HB4124 - 572R

Be it enacted by the Legislature of the State of Arizona:

Section 1. Title 20, chapter 25, article 2, Arizona Revised Statutes, is amended by adding sections 20-3337, 20-3337.01, 20-3337.02, 20-3337.03, 20-3337.04 and 20-3337.05, to read:

START_STATUTE20-3337. Pharmacy benefit managers; reimbursement rates; definitions

A. A pharmacy benefit manager or a person acting on behalf of a pharmacy benefit manager may not reimburse a pharmacy or PHARMACIST in this state in an amount less than the acquisition cost for the covered drug, device or service. This subsection applies only to reimbursements for a contracted pharmacist or local pharmacy.

B. For claims that are submitted by a local pharmacy to a pharmacy benefit manager that administers claims on behalf of a health plan, A PHARMACY BENEFIT MANAGER, not including the department of administration, SHALL adopt ALL OF THE FOLLOWING REQUIREMENTS:

1. A reimbursement formula using either the national average drug acquisition costs or, with the department's prior written approval, an alternative prescription drug pricing benchmark that results in claim payment errors that are both comparable to or less than the national average drug acquisition costs in terms of frequency and smaller than the national average drug acquisition costs in terms of magnitude.

2. A reimbursement formula using an adjustment factor that, based on claims experience data available to the pharmacy benefit manager, is reasonably expected to result in a claim payment error rate of not more than two percent per drug as identified by the drug's national drug code.

3. An appeal PROCESS for pharmacists to challenge claim payment errors that meets the following requirements:

(a) A network pharmacy contract that is executed by and between a PHARMACY benefit manager and a pharmacy located in this state must contain a provision expressly acknowledging that if a pharmacy's reimbursement for any covered drug or device is less than the pharmacy's acquisition cost for that drug or device, the pharmacy may appeal the reimbursement and, if successful, receive additional payment so that the total reimbursement is equal to the pharmacy's demonstrated acquisition cost. THe PHARMACY benefit manager shall direct the pharmacy to the pharmacy benefit manager's electronic and written appeal locations.

(b) An appeal may be filed for a period of fifteen days after the applicable date of payment.

(c) If an appeal is filed with the pharmacy benefit manager, the pharmacy must include a written invoice from the wholesaler that includes the drug name, national drug code number, purchase date and cost of the drug.

(d) If a claim payment error occurred, the pharmacy benefit manager must make an additional payment to the pharmacy to increase the reimbursement amount to the ACQUISITION cost.

(e) The pharmacy benefit manager individually notifies all pharmacies using the same customary supplier or wholesaler that a claim payment error occurred and that the pharmacy may reverse and resubmit the claim to correct the claim payment error. The pharmacy benefit manager makes retroactive price adjustments in the next payment cycle.

(f) If a pharmacy benefit manager determines that a claim payment error did not occur, the pharmacy benefit manager shall provide the pharmacy or pharmacist with an explanation of why the payment was upheld, including a specific documentation of the acquisition cost on the date of service. The pharmacy benefit manager shall provide the explanation electronically or in writing through customary means of communication between the pharmacy benefit manager and the pharmacy or pharmacist. The explanation shall also include a notice in at least ten point font stating that if the pharmacy or pharmacist disagrees with the decision, the pharmacy or pharmacist may file a complaint with the Department.

C. For the purposes of this section:

1. "Acquisition cost" means the set of National Average Drug Acquisition Costs as calculated by the Centers for Medicare and Medicaid Services and reflected in the most recently released public file.

2. "Adjustment factor" means a percentage-based change to the prescription drug pricing benchmark, such as average wholesale price or national average drug acquisition cost, that is applied uniformly across a class of drugs.

3. "Claim payment error" means a pharmacy or PHARMACIST claim payment amount that fails to REIMBURSE at or above acquisition cost.

4. "Local pharmacy" means a pharmacy as defined in the North American Industry Classification system code 456110 that is domiciled in this state and that has fewer than ten retail outlets UNDER common ownership or control.

5. "Reimbursement formula" means a prescription drug reimbursement calculation INVOLVING an ingredient price, calculated based on a prescription drug pricing benchmark plus an adjustment factor, and a professional dispensing fee. END_STATUTE

START_STATUTE20-3337.01. Pharmacy benefit managers; negotiations; rebates; fee disclosure; definitions

A. A pharmacy benefit manager may negotiate but may not retain any portion of rebates that the pharmacy benefit manager RECEIVEs from a drug manufacturer. All manufacturer rebates shall be passed through to the plan sponsor as shared savings in the form of lower premiums, reduced cost-sharing, including reduced copays, coinsurance or deductibles for prescription drugs, or to provide BROADER drug coverage. The specific allocation of rebates and how the rebates are shared with plan members must be identified in the plan SPONSOR'S plan design and contract terms.

B. In a contract between the pharmacy benefit manager and the insurer or health plan the pharmacy benefit manager must disclose clearly and in writing all pharmacy benefit management fees.

C. On or before December 31 of each calendar year, each pharmacy benefit manager shall certify under oath to the department that the pharmacy benefit manager fully complied with this section for the prior calendar year. The chief financial officer of the pharmacy benefit manager shall sign the certification and the certification is subject to audit and penalty for false statements.

D. The department may review the compensation program of a pharmacy benefit manager or person acting on BEHALF of a pharmacy benefit manager with a health INSURANCE issuer, pharmacy services administrative organization, pharmacy or pharmacist or any person acting on behalf of the health insurance issuer, pharmacy services administrative organization, pharmacy or pharmacist, to ensure that the reimbursement for drugs, devices and services that is paid to the pharmacy or PHARMACIST is fair and REASONABLE.

E. Information provided to the department pursuant to subsection E of this section and specifically identified as confidential by the pharmacy benefit manager, including the terms and conditions of any contract and other proprietary information, is confidential and is not subject to disclosure except that, the department may disclose confidential information to insurance departments of other states or for any adjudicatory hearing or court proceeding invoked by the department pursuant to this section.

F. For the purposes of this section:

1. "Compensation program" means both of the following:

(a) Negotiated price concessions including base price concessions, that:

(i) are labeled as a rebate or otherwise, reasonable estimates of any price protection rebates and performance-based price concessions that may accrue directly or INDIRECTLY to the health insurance issuer or plan or any other party on behalf of the health insurance issuer or plan, including a pharmacy benefit manager, during the coverage year.

(ii) May come from a pharmaceutical manufacturer, dispensing pharmacy or other party in connection with the dispensing or administration of a prescription drug.

(b) Reasonable estimates, as determined by the department, of any negotiated price concessions, fees and other administrative costs that are passed through, or that are reasonably anticipated to be passed through, to the health insurance issuer or plan and that serve to reduce the health insurance issuer's or plan's liabilities for a prescription drug.

2. "Health insurance issuer":

(a) means an entity that offers health insurance coverage through a plan, policy or certificate of insurance subject to this title.

(b) Includes a health MAINTENANCE organization.

3. "Pharmacy Benefit Management fee" means a fee that is paid by an insurer or HEALTH plan to a pharmacy benefit manager for pharmacy benefit management services.

4. "Rebates":

(a) Means all rebates, discounts and other price concessions based on the use of a prescription drug and paid by the manufacturer or other party other than an enrollee, directly or indirectly, to the pharmacy benefit manager after the claim has been adjudicated at the pharmacy.

(b) Includes a reasonable estimate of any volume-based discount or other discounts as determined by the department.END_STATUTE

START_STATUTE20-3337.02. Pharmacy benefit managers; annual transparency reports; written notice of wholesale acquisition drug cost increase; power to examine books and records; definitions

A. On March 1 of each year a pharmacy benefit manager that is issued a certificate of authority by the department shall submit a transparency report as a condition of maintaining the certificate of authority. The transparency report must contain data from the prior calendar year relating to the following information for each of the pharmacy benefit manager's contractual or other relationships with a health benefit plan or health insurance issuer:

1. THe total amount of all rebates that the pharmacy benefit manager received from pharmaceutical manufacturers.

2. The total amount of all administrative fees that the pharmacy benefit manager received.

3. The total amount of all negotiated price concessions, including base price concessions, reasonable estimates of any price protection rebates other than manufacturer rebates and performance-based price concessions.

4. The total amount of all rebates passed to enrollees at the point-of-sale of a prescription drug.

5. The total amount of all reimbursement paid to network pharmacies in this state, specifically identified by local pharmacy and nonlocal pharmacy.

6. The total amount of all specialty drug rebates that the pharmacy benefit manager received.

7. The total number of other services provided by the PHARMACY benefit manager or its AFFILIATES or SUBSIDIARIES in addition to PRESCRIPTION drugs. THe total amount reported shall include identification of the service, the number of services provided, by WHOM the services were provided and the dollar AMOUNT relative to the provision of the services.

8. The complete corporate vertical INTEGRATION structure of all components related to the pharmacy benefit manager including the insurer, pharmacy benefit manager, group PURCHASING organization, manufacturer, wholesale distributor, special or mail-order pharmacy, retail or long-term care pharmacy and provider.

B. The transparency report must be made available in a form that does not disclose the identity of a specific health benefit plan, the prices charged for specific drugs or classes of drugs or the amount of any rebates provided for specific drugs or classes of drugs.

C. Within sixty days after receiving the transparency report, the department shall publish the transparency report on the department's website in a location that is designated for pharmacy benefit manager information.

D. The pharmacy benefit manager and the department may not publish or disclose any information that would reveal the identity of a specific health benefit plan, the prices charged for a specific drug or class of drugs or the amount of any rebates provided for a specific drug or class of drugs. The information that is described in this subsection is protected from disclosure as confidential and proprietary information and is not a public record pursuant to title 39, chapter 1.

E. A pharmaceutical drug manufacturer shall provide notice within thirty days after increasing the wholesale acquisition drug cost of a brand name drug by more than fifteen percent per wholesale acquisition cost unit during any twelve-month period, or generic or biosimilar drug with a significant price increase as determined by the department, in any twelve-month period or introducing a new drug for distribution in this state when the wholesale acquisition cost is greater than the amount that causes the drug to be considered a specialty drug under the Medicare Part D program. The manufacturer shall also report to the department SPECIFIC information about the drug that is subject to a price increase and an explanation of the increase, including whether it is in response to any rebate or formulary requirement.

F. The information required pursuant to this section must be submitted in a format determined by the department.

G. The department may examine the books or records of a pharmacy benefit manager to determine the accuracy of the transparency report. The department may access any information the department considers necessary to determine the accuracy of the transparency report including individual amounts paid by a health insurance ISSUER to the pharmacy benefit manager for drugs, devices or services provided by a pharmacist or pharmacy, and the individual AMOUNT that a pharmacy benefit manager paid to a pharmacist or pharmacy for the same drug, device or service. This subsection does not limit the authority of the department to examine or audit the books or records of a pharmacy benefit manager.

H. For the purposes of this section:

1. "Acquisition cost" has the same meaning prescribed in section 20-3337.

2. "Health benefit plan" or "health insurance coverage":

(a) means services consisting of medical care that is provided directly through insurance, reimbursement or other means.

(b) Includes items and services paid for as medical care under any HOSPITAL or medical service policy or certificate, HOSPITAL or medical service plan contract, preferred provider organization contract or health MAINTENANCE organization contact that is offered by a health insurance issuer.

3. "Health insurance issuer" has the same meaning prescribed in section 20-3337.01.

4. "Local pharmacy" has the same meaning prescribed in section 20-3337.

5. "Specialty Drug" means a drug that meets all of the following criteria:

(a) The drug is used to treat and is prescribed for a person with a complex, chronic or rare medical condition that is progressive, may be debilitating or fatal if left untreated or undertreated or for which there is no known cure.

(b) The drug is not routinely stocked at a majority of pharmacies within this state.

(d) Patients receiving the drug require complex education and treatment MAINTENANCE, including complex dosing, intensive monitoring or clinical oversight. END_STATUTE

START_STATUTE20-3337.03. Rate pricing; spread pricing; pharmacy steering; prohibitions; definitions

A. A pharmacy benefit manager in this state may not:

1. Conduct or participate in effective rate pricing or spread pricing.

2. Directly or indirectly engage in patient steering to a pharmacy in which the pharmacy benefit manager maintains an ownership interest or control. A pharmacy benefit manager is prohibited from retaliation or attempts to influence the patient to use an alternate pharmacy.

B. For the purposes of this section:

1. "Effective rate pricing" means any payment reduction for pharmacist or pharmacy services by a pharmacy benefit manager UNDER a reconciliation process for direct or indirect remuneration fees, a brand or generic effective rate of reimbursement or any other reduction or aggregate reduction of payment.

2. "Patient steering" includes any communication by a pharmacy benefit manager through data mining or other similar PROCESS of any patient information that is generated or obtained throughout the prescription filling process at any pharmacy, including contacting the patient verbally or in writing to directly or indirectly influence the patient or provide the patient with the option to use an alternate pharmacy that is a preferred carve-out or is in a strategic relationship with the pharmacy benefit manager or in which the pharmacy benefit manager maintains an ownership interest or control or contracts with to process prescriptions on its behalf.

3. "Pharmacy Benefit Management fee" has the same meaning prescribed in section 20-3337.01.

4. "Spread pricing" means any AMOUNT that is charged or claimed by a pharmacy benefit manager for a prescription drug and that exceeds the AMOUNT paid by the pharmacy benefit manager to the pharmacist or pharmacy for the dispensing of the prescription drug, minus a pharmacy benefit management fee.END_STATUTE

START_STATUTE20-3337.04. Violations; enforcement; pharmacy benefit manager enforcement fund

A. A violation of section 20-3337, 20-3337.01, 20-3337.02 or 20-3337.03 is an unlawful practice under section 44-1522. The attorney general may investigate and take appropriate action pursuant to title 44, chapter 10, article 7.

B. The pharmacy benefit manager enforcement fund is established consisting of Any monies collected as a result of a violation of this article. The department shall administer the fund. Monies in the fund are subject to legislative appropriation. Monies in the fund shall be used for the department's and attorney general's expenditures that are necessary to enforce this article. At the end of each fiscal year, any unexpended monies shall be returned to the policyholders pursuant to a program that is established by the department and the attorney general. END_STATUTE

START_STATUTE20-3337.05. Pharmacy benefit manager monitoring advisory council; members; meetings

A. A pharmacy benefit manager monitoring advisory council is established in the department that consists of the following members:

1. The director of the department of insurance and financial institutions, or the director's designee.

2. The attorney general or the attorney general's designee.

3. The Director of the Department of Health Services or the director's designee.

4. A pharmacist who works for a pharmacy that is part of a multilocation retail pharmacy business and who is appointed by the arizona state board of pharmacy.

5. An independent pharmacist who is appointed by the Arizona state board of pharmacy.

6. An employee of a pharmacy benefit manager who is licensed by the Arizona state board of pharmacy pursuant to title 32, chapter 18. The employee must have responsibility for and experience in daily administrative functions of the business practices of the pharmacy benefit manager.

7. The governor or the governor's designee.

8. THe chairperson of the Senate finance committee or its successor committee, or the chairperson's designee, who shall serve as the chairperson of the council.

9. The Chairperson of the House of representatives health and human services COmmittee or its successor committee, or the CHAIRperson'S designee, who shall serve as vice chairperson of the council.

B. The members of the pharmacy benefit manager monitoring advisory council serve at the pleasure of the respective appointing authorities described in subsection A of this section. Five members constitute a quorum for the transaction of all business. THe chairperson shall set a time and place for regular meetings of the pharmacy benefit manager monitoring advisory council. The pharmacy benefit manager monitoring advisory council shall meet at least quarterly and establish policies necessary to carry out its duties. expenses for the administrative staffing of the pharmacy benefit manager monitoring advisory council shall be paid with the licensing fees paid by pharmacy benefit managers and may be transferred BETWEEN state AGENCIES by memorandums of understanding.END_STATUTE

Sec. 2. Effective date

This act is effective from and after December 31, 2026.