HOUSE BILL NO. 5338

November 14, 2023, Introduced by Reps. McFall, Arbit, Price, Morgan, Rheingans, Hope, Hood, Weiss, Tsernoglou, Stone, Aiyash and Hoskins and referred to the Committee on Insurance and Financial Services.

A bill to amend 2022 PA 11, entitled

"Pharmacy benefit manager licensure and regulation act,"

by amending sections 5, 7, and 9 (MCL 550.815, 550.817, and 550.819) and by adding section 10.

the people of the state of michigan enact:

Sec. 5. As used in this act:

(a) "Affiliated pharmacy" means, except as otherwise provided in this subdivision, a network pharmacy that directly, or indirectly through 1 or more intermediaries, controls, is controlled by, or is under common control with, a pharmacy benefit manager. As used in section 19, affiliated pharmacy does not include a pharmacy that controls, is controlled by, or is under common control with, a hospital as that term is defined in section 20106 of the public health code, 1978 PA 368, MCL 333.20106.

(b) "Aggregate retained rebate percentage" means the percentage of all rebates received by a pharmacy benefit manager from all manufacturers, that is not passed on to the pharmacy benefit manager's Michigan health plan or insurer clients. Aggregate retained rebate percentage must be expressed without disclosing any identifying information regarding any health plan, drug, or therapeutic class, and must be calculated as follows:

(i) Calculate the aggregate dollar amount of all rebates that the pharmacy benefit manager received during the prior calendar year from all manufacturers and did not pass through to the pharmacy benefit manager's Michigan health plan or insurer clients.

(ii) Divide the result of the calculation under subparagraph (i) by the aggregate dollar amount of all rebates that the pharmacy benefit manager received during the prior calendar year from all manufacturers.

(c) "Carrier" means that term as defined in section 3701 of the insurance code of 1956, 1956 PA 218, MCL 500.3701.

(d) "Claim" means a request for payment for administering, filling, or refilling a drug or for providing a pharmacy service or a medical supply or device to an enrollee.

(e) "Claims processing services" means the administrative services performed in connection with the processing and adjudicating of claims relating to pharmacist services that include any of the following:

(i) Receiving payments for pharmacist services.

(ii) Making payments to pharmacists or pharmacies for pharmacist services.

(iii) Receiving and making the payments described in subparagraphs (i) and (ii).

(f) "Covered person" means a person that is insured in a health plan.

(g) "Department" means the department of insurance and financial services.

(h) "Defined cost sharing" means a deductible payment or coinsurance amount that an insurer imposes on an enrollee for a covered prescription drug under the enrollee's health plan.

(i) (h) "Director" means the director of the department.

(j) (i) "Enrollee" means that term as defined in section 116 of the insurance code of 1956, 1956 PA 218, MCL 500.116.an individual entitled to coverage of health care items or services from an insurer.

(k) (j) "Financially viable" means that 1 of the following conditions is met:

(i) The pharmacy benefit manager has received an unqualified opinion from an independent public accountant showing it is solvent based on generally accepted accounting principles.

(ii) If no independent public accountant opinion is obtained, the pharmacy benefit manager remains solvent after adjusting for goodwill and intangible assets.

(l) (k) "Health plan" means a qualified health plan as that term is defined in section 1261 of the insurance code of 1956, 1956 PA 218, MCL 500.1261.policy, contract, certificate, or agreement offered or issued by an insurer to provide, deliver, arrange for, pay for, or reimburse any of the costs of health care items or services.

(m) (l) "Individual responsible for the conduct of affairs of the pharmacy benefit manager" means any of the following:

(i) A member of the board of directors, board of trustees, executive committee, or other governing board or committee.

(ii) A principal officer for a corporation or a partner or member for a partnership, association, or limited liability company.

(iii) A shareholder or member holding directly or indirectly 10% or more of the voting stock, voting securities, or voting interest of the pharmacy benefit manager.

(iv) Any person who exercises control over the affairs of the pharmacy benefit manager.

(n) (m) "Insurer" means an insurer that delivers, issues for delivery, or renews in this state a health plan that provides drug coverage under the insurance code of 1956, 1956 PA 218, MCL 500.100 to 500.8302.offers health insurance coverage, as defined in 42 USC 300gg-91, and is subject to the insurance laws of this state, including any entity issuing medical coverage through a group policy, or any state or local governmental employer plan.

Sec. 7. As used in this act:

(a) "Mail-order pharmacy" means a pharmacy whose primary business is to receive prescriptions by mail, fax, or through electronic submissions, dispense drugs to enrollees through the use of the United States Postal Service or other common carrier services, and provide consultation with patients electronically rather than face-to-face.

(b) "Manufacturer" means that term as defined in section 17706 of the public health code, 1978 PA 368, MCL 333.17706.

(c) "Maximum allowable cost" means the maximum amount that a pharmacy benefit manager will reimburse a network pharmacy for the ingredient cost for a generic drug.

(d) "Maximum allowable cost list" means a listing of drugs used by a pharmacy benefit manager, directly or indirectly, to set the maximum allowable cost.

(e) "Multiple source drug" means a therapeutically equivalent drug that is available from 1 or more of the following:

(i) At least 1 brand-named manufacturer and at least 1 generic manufacturer.

(ii) Two or more generic manufacturers.

(f) "Network pharmacy" means a retail pharmacy or other pharmacy that contracts directly or through a pharmacy services administration organization with a pharmacy benefit manager.

(g) "Nonaffiliated pharmacy" means a network pharmacy that directly, or indirectly through 1 or more intermediaries, does not control, is not controlled by, and is not under common control with, a pharmacy benefit manager.

(h) "Person" means an individual, partnership, corporation, unincorporated association, joint venture, limited liability company, trust, estate, foundation, not-for-profit corporation, unincorporated organization, governmental entity, or any other legal entity.

(i) "Pharmacist" means that term as defined in section 17707 of the public health code, 1978 PA 368, MCL 333.17707.

(j) "Pharmacist services" means products, goods, and services, or any combination of products, goods, and services, provided as a part of the practice of pharmacy.

(k) "Pharmacy" means that term as defined in section 17707 of the public health code, 1978 PA 368, MCL 333.17707.

(l) Except as otherwise provided in subdivision (m), "pharmacy "Pharmacy benefit management service" means any of the following:

(i) Negotiating the price of prescription drugs, including negotiating and contracting for direct or indirect rebates, discounts, or other price concessions.

(ii) Managing any aspect of a prescription drug benefit, including, but not limited to, the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to the prescription drug benefit, contracting with network pharmacies, controlling the cost of covered prescription drugs, managing or providing data relating to the prescription drug benefit, or providing related services.

(iii) Performance of any administrative, managerial, clinical, pricing, financial, reimbursement, data administration or reporting, or billing service.

(iv) Services the director prescribes by rule.

(m) "Pharmacy benefit manager" means an entity that contracts with a pharmacy or a pharmacy services administration organization on behalf of a health plan or carrier to provide pharmacy health services to individuals covered by the health plan or carrier or administration that includes, but is not limited to, any of the following:

(i) Contracting directly or indirectly with pharmacies to provide drugs to enrollees or other covered persons.

(ii) Administering a drug benefit.

(iii) Processing or paying pharmacy claims.

(iv) Creating or updating drug formularies.

(v) Making or assisting in making prior authorization determinations on drugs.

(vi) Administering rebates on drugs.

(vii) Establishing a pharmacy network.

(m) "Pharmacy benefit manager" does not include the department of health and human services, a carrier, or an insurer.a person that, under a written agreement with an insurer or health plan, either directly or indirectly, provides 1 or more pharmacy benefit management services on behalf of the insurer or health plan, and any agent, contractor, intermediary, affiliate, subsidiary, or related entity of the person that facilitates, provides, directs, or oversees the provision of the pharmacy benefit management services. Pharmacy benefit manager does not include the department of health and human services, a carrier, or an insurer.

(n) "Pharmacy benefit manager network" means a network of pharmacists or pharmacies that are offered by an agreement or contract to provide pharmacist services.

(o) "Pharmacy services administration organization" means an entity that provides contracting and other administrative services relating to prescription drug benefits to pharmacies.

(p) "Plan sponsor" means that term as defined in section 7705 of the insurance code of 1956, 1956 PA 218, MCL 500.7705.

(q) "Practice of pharmacy" means that term as defined in section 17707 of the public health code, 1978 PA 368, MCL 333.17707.

(r) "Preferred pharmacy" means a network pharmacy that offers covered drugs to health plan members at lower out-of-pocket costs than what the member would pay at a nonpreferred network pharmacy.

(s) "Price protection rebate" means a negotiated price concession that accrues directly or indirectly to the insurer, or other party on behalf of the insurer, including a pharmacy benefit manager, in the event of an increase in the wholesale acquisition cost of a drug above a specified threshold.

Sec. 9. As used in this act:

(a) "Rebate" means a formulary discount or remuneration attributable to the use of prescription drugs that is paid by a manufacturer or third party, directly or indirectly, to a pharmacy benefit manager after a claim has been adjudicated at a pharmacy. Rebate does not include a fee, including, but not limited to, a bona fide service fee or administrative fee, that is not a formulary discount or remuneration described in this subdivision.either of the following:

(i) Negotiated price concessions, including, but not limited to, base price concessions and reasonable estimates of any price protection rebates and performance-based price concessions that may accrue directly or indirectly to the insurer, or other party on behalf of the insurer, including a pharmacy benefit manager, during the coverage year from a manufacturer, dispensing pharmacy, or other party in connection with the dispensing or administration of a prescription drug.

(ii) Reasonable estimates of any negotiated price concessions, fees, and other administrative costs that are passed through, or are reasonably anticipated to be passed through, to the insurer, or other party on behalf of the insurer, including a pharmacy benefit manager, and serve to reduce the insurer's liabilities for a prescription drug.

(b) "Retail pharmacy" means a pharmacy that dispenses prescription drugs to the public at retail primarily to individuals that reside in close proximity to the pharmacy, typically by face-to-face interaction with the individual or the individual's caregiver.

(c) "Rule" means a rule promulgated under the administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328.

(d) "Specialty drug" means a drug that provides treatment for serious, chronic, or life-threatening diseases that is covered under a patient's health plan or by a patient's carrier to which any of the following apply:

(i) The cost of the drug exceeds the drug cost threshold established by the Centers for Medicare and Medicaid Services under the Medicare Part D program.

(ii) The drug requires special administration, including, but not limited to, injection, infusion, or inhalation.

(iii) The drug requires unique storage, handling, or distribution.

(iv) The drug requires special oversight, intensive monitoring, complex education and support, or care coordination with a person licensed under article 15 of the public health code, 1978 PA 368, MCL 333.16101 to 333.18838.

(e) "Specialty pharmacy" means a pharmacy that dispenses specialty drugs to patients and that is nationally accredited by an independent third party.

(f) "Spread pricing" means the either of the following:

(i) Any amount charged or claimed by a pharmacy benefit manager in excess of the ingredient cost for a dispensed prescription drug plus dispensing fee paid directly or indirectly to any pharmacy, pharmacist, or other provider on behalf of the health plan, less a pharmacy benefit management fee.

(ii) The model of prescription drug pricing in which a pharmacy benefit manager charges a health plan a contracted price for prescription drugs, and the contracted price for the prescription drugs differs from the amount the pharmacy benefit manager directly or indirectly pays the pharmacist or pharmacy for pharmacist services.

(g) Except as otherwise provided in subdivision (h), "third party" means a person that is not an enrollee or insured in a health plan.

(h) "Third party" does not include a pharmacy benefit manager.

(i) "Wholesale distributor" means that term as defined in section 17709 of the public health code, 1978 PA 368, MCL 333.17709.

Sec. 10. (1) An enrollee's defined cost sharing for each prescription drug must be calculated at the point of sale based on a price that is reduced by an amount equal to 100% of all rebates received, or to be received, in connection with the dispensing or administration of the prescription drug.

(2) In complying with this section, a pharmacy benefit manager or its agents shall not publish, or directly or indirectly disclose any of the following:

(a) Information regarding the amount of rebates an insurer receives on a product or therapeutic class of products, manufacturer, or pharmacy-specific basis.

(b) Information that reveals the identification of an individual product or therapeutic class of products.

(3) The information described in subsection (2) is considered a trade secret and is exempt from disclosure under the freedom of information act, 1976 PA 442, MCL 15.231 to 15.246.

(4) This section does not prevent a pharmacy benefit manager or an insurer from decreasing an enrollee's defined cost sharing by an amount greater than the amount described in subsection (1).

(5) The director shall impose a civil fine on a pharmacy benefit manager of not more than $1,000.00 for each violation of this section, not to exceed $10,000.00 in the aggregate for multiple violations. However, if a pharmacy benefit manager knew or reasonably should have known that the pharmacy benefit manager violated this section, the director shall impose a civil fine on the pharmacy benefit manager of not more than $2,500.00 for each violation of this section, not to exceed $25,000.00 in the aggregate for multiple violations within 6 months.

(6) If the director finds that an insurer has violated this section, after an opportunity for a hearing under the administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328, the director shall impose a civil fine on an insurer of not more than $500.00 for each violation of this section.