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F I S C A L I M P A C T R E P O R T

SPONSOR Trujillo

DATE TYPED 2/19/05

HB 622

SHORT TITLE Pharmacy Benefits Manager Regulation Act

SB

ANALYST Hanika-Ortiz

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

Recurring

Pharmacy

Benefits

Manager Fund

See Narrative

Recurring

Insurance

Department

Suspense Fund

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

See Narrative

Recurring Pharmacy Benefits

Manger Fund

See Narrative

Recurring Insurance Depart-

ment Suspense

Fund

SOURCES OF INFORMATION

LFC Files

Responses Received From

Pharmacy Board

Human Services Department (HSD)

Health Policy Commission (HPC)

SUMMARY

Synopsis of Bill

House Bill 622 amends sections of the Insurance Code and creates the Pharmacy Benefit Man-

House Bill 622- Page 2

ager Regulation Act which establishes new regulatory authority for the Insurance Division of the

Public Regulation Commission (PRC) over Pharmacy Benefits Mangers (PBMs). Authority is

given to the PRC to establish rules, participation fees, audit procedures, disclosures, confidential-

ity policies, enforcement authority and prohibited practices for PBMs that have New Mexico

contracts. The purpose of the Act is to promote, preserve, and protect the public health, safety,

and welfare through effective regulation and licensing of PBM companies.

Significant Issues

PBMs administer prescription drug benefits for managed care companies, large employers, and

government agencies. HPC notes that under provisions established in HB 622, PBM’s will func-

tion under, and be monitored by, the Superintendent of Insurance.

In HB 622, under the new Pharmacy Benefits Manager Regulation Act:

Sections 1 and 2 cite the title of the Act and provide definitions.

Section 3 defines license requirements and events for a license to be revoked, suspended or de-

nied for renewal.

Section 4 requires the Superintendent to promulgate rules with regard to business and financial

issues.

Section 5 provides regulations regarding contract and performance expectations in providing

pharmacist services to pharmacies, including time limits for contract execution and payments.

Section 6 provides disclosure procedures for rebates, utilization discounts, and other revenues

received from pharmaceutical companies.

Section 7 states consumer contact as limited unless otherwise authorized.

Section 8 defines confidentiality policy including liability for damages resulting from disclosure.

Section 9 defines audit request and performance procedures.

Section 10 requires drug substitutions to be in accordance with the Drug Product Selection Act.

Section 11 defines enforcement procedures for non-compliance, and opportunities for due proc-

ess.

Section 12 relates remedy for civil action for enforcement under the Act.

Section 13 creates the PBM Fund in the State Treasury from collected fees and penalties, to be

used to administer the Act.

Section 14 clarifies fee distribution of 50% to HSD for a preferred drug list, and 50% to Fund.

Section 15 establishes an amended fee schedule.

Section 16 clarifies fees received do not override Subsection Z of Section 59A-6-1 NMSA 1978.

House Bill 622- Page 3

PERFORMANCE IMPLICATIONS

HSD notes HB 622 relates to the state’s pharmaceutical buying power performance measures.

PBMs reduce pharmaceutical costs through direct negotiations with retail pharmacies and with

drug manufacturers for rebates and other discounts.

FISCAL IMPLICATIONS

HSD reports insurance companies are assessed 4% for premiums paid to their organizations.

Once Medicare Part D Drug plans are created, they will not be included in those assessments be-

cause PBMs will administer Medicare Part D drug plans. HSD believes this may create a loss of

revenue for the state, especially in the Medicaid program. HB 622 would assess a licensure fee to

all PBMs through the Division of Insurance to make up for that loss and to help develop and

maintain a required preferred drug list, as well as provide funding for oversight.

HB 622 creates the Pharmacy Benefits Manager Fund in the state treasury and provides for con-

tinuing appropriations. The LFC objects to including continuing appropriation language in the

statutory provisions for newly created funds. Earmarking reduces the ability of the legislature to

establish spending priorities.

Fees and penalties pursuant to the Pharmacy Benefits Manager Regulation Act will be deposited

into the newly created Pharmacy Benefits Manger Fund in the State Treasury. Money in the

Fund will be appropriated to the Insurance Division of the PRC to administer the Pharmacy

Benefits Manager Regulation Act. Money in either fund shall not revert to the General Fund.

ADMINISTRATIVE IMPLICATIONS

HSC reports the need to collect and evaluate data on Medicare individuals to ensure coordination

of care and disease management initiatives.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Relates to The Prescription Drug Information Act of 2003, requiring PBMs doing business New

Mexico disclose the price paid to drug manufacturers.

Duplicate of SB 532, Pharmacy Benefits Manager Regulation Act

TECHNICAL ISSUES

The Pharmacy Board has the following concerns:

Page 2 (C) The maintenance drug definition is not clear on whether or not “as needed” or “prn”

medications are considered maintenance drugs.

P 8-9 (8) Information obtained by the superintendent. A provision should be included for disclos-

ing such information to the Pharmacy Board.

Page 10 (10) Pharmacists are the actual persons substituting one drug for another. This is regu-

lated by the Pharmacy Board. PBM’s do not substitute drugs. They do sometimes require phar-

House Bill 622- Page 4

macists to do so during the point of sale online adjudication process, or they require a prior au-

thorization in order for the pharmacist to dispense the drug prescribed.

OTHER SUBSTANTIVE ISSUES

Caremark opposes HB 622 and believes that transparency legislation requiring PBMs to disclose

rebates, discounts, or other revenues may increase costs for consumers and payors and decreases

competition. They believe once rebates become public, manufacturers and pharmacies know

what their competitor’s discounts are, and may have little incentive to compete on price and re-

imbursement. Caremark believes keeping pricing terms confidential is critical to ensuring com-

petition continues among PBM’s, manufacturers, and pharmacies, which may result in lower

overall prescription drug benefit costs for health plan sponsors and consumers.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

PBMs will have no direct regulatory oversight which could compromise public health and safety.

AHO/yr