HB1361

SECTION 1. The legislature finds that existing law requires pharmacy benefit managers to register with the insurance commissioner. The National Council of Insurance Legislators and the National Academy for State Health Policy have adopted model acts that establish the standard criteria for the regulation and licensure of pharmacy benefit managers providing claims processing services or other prescription drug or device services for health benefit plans.

The purpose of this Act is to increase transparency and promote, preserve, and protect the public health, safety, and welfare by adopting certain provisions of these models acts to:

(1) Prohibit pharmacy benefit managers from engaging in self-serving business practices;

(2) Increase the pharmacy benefit managers' annual reporting requirements; and

(3) Replace the registration requirement for pharmacy benefit managers with a licensure requirement.

SECTION 2. Chapter 431S, Hawaii Revised Statutes, is amended by adding two new sections to be appropriately designated and to read as follows:

"§431S- Pharmacy benefit manager business practices. A pharmacy benefit manager shall be prohibited from penalizing, requiring, or providing financial incentives, including variations in premiums, deductibles, copayments, or coinsurance, to covered persons as incentives to use specific retail, mail service pharmacy, or other network pharmacy provider in which a pharmacy benefit manager has an ownership interest or that has an ownership interest in a pharmacy benefit manager.

§431S- Transparency report. (a) No later than January 1, 2020, and annually thereafter, each pharmacy benefit manager shall submit a transparency report containing data from the preceding calendar year to the insurance commissioner that shall include:

(1) The aggregate amount of all rebates that the pharmacy benefit manager received from all pharmaceutical manufacturers for all covered entity clients and for each covered entity client;

(2) The aggregate administrative fees that the pharmacy benefit manager received from all manufacturers for all covered entity clients and for each covered entity client;

(3) The aggregate retained rebates that the pharmacy benefit manager received from all pharmaceutical manufacturers and did not pass through to covered entities;

(4) The aggregate retained rebate percentage; and

(5) The highest, lowest, and mean aggregate retained rebate percentage for all covered entity clients and for each covered entity client.

(b) A pharmacy benefit manager providing information under this section may designate that material as a trade secret; provided that disclosure may be ordered by a court of this State for good cause shown or made in a court filing.

(c) The insurance commissioner shall review the transparency report required under subsection (a) and, no later than sixty days after the receipt of the report, shall publish the transparency report on the insurance division's website in a manner that would not be considered an unauthorized disclosure of a pharmacy benefit manager's trade secrets."

SECTION 3. Section 431R-1, Hawaii Revised Statutes, is amended by amending the definition of "pharmacy benefit manager" to read as follows:

""Pharmacy benefit manager" means any person, business, or entity that performs pharmacy benefit management, including but not limited to a person or entity under contract with a pharmacy benefit manager to perform pharmacy benefit management on behalf of a managed care company, nonprofit hospital or medical service organization, insurance company, third-party payor, or health program administered by the State[.] and that is duly licensed pursuant to chapter 431S."

SECTION 4. Section 431S-1, Hawaii Revised Statutes, is amended as follows:

1. By adding six new definitions to be appropriately inserted and to read:

""Aggregate retained rebate percentage" means the percentage of all rebates received from a manufacturer or other entity to a pharmacy benefit manager for prescription drug utilization which is not passed on to pharmacy benefit managers' covered entity clients. The percentage shall be calculated for each covered entity for rebates in the prior calendar year as follows:

(1) The sum total dollar amount of rebates received from all pharmaceutical manufacturers for all utilization of covered persons of a covered entity that was not passed through to the covered entity; and

(2) Divided by the sum total dollar amount of all rebates received from all pharmaceutical manufacturers for covered persons of a covered entity.

"Mail service pharmacy" means a pharmacy whose primary business is to receive prescriptions by mail, telefax, or electronic submissions, and dispense medications to covered persons through the use of the United State postal service or other contract carrier services and that provides electronic, rather than face-to-face consultations, with patients.

"Network pharmacy" means a retail pharmacy located and licensed in the State and contracted by the pharmacy benefit manager to sell prescription drugs to beneficiaries of a prescription drug benefit plan administered by the pharmacy benefit manager.

"Rebates" means all price concessions paid by a manufacturer to a pharmacy benefit manager or covered entity, including rebates, discounts, and other price concessions that are based on actual or estimated utilization of a prescription drug. "Rebates" also includes price concessions based on the effectiveness of a drug as in a value-based or performance-based contract.

"Retail pharmacy" means a pharmacy, permitted by the board of pharmacy pursuant to section 461-14, that is open to the public, dispenses prescription drugs to the general public, and makes available face-to-face consultations between licensed pharmacists and the general public to whom prescription drugs are dispensed.

"Trade secret" shall have the same meaning as defined in section 482B-2."

2. By amending the definition of "pharmacy benefit manager" to read:

""Pharmacy benefit manager" means any person, business, or other entity, including a wholly or partially owned or controlled subsidiary of a pharmacy benefit manager, that is licensed pursuant to this chapter, and that performs pharmacy benefit management, including but not limited to a person or entity in a contractual or employment relationship with a pharmacy benefit manager to perform pharmacy benefit management for a covered entity. "Pharmacy benefit manager" shall not include any health care facility licensed in this State, a health care provider licensed in this State, or a consultant who only provides advice as to the selection or performance of a pharmacy benefit manager."

SECTION 5. Section 431S-3, Hawaii Revised Statutes, is amended to read as follows:

"[[]§431S-3[] ~~Registration~~] License required. (a) Notwithstanding any law to the contrary, no person shall act or operate as a pharmacy benefit manager without first obtaining a valid [~~registration~~] license issued by the commissioner pursuant to this chapter. The license shall not be transferable.

(b) The commissioner may grant a license under this chapter if the commissioner is satisfied that the applicant possessed the necessary organization, background expertise, and financial integrity to supply the services sought to be offered pursuant to this chapter.

(c) The commissioner may issue a license subject to restrictions or limitations upon the authorization, including the types of services that may be supplied or the activities in which the applicant may be engaged.

[~~(b)~~] (d) Each person seeking [~~to register~~] a license as a pharmacy benefit manager shall file with the commissioner an application on a form prescribed by the commissioner. The application shall include:

(1) The name, address, official position, and professional qualifications of each individual who is responsible for the conduct of the affairs of the pharmacy benefit manager, including all members of the board of directors; board of trustees; executive commission; other governing board or committee; principal officers, as applicable; partners or members, as applicable; and any other person who exercises control or influence over the affairs of the pharmacy benefit manager;

(2) The name and address of the applicant's agent for service of process in the State; and

(3) A nonrefundable application fee of $140.

(e) The commissioner may suspend, revoke, or place on probation a pharmacy benefit manager licensee if:

(1) The pharmacy benefit manager has engaged in fraudulent activity in violation of federal or state law;

(2) The commissioner receives consumer complaints that justify an action under this subsection to protect the safety and interest of consumers;

(3) The pharmacy benefit manager fails to pay required fees under this chapter; or

(4) The pharmacy benefit manager fails to comply with any other requirement under this chapter."

SECTION 6. Section 431S-4, Hawaii Revised Statutes, is amended to read as follows:

"[[]§431S-4[]] Annual renewal requirement. (a) Each pharmacy benefit manager shall renew its [~~registration~~] license by March 31 each year.

(b) When renewing its [~~registration,~~] license, a pharmacy benefit manager shall submit to the commissioner the following:

(1) An application for renewal on a form prescribed by the commissioner; and

(2) A renewal fee of $140.

(c) Failure on the part of a pharmacy benefit manager to renew its [~~registration~~] license as provided in this section shall result in a penalty of $140 and may cause the [~~registration~~] license to be revoked or suspended by the commissioner until the requirements for renewal have been met."

SECTION 7. Section 431S-5, Hawaii Revised Statutes, is amended to read as follows:

"[[]§431S-5[]] Penalty. Any person who acts as a pharmacy benefit manager in this State without first being [~~registered~~] licensed pursuant to this chapter shall be subject to a fine of [~~$500~~] $5,000 for each day of continued violation."

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. If any provision of this Act, or the application thereof to any person or circumstance, is held invalid, the invalidity does not affect other provisions or applications of the Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

SECTION 10. This Act shall take effect upon its approval.

INTRODUCED BY:	_____________________________

HOUSE OF REPRESENTATIVES	H.B. NO.	1361
THIRTIETH LEGISLATURE, 2019
STATE OF HAWAII