shall file
2 with the department a full and true statement of its financial
3 condition, transactions and affairs.
4 (b) Verification.--The annual financial statement shall be
5 verified by at least two officers of the PBM.
6 (c) Filing fee.--At the time of filing its annual statement,
7 the PBM shall pay a filing fee of $1,000.
8 (d) Change of ownership.--The PBM must notify the department
9 in writing within five calendar days of any material change in
10 its ownership.
11 Section 306. Agreements between PBM and insurer.
12 (a) Written agreement required.--No person may act as a PBM
13 without a written agreement between the PBM and insurer.
14 (b) Prescription change.--No agreement shall mandate that a
15 pharmacist change a covered person's prescription unless the
16 prescribing physician and the covered person authorize the
17 pharmacist to make the change.
18 (c) Participation by pharmacist.--
19 (1) An insurer and PBM may not discriminate with respect
20 to participation in the network or reimbursement as to any
21 pharmacist that is acting within the scope of the
22 pharmacist's license or certification.
23 (2) A PBM shall not exclude an otherwise qualified
24 pharmacist from participation in a particular network solely
25 because the pharmacist declined to participate in another
26 plan or network managed by the PBM.
27 (3) A PBM shall not require a pharmacist or pharmacy to
28 participate in one contract in order to participate in
29 another contract.
30 (d) Transfer of health benefit plan.--A PBM may not transfer
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1 a health benefit plan to another payment network unless it
2 receives written authorization from the insurer.
3 (e) Nonliability.--The written agreement between an insurer
4 and PBM shall not provide that the pharmacist is responsible for
5 the actions of the insurer or PBM.
6 (f) Payments.--All agreements shall provide that when a PBM
7 receives payment for the services of the pharmacist that the PBM
8 shall act as a fiduciary of the pharmacy who provided the
9 services. The PBM shall distribute the funds in accordance with
10 the time frames provided in section 309 (relating to timely
11 payments to pharmacies and audits).
12 (g) Maintenance of records.--Written agreements shall be
13 retained as part of the official records of both the PBM and the
14 insurer for the duration of the agreement and for five years
15 thereafter.
16 Section 307. Agreements between PBM and pharmacist.
17 (a) Prohibitions.--A pharmacist may not be terminated or
18 penalized by a PBM solely because of:
19 (1) Filing a complaint, grievance or appeal as permitted
20 under this act.
21 (2) Expressing disagreement with the PBM's decision to
22 deny or limit benefits to a covered person.
23 (3) Assisting a covered person who is seeking
24 reconsideration of the PBM's decision.
25 (4) Discussing alternative medications with a covered
26 person.
27 (b) Notice of termination.--Prior to the terminating of a
28 pharmacy from the network, a PBM must provide the pharmacy a
29 written explanation of the reason for the termination at least
30 30 days prior to the termination date unless the termination is
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1 based on the loss of the pharmacy's license to practice pharmacy
2 or cancellation of professional liability insurance or
3 conviction of fraud.
4 Section 308. Medication reimbursement costs; use of index
5 required.
6 PBMs shall use a current and nationally recognized benchmark
7 to base the reimbursement paid to network pharmacies for
8 medications and products. The reimbursement must be determined
9 as follows:
10 (1) For brand or single-source products, the average
11 wholesale price as listed in First DataBank or Facts &
12 Comparisons correct and current on the date of service
13 provided shall be used as an index.
14 (2) For generic drug or multisource products, maximum
15 allowable cost shall be established by referencing First
16 DataBank or Facts & Comparisons Baseline Price. Only products
17 that are compliant with pharmacy laws as equivalent and
18 generically interchangeable with a Food and Drug
19 Administration Orange Book rating of "A-B" may be reimbursed
20 from a maximum allowable cost price methodology. If a
21 multisource product has no baseline price, then it shall be
22 treated as a single-source branded drug for the purpose of
23 determining reimbursement.
24 Section 309. Timely payments to pharmacies and audits.
25 (a) Electronic payment.--If a PBM processes claims via
26 electronic review then it shall electronically transmit payment
27 within 14 calendar days of the claim's transmission to the
28 pharmacist. Specific time limits for the PBM to pay the
29 pharmacist for all other services rendered must be set forth in
30 the agreement.
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1 (b) Retroactive decisions.--Claims paid by the PBM shall not
2 be retroactively denied or adjusted after seven days from
3 adjudication of the claims except as provided in paragraph (c).
4 In no case shall acknowledgment of eligibility be retroactively
5 reversed.
6 (c) Exceptions.--The PBM may retroactively deny or adjust in
7 the event:
8 (1) the original claim was submitted fraudulently;
9 (2) the original claim payment was incorrect because the
10 provider was already paid for services rendered; or
11 (3) the services were not rendered by the pharmacist.
12 (d) Extrapolation audits.--The PBM may not require
13 extrapolation audits as a condition of participating in the
14 contract, network or program.
15 (e) Board review.--The PBM shall not recoup any moneys that
16 it believes are due as a result of the audit by setoff until the
17 pharmacist has the opportunity to review the PBM's findings and
18 concurs with the results. If the parties are unable to agree,
19 then the audit shall be subject to review by the board.
20 Section 310. Notice to covered person.
21 (a) General rule.--When the services of a PBM are utilized,
22 the PBM must provide a written notice approved by the insurer to
23 covered persons advising them of the identity of and
24 relationship among the PBM, the insured and the covered person.
25 (b) Rights of covered person.--The notice must contain a
26 statement advising the covered person of the person's right to
27 file a complaint, appeal or grievance with the department
28 concerning the PBM.
29 (c) Language.--The notice must be written in plain English,
30 using terms that will be generally understood by the prudent
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1 layperson.
2 (d) Copy of notice.--A copy of the notice shall be provided
3 to each pharmacy participating in the network.
4 Section 311. Adjustment or settlement of claims, compensation
5 of PBM.
6 Compensation to a PBM for any claim that the PBM adjusts or
7 settles on behalf of an insurer shall in no way be contingent on
8 claims experience. This section does not prohibit the
9 compensation of a PBM based on total number of claims paid or
10 processed.
11 CHAPTER 5
12 ENFORCEMENT
13 Section 501. Grounds for suspension or revocation of
14 certificate of authority.
15 (a) Mandatory suspension or revocation.--The certificate of
16 authority of a PBM shall be suspended or revoked if the
17 department determines that the PBM:
18 (1) Is in an unsound financial condition.
19 (2) Has used or is using methods or practices in the
20 conduct of its business so as to render its further
21 transaction of business in this Commonwealth hazardous or
22 injurious to insured persons or the public.
23 (3) Has failed to pay any judgment rendered against it
24 in this Commonwealth within 60 days after the judgment has
25 become final.
26 (b) Department discretion.--The department may, in its
27 discretion, suspend or revoke the certificate of authority of a
28 PBM if it finds that the PBM:
29 (1) Has violated any lawful rule or order of the
30 department or any provision of this chapter.
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1 (2) Has refused to be examined or to produce its
2 accounts, records and files for examination, or if any of its
3 officers has refused to give information with respect to its
4 affairs or has refused to perform any other legal obligation
5 as to examination, when required by the department.
6 (3) Has, without just cause, refused to pay proper
7 claims or perform services arising under its contracts or
8 has, without just cause, compelled covered persons to accept
9 less than the amount due them or to employ attorneys or bring
10 suit against the PBM to secure full payment or settlement of
11 claims.
12 (4) Has failed to reimburse pharmacists in a timely
13 manner as required by this act.
14 (5) Has failed to pay any fees or other financial
15 requirements levied by the department.
16 (6) Is or was affiliated with and under the same general
17 management or interlocking directorate or ownership as
18 another PBM which transacts business in this Commonwealth
19 without having a certificate of authority.
20 (7) At any time fails to meet any qualification for
21 which issuance of the certificate could have been refused had
22 the failure then existed and had been known to the
23 department.
24 (8) Has or any person on its behalf has advertised or
25 merchandised its services in an untrue, misrepresentative,
26 misleading, deceptive or unfair manner.
27 (9) Has been convicted of or has entered a plea of
28 guilty or nolo contendere to a felony relating to the
29 business of insurance or insurance administration in this
30 Commonwealth or in any other state without regard to whether
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1 adjudication was withheld.
2 (10) Is under suspension or revocation in another state.
3 (c) Grounds for immediate suspension.--The department may,
4 in its discretion, and without advance notice or hearing thereon
5 immediately suspend the certificate of any PBM if it finds that
6 one or more of the following circumstances exist:
7 (1) The PBM is insolvent or impaired.
8 (2) The fidelity bond required by section 302 (relating
9 to fidelity bond) is not maintained.
10 (3) A proceeding for receivership, conservationship,
11 rehabilitation or other delinquency proceeding regarding the
12 PBM has been commenced in any state.
13 (4) The financial condition or business practices of the
14 PBM otherwise poses an imminent threat to the public health,
15 safety or welfare of the residents of this Commonwealth.
16 Section 502. Order of suspension or revocation of certificate
17 of authority and notice.
18 (a) Order.--The suspension or revocation of a certificate of
19 authority of a PBM shall be affected by order of the department
20 mailed to the PBM by registered, certified or overnight mail.
21 (b) Notice.--In its discretion, the department may cause
22 notice of the revocation or suspension to be published in one or
23 more newspapers of general circulation published in this
24 Commonwealth.
25 Section 503. Period of suspension, obligations during
26 suspension and reinstatement.
27 (a) Period of suspension.--A certificate of authority of a
28 PBM shall be suspended for a period not to exceed one year as is
29 fixed in the order of suspension, unless the suspension or the
30 order upon which the suspension is based is modified, rescinded
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1 or reversed.
2 (b) Obligations during suspension.--During the period of
3 suspension, the PBM shall file its annual statement and pay fees
4 as required under this act as if the certificate had continued
5 in full force.
6 (c) Reinstatement.--Upon expiration of the suspension
7 period, if within the period the certificate has not otherwise
8 terminated, the certificate shall automatically be reinstated,
9 unless the causes of the suspension have not been removed or the
10 PBM is otherwise not in compliance with the requirements of this
11 act.
12 Section 504. Administrative fine in lieu of suspension or
13 revocation.
14 (a) Fine.--If the department finds that one or more grounds
15 exist for the suspension or revocation of a certificate of
16 authority issued under this act, the department may in lieu of
17 the suspension or revocation impose a fine upon the PBM.
18 (b) Unintentional violation.--With respect to any
19 unintentional violation, the fine may not exceed $1,000 per
20 violation. In no event may the fine exceed an aggregate amount
21 of $5,000 for all unintentional violations arising out of the
22 same action. When a PBM discovers an unintentional violation,
23 the PBM shall correct the violation and, if restitution is due,
24 the restitution shall include interest at the rate of 12% per
25 year from either the date of the violation or the date of
26 inception of the policy of the affected person, at the option of
27 the PBM.
28 (c) Willful violation.--With respect to any knowing and
29 willful violation of a lawful order or rule of the department or
30 this act, the department may impose a fine upon the PBM in an
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1 amount not to exceed $5,000 for each violation. In no event may
2 the fine exceed an aggregate amount of $25,000 for all knowing
3 and willful violations arising out of the same action. In
4 addition to the fine, the PBM shall make restitution when due in
5 accordance with subsection (b).
6 (d) Failure to make restitution.--The failure of a PBM to
7 make restitution when due as required under this section
8 constitutes a willful violation of this act. However, if a PBM
9 in good faith is uncertain as to whether any restitution is due
10 or as to the amount of restitution due, it shall promptly notify
11 the department of the circumstances and the failure to make
12 restitution pending a determination of whether restitution is
13 due or the amount of restitution due will not constitute a
14 violation of this act.
15 CHAPTER 21
16 MISCELLANEOUS PROVISIONS
17 Section 2101. Regulations.
18 The department may promulgate regulations to carry out this
19 act. The regulations shall be subject to review in accordance
20 with the act of June 25, 1982 (P.L.633, No.181), known as the
21 Regulatory Review Act.
22 Section 2102. Applicability of Unfair Trade Practices and
23 Consumer Protection Law.
24 A violation of this act shall be deemed to be a violation of
25 the act of December 17, 1968 (P.L.1224, No.387), known as the
26 Unfair Trade Practices and Consumer Protection Law.
27 Section 2103. Effective date.
28 This act shall take effect in 60 days.
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