This docum ent does not reflect the intent or official position of the bill sponsor or House of Representatives.
STORAGE NAME: h0357e.HHS
DATE: 2/1/2022
HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: HB 357 Pharmacies and Pharmacy Benefit Managers
SPONSOR(S): Toledo and others
TIED BILLS: IDEN./SIM. BILLS: SB 1476
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Finance & Facilities Subcommittee 16 Y, 0 N Lloyd Lloyd
2) State Administration & Technology
Appropriations Subcommittee
14 Y, 0 N Lee Topp
3) Health & Human Services Committee 20 Y, 0 N Lloyd Calamas
SUMMARY ANALYSIS
Pharmacy benefit managers (PBMs) represent health insurers and health plan sponsors, which include self-
insured employers, union health plans, and government purchasers, in the selection, purchase, and distribution
of pharmaceuticals. They also organize and service pharmacy networks.
Until recently, PBMs operated largely in the absence of federal or state regulation. In the past five years, a
plurality of state legislatures have passed laws to prohibit specific practices by PBMs. In 2018, the Legislature
created a registration program for PBMs. Since January 1, 2019, PBMs operating in the state are required to
register with the Office of Insurance Regulation (OIR) by submitting a completed application form and fee for
registration. Effective July 1, 2018, the Legislature also prohibited the use of “gag clauses” that prevent
pharmacies from providing drugs to patients at the lowest applicable prices.
The Florida Pharmacy Act establishes a set of protections for licensed pharmacies regarding audits by PBMs
and other payers. The Act addresses many of the complaints expressed by pharmacies in relation to perceived
inequity, unfairness, or burdensome practices involved in such audits. However, the Pharmacy Act does not
provide a mechanism for the enforcement of the protections provided to pharmacies. The Board of Pharmacy
is tasked with adopting rules to implement the provisions of the Act and setting standards of practice within the
state, but the Board has no authority to regulate the actions of PBMs and insurers.
The bill transfers the audit provisions of the Florida Pharmacy Act to the Florida Insurance Code. This change
gives OIR the authority to enforce these provisions and respond to potential violations. In addition, the bill
expressly authorizes pharmacies to appeal audit findings made by health plans and PBMs using the existing
dispute resolution program available through the Agency for Health Care Administration (AHCA).
The bill establishes a financial penalty for PBMs that fail to register with OIR in accordance with current law. To
date, OIR has lacked the authority to actively enforce the registration requirement adopted by the Legislature in
2018. Accordingly, the bill establishes a $10,000 fine for any PBM failing to register with OIR.
The bill also expressly makes a health insurer or HMO responsible for violations of the pharmacy audit
provisions, even if a PBM is contracted to manage pharmacy benefits on behalf of the insurer or HMO.
The bill has an indeterminate, positive fiscal impact on the Insurance Regulatory Trust Fund due to OIR’s
collection of fines. The bill has an indeterminate, but likely minimal, fiscal impact on OIR expenditures. OIR
may need specialized staff for the regulatory oversight of PBMs and pharmacy audits. AHCA will also
experience an increased workload. However, OIR and AHCA can absorb the cost and workload within existing
resources. The bill has no fiscal impact to local government.
The bill provides an effective date of July 1, 2022. STORAGE NAME: h0357e.HHS PAGE: 2
DATE: 2/1/2022
FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Background
Pharmacy Benefit Managers
Pharmacy benefit managers (PBMs) represent health insurers and health plan sponsors, which include
self-insured employers, union health plans, and government purchasers, in the selection, purchase,
and distribution of pharmaceuticals.
1
PBMs negotiate with drug manufacturers, on behalf of health plan sponsors, in an effort to purchase
drugs at reduced prices or with the promise of additional rebates. This often involves the development
of drug formularies, which are tiered drug lists that incentivize the use of some drugs over others.
2
PBMs simultaneously negotiate with pharmacies to organize pharmacy networks and establish
reimbursements for dispensing prescription drugs to patients.
The U.S. pharmaceutical supply system is complex, and involves multiple organizations that play
differing, but sometimes overlapping, roles in drug distribution and contracting. PBMs generally do not
take physical possession of prescription drugs when performing their core pharmaceutical management
functions, but they play an integral role in determining how much a health plan sponsor and a patient
will pay for a given drug.
3
The following graphic offers a simplified glimpse of the prescription drug
supply chain.
PBMs have become major participants in the pharmaceutical supply chain. These entities first emerged
as claims processors in the late 1960s and early 1970s, but began to assume much more complex
1
“Health Policy Brief: Pharmacy Benefit Managers,” Health Affairs, September 14, 2017, available at
https://www.healthaffairs.org/do/10.1377/hpb20171409.000178/full/healthpolicybrief_178.pdf (last accessed Jan. 6, 2022).
2
Academy of Managed Care Pharmacy (AMCP), Formulary Management, https://www.amcp.org/about/managed-care-pharmacy-
101/concepts-managed-care-pharmacy/formulary-management (last accessed Jan. 6, 2022). See also, Pharmaceutical Care
Management Association (PCMA), Pharmacy Contracting & Reimbursement, available at https://www.pcmanet.org/policy-
issues/pharmacy-contracting-reimbursement/ (last accessed Jan. 6, 2022).
3
Henry J. Kaiser Family Foundation, Follow the Pill: Understanding the U.S. Commercial Pharmaceutical Supply Chain, March 2005,
available at https://www.kff.org/other/report/follow-the-pill-understanding-the-u-s/ (last accessed Jan. 6, 2022). STORAGE NAME: h0357e.HHS PAGE: 3
DATE: 2/1/2022
responsibilities in the 1990s in concert with advancements in information technology.
4
Currently, PBMs
are responsible for managing the pharmacy benefits of about 270 million Americans.
5
Around 66 PBMs
are currently operational in the United States, and the three largest – Express Scripts, CVS Caremark,
and OptumRx – have a combined market share of more than 89%.
6
PBM Revenue Streams
PBMs generate revenue from:
Administrative fees from their clients (insurers, self-insured employers, union health plans, and
government) for the administration of claims and drug dispensing;
Rebates negotiated from drug companies – in some cases, the rebates are shared between the
PBM and the health insurer or plan sponsor; and,
Fees charged to pharmacies, which may include per prescription fees from network pharmacies
and/or fees associated with participating in a PBM’s network.
7
Each PBM generates revenues from all or a combination of these sources. In theory, the negotiating
power of PBMs should translate into savings for patients, employers, and insurers in the form of
reduced drug costs. In addition, health plan sponsors benefit from sharing in the increased
manufacturer rebates that PBMs are often able to realize,
8
which may also reduce costs for consumers
and employers.
It is clear that some plan sponsors negotiate favorable terms when contracting with a PBM. A recent
survey of PBMs indicated that roughly 91% of rebates received from pharmaceutical manufacturers
were passed on to health plan sponsors in 2016.
9
However, it is also apparent that some small
employers and less engaged plan sponsors may not receive such a large share of rebates negotiated
by their contracted PBM.
Some PBMs also generate revenue using spread pricing arrangements. A pricing spread occurs when
a PBM is reimbursed by a plan sponsor at one price for a given drug, but pays a dispensing pharmacy
a lower price for that drug. In other words, the PBM retains some portion of the plan sponsor
reimbursement as earned income.
10
PBM critics contend that this practice increases costs for health
plan sponsors, or alternatively, results in lower reimbursements to pharmacies.
11
PBMs assert that their services result in significant savings for both insurers and patients.
12
Alternatively, PBMs have been characterized merely as “middlemen,” who are hired by health plans to
design formularies, negotiate rebates, set up pharmacy networks, and process claims.
13
Some critics
contend that a large share of rebates are retained by PBMs rather than being passed through to payers
and policyholders in the form of lower drug prices. Pharmacies and pharmacists have alleged that
PBMs use contract clauses to block the flow of pricing information to patients. In a statement prepared
4
“The ABCs of PBMs: Issue Brief.” National Health Policy Forum. October 27, 1999, https://www.nhpf.org/library/issue-
briefs/IB749_ABCsofPBMs_10-27-99.pdf (last accessed Jan. 6, 2022).
5
National Association of Insurance Commissioners, Pharmacy Benefit Managers, Mar. 16, 2021,
https://content.naic.org/cipr_topics/topic_pharmacy_benefit_managers.htm#:~:text=Today%2C%20there%20are%2066%20PBM,of%20
UnitedHealth%20Group%20Insurance)%20%E2%80%93%20controlling (last accessed Jan. 6, 2022).
6
Id.
7
Advisory Board Company, Pharmacy benefit managers, explained, November 13, 2019, https://www.advisory.com/daily-
briefing/2019/11/13/pbms (last accessed Jan. 9, 2022).
8
Id.
9
Pew Charitable Trusts, The Prescription Drug Landscape, Explored, March 2019, https://www.pewtrusts.org/en/research-and-
analysis/reports/2019/03/08/the-prescription-drug-landscape-explored (last accessed Jan. 6, 2022).
10
Prime Therapeutics, Can You Follow the Money?, March 17, 2017, https://pharmacy.primetherapeutics.com/en/services-
solutions/connect/contributors/follow_the_money.html (last accessed Jan. 6, 2022).
11
“Policy Options To Help Self-Insured Employers Improve PBM Contracting Efficiency," Health Affairs Blog, May 29, 2019,
https://www.healthaffairs.org/do/10.1377/forefront.20190529.43197/abs/ (last accessed Jan. 6, 2022).
12
Visante, The Return on Investment (ROI) on PBM Services, November 2016, https://www.pcmanet.org/wp-
content/uploads/2016/11/ROI-on-PBM-Services-FINAL.pdf (last accessed Jan. 6, 2022).
13
“Rebates, Coupons, PBMs, And The Cost Of The Prescription Drug Benefit,” Health Affairs Blog, April 26, 2018,
https://www.healthaffairs.org/do/10.1377/forefront.20180424.17957/abs/ (last accessed Jan. 6, 2022). STORAGE NAME: h0357e.HHS PAGE: 4
DATE: 2/1/2022
for the U.S. House Committee on Oversight and Government Reform, the National Community
Pharmacists Association asserted that pharmacies have been subject to “take it or leave it” contracts
with PBMs that include “clauses that restrict their (pharmacists) ability to communicate with patients”.
14
In addition, PBM contracts with health plan sponsors have been criticized for being confidential and
complex in nature.
15
PBM Regulation
Until recently, PBMs operated largely in the absence of federal or state regulation. In the past five
years, a plurality of state legislatures have passed laws to prohibit specific practices by PBMs.
16
Both
the Legislature
17
and Congress
18
have prohibited the use of so-called “gag clauses” by PBMs. A gag
clause refers to a contractual requirement that prevents a pharmacy or pharmacist from telling a patient
when it would cost less to pay cash for a prescription than to pay the copayment under that patient’s
health insurance.
In 2018, the Legislature created a registration program for PBMs.
19
Since January 1, 2019, PBMs
operating in the state are required to register with the Office of Insurance Regulation (OIR) by
submitting a completed application form and fee. The registration requires that a PBM provide basic
identifying information to the state, but does not authorize state oversight of PBM practices.
20
According
to OIR, 66 PBMs are currently registered to operate in Florida.
21
Current law also requires contracts between PBMs and insurers or HMOs to include specific limits on
the cost sharing that will be incurred by patients. Each contract must specify that a patient’s cost share
shall equal the lower of the following prices:
The applicable cost sharing obligation under a patient’s insurance; or,
The retail (or “cash”) price of the drug prescribed.
22
This prohibits PBMs from preventing patients from paying the lowest applicable price for a particular
drug.
Pharmacy Audits
PBMs and health plan sponsors use audits to review payments to pharmacies. The audits are designed
to ensure that procedures and reimbursement mechanisms are consistent with contractual and
regulatory requirements. Several different types of audits have been developed to address changes in
benefit and billing processes:
Field/On-site audit – performed onsite at the pharmacy and involve physical observations,
prescription reviews, inventory, and checks for compliance. Generally, the auditor will review
claims from the previous 12 to 18 months of their specific claims and provide a range of
prescriptions to have readily available for review beforehand.
Purchase Verification audit – review the amounts and coding of medications that are submitted
by pharmacies from wholesale receipts. These can be classified as investigational type audits
and are in accordance with third-party payor agreements.
14
National Community Pharmacists Association. Statement for the Record: National Community Pharmacists Association. U.S. House
Committee on Oversight and Government Reform. February 4, 2016, http://www.ncpa.co/pdf/ncpa-ogr-statement.pdf (last accessed
Jan. 6, 2022).
15
Supra note 12.
16
See National Conference of State Legislatures, State Policy Options and Pharmacy Benefit Managers (PBMs), March 17, 2021
https://www.ncsl.org/research/health/state-policy-options-and-pharmacy-benefit-managers.aspx (last accessed Jan. 6, 2022).
17
Ch. 2018-91, Laws of Fla. Ss. 627.64741, 627.6572, and 641.314, F.S.
18
Patient Right to Know Drug Prices Act, Pub. L. No. 115-263, 115th Cong. (Oct. 10, 2018).
19
Ch. 2018-91, Laws of Fla.
20
S. 624.490, F.S.
21
Florida Office of Insurance Regulation, Active Company Search for Pharmacy Benefit Managers,
https://www.floir.com/CompanySearch/index.aspx (last accessed Jan. 6, 2022).
22
Ss. 627.64741, 627.6572, and 641.314, F.S. STORAGE NAME: h0357e.HHS PAGE: 5
DATE: 2/1/2022
Investigational audit – providers are contacted normally by telephone or mail and asked to
provide photocopies of specific documents and records related to claims paid to the provider
during a specified period of time. Documentation may include copies of original prescriptions,
signature logs, computer records, and invoices showing purchase or receipt of dispensed
medications.
Desk/mail audit – uses automated means to review pharmacy claims and encounter data
received by the plan or PBM. This type of audit requires the pharmacy to locate prescription
records and send them to the plan or PBM. It is set up to evaluate prescribing patterns,
physician referral patterns, utilization overrides, ingredient cost integrity, geographic prescribing
reports, payment reports, and billed issues to identify possible abusive or fraudulent activity.
Prescriber/member audits – have specific claim information submitted by the pharmacy and is
then thoroughly verified by a prescriber/physician to ensure that each party’s records coincide. It
is essentially handled the same as a Desk/Mail Audit. Member Audits are similar to the
Prescriber Audit with the exception that the corresponding claims are verified with the
patient/customers verification.
Telephone audit – pharmacy is contacted by the PBM usually to correct billing on a single or
small number of claims. It is not used for large volumes of claims. Failure to comply with a
telephone audit will normally result in the PBM reversing the claim and could lead to a desk or
on-site audit.
23
While the parameters of pharmacy audits are generally set in contracts between pharmacies and PBMs
or payors, the Florida Pharmacy Act establishes a set of protections
24
for licensed pharmacies that are
subject to audits by these entities. The Act attempts to address many of the complaints expressed by
pharmacies in relation to perceived inequity, unfairness, or burdensome practices involved in audits. In
particular, the Act provides the following rights to a pharmacy regarding an audit:
To be given 7 days of notice prior to the initial onsite audit of each audit cycle.
To have an onsite audit scheduled after the first 3 calendar days of the month, unless the
pharmacist consents to an earlier audit date.
To limit the audit period to 24 months from the date a claim was submitted to or adjudicated by
the entity conducting the audit.
To have an audit which requires clinical or professional judgment conducted by or in
consultation with a pharmacist.
To use the written and verifiable records of a hospital or authorized practitioner to validate a
pharmacy record in accordance with state and federal law.
To be reimbursed for a claim that was retroactively denied for a clerical, scrivener’s,
typographical, or computer error if the patient received the correct medication, dose, and
instructions for administration, unless a pattern of errors exists or fraud is alleged, or the error
results in actual financial loss to the entity.
To receive a preliminary audit report within 120 days after conclusion of the audit.
To produce documentation to challenge a discrepancy or finding within 10 days after the
preliminary audit report is delivered to the pharmacy.
To receive the final audit report within 6 months of receiving the preliminary audit report.
To have penalties and recoupments based on actual overpayments and not according to
accounting principles of extrapolation.
However, the Pharmacy Act does not provide a mechanism for the enforcement of these rights. The
Board of Pharmacy is tasked with adopting rules to implement the provisions of the Act and setting
standards of practice within the state, but the Board has no authority to regulate the actions of PBMs
and insurers.
25
23
American Pharmacy Cooperative, Inc., Audit Information – Types of Audits,
https://www.apcinet.com/Services/CAPS/AuditInformation/tabid/667/Default.aspx (last accessed Jan. 6, 2022).
24
S. 465.1885, F.S.
25
Ss. 465.005, 465.0155, and 465.022, F.S. The authority of the Board of Pharmacy is limited to regulation of pharmacies and
pharmacists. STORAGE NAME: h0357e.HHS PAGE: 6
DATE: 2/1/2022
Statewide Provider and Health Plan Claim Dispute Resolution Program
The Statewide Provider and Health Plan Claim Dispute Resolution Program (Program) was established
in 2000 to provide assistance to contracted and non-contracted providers and health plans for
resolution of claim disputes.
26
Under the Program, the Agency for Health Care Administration (AHCA)
contracts with a resolution organization
27
to timely review and consider claim disputes submitted by
providers and health plans and to recommend to AHCA an appropriate resolution of those disputes.
28
AHCA does not have authority to evaluate the recommendation of the resolution organization and must
enter a final order adopting it within 30 days of receiving it.
29
Although the vast majority of disputes under the program are initiated by hospital facilities, a pharmacy
may also seek resolution of claims disputes under the program.
Effect of Proposed Changes
Pharmacy Benefit Managers
The bill establishes a financial penalty for PBMs that fail to register with OIR in accordance with current
law. To date, OIR has lacked the authority to actively enforce the registration requirement adopted by
the Legislature in 2018. Accordingly, the bill establishes a $10,000 fine for any PBM failing to register
with OIR.
Pharmacy Audits
The bill transfers the audit provisions of the Florida Pharmacy Act to the Florida Insurance Code. This
gives OIR the authority to enforce these provisions and respond to potential violations. In addition, the
bill expressly authorizes pharmacies to appeal audit findings made by health plans and PBMs using the
existing dispute resolution program available through AHCA.
The bill specifically makes a health insurer or HMO responsible for violations of the pharmacy audit
provisions, even if a PBM is contracted to manage pharmacy benefits on behalf of the insurer or HMO.
Although not expressly stated in the bill, PBMs would be subject to OIR’s regulatory oversight and
could be fined for violations of the Florida Insurance Code.
The bill provides an effective date of July 1, 2022.
B. SECTION DIRECTORY:
Section 1: Transfers and amends s. 465.1885, F.S., relating to pharmacy audits; rights.
Section 2: Amends s. 624.490, F.S., relating to registration of pharmacy benefit managers.
Section 3: Provides an effective date of July 1, 2022.
II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT
A. FISCAL IMPACT ON STATE GOVERNMENT:
1. Revenues:
26
S. 408.7057, F.S.; Agency for Health Care Administration, Statewide Provider and Health Plan Claim Dispute Resolution Program -
2020 Annual Report, February 2021,
https://ahca.myflorida.com/MCHQ/Health_Facility_Regulation/Commercial_Managed_Care/cdrp.shtml (last accessed Jan. 6, 2022).
27
“Resolution organization” is a qualified independent third-party claim-dispute-resolution entity selected by and contracted with AHCA.
s. 408.7057(1)(c), F.S. AHCA selected MAXIMUS, Inc. as the resolution organization.
28
S. 408.7057(2)(a), F.S.
29
S. 408.7057(4), F.S. STORAGE NAME: h0357e.HHS PAGE: 7
DATE: 2/1/2022
Section 2 of the bill establishes a $10,000 fine for PBMs failing to register with OIR while operating
as a PBM. The collection of fines may have a positive indeterminate, but likely minimal, fiscal
impact on OIR revenues. Additionally, PBMs would be subject to existing fines in law for violations
of the Florida Insurance Code. The amount of the additional revenues from fines is indeterminate,
but will likely have a minimal positive impact. Section 624.523, F.S., provides that all fines,
monetary penalties, and costs imposed by OIR for violations of law shall be deposited into the
Insurance Regulatory Trust Fund.
2. Expenditures:
OIR
OIR may require specialized staff to provide oversight of pharmacy audits by health plans and
PBMs.
30
The Office may incur indeterminate costs to conduct these oversight activities. OIR
indicates that the estimated cost to contract with a pharmacist for training and/or consulting on
complaints involving pharmacy audits is $100,000.
31
The bill may also increase workload for OIR
staff to provide regulatory oversight of pharmacy audits and PBMs, including but not limited to
investigating complaints related to potential violations of the Florida Insurance Code. OIR can likely
absorb this cost and workload within existing resources.
AHCA
The bill allows pharmacies to appeal PBM findings to whether claim payments are due and the
amount of a claim warrant. AHCA administers this process through the statewide provider and
health plan claim dispute resolution program. While this will increase the workload for AHCA’s
contract manager for the claim dispute resolution program and the number of related final orders
issued by AHCA’s Office of the General Counsel, it is unknown how many pharmacies will now
utilize this option. AHCA anticipates this increased workload can be absorbed with existing staff and
resources.
32
B. FISCAL IMPACT ON LOCAL GOVERNMENTS:
1. Revenues:
None.
2. Expenditures:
None.
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
None.
D. FISCAL COMMENTS:
None.
III. COMMENTS
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
Not applicable. This bill does not appear to affect county or municipal governments.
2. Other:
30
Florida Office of Insurance Regulation, Agency Analysis of 2022 House Bill 357, p. 3 (Nov. 2, 2021).
31
Id.
32
Agency for Health Care Administration, Agency Analysis of 2022 House Bill 357, p. 2 (Nov. 22, 2021). STORAGE NAME: h0357e.HHS PAGE: 8
DATE: 2/1/2022
None.
B. RULE-MAKING AUTHORITY:
OIR has sufficient rulemaking authority to implement the provisions of the bill.
C. DRAFTING ISSUES OR OTHER COMMENTS:
None.
IV. AMENDMENTS/ COMMITTEE SUBSTITUTE CHANGES