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1 CBI 5 TH ANNUAL PHARMACY BENEFIT OVERSIGHT & COMPLIANCE CONFERENCE: UPDATE ON STATE MAXIMUM ALLOWABLE COST (MAC) LAWS CAMI AGENA, ESQ. LAUREL WALA, ESQ.

2 Current MAC Laws Medicare Part D Arkansas California Colorado Delaware Florida Georgia Hawaii Iowa* Kansas Kentucky* Louisiana Maine Maryland Minnesota Mississippi Missouri Montana New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma* Oregon Rhode Island South Carolina Tennessee* Texas Utah Vermont Virginia Washington* Wisconsin Wyoming

3 Definition of MAC Generally MAC is defined to be the maximum amount that a PBM will reimburse a pharmacy for the cost of a generic drug. New Trend Alert: Some states are starting to expand the scope of their requirements beyond MAC Iowa*: MAC now includes any prices used for multi-source drugs (including generic effective rate pricing or other pricing strategies used by the PBM). New Hampshire: Now uses the term drug product reimbursement, which means the amount paid by a carrier or PBM to a pharmacy for the drug dispensed. Oklahoma*: Pharmacy appeal rights apply to all reimbursement amounts. Washington*: Definition of List now means list of drugs for which predetermined reimbursement costs have been established, such as MAC or any other benchmark prices utilized by PBM.

4 MAC Drugs Eligible For MAC List Majority of the States Require: A or B rated (typically Orange Book) or NR or NA (MediSpan) Available for purchase by pharmacies in the state from national or regional wholesalers operating in the state Not obsolete Delaware, Maine, Missouri, New Jersey, Rhode Island, South Carolina, and Wyoming follow this approach Wyoming allows therapeutically equivalent generic drugs that are unavailable or have a limited market presence if B rated in the most recent Orange Book or rated NR/NA or similar by a nationally recognized reference Mississippi, New Hampshire, and Wisconsin don t specify any requirements

5 MAC Pricing Disclosures Majority of the States: Must provide access to the MAC list and notice of changes Timing / Frequency of notice of changes varies by state Some states require MAC list to be readily accessible and useable Delaware, Maine, New Hampshire, New Jersey, South Carolina, Wisconsin, and Wyoming have such requirements Mississippi, Missouri, New York, and Rhode Island don t specify any requirements

6 MAC Disclosure of Sources Most states require disclosure of sources used to establish MAC list and pricing (type and means varies by state) Delaware, Maine, Missouri, New Hampshire, New Jersey, South Carolina, and Wyoming have such requirements Mississippi, New York, Rhode Island, and Wisconsin don t specify any requirements New Hampshire: Contracts between PBMs and pharmacies must include the sources used by the PBM to calculate the drug product reimbursement paid for covered drugs. Washington*: Contracts between PBMs and pharmacies must disclose sources utilized to determine predetermined reimbursement costs for multisource generic drugs.

7 MAC Pricing Restrictions Most states do not specifically impose pricing requirements/restrictions New Trend Alert: Delaware, South Carolina, and Wyoming all specify that dispensing fees may not be part of the MAC price calculation New Trend Alert: Maine, Missouri, Rhode Island, and Wisconsin specify that MAC pricing must be adjusted to relate to marketplace pricing Mississippi law allows pharmacies to decline to provide a drug if the reimbursement is less than the pharmacy s acquisition cost, but the pharmacy must provide the patient with adequate information about where the patient may get the drug.

8 MAC Required Updates Most States Require MAC List Updates: Frequency of minimum required updates varies by state 3 Business Days: Mississippi 7 Business Days: Delaware, Maine, Missouri, New Jersey, South Carolina, Wisconsin, and Wyoming 10 Business Days: Rhode Island 14 Days: New Hampshire Not specified: New York

9 MAC Appeal Requirements/Timeframes Majority of the States require an appeal process Mississippi no appeal requirements Oklahoma* amended its appeal requirements to apply to all reimbursement amounts Washington* amended its appeal requirements to apply to all predetermined reimbursement costs for multisource generic drugs Timeframes vary by state 10 Business Days: Wyoming 10 Calendar Days: South Carolina, Delaware 14 Days/Calendar Days: New Jersey, Maine, Missouri 15 Days: Rhode Island 21 Days: Wisconsin 30 Business Days: New Hampshire, New York

10 MAC Appeal Requirements/Timeframes If Appeal is upheld, apply to appealing pharmacy and similarly situated pharmacies Delaware, Kentucky*, Missouri, New Jersey, New York, Washington*, Wyoming Most require the new price to apply to the appealing pharmacy as of the date of the claim and the similarly situated pharmacy as of the date of the approval of the appeal Wyoming: Pricing must be adjusted no later than 1 day after approval of the appeal and made applicable to all similarly situated pharmacies Kentucky*: (i) Adjust pricing for all other contracted pharmacies that filled a similar prescription back to the initial dispensing date of the appealing pharmacy; (ii) Notify all other contracted pharmacies that a MAC adjustment has been made as of the initial dispensing date of the appealing pharmacy, and (iii) Allow contracted pharmacies to reverse and resubmit and make retroactive price adjustments on the next payment cycle Washington*: Special rules for pharmacies with less than 15 retail outlets under its corporate umbrella, in Washington

11 MAC Appeal Requirements/Timeframes Some of the States: Require appeal denials to include NDC of a drug product that is available Delaware, Maine, Missouri, New Hampshire, New Jersey, New York, Rhode Island, Wisconsin, and Wyoming Require appeal denial to include a reason for the denial Delaware, Missouri, New Hampshire, New Jersey, Rhode Island, Wisconsin, and Wyoming Require a dedicated phone number and/or address or website for MAC appeals Delaware, New Jersey, Wisconsin, and Wyoming New York: Must also send an acknowledging receipt of the appeal

12 MAC Appeal Additional Requirements Some states require that the pharmacy contract include appeal requirements Missouri, New Hampshire, New Jersey, New York, and Rhode Island New Trend Alert: States are now including language that allows pharmacy contracting representatives (such as PSAOs) to file and handle appeals for the pharmacy Iowa*, Kentucky*, Missouri, New York, Tennessee*, Rhode Island and, Wyoming

13 MAC - Challenges Nationwide MAC compliance Requirements tied to pharmacy acquisition cost Varied appeals process requirements Managing pricing commitments Expansion of requirements beyond MAC

14 MAC LITIGATION Pharmaceutical Care Management Association v. Gerhart et al Challenging Iowa Code 510B.8 U.S. District Court for the Southern District of Iowa Filed September 2, 2014

15 PCMA v. Gerhart PCMA argued that Section 510B.8: Is preempted by ERISA because it relates to employee benefit plans Court Dismissed Violates the Takings Clauses of both the US Constitution and the Iowa Constitution because it destroys the value of PBM trade secrets Court ruled that PCMA did not have standing Violates the dormant Commerce Clause of the US Constitution by imposing an excessive burden on interstate commerce Court Dismissed Violates the Due Process Clause of the 14 th Amendment to the US Constitution because it is overly vague. Court Dismissed

16 Iowa House File 2297 (Iowa Code 510B.8) 1. The commissioner may require a PBM to submit information to the commissioner related to the PBM s pricing methodology for maximum reimbursement amount. 2. For purposes of the disclosure of pricing methodology, maximum reimbursement amounts shall be implemented as follows: a. Established for multiple source prescription drugs prescribed after the expiration of any generic exclusivity period. b. Established for any prescription drug with at least two or more A-rated therapeutically equivalent, multiple source prescription drugs with a significant cost difference. c. Determined using comparable prescription drug prices obtained from multiple nationally recognized comprehensive data sources including wholesalers, prescription drug file vendors, and pharmaceutical manufacturers for prescription drugs that are nationally available and available for purchase locally by multiple pharmacies in the state.

17 PCMA v. Gerhart PCMA is Appealing to the US Court of Appeals for the 8 th Circuit Filed in October 2015 In April 2016 (effective June 1, 2016), the Iowa Insurance Division amended its regulations intended to incorporate the findings of the District Court in PCMA v. Gerhart, including the following new provision: Iowa Code section 510B.8(2) b permits pharmacy benefit managers to establish maximum reimbursement amounts, as defined in Iowa Code section 510B.1(6), for prescription drugs including, but not limited to, those with at least two or more A-rated therapeutically equivalent, multiple-source prescription drugs with a significant cost difference. Any pricing methodology used by a pharmacy benefits manager for determining the maximum reimbursement amounts for prescription drugs, including but not limited to those with at least two or more A-rated therapeutically equivalent, multiple-source prescription drugs with a significant cost difference, shall be disclosed to the commissioner, if the commissioner requires.

18 MAC LITIGATION Pharmaceutical Care Management Association v. Rutledge Challenging Arkansas Act 900 U.S. District Court for the Eastern District of Arkansas Filed August 13, 2015

19 Arkansas SB 688 (Act 900) A PBM shall: Provide a reasonable administrative appeal procedure to allow pharmacies to challenge maximum allowable costs and reimbursements made under a maximum allowable cost for a specific drug or drugs as: Not meeting the requirements of this section; or Being below the pharmacy acquisition cost. If the appeal is upheld, the PBM must: Make the change in the MAC; Permit the challenging pharmacy or pharmacist to reverse and rebill the claim in question; Provide the NDC number that the increase or change is based on to the pharmacy or pharmacist; and Make the change in MAC effective for each similarly situated pharmacy as defined by the payor subject to the MAC List

20 Arkansas SB 688 (Act 900) If the appeal is denied, the PBM must provide the challenging pharmacy or pharmacist the NDC number and the name of the national or regional pharmaceutical wholesalers operating in Arkansas that have the drug currently in stock at a price below the MAC List; or If the NDC number provided by the PBM is not available below the pharmacy acquisition cost from the pharmaceutical wholesaler from whom the pharmacy or pharmacist purchases the majority of prescription drugs for resale, then the PBM shall adjust the MAC List above the challenging pharmacy s pharmacy acquisition cost and permit the pharmacy to reverse and rebill each claim affected by the inability to procure the drug at a cost that is equal to or less than the previously challenged MAC.

21 Arkansas SB 688 (Act 900) A pharmacy or pharmacist may decline to provide the pharmacist services to a patient or pharmacy benefits manager if, as a result of a Maximum Allowable Cost List, a pharmacy or pharmacist is to be paid less than the pharmacy acquisition cost of the pharmacy providing pharmacist services.

22 PCMA v. Rutledge PCMA arguing that Act 900: Violates the dormant Commerce Clause of the US Constitution by imposing an excessive burden on interstate commerce Violates the Contracts Clause of the US Constitution because it substantially impairs PBM customer contracts and pharmacy contracts Violates the Due Process Clause of the 14 th Amendment to the US Constitution because PBMs will not have knowledge necessary to fulfill a legal obligation created by Act. Is preempted by ERISA because it relates to employee benefit plans Is preempted by the Medicare Prescription Drug, Improvement, and Modernization Act because it applies to Medicare beneficiaries enrolled in Medicare Part D

23 PCMA v. Rutledge Hearing for Preliminary Injunction was held on November 4, Denied Each side has filed motions for Summary Judgment Judge heard oral arguments on motions for Summary Judgment on November 4, Judge said that he didn t usually schedule oral arguments on motions for summary judgment, but that the importance of the law to Arkansas consumers prompted him to hold oral arguments. During oral arguments, attorneys for both sides recalled just one instance since Act 900 took effect July 22, 2015, of a pharmacist refusing to fill a prescription. The pharmacy he worked for was removed from the prescription-drug benefit plan network, and the episode resulted in a lawsuit.

24 MAC LITIGATION Prime Therapeutics LLC v. CVS Pharmacy, Inc. U.S. District Court for Minnesota Filed December 29, 2015 Dismissed with Prejudice based on a Joint Stipulation of Dismissal with Prejudice on April 20, 2016

25 Prime Therapeutics v. CVS Pharmacy Express language of contract granted PBM the sole authority to determine the maximum per unit reimbursement for multiple source generic prescription drugs and also established that PBM had the sole discretion to review and modify the MAC. The Provider Manual provided, with respect to MAC reimbursement, that all products are reviewed on a regular basis and will be adjusted as-needed based on market conditions.

26 Prime Therapeutics v. CVS Pharmacy Medicare Part D regulations require that PBMs update any prescription drug pricing standard for reimbursement of network pharmacies based on the cost of a drug used by the Part D sponsor. The laws of numerous states also require that MAC pricing be tied to market or acquisition cost. E.G.: N.C. must adjust MAC price to remain consistent with changes in the national marketplace for prescription drugs. N.M. most modify MAC prices to remain consistent with pricing changes and product availability in the marketplace. LA must update MAC list within 7 days of change in the value of a variable involved in the methodology on which the MAC list is based. UT MAC must be determined using comparable and current data on drug prices

27 Prime Therapeutics v. CVS Pharmacy CVS alleged that: Prime s decision to reduce MAC reimbursement was for reasons unrelated to changes in the market for multi-source generic drugs and thus violated its express contractual promised (in the Provider Manual) that it would adjust MAC reimbursement as needed based on market conditions. Prime s discretion in setting MAC reimbursement must be subject to the implied covenant of good faith and fair dealing because if Prime s discretion in setting MAC reimbursement were unbounded, it would render the contract illusory and would violate the plain intent of the parties. Prime s conduct violated state and federal law.

28 QUESTIONS?