Joint Insurance Committee

December 16, 2024

 

Senator Ricky Hill We're going to call this meeting to order. For all the audience, thank you for coming today. If there's anyone out there that is not on the agenda or has not signed up, there's a sign up sheet out front. Please get signed up before they pick it up if you want to speak today. As I said just a while ago, thank you for coming. We look forward to a lot of good testimony today so we can all make a good, wise decision on what needs to be done. So thank you for coming. Mr. Co-Chairs, anything you'd like to add?

 

Representative John Maddox Thank you, Senator. I just want to echo what he said. Appreciate everyone being here and the interest. We look forward to a robust discussion of all the issues today and appreciate you being here.

 

Senator Ricky Hill First item on our agenda is approval of the meeting minutes from the last meeting. You should have that exhibit B. I have a motion from Senator Irvin. We have a second. Second, Senator Brown. I mean Representative Brown. All those in favor, say aye. Opposed, same sign. Minutes are approved. Okay. We're going to start out with the review of Rule 128, Rules and Regulations Pertaining to Pharmacy Benefit Managers. We'd like to ask Mr. McClain to come up with his staff. Please introduce yourself for the record. Mr. Commissioner, I guess that means you have no comments.

 

Alan McClain All right. Sorry about that. Alan McClain, insurance commissioner. And my colleagues will introduce themselves.

 

Jake Windley Jake Windley, director of legislative affairs for the Department of Commerce.

 

Booth Rand I think this works. Booth Rand, General Counsel, Arkansas Insurance Department.

 

Senator Ricky Hill You can go ahead and proceed, sir.

 

Alan McClain All right. Thank you, Mr. Chair. Again, Alan McClain, Insurance commissioner. And we're here today to present to you Rule 128, which we have completed the promulgation process or are at the end of a promulgation process. And so Rule 128, and many of you are familiar with it, but our processing and promulgating of this is in accordance with the Pharmacy Benefit Manager Licensing Act and which does note that the Department shall adopt rules related to PBM network adequacy. So that's why we've put this together in an attempt to exercise our responsibility under the PBMLA. A

nd the rule and its corresponding bulletins does seek to comply with the law, again, the PBLMA that the General Assembly has passed. And the rule and the corresponding bulletin that General Counsel Rand will outline does outline a process for collection of payment information for health plans. And this is in an effort to ensure pharmacy network adequacy. And so the idea would be that just to verify that the pharmacies are reimbursed in a fair and reasonable manner. 

And so with the presumption being that if plans are not reimbursing in a fair and reasonable manner, that there would be less likely that there would be adequate pharmacy networks for our citizens of the state. So that's what got us here today. And if you're ready then Booth can kind of walk through the rule.

 

Booth Rand There we go. Okay. Thank you. This initiative started in early spring of this year, maybe the late winter. The Insurance Department began to receive a significant number of complaints from pharmacies around the state complaining about inadequate reimbursement from PBMs and health plans, primarily in generic reimbursement or generic drugs. We were receiving about 7 to 10 emails or letters a day beginning back in February or March. I did not think it was coordinated in any way or form by the Pharmacy Association or anybody. 

A variety of different pharmacies who didn't know each other were all complaining about the same thing. And what we've seen in the last year and a half is PBMs, through the health plans, have been reimbursing pharmacies right at the level of NADAC or national average drug acquisition cost right at that level for drugs that are dispensed both in generic and brand. And the complaint by the pharmacies was that if we're only going to be reimbursed our inventory cost or our reimbursement cost, we're going to not be able to sustain business. 

And to give you an example, on a small generic, let's say it's $5, the pharmacy is reimbursed $5.60 by the PBM and they make $0.60 gross profit. But what the pharmacies would like to tell you and what they complain about is that you don't know that the pharmacy or the pharmacist that got the 60 cent gross profit or surplus there had to spend 30 minutes on the phone getting a prior authorization, had to spend 3 or 4 minutes with the customer to go over contraindications and other required licensing disclosures, had to submit the claim, had to label the drug, had to do all of that and make only $0.60 on that. And many times it's less than that or below acquisition cost. And so what I want members to understand here is I think when you really compress this issue up for evaluation, you're looking at, What should we require health plans or PBMs to pay pharmacies for these administrative costs or overhead where they're only making barely a cent or more over acquisition or their inventory cost. 

They will tell you that the administrative overhead just to label the drug, go through all of the prior authorizations, to go through all of that should be in the neighborhood of about a $10 administrative cost. And so over the last spring, many of the pharmacies felt like Arkansas should adopt what Tennessee, West Virginia and what Kentucky have done, which is to require a $10.50 dispensing fee on every transaction to help overcome their administrative costs for dispensing the drug. And so with that, with the complaints that had been coming in, and many of them escalated up until May or June of this year until we started discussing this initiative with pharmacies who have been applauding this rule. And I got 3 or 4 emails this morning and I think the commissioner gets quite a few from pharmacies that applaud this rule. 

But essentially that is the background for this rule and why we initiated the rule at the Insurance Department. Let me explain the rule itself. We have submitted a lot of documents to the Bureau, both to the Rules Subcommittee, as well as to this Insurance Committee. And I apologize, but this has been a very difficult rule for us. And so, although you may disagree with it, we have done a lot of work with this. And I think that should be evident from the documents that you've gotten. We did have a hearing on this last month. We received over 85 different comments. All of those are in your package. 

The majority of comments were from pharmacies that are for this rule. But there are a significant number of opposition to this over cost impact and over just implementation issues. And so I will try to address each of those if I can. I will start with the rule itself. If you look at the clean version of the rule under the section of authority. The commissioner has authority to issue a rule related to compensation for pharmacies as well as for network adequacy for pharmacies. And it's not even a question. So the issue of whether or not the commissioner has authority to do what he's doing is not debatable in my opinion. It was not objected to by the public comments against this rule. I mean, clearly the insurance commissioner has authority to issue a rule related to compensation and network adequacy to ensure an adequate network of pharmacies. 

The second section relates to definitions. We define fair and reasonable pharmacy compensation. To me, essentially what the Commission's determination of whether a current or proposed health plan's pharmacy reimbursement results in adequate number of pharmacies for a health benefit plan. Now, there is a dispute or argument or concern about whether pharmacies are in reality going out of business over  these pharmacy lowered reimbursements to NADAC minimums. I will concede that the PBM and health plan data shows a steady number of pharmacies, that they're not going all out of business all at one time. 

There's no question about that. We do not license pharmacies. I do not know at the Insurance Department whether a pharmacy or why a pharmacy drops out of network, whether it's over low reimbursement or not. I do not license them, so I do not know whether or why they're staying in network but complaining about inadequate reimbursement. However, the health plans and PBMs show a steady number of pharmacies that are not going out of business. Again, I would submit there may be a lot of reasons why a pharmacy does not want to just say, I don't want a contract anymore. They may want to continue to service the community, be a pharmacy. They may get a better reimbursement on other products of the PBM. 

There are all kinds of reasons and complicated reasons about why they would stay in network as opposed to dropping out over low reimbursements. What my point is, if you look at the statute that authorizes the commissioner to issue rules related to pharmacy reimbursement, it says to ensure that the reimbursement for pharmacy services paid to pharmacies is fair and reasonable to provide an adequate pharmacy benefits network for health benefit plan. Ensure, if you look it up in a dictionary, means to guarantee, to ensure. And so it is both a present condition, as well as a future one. And the question I think this body should, and it's up to you, whether you feel like the reimbursement strategies, the reimbursement minimums are going to ensure, guarantee, in the future, maybe not right now, an adequate number of pharmacies. 

So it is both present and future on keeping these pharmacies in network. Even though you may have a steady number of PBMs, of pharmacies in a PBM network today, I think it's up to this body to review whether or not that's a sustainable future, realistic approach given the reimbursements that have been going on with PBMs who are slowly reducing the reimbursement down to NADAC minimums. So I think the commissioner is authorized to issue this rule to consider requiring health plans through their PBMs to issue dispensing cost additions to try to improve reimbursement. 

And so that is the authority and the applicability we'll talk about next. In terms of what this rule applies to for health benefit plans, it essentially parrots or follows the PBLMA, the PBM Licensure Act, which you approved and enacted. So whatever applies to the state law under the PBMLA will apply to this rule. So if there are exceptions in the PBLMA, there are exceptions in this rule. We are simply following the provisions of the PBMLA as to the applicability of the rule to various health plans. It will apply to the fully insured plans. It will apply to the self-funded plans. It will apply to the self-funded government plans. 

There are plans it may not apply to, which are Medicare Advantage plans, Medicaid, Christian ministry plans, and there are others that are not subject to the PBMLA. So we're just being consistent with the PBM law. Section 4 again reiterates that the authority of the commissioner under the PBMLA under 23-92-506(a)1, the Commissioner is clearly authorized to approve a compensation program for pharmacy benefits to ensure that it's fair and reasonable to provide an adequate pharmacy network. Section B, I want to make it clear that the Commission issued a finding that the Commissioner finds that current pharmacy reimbursement under the PBMLA or payments within a close range to minimums of NADAC or Mac that do not include reasonable costs and expense may impair the sustainability of network adequacy for pharmacy services for health benefit plans.

 I think it said initially "does impair." We changed that to "may." And so the reason why is because, as you'll see, as I further explain this rule and bulletin, a health benefit plan or PBM may not be required to pay a dispensing fee or cost if after evaluation by the data that are submitted pursuant to the bulletin the Commissioner determines that the reimbursement is already fair and reasonable already and there's already an adequate network of pharmacies. So there is a very real possibility that after the data is submitted pursuant to what is requested in the Bulletin from the health plans, a health benefit plan may not have to pay a dispensing fee. It's quite a possibility. So I'll get to that in just a minute. 

So we changed the word "does impair the sustainability of network adequacy" under Section 4B to say "may." And so we don't know until we look at the data of whether or not pharmacies are being reimbursed adequately by the health benefit plans until we receive the data. And again, Section C is long, and I agree that it's long. I'll try to boil it down. Essentially, health benefit plans are given until February 17, 2025, to provide a written report providing us with the pharmacy compensation data as required by Bulletin 18-2024. The requirement shall apply to plan year 2025, but on a prospective basis. And so the plans are given, we feel like, adequate time to supply the pharmacy RX data to us before February 17 so we can evaluate whether or not they are required to pay a dispensing cost and what the cost would be. 

Again, we are reviewing each health plan on an individual basis and not setting a fixed fee for everybody. And I think the governor's office and the commissioner did not want to set a fixed $10.58 cent fee across the board for everybody in the market to avoid price fixing issues. So we want to review whether or not the pharmacy compensation programs are adequate and reasonable on an individual health plan basis, just like we do with rates, so what we do with premium rates. And so that is sort of our agenda with that. And we are referring to the data requirements or procedures or processes that we attach to and describe in the bulletin attached to this rule. 

Essentially, the Commissioner has 20 days from the day of such report to issue a decision about whether or not the dispensing costs or a dispensing cost would be required or not. The commissioner may ask for additional time for additional documentation. And then, ultimately, elsewhere in the rule it indicates that if the commission does require dispensing costs, the plan would have 30 days to implement that cost and would have a right to a hearing to challenge it. And we would provide administrative remedies or rights for hearings if they object to that. But essentially the commission's determination would go into effect 30 days after his decision or her decision if there is a dispensing cost added. 

Section D, Representative Wardlaw and some others wanted to make sure that the data that health plans and PBMs submit related to their proprietary and confidential pharmacy compensation figures be confidential, which we agreed to submit. However, when the Commissioner does make a decision for each health plan what the average dispensing figure cost should be, that would be transparent, that would be published. But the underlying data that we reviewed would be proprietary to protect any trade, secret or commercial proprietary concerns about PBMs and health plans. So that's that. 

So let me talk a little bit about the Bulletin. The bulletin describes the data that we want. If you'll turn in your packets to Bulletin 18-2024, the first paragraph is essentially just a reiteration of what I've already pretty much explained. Section 2. Section 1 are the reporting dates and deadlines, and we would like to have the 2025 data no later than February 17. Our goal would be if this passes, if this passes, if this report passes, if it does, we would like to have the pharmacy data sent to us on a recurring rhythm on or before March 1 of each year so that we get the data in March of that year for the filing or request for the next calendar year. 

So in March 1, 2027, we would be reviewing what their pharmacy compensation programs would be effective on January 1, 2028, so that we will have time, 6 or 7 months to review the pharmacy data to get everybody into a rhythm, everybody meaning health plans and PBMs, on filing that data every 1st of March. We're going to have to do a little fast pace here the first year, require the filings for plan year 2025 no later than February 17. And then for 2026, we want the data on or before July 1, 2025. After July 1, 2025, then we will get into a regular rhythm of March 1 filings so that we can review the data 7 or 8 months before they actually actually go into effect. The data required to be filed is very important. 

That's Section B of Section 1. And so our primary statistics are we want to look at from health plans and PBMs the total annual average percentage of total pharmacy reimbursement above NADAC pricing or WAC if NADAC is unavailable for the previous calendar year. So we want to see in our data in the prior calendar year, how far have you been above NADAC minimums on generics? How far above or below or wherever you are as a health plan, how far are you above NADAC minimums for brands? And then we want to see a total combined reimbursement percentage off the basic minimum from NADAC. We would like to see a total combined reimbursement of 18-20% above NADAC for sustainable pharmacy network compliance or sustainability. 

On generics, I think we're looking at 200-300% above NADAC minimums for that to be sustainable for pharmacies. That would be a percentage we would look at. So we're looking at, in terms of whether or not we want to apply dispensing costs, a lot of the data related to where the health plan is and reimbursing the pharmacies relative to NADAC minimums the prior calendar year. 

Second bullet point is we want to see the average dispensing fee paid to pharmacies from total pharmacy reimbursement the previous calendar year. We're not seeing a lot in the commercial market of dispensing fees. As you know, Medicaid does have a $10.58 cent dispensing fee, but we don't regulate Medicaid. We're not seeing a very significant high dispensing fee, but we want to know what that is if you already have that. The total number of drug reimbursement claims paid during the prior calendar year. Generic brand and specialty, again, we're waiting to see what your rates of reimbursement are relative to the NADAC minimums. 

A very important bullet point is we want to see pharmacy network retention data in the prior calendar year. How many pharmacies have you lost? How many have you gained in the prior calendar year? And if you submit a network adequacy report to the Insurance Department that follows or discusses these adequacy numbers or pharmacies, please advise us of that. We'll look at that. So in our review of these statistics, one of the very important items that the Commission and I and the actuary will look at is, do you already have an adequate network of pharmacies? And so I think if you do, that's a very, very good signal for us that you may not require dispensing costs. 

The other bullet points are the number of adjustments you've made the prior year related to complaints of payments below NADAC. We have a significant number of complaints that we receive that are below NADAC amounts and we would like to know how frequently you have to adjust below NADAC minimum payments. That impacts our review of whether or not a dispensing cost is required. The other bullet point is quite a controversial one, but as many of you know, PBMs are not permitted under state law to reimburse their PBM affiliates' pharmacies higher than non affiliates. 

We did an audit or a limited scope exam in 2020 with all the major PBMs. And the majority of PBMs in that survey indicated that our examiners determined that PBM affiliates were paid about 2% more than the non affiliates, which was a violation of the law. So we would like to know how much you're paying your affiliates higher than non affiliates because that tells us you could maybe increase your pharmacy reimbursement to non affiliates, maybe with a dispensing cost. And any additional proposed contribution or increases in pharmacy reimbursement that the health plan or PBM proposed do that next prospective year. 

So if the PBM or health plan wants to increase or feels there's a need for increasing PBM reimbursement, we want to see that. That will affect our decision as to whether or not those statistics will influence the commissioner to issue a dispensing cost addition. Section C, we want to know the cost impact. I know many of you and many of the presenters after us will complain about the cost impact. I will repeat what I think I explained to many of the members, either privately or in the room back there or whenever it was, on a $9 dollar dispensing cost, we surveyed the commercial market. 

The commercial market was Blue Cross Blue Shield, UnitedHealthcare, Health Advantage and Sentient. And those are our major health plans. We asked them to estimate a premium impact on a $9 dollar dispensing cost with no NADAC  plus percentages added to it. And we asked our actuary to estimate as well. Our actuary estimated that a $9 dollar dispensing cost would increase premiums 2-4%. The commercial plans, without coordinating with each other or discussing it, as far as I know, all came back with a 3 to 3.4% premium impact from a $9 dollar dispensing fee. On a $500 a month premium, that's about a $12-15 per month increase. So I'm not going to fib to you here. If we require dispensing costs, it's going to increase drug costs and that's going to have an impact on premiums. 

The decision for this body is whether it's worth that or not. We think that the other states, Tennessee, West Virginia, Kentucky, decided it was over concerns by pharmacies over lower reimbursement. So our best surveys of the cost impact from a $9 dispensing cost is about a 3 to 3.3 to 3.4% impact. Now, under this proposed rule and Bulletin, the commissioner may not require a $9 dollar dispensing cost. He may require a $2 dispensing cost. He may require a $3. He may not require one at all. It may be $5. It all depends on what the data shows in terms of where the health plan is the last calendar year on generic and brand payments above NADAC minimums. 

If we feel like a company is close to our ranges, we may feel like a $2 dispensing fee is required. So although I'm presenting to you a 3 to 3.3 to 3.4% impact, that's on a $9 dollar dispensing cost. I do not know what it would be for $2 or $3. So it would be less than the 3.3 to 3.4% if he decides to or she decides, whoever the commissioner is, to award a dispensing cost. 

Section D, this is the opportunity of the health plans and PBMs to provide us with any additional data supporting their actuarial calculations, addressing whether or not their pharmacy compensation program already provides and shall provide in the projected plan year fair and reasonable reimbursements to pharmacies to ensure an adequate network. I mean, this is the opportunity we're giving to the health plans or premiums to tell us how you're ensuring and guaranteeing or ensuring an adequate and reasonable, fair reimbursement program to ensure network adequacy. So we'll take their independent calculations and information into that. 

So again, we have in Section E, we will review all the data and we will decide whether a health plan has to pay a dispensing cost or not. But the most we could ever require would not exceed the Medicaid dispensing costs of $10.50. 

Section F is just another repeat or mirror of the rule. All of that is we get is confidential except for the disclosures per health plan of what the fees are. The fully insured plans may submit all of their data on product type, like individual market or small group market or group market. And again, the procedures and timelines for review are 20 days by the commissioner. If he asked for more data, that would extend that time. And we already repeated that in the rule. A PBM may file the data for the health benefit plan. 

We do not have a form for any of this yet so we will accept whatever format the PBM or health plan has submitted. We are already receiving some of these data already, so we are organizing that and we've not made decisions on dispensing costs with the current data submissions that we've already gotten. Again, exemptions, whatever the PBMLA exempts from health benefit plans, this rule does not apply to. 

I've had this question asked on I. Do the dispensing costs, if we were to apply it out of state pharmacies, Yes, they do. Because of the commerce clause or legal issues, we have to treat them just like anybody else that's licensed by the Arkansas State Board of Pharmacy. Section 2 relates to self funded health plans. If you read the rule and you read the bullets and you'll see that we're trying to be very lenient with smaller, self-funded plans with less than 5,000 lives. For our determination under Section 2a, for plans that fall underneath the 5,000 number lives, they only have to submit the first bullet point under the first section. 

We're trying to not overwhelm them with data requirements as they're not licensed like normal fully insured insurers. However, the rule and the dispensing costs will apply to self-funded plans. But the data or the limited data requirements for those with less than 5,000 lives will only have to submit the first bullet point. I'll be glad to answer any questions. I know it's a lot of information for many of you. 

We tried to do the best job of responding to public comments that we could, and we made many concessions to the health plans and PBMs on some of the information. And I will say this. I know PCMA is going to speak about this in opposition. That is a PBM trade advocacy organization and they have pointed out quite, I think, clearly it is not the Insurance Department's job to keep pharmacies in business. Yeah, I agree with that. But it is our job to ensure statutorily that we can ensure that they have adequate networks of pharmacies. And so if you're not paying them and they start dropping out, you're going to have a network adequacy problem. Eventually you will. So I agree it's not our job to make pharmacies wealthy or rich or hospitals or doctors or dentists. 

But we do believe that we have a function to ensure that if they're not adequately compensated, they're not going to be in your networks, and then you're going to have a network adequacy problem in the future. I'll be glad to answer your questions.

 

Senator Ricky Hill Thank you, Mr. Rand. I guess my first question for you, then we'll go to the chart over here, is we're 30 days away from a session. Why are we here today looking at this when we're less than 30 days away? And then it's going to take you so long to implement so much of this and you do not have the information that you need to make a decision on how much it is going to cost per prescription when we're 30 days, less than 30 days, away from a full session where we can work this out and vet it out with the entire legislative body?

 

Jake Windley  Thank you, Senator. That's a good question. I think we can break it down into a few parts. The first is that AID has to enforce the laws as they currently exist. If we waited to enforce any law based on the chance that it could change in the future, we'd get very little done. The second is the statute specifically states that the Commissioner shall adopt rules relating to pharmacy benefit managers' network adequacy. That's a legislative mandate. We have to enact it. And if we didn't, we would have to report to this body. 

Another issue is we're a little stuck because currently, I believe-- AID and Mr. Rand or Commissioner McClain can correct me-- AID has received over 3,000 complaints this year alone from pharmacists relating to compensation costs. Now, we don't know from a network adequacy perspective whether those complaints have any merit or not. We need some mechanism for evaluating the data all at once in a broad swath, because right now the signal to noise ratio is too high. 

And respectfully, I'm not sure we can wait for another 3,000 complaints to respond. If the legislature wants to amend the PBMLA to give us more concrete guidance or change that "shall" language to a "may," I'm sure we'd all be happy. We'd be happy to enforce whatever comes about. But right now we have a legislative duty and a command to enact the law as written.

 

Senator Ricky Hill Thank you, sir. Senator Dismang.

 

Senator Jonathan Dismang Thank you. And just to make sure that I understand, so you're saying currently you're not enforcing the law?

 

Jake Windley Respectfully, Senator, it's more of, this rule for one is commanded by the statute. But for two, we're enforcing the law to the best that we can. It's just that we don't have the data to accurately assess network adequacy while we're responding to individual complaints.

 

Senator Jonathan Dismang Yeah, but I do believe you've had an adequate period of time to establish these rules and you're revisiting it. You don't have a problem with enforcing the law. You're wanting to change the way you're trying to enforce the law. Is that correct?

 

Booth Rand Let me. All right. Am I on? Thank you. Good question, Senator Dismang. We have never issued a rule defining fair and reasonable or any data requirements that would allow us to conduct that analysis. The statute itself is not clear about what that means. So this rule is our first attempt of doing that.

 

Senator Jonathan Dismang So, yeah, I would agree that it's not clear and we've talked about that. I think the law was poorly written in the beginning. Just a couple of questions, though, because I want to make sure I understand some of the guardrails and protections that we have in place. So the first one is there's really two fundamental rules. Number one, we require a payment of a minimum, a minimum payment. Correctly, that's what the law does. And the second is we require pharmacies to be paid the same amount that an affiliate may be paid. And so those are the two guardrails, which I would have argued at the time, when you're setting minimums, what do people tend to do?

 

Booth Rand They set-- I agree.

 

Senator Jonathan Dismang They pay the minimums.

 

Booth Rand As Representative Wardlaw pointed this out. When we set a minimum here, that's where everybody goes.

 

Senator Jonathan Dismang So that's another issue inside the law itself. But again, when it pushed and then passed-- and so but I want to go back to the 2020 survey that was done. Because when you started this, we started with, we're doing this because of PBMs and the actions of PBMs. Right? And as I continue to read this, there is nothing about PBMs in the rule that we have right now. There's just not.

 

Booth Rand If I can respond to that, and Mr. Buxton can explain this, but the reason why I targeted the health benefit plans as opposed to PBMs is that PBMs are actually third party administrators. What they do, what they endorse, what they offer, what they do, all that's endorsed and authorized and approved by the health benefit plans they work for as clients. And so if you want to require a dispensing cost or you want to increase reimbursement, the PBM simply goes to the health plan and says, look, here's a change in Arkansas law, will you authorize this. So the health benefit plans authorize, hire, endorse, review and approve all this stuff. It's not just coming from PBMs. They are actually authorized by their client health plans. And so that's--

 

Senator Jonathan Dismang If you don't-- I understand what you're trying to say. But I'm saying the core issue that has been presented to be the problem isn't exactly what we're tackling with this rule. I don't think that's arguable in some ways. So my question was before you responded that I was trying to give was there was a survey done in 2020. Right? And you all had access to that data. How did you conduct that survey?

 

Booth Rand That survey was a review primarily about whether or not the PBMs were engaged in spread pricing. And so there was a secondary research or secondary aspect of that exam that looked at affiliate pricing. And we looked at affiliate pricing to be about 2% higher than non affiliate. But the primary function of that report was to address whether or not PBMs were engaged in spread pricing.

 

Senator Jonathan Dismang Right, which you referenced-- but let me finish, if you don't mind-- which you referenced, as you were talking about. And one of the issues that you've recently seen is that there is a 2% differential between what they're paying affiliates and others. I guess my question would be, do you have the capabilities or ability to conduct a similar survey today?

 

Booth Rand Yes, sir.

 

Senator Jonathan Dismang Why haven't you done one since 2020?

 

Booth Rand Well, we have not, due to priorities with other issues related to enforcement, some of which--

 

Senator Jonathan Dismang So do you understand, coming from my perspective, you're wanting to do an all out rule change. You've had at your fingertips the ability to do another study to prove what I think most of my pharmacists originally started complaining about or issuing concern about was the differences between how they were being paid versus affiliates. We haven't done that now in almost five years.

 

Booth Rand Yes, sir.

 

Senator Jonathan Dismang But we're going to utilize a 2020 report, even though we have at our fingertips the ability to gain the information as part of the argument for why we need to do something today and create a rule change. So what I would say in all of this and what I was trying to say earlier before, as I was trying to make a statement to give context for a question, and I haven't been able to get through those yet very well. 

But my point is, I believe you have the authority and the ability to gather all of this information. I don't believe that you even have to have this rule in place to see what you want to see. I mean, you said right now-- and so I've got another question-- we already received the info. So we're starting to look at that now. Now, I wasn't really clear on why you already received the info, if you were receiving it because you just most recently requested it or they're just voluntarily giving it over--

 

Booth Rand No, sir, that's not what I was saying at all. We do not receive the statistical information on NADAC minimums last calendar year. I'm just telling you that--

 

Senator Jonathan Dismang But can you?

 

Booth Rand Could we require that by order?

 

Senator Jonathan Dismang Do you already have the authority to get that information is my question.

 

Booth Rand That's debatable.

 

Senator Jonathan Dismang But it's not debatable. Like that's either a yes or no, because if I were doing my homework and wanted to present a rule like this to the legislative body--

 

Booth Rand I would say no. I would say there's nothing in the statute that requires the Insurance Department to compel a PBM to provide us with the statistics of NADAC minimums in generic or brand the prior calendar year.

 

Senator Jonathan Dismang But you're already getting it. Why and how?

 

Booth Rand I'm getting it because of the emergency rule that was issued by this body.

 

Senator Jonathan Dismang Okay. Okay.

 

Senator Ricky Hill You through, Senator Dismang?

 

Senator Jonathan Dismang I'll circle back.

 

Senator Ricky Hill Senator Boyd.

 

Senator Justin Boyd Thank you, Mr. Chair. I appreciate the opportunity to ask a question. So there's been a lot of discussion about whether the state did a report or the state didn't do a report, whether a state can do a report, lots of stuff about things. So, one, I just acknowledge I'm concerned if you have the staff to adequately do this and research this and chase your tail all the time. But are you familiar with the Federal Trade Commission who had a report that showed that the PB owned affiliate directed cancer patients there for $19,200 versus the local pharmacy where it was $97. Are you familiar with that? And would that be some marketplace evidence that maybe we got a problem?

 

Booth Rand I think yes, in response to both you and Senator Dismang. However, the issue about whether an affiliate's paid higher than a non affiliate doesn't answer the question about 95% of the reimbursement or 98% of it each day, is it NADAC  minimums? I get it. If you're concerned that affiliates are being paid higher than non affiliates, that's an issue we need to address separately. What I'm talking about is the base NADAC minimum amounts, regardless whether you're an affiliate or non affiliate are at base minimums. 

The affiliate compensation system is not going to-- if you fixed that, if you fixed and said all non affiliates should be paid equal to affiliates, that's still not going to address this problem which is PBMs paying pharmacies at NADAC  minimums. That's the problem you've got. I can fix the affiliate issue that Senator Dismang raised. There's no question we could through examinations. In terms of staff, we contract out with our actuary like we did in the 2020 exam to look at that issue. So we contract that out and the PBMs actually pay for that examination. 

I see affiliate compensation as one issue. I see pharmacy reimbursement at NADAC minimums as a separate issue. I don't know if I'm making any sense, but I think you can have both problems going on at the same time. Now, if they're paying their affiliates 2% more than an affiliate, then that's 2% more that should go back over into the non affiliate reimbursement system, in my opinion. All right. But that doesn't address your bottom NADAC minimum requirement, which is, I think, the problem here.

 

Senator Justin Boyd So I just want to clarify, because there's other evidence out there that I've personally seen, I'm sure other legislators have seen, I'm sure you've seen, where this pharmacy is getting paid significantly more. And so you don't think this rule provides the transparency to level the playing field so we can get rid of the overpayments?

 

Booth Rand Again, one of the--

 

Senator Justin Boyd And raise the underpayment.

 

Booth Rand  I do. One of the data elements that I went through is your pharmacy affiliate and non affiliate reimbursement differences. So that's something we will look at as we review whether or not you should pay an additional dispensing cost. I'm just saying the problem that you've got isn't over affiliate-- and that is a problem. It is your law right now. A lot of it says you're only required to pay NADAC minimums. And that is the problem that you've got with a lot of these transactions.

 

Senator Justin Boyd So let's move off the affiliates for just a second. Is there any logical reason why two pharmacies situated in the same city should have a significant difference in pay. So you have a drug that the NADAC is $1 and this pharmacy over here gets paid $1.05 and this pharmacy over here gets paid $25.

 

Booth Rand Exactly.

 

Senator Justin Boyd In what world does that make sense?

 

Booth Rand Did the pharmacies all agree in the same PSAO to agree to that reimbursement? I mean, there's a lot of things going on in those differences. Pharmacies do participate through reimbursement programs through their PSAO's. So the pharmacies may have different compensation arrangements through their PSAO agreements, as I understand it.

 

Senator Justin Boyd What I understand is it's more or less an adhesion contract. You take it or leave it. Fewer than 10%, less than 10% of people are cash paying customers.

 

Booth Rand I'm just answering your question that each pharmacy might be under a different pharmacy compensation arrangement with the PBM through their PSAO that causes these differences in compensation that you're talking about. I understand your question. Well, I don't like it. I'm just saying I agree.

 

Senator Justin Boyd But the question is really, is this going to offer the transparency so that you can get to that? If I'm in the state employees' plan and I'm being directed to Walgreens or a chain pharmacy-- I shouldn't call one out. It could be any chain pharmacy versus this other pharmacy over here. Why would state employees ever want to pay significantly more? I mean, I'm not talking about a nickel or a quarter. I'm talking dollars. I mean, on a commodity. Why would that make sense?

 

Booth Rand I'm not saying it does. I'm just telling you that the compensation contracts between pharmacies through their PSAO with the PBMs may differ in how one pharmacy is paid for one drug as opposed to another. Mr. Buxton can explain that when he gets up here to testify. But I think a lot of the variances related to why one pharmacy across the street is paid $15 more for an antibiotic than another is simply due to the contracts that were signed, whether they're adhesion or not. I agree, Senator Boyd, that those are adhesion contracts. I'm just trying to describe to you why that result might occur.

 

Jake Windley If I may, Senator. Back to your broader point, because I read the Con FTC report on PBMs, and it was very interesting, the spread pricing you indicated. I think both you and Mr. Rand are hitting on the right point, which is for a typical pharmacy, your day to day are going to be large volumes of generics. And as Mr. Rand points out, when 95% of your business every single day is basically at acquisition costs, you're going to gradually be bled out of business. Where affiliate pharmacies get their leg up is on the specialty or cancer drugs, where they are able to get the large spread pricing. And that competitive advantage is why they're allowed to tank the NADAC reimbursement costs that your standard pharmacy can't.

 

Senator Justin Boyd So basically the insurance company is setting the price and taking the price. And they have all the incentive in the world to put their competition out of business. Thank you.

 

Senator Ricky Hill Representative Wooten.

 

Representative Jim Wooten Thank you, Mr. Chairman. A month or so ago, this committee was told that y'all have adequate staff to do enforcement relative to PBMs and insurance companies. Now, today we're hearing a totally different version. The Federal Trade Commission, Congress, Congressional committees have all investigated PBMs and nobody seems to know what the problem is. I can tell you the problem. They're raping and ravishing consumers of the state of Arkansas, not just state employees, but all of them. 

And I was going to save this to the end. But I'm telling you, we've got a major problem when in UK and Canada and other countries overseas can sell drugs for a bare minimum. So we've got a problem in the whole industry. But why were we told that y'all had adequate staffing to be able to investigate the claims? Let me give you a claim. How would you investigate a claim where the pharmacist paid $100 and could only charge $90? Now, what would you do with that customer when you told them?

 

Booth Rand Well, first of all, the PBMs are entitled to process. And so a complaint would be filed by the pharmacy. Our PBM director would assign an analyst to present the complaint to the PBM and review their response. And then if it's not adequate, we would pursue violations. So again, in terms of staff, we have one, two, three, we have four, three, three employees. We have a PBM director, one PBM analyst and another a new PBM analyst. I think Budget has given us approval for an attorney to do enforcement and yet one more financial analyst. So that's going to be approximately six. In Oklahoma and Tennessee, they have a staff of approximately 12 and some have 8 or 5. So we've looked around the United States, and we would have 5 to 6 staff. Would there be need for more? Yeah, I mean, if you want to give it to us, but I think what we've got is adequate.

 

Representative Jim Wooten So you think you have an adequate staff?

 

Booth Rand I do. I do.

 

Representative Jim Wooten With 3,000 complaints and you have six people? You have to complement with three.

 

Booth Rand Again, we consider a complaint to be one drug. So if a pharmacy files an Excel spreadsheet with us in one email with 20 different drug transactions below NADAC, we would consider that to be 20 complaints.

 

Representative Jim Wooten So, okay. Let me ask you another question, if I may, Mr. Chairman. I'd like to know why would a company be permitted to operate where they charged a pharmacy $100 and they could only gain back $90?

 

Booth Rand Well, again, what is the pharmacy's acquisition cost in your example?

 

Representative Jim Wooten $100.

 

Booth Rand And they're getting back 90?

 

Representative Jim Wooten Yes.

 

Booth Rand That would be a violation of our statute for sure.

 

Representative Jim Wooten That would be a violation?

 

Booth Rand Yes, sir, if the plan is subject to our jurisdiction. It may be a plan that's not. I'd have to look at the actual complaint.

 

Representative Jim Wooten Well, you used the definition of a third party PBMs. Okay, if they're a third party and they were designed, and correct me if I'm wrong, they were designed to be a clearinghouse for what used to be called kickbacks, and they were in violation of the law. Today, they're called rebates. And the PBMs are holding on to some of that money and they're not reimbursing our pharmacies in this state. Another point that I want to make with you, and I want you to respond. And Commissioner, you may want to get in on this. Why, if they can do that, we don't do anything about dealing with the fact that we don't control their percentage of gross margin like we do the pharmacies, do we?

 

Booth Rand Well, I mean, I'll speak. I'll let the commissioner speak after me. We have no laws requiring us to have jurisdiction over their gross profits or capital surplus or those kinds of things. We do have a law that prohibits them from paying below NADAC minimums. So we can take action there. But in terms of rebates and their profit margins and their vertical corporate surpluses and profit, we don't have authority to get involved in that. Now, the attorney general's office might, but we don't as the Insurance Department.

 

Representative Jim Wooten There's the problem. We're dealing with vertical integration.

 

Booth Rand Yes, sir.

 

Representative Jim Wooten Now in the oil industry, which I'm familiar with, that's a totally different deal because they control the product from the wellhead to the refinery to the pipeline and to the distributor and to the gasoline dealer. This is very voluminous products that all funnel through the PBMs, and they set the prices for the pharmacies. Is that correct?

 

Booth Rand They do. They do.

 

Representative Jim Wooten Do you agree that if you've got chain stores that endorse this rule 128, do you agree when the state Pharmacy Association that agrees with the rule, then that tells you that there's a major problem.

 

Booth Rand Well, the rule that as proposed would benefit larger chain pharmacies, just as it would independents, because they are licensed pharmacies by law, just like independents. And so you legally would have a problem, in my opinion, if you exclude this rule benefits to large chain pharmacies, They are just as licensed legally and entitled to it. Wal Mart pharmacy would be entitled to this rule just as much as Joe's pharmacy down the street. Otherwise, you're going to get some lawsuits here.

 

Representative Jim Wooten That's my point. My point being if the National Association says, hey, we got a problem; and the state association says, hey, we got a problem for the national chains. They tell you you've got a problem. The local pharmacist association tells you we got a problem. I think it ought to apply to all.

 

Booth Rand Thank you. And we agree. We agree.

 

Senator Ricky Hill Representative Wooten, are you through? Do you have any more questions? Because I need you to get back in the queue. Senator Irvin.

 

Senator Missy Irvin Thank you, Mr. Chair. One of the things you said is that you need to act now to enforce this law. However, when was the first fine and penalty that you assessed?

 

Booth Rand 2020, 2019? Something around that.

 

Senator Missy Irvin And the law had been passed for how many years?

 

Booth Rand 2018.

 

Senator Missy Irvin 2018?

 

Booth Rand Yes, ma'am.

 

Senator Missy Irvin But I mean, the most recent one was, didn't you issue one this summer?

 

Booth Rand Yes. And I think a lot of the trouble, and Senator Hickey will appreciate this--

 

Senator Missy Irvin I just want to ask my questions. So you did the 2020 survey and then you had spread pricing and affiliate pricing, which my understanding of the legislation and my intent for this legislation is to ensure that pharmacies are paid so that their affiliates are not paid higher than them and to eliminate the spread price. That's in the legislation. And the ability to assess fees and penalties and fines for that type of behavior was given the authority to do that. So we know for sure that the PBM, the pharmacy benefit manager, is signing the front side of that check in violation of the law. Okay. So with what we're doing now, you've had the ability to continue to do that. On page six of this document, it says that the reporting--

 

Senator Ricky Hill Which document, Senator Irvin?

 

Senator Missy Irvin On Exhibit C4 on page six, it says, we understand this dilemma-- and I'm going to skip around on different questions-- but the report has to be filed on or before November 30. And so that question was, and you said, we understand this dilemma, but we're requested to apply this requirement to plan year. Who requested you?

 

Booth Rand The governor's office.

 

Senator Missy Irvin Okay. And that's what started this inquiry in the spring?

 

Booth Rand Yes.

 

Senator Missy Irvin Okay. Of the 3.000 complaints, how many complaints do you receive from patients or from businesses?

 

Booth Rand Not very many.

 

Senator Missy Irvin After this rule is passed, do you anticipate receiving complaints from businesses, self-insured plans, patients?

 

Booth Rand We've gotten complaints--.

 

Senator Missy Irvin How is that going to--

 

Booth Rand Very good point. We have gotten complaints from the small employer health plans about cost issues, which you'll hear from them later. But would I receive complaints from enrollees and insureds who may have an additional cost issue? Yes, we may. But right now it's all pharmacists.

 

Senator Missy Irvin Well, so it's all pharmacists. Okay. So this is a complaint driven rule. You created a rule based on complaints that were driven by pharmacists.

 

Booth Rand Absolutely.

 

Senator Missy Irvin Okay. So my read and interpretation, you are including Medicaid because you're including the PASSEs because you responded that I think the Pharmacy Association complained that PASSEs were not included in this document.

 

Booth Rand I was wrong.

 

Senator Missy Irvin They said, we agree with you and we're going to remove that exemption. So the PASSE programs--

 

Booth Rand Not just PASSEs, but private option as well.

 

Senator Missy Irvin The ARHOME. That's called now called ARHOME. So that will have a budgetary impact on the state budget. It will. It's not, could. It will. So I want to--

 

Senator Ricky Hill Mr. Rand, will you please let her ask the question?

 

Senator Missy Irvin I am trying to speak in what is actual here. This is very opinionated and I have a problem with it being so very opinionated. Because when you say that this is going to be with self-insured plans, and they're included, that is a contractual agreement that that self-insured plan has with a health care insurer. And so there's no way for you to determine whether that's going to be an increase in premiums or if that's going to be a direct assessment to that patient at point of sale. 

You say your opinion. And I think a lot of this is based on your opinion, your opinion about adequacy of network. That's an opinion. I don't see a process. I don't see any data to show whether we have an adequate network or not. I can look at my eye tests from where I live in Mountain View, Arkansas, and see two independent pharmacies and Wal Mart and Harps, all within my town of 2,800, doing quite well. I can see that. 

But I don't see a process of determining adequacy of network. I don't understand that except for it being very subjective and opinionated. And I also don't understand reimbursement rates. Reimbursement, I understand. Dispensing fee is completely a different animal and a different beast. And as a legislator, I see those things are two different things. We talk about CPT codes in health care. We talk about reimbursement rates. We always talk about that. I don't see clinical fees, scheduling fees to cover the overhead cost of these other folks. I don't see an administrative overhead cost for an independent grocery store. 

Are we going to be now going down the path of, well, do we have an adequate network of grocery stores in this community, in this town, in this county? And if we don't have an adequate network of grocery stores, then we're now going to have to assess a bagging fee to pay for the overhead cost of that employee and that receipt that they're going to get and the paper bag they're going to get. I mean, this to me is super objective and it all relates back to you cannot guarantee, there's no way, I don't think that you can guarantee that a self-funded plan does not pass that down to the patient at the point of sale. 

And for my mom, who's on eight prescriptions a month, that's $72 a month. That is a contractual agreement between that private business and their insurer that's running their self insured plan. That is a tax. That is a complete tax on the patients. And the people I represent cannot afford that. And they sure as heck cannot afford a $9 dispensing fee on a $4 generic. I think that's crazy. I don't know what the specifics are. Or are you going to look at every single different type of a prescription? Because a Z pack comes in its own cardboard container. That doesn't require counting pills and packaging and labeling. Partial supplies. There's partial supplies. A lot of people don't keep medicines on their shelves. And so then they have to reorder it. 

So am I going to have to pay-- for 10 pills, am I going to have to pay $10.50 this time and then $10.50 the next time when more medication comes in? I mean, there's inhalers. I mean, are you as the insurance commissioner now going to say we're going to look at every single drug and determine a dispensing fee on every single little drug? Because this one doesn't require a little plastic bottle, but this one does. 

This rule to me goes way beyond what the statutory language to me is. It goes way beyond it. And I personally am not going to support tax increases. I'm not going to support a tax on the people I represent. Those are patients that are struggling already to pay for it. Now, I absolutely agree with predatory practices by PBMs, 100%. But we have the ability to assess them and fine them so we know that they're writing the front ends of the check. I'm absolutely for that. That's what we intended to do with this legislation. But this to me goes down a whole different line of we're just going to respond to complaints. But we're not taking in the whole picture here of how this is really going to be a policy that sets major precedence and that guarantees a profit for one industry in the state of Arkansas. 

And for you to say that it's about adequacy of network in the future, based on what? What data? How do you even determine that? We can't deal with the future. Like, I don't understand that comment whatsoever. And so, I mean, my question to you is, how do you define adequate network? How do you do that? And you have the ability to do surveys. You've done them in the past, but you have the ability to do another survey. What's your process there except for what you believe in your head or what your opinion is?

 

Booth Rand I think you raise some great points. Our network adequacy maps that we require require the health insurer to list every pharmacy in network and their metric mileage distances to zip codes of enrollees in the health plan. So I've got that data, I've got that data. And I think you make a great point. We are not seeing pharmacies drop out of the network right now, no question. But my concern is in the future and I agree it's speculative. But I do not believe pharmacies, again, you're right, I'm making an opinion here. I do not believe pharmacies can sustain themselves in the future when they're giving back reimbursement that's equal to their inventory cost, or very little bit above it. And you are welcome to talk to the pharmacists that are going to talk later. I look at this as a future issue. And I agree it is subjective, but it is a concern given the complaints that we've gotten.

 

Senator Missy Irvin And I know there are other people that have questions. I have a lot of other different questions. And I'm concerned on how all that's tied.

 

Senator Ricky Hill Senator Irvin, will you get back in the queue on that?

 

Senator Missy Irvin I will. I just want to state I think it's really, really critical, though, that we recognize you have tools. You've been able to utilize the tools already for going after PBMs. This has nothing to do with PBMs. This is going to affect businesses and employers in the state of Arkansas and patients at the point of sale. I don't care what you say, that's going to get passed down to the people I represent. And I have a huge concern about that, particularly when we have no idea what that impact is going to be based on what you've presented here.

 

Senator Ricky Hill Thank you, Senator Irvin. Please get back in the queue if you have any more questions. Senator Hickey.

 

Senator Jimmy Hickey Thank you, Mr. Chair. Am I on?

 

Senator Ricky Hill Yes, sir.

 

Senator Jimmy Hickey Okay. I have a bunch of questions, but I'm going to limit it to one right now because I want to make 100% sure that I understood what you said, Mr. Rand. So when Senator Dismang was asking you a question earlier and we were talking about the PBMs, you said that there's nothing in the statute right now that would allow you to get that information from the PBMs. Is that correct?

 

Booth Rand Well, I again, I have not combed through the code, but I'm sure you're going to correct me. I don't think there is, not specifically on that.

 

Senator Jimmy Hickey Okay. All right. So this rule, though, would allow you to do that, correct?

 

Booth Rand Yes, sir.

 

Senator Jimmy Hickey Okay. So earlier you said there was nothing. I'm just going to say, I mean, obviously, we've got it that that's what you said. You did it and you said there was nothing within the code that allowed you to get it. But this rule would.

 

Booth Rand I'm referring to statistical averages in the prior calendar year--

 

Senator Jimmy Hickey Okay.

 

Booth Rand --that would be permitted for us to investigate or something like that.

 

Senator Jimmy Hickey Yeah. Okay. So and I understand you're very wise and smart enough to see where I'm about to go. Of course, earlier you said that there was nothing in the statute that would allow you to do it. But now that this rule would. And I think everybody in this body knows that we sit down here whenever we do these rules and we say that we turn these things down because they're either not constitutional or they do not comply with state law or they exceed state law. And I think Senator Irvin has went there and, actually, Senator Hill has asked you about the next session. From my standpoint, from that statement alone, we're basically saying that this rule exceeds what is allowed in statute, which is what actually the reason that we review these rules and look at these rules now because the people, through the Constitution, through the constitutional amendment, has us to make sure that we're not exceeding the authority given by the entire legislature in the rule making authority, which it appears like to me that we're doing that with that one statement.

 

Booth Rand Well, the statute in the PBMLA allows the insurance commissioner, and it says it blatantly, the commissioner may issue rules related to compensation. This is about compensation. So I think we've got support for that.

 

Senator Jimmy Hickey And, you know, I guess I'll go one step further if it's okay. I mean, we sit down here and I was here, and as the pharmacists like to point out, Hickey, you were a sponsor of the PBM legislation. And I was because, of course, I understand the need that they're not paying their affiliates more and all of that. But I may have not known what the legislative intent was in 1974 because I wasn't down here. 

But I'll tell you this, as far as from my standpoint as a sponsor of that legislation, whenever we put the stuff on, it was my intent because it specifically says NADAC. And I understand that you can sit down there and try to make a business argument as I could that maybe you can't survive that way. But the law specifically says NADAC. And so whether or not we like that or not, and we're trying to come in here with a rule to exceed NADAC, goes against what the legislature's authority or what the legislature has given. I see no reason that we don't wait until the session if somebody wants to attempt that and try that.

 

Booth Rand Yes, sir.

 

Senator Jimmy Hickey I was told point blank because I've asked that question down here, Why are we not waiting til the legislative session? You know what the answer was? And I'm going to retain that to myself. Well, because we don't think that we can get it passed that way. So from my standpoint, we are greatly exceeding what this body has allowed. Thank you, sir.

 

Jake Windley If I may, Senator Hickey, a bit of a late response on my end. This might apply professional discretion between Mr. Rand and I. The insurance code does give the commissioner broad investigative powers. He can request or even subpoena information from health plans if he so chooses. What this rule allows us to do is, instead of us having to shotgun out several different subpoenas every single year with various times for each of the health plans, is to get a rolling requirement every single year with consistent data for each of those health plans.

 

Senator Jimmy Hickey I understand, but I'm just going by what the testimony was sitting here with a few minutes ago. All right. Thank you.

 

Senator Ricky Hill Representative Perry.

 

Representative Mark Perry Thank you, Mr. Chairman. I've got one question. Going back to Mr. Rand, going back to the complaint, you mentioned you had roughly 3,000 complaints. And then you explained that the complaint could actually be one pharmacy or one pharmacist having multiple prescriptions, which would be multiple complaints. Is that about average for the number of complaints you receive in a year?

 

Booth Rand Yes.

 

Representative Mark Perry Okay. So this is nothing out of the norm then?

 

Booth Rand I've gotten more this year. I have not researched this yet, so I'll be glad to ask our PBM director to compare the 2023 reimbursement complaints with 2024. It's my sense that we've got significant more in 2024.

 

Representative Mark Perry Okay. And another quick question. How many prescriptions are filled a year in Arkansas?

 

Booth Rand I do not know.

 

Representative Mark Perry So 3,000 would be probably a really small number. Okay. All right. Thank you.

 

Senator Ricky Hill Senator Dismang.

 

Senator Jonathan Dismang Thank you. And I will go back to, I have concerns that we haven't been doing what we were supposed to be doing or at least we haven't done a review since 2020. So we've kind of demonstrated that we're willing to take the foot off the gas and let things go along and maybe happen that shouldn't happen. And this is regards to the affiliate payments. And I apologize. I know this is an emotional issue for you. It's very obvious. So I understand. So I'm going to try not to have emotion on my side. But as you know, the three largest employers in my Senate district all called opposed because they were concerned about what it was going to do for their employees and their health care cost and what it would cost every time they went to the pharmacy. That's a real problem and one that needs to be vetted and discussed. One of the biggest issues, I have a couple of complaints. Number one, would you agree that there's been a substantial change in the original rule that was introduced for the public comment period and the one that we have before us today?

 

Booth Rand We can argue about whether it's substantial or not. I think a majority of the changes were referencing the bulletin that was going to implement the rule. Maybe it wasn't as elaborately stated in the originally filed rule.

 

Senator Jonathan Dismang Which is interesting because you get me to my second, really probably more major, complaint because I think it's a sidestep in a lot of ways. And I do think it's a substantial change if you set the two next to each other. I've done that. And when I talked to individuals that had previously reached out, they're not even quite sure what to make of this latest version that has come. And what I really don't like or have concerns about is we've promulgated rules that allow us then to create a bulletin that is really a subset of rules that then is shielded from the oversight of the legislature.

 

Booth Rand I disagree with that. Senator Dismang, if you look at the rule, the last rule in response to public comments, I incorporated that bulletin and indicated expressly any changes to the bulletin would have to go through rulemaking.

 

Senator Jonathan Dismang So today we need to be mindful of the fact that we're also discussing the bulletin and not just the rule that's before us.

 

Booth Rand Absolutely. It was incorporated by reference into the primary rule. And we indicated in the rule, just to assuage your concern, that we might amend or change the bulletin without going through rulemaking. We made it clear or I thought I made it clear that it had to go through rulemaking itself.

 

Senator Jonathan Dismang Why would you do that? Why wouldn't you just make it part of the rules?

 

Booth Rand It's just cleaner for me because the bulletin describes essentially the date of filing requirements more so than it does substantive issues about what it's covering and what it's not, that kind of thing.

 

Senator Jonathan Dismang Because my biggest concern is, and it's really what I think we're getting at, these definitions that are not yet determined. So that's access and that's fair and reasonable and all those things. I think y'all's argument is the legislature just let us come up with those on our own. And so you've written a rule in a way that allows you to create those definitions without having to have a rule come before us. And so you're saying whenever you create these definitions, because they're going to have to exist somewhere, those will change the bulletin and those are going to come before us?

 

Booth Rand Well, again, if you look at the way we review rates, the statute that you empowered the insurance commissioner to review premium rates, it says rights shall not be discriminatory or shall not be excessive. That's it. That's all it says. And so we give discretion to the commissioner in that situation to review medical loss information from actuaries to determine whether or not health premium rates are excessive or discriminatory. There's no elaborate rule in that situation.

 

Senator Jonathan Dismang But you're protecting who in that situation? The consumer, correct?

 

Booth Rand Correct.

 

Senator Jonathan Dismang Now, this is a very-- flip words back. Just do a back flip. And now we're talking about protecting those who are paying, which is a completely different position for the insurance department. AndI've debated whether or not to go down that road. But now you've opened it up. Because nothing in this rule protects the consumer, which is your primary function. I don't see it here, except access.

 

Jake Windley I might respectfully disagree because with the locus of this rule being entirely on--

 

Senator Jonathan Dismang The what?

 

Jake Windley The locus.

 

Senator Jonathan Dismang Thank you.

 

Jake Windley --of this rule being entirely on network adequacy, an individual pharmacy may go completely bankrupt under this rule and network adequacy may be preserved. Rates may be lower than an individual pharmacist might like and network adequacy may be preserved. What we're trying to avoid here is a situation where network adequacy is no longer preserved because in order to save on costs, a PBM has driven reimbursement rates so low that pharmacies go out of business and then there's no network adequacy in the sense of a PBM is basically eating the seed corn. And we've had a few good years of lower costs and now the consumers are paying the price.

 

Senator Jonathan Dismang To that point then, because I think this is something I've contemplated and had wondered if you all had. Let's just say that there's an area that has an abundance of pharmacists. Are you telling me that you'd be willing to allow them to have lower rates in those areas because there's so much competition? Let's let the competition work. And maybe in that particular area we won't have a dispensing fee because why would we? Because there's an abundance of pharmacists in that area. But the rules are not written that way. And in the comments, you explicitly said that they couldn't because you want it to be statewide, which doesn't make a whole lot of sense if we're talking about adequacy.

 

Booth Rand That's a good point. Should we increase reimbursement in the rural areas as opposed to a more highly concentrated area where there's a lot of pharmacies? That's something we will consider in the future for sure. But as to your answer, are we protecting the consumer? I think what Jake was saying or implying, we want to make sure that consumers always have adequate access to pharmacies. And I know in Searcy you indicated you have tons.

 

Senator Jonathan Dismang Yeah, we've got a good number of pharmacies.

 

Booth Rand You don't see them going out of business and Senator Irvin sees the same thing. But I think the pharmacists can explain that in other areas, that's just not the case.

 

Senator Jonathan Dismang I understand. But your rule doesn't intentionally delineate out between those areas. You said you were unwilling to do so at this time.

 

Booth Rand Well, it'd be very difficult to try to decide how to do that.

 

Senator Jonathan Dismang Okay. All right. Thank you.

 

Senator Ricky Hill Representative Allen.

 

Representative Fred Allen Thank you, Mr. Chairman. It appears that we have a crisis here. One of the things that we need to remember is that we should never let a good crisis go to waste. And I have a question. My question is, at the core of this issue, it appears that we are allowing PBMs to pay more to big national pharmacies than our local pharmacies. Why is that?

 

Booth Rand Well, if they're in network together-- or do you mean to non affiliates?

 

Representative Fred Allen Yes.

 

Booth Rand Again, I think that is an issue that we need to enforce, as I've explained that to Senator Dismang and Senator Irvin. The Insurance Department needs to do a better job in preventing non affiliate pharmacies being paid less than affiliate pharmacies. But again, I keep coming back to the issue, which is that the overall reimbursement minimums in Arkansas, as Senator Hickey pointed out, are to NADAC minimums. The affiliate issue is legitimate. I'm just saying we need to address bare minimum NADAC reimbursements to both affiliates and non affiliates. That's causing a lot of the problem.

 

Representative Fred Allen Follow up. Is there anything that you guys can do about it?

 

Booth Rand Yes, we can do another exam on the PBM industry related to affiliate pricing. If we do and you find that non affiliate pricing is 2 to 5%, the commissioner can take action to correct that and adjust the reimbursement to equal non affiliates. I don't think that's going to solve this problem that I'm here presenting. I think that is a problem, that we've got enforcement to do to take advantage of and to pursue as a separate enforcement action. But I think the problem here is the PBMs health plans have been reimbursing pharmacies at or below NADAC minimums. So that's what we're here for, really. And I understand the affiliate issue, but I think we're sidetracking a little bit from the basic problem that we've got, which is the pharmacies are really only being reimbursed right now, both the large chains and the small retail at NADAC minimums. And I think that's what we're trying to deal with.

 

Representative Fred Allen I'll get back in queue. I have a couple more questions.

 

Senator Ricky Hill Thank you, Senator Hammer.

 

Senator Kim Hammer Thank you, Mr. Chair. Based on your explanation a while ago, I know there's the concept that this is going to go to a $10 dispensing fee. But did I understand your explanation of the rule a while ago that it may not actually go to the full $10? That it's going to be fluctuating based on the data that you would be collecting if the rule is allowed to go through?

 

Booth Rand That is correct, Senator Hammer.

 

Senator Kim Hammer And the ceiling you anticipate in your area would be 3.3% impact to the policies? Is that correct?

 

Booth Rand On a $9 fee, yes.

 

Senator Kim Hammer On a $9 fee. Have you collected any data thus far that would give you an idea as to whether or not we would hit the ceiling or not with the tools that you have in the toolbox currently?

 

Booth Rand We haven't gotten the data in yet. We're getting it now from the health plans and PBMs. I won't know that until I see the data.

 

Senator Kim Hammer And when do you anticipate that would come in?

 

Booth Rand Within the next month and a half.

 

Senator Kim Hammer Month and a half.

 

Booth Rand Yes, sir.

 

Senator Kim Hammer And that effort to initiate getting that data started when?

 

Booth Rand Back when we passed the emergency rule a few months ago.

 

Senator Kim Hammer And prior to the emergency rule being passed, why were you not collecting the data prior to that?

 

Booth Rand  Again, the complaints about NADAC minimum reimbursement really started, from my perspective, in the spring of this year. So we started this rule process in June or July. So we were on this as fast as we could go.

 

Senator Kim Hammer Okay. And since this rule has been in place, what have you done since you were given authority under the emergency?

 

Booth Rand We issued a bulletin, this bulletin, to the PBMs. We're now getting that data as they come in before February 17.

 

Senator Kim Hammer Okay. And if it's going to be about a month, month and a half, when you get that data, is that when you feel that you will feel-- and I don't mean to use this word in a negative content-- but a little bit vindicated about what you're trying to do here today? Or when that data comes through, what if the data shows something different than what you're arguing for today?

 

Booth Rand We'll wait and see. Again, I think one of the most outstanding statistics that's in favor of not requiring a dispensing cost is we see a steady number of pharmacies who are not dropping out. So it's up to the commissioner, not me. But that would be a very important statistic for us to look at. If you already have an adequate network of pharmacies, that's going to impact our decision on whether to require dispensing costs.

 

Senator Kim Hammer All right. And currently, do you know if we have any areas of the state that are under inadequate pharmacy standards?

 

Booth Rand I do not know.

 

Senator Kim Hammer Okay. All right. I'll hold up for a little bit. Thank you, Mr. Chair.

 

Senator Ricky Hill I just want to clarify one thing here from what you said. Basically, you're asking us to review this today and you'll tell us later what it's going to cost the consumer. You're asking us to review something and then you decide what you want to charge us later.

 

Booth Rand Well, again, our decision--

 

Senator Ricky Hill That will be yes or no.

 

Booth Rand Yes. Yes.

 

Senator Ricky Hill Okay. Thank you. Senator Irvin. And just so everyone knows, I'm taking members' questions first and getting to the nonmembers as the members drop out.

 

Senator Missy Irvin Thank you. The determination to exempt self-funded plans, do you have statutory authority to make that determination?

 

Booth Rand I do not, and we are not exempting them--

 

Senator Missy Irvin It's on page five here. I think that's of the bulletin, correct?

 

Booth Rand Right.

 

Senator Missy Irvin I just wanted to know what the authority statutorily to do this or for exemption for self-funded plans and self-funded government plans with less than 5,000 Arkansas resident covered lives. That was just something you decided?

 

Booth Rand Well, again, they're not exempt from the requirement of requiring to pay a dispensing cost, even though they have less than 5,000 covered lives. I'm only minimizing the data requirements they have to report. They are only required to report the first bulletin point. They're not exempt from the rule itself. So I'm not exempting them at all.

 

Senator Missy Irvin Okay. And again, that's not statutorily. There's no language about self-funded plans being exempted or not exempted? Okay. Page C7, page 3, it says in response to a comment that was made that says, We really have not explored whether the next question of whether it instead can be applied or recovered under co-payment or coinsurance responsibilities. So I mean, that goes back to my whole first issue where I do believe it's a contractual issue on Arisa plans. But you're saying that you haven't explored the effect of this rule on copayment or co-insurance responsibilities. I mean, a co-payment is also recouped at the point of treatment or care. Is that correct?

 

Booth Rand And what I eventually decided in the final edits of that rule was to permit the fee or cost to be collected through co-pay, but not beyond the co-pay. So co-insurance and co-pay can be used to offset that fee, but they cannot go beyond the co-pay or co-insurance. That language was a suggestion by the Arkansas Blue Cross Blue Shield company.

 

Senator Missy Irvin Buy a co-payment is determined by the plan, not by you.

 

Booth Rand Right. But if it's a $20 co-pay, they can collect whatever they can collect under the copy that's left. For dispensing costs, they can't go beyond that.

 

Senator Missy Irvin Yes, but for the next year's plan, the $20 co-pay can just go to $30 co-pay.

 

Booth Rand I don't know if they're going to do that or not.

 

Senator Missy Irvin Well no, we don't know. And that's the point. And a co-payment is every single time you see treatment or care. So you could absolutely tuck the dispensing fee into the co-payment of every single one of these fully insured plans and self-insured plans, which is going to affect all businesses in the state of Arkansas that have self-insured plans or that contract with a fully insured plan for Blue Cross Blue Shield no matter the size of their business. So small business with 30 employees, which we ran at one time, then is going to see a significant cost to their health care coverage for their employees to the point where they actually might drop coverage for their employees. I just wanted to make sure I fully fleshed out the co-payment, co-insurance responsibilities.

 

Booth Rand I'll respond to the co-insurance and co-payment because my original language was they could not use any co-payment or co-insurance to offset this cost. We had an astounding number of PBMs and health plans object to that and feel like that was not consistent with their co-payment formularies and all that. So I'm trying to address inside with the health plans to the extent that I could. So we came up with a solution which was you cannot collect this dispensing cost outside of the co-pay or co-insurance. So that's what we decided to do. I'm trying to respond to the health plan objections.

 

Senator Missy Irvin Sure. But like I said, in just normal functioning of how this all works, that's just going to go from a $20 co-pay to now a $30 co-pay. So and then one other question on page 5 of C4, there was a pharmacist who was against the cap on the dispensing fee. And your response was, we assume you're referring to the Medicaid amount cap in rule 128. We may later adjust this fee cap or limitation in the future. It is, however, in place over cost concerns.

 

Booth Rand Again, over inflation issues. Again, the concern about the Medicaid dispensing cost is there needs to be an inflation. That's what I was referring to.

 

Senator Missy Irvin Yes, but the Medicaid dispensing costs is to offset a lower reimbursement rate.

 

Booth Rand I understand.

 

Senator Missy Irvin I mean, there's not an apples to apples comparison between the private marketplace and Medicaid. Medicaid is never supposed-- it is always never going to be--

 

Booth Rand I agree with you.

 

Senator Missy Irvin And I don't quite understand how every other Medicaid provider that's in the Medicaid budget and space, it will be to their detriment. So, again, that continues to put pressure on a Medicaid program which has a reason for a dispensing fee, which is to offset the lower reimbursement rate for the medications and to utilize a formulary. So there's not an apples to apples comparison to what Medicaid does and to what the other  private industry does.

 

Booth Rand However, Tennessee--

 

Senator Missy Irvin I hear you, but again--

 

Booth Rand They all adjusted this for $10.50 fixed fee adjusted for inflation. I was referring to inflation.

 

Senator Missy Irvin Okay. All right. I have other questions. I'll get back in the queue.

 

Senator Ricky Hill Representative Maddox.

 

Representative John Maddox Thank you. Mr. Rand, to follow up on what they were discussing, the plans are now getting you information. Is that correct?

 

Booth Rand Navitas has filed their Rule 128 data. I anticipate getting similar data from our health plans and PBMs within the next several weeks.

 

Representative John Maddox Okay. Let me ask it this way. Are they being compliant and cooperative? They are?

 

Booth Rand Yes. Very much.

 

Representative John Maddox Okay. Have you ever been told that you need to subpoena--

 

Booth Rand No.

 

Jake Windley --the documents? Okay. Thank you.

 

Senator Ricky Hill On the self insured, where did you come up to number 5,000?

 

Booth Rand Good question. We debated, our actuary, myself, whether it should be 2,000 or 5,000. I wanted to be as lenient as I could, Senator Hill, to expand that to allow more self-funded employer plans to have a lenient data request. So I expanded it to five.

 

Representative John Maddox Is that subjective?

 

Booth Rand Yes.

 

Jake Windley If I may, though, Senator Hill, the Arkansas code specifically allows the commissioner to set rules without limitation concerning data reporting requirements. The statutory citation for that is 23-92-509A to F.

 

Senator Ricky Hill Sounds like you were expecting that question.

 

Jake Windley Hope for the best, plan for the worst.

 

Senator Ricky Hill Thank you. Representative Achor.

 

Representative Brandon Achor Thank you, Mr. Chairman. To the AID, it appears there's been a little bit of confusion on exactly what it is you're trying to accomplish here. So I was hoping that maybe we could get some clarity. The current PBM Licensure Act does not say NADAC or fair and reasonable. Is that correct?

 

Booth Rand That is correct.

 

Representative Brandon Achor Does the language read NADAC and fair and reasonable?

 

Booth Rand Yes.

 

Representative Brandon Achor Okay. So any discussions we have here about going above NADAC are a requirement of that licensure?

 

Booth Rand Right.

 

Representative Brandon Achor Wonderful. Follow up question, Mr. Chair. There is no definition of fair and reasonable. And to this point, it appears that you are trying to have a data collection to help see what the market in Arkansas would be, to determine what fair and reasonable is.

 

Booth Rand That is exactly what we're doing.

 

Representative Brandon Achor Wonderful. And to that end, there are scenarios where not a blanket number will be applied to every plan, not a blanket number be applied to every similarly situated plan or patient. There are plans that are cooperating that will have methods that are fair and reasonable. Is that your expectation?

 

Booth Rand That is exactly what I've been trying to say.

 

Representative Brandon Achor Okay. And final question, Mr. Chair. As you go to determine whether or not the current market has entered into areas of where there's concern for adequacy, I would encourage you to work directly with the state Board of Pharmacy. The reason I ask is because I am someone who has opted out of a plan from Arkansas Blue Cross and Blue Shield. They sent a letter to my patients in our area that listed four other pharmacies that they could go to since I was out of network. All four of those pharmacies had closed over 8 to 10 years ago. The network adequacy numbers that you're relying on are people who have an incentive for them to be inflated. Thank you.

 

Senator Ricky Hill Would you state all that again?

 

Representative Brandon Achor When I declined to be a part of a network?

 

Senator Ricky Hill Yes, sir.

 

Representative Brandon Achor And the health plan sends out a letter to all of the members that currently use my pharmacy, that state other pharmacies that they can go use. This most recent round, it happened two weeks ago, included four pharmacies that had all been closed within the last over 8 to 10 years. So when we ask whether or not there's a network adequacy issue in the future or what the numbers are you are relying on, the data that you are to be receiving that network adequacy is not an issue, it's coming from entities who have an incentive to inflate those numbers. None of my patients can go to a Harvest Foods that doesn't exist anymore.

 

Senator Ricky Hill Thank you. Senator Stubblefield.

 

Senator Gary Stubblefield Thank you, Mr. Chair. I'll make this really quick. I, too, have a number of pharmacies in my district that are struggling. One in particular submitted 7,000 claims that were paid below the NADAC. All those claims were submitted to AID. Only 10 of the 7,000 were rectified. So I just have one question. Why is the middle man allowed to take control of the entire pharmaceutical industry?

 

Booth Rand Well, as your first comment about the 10 that we processed versus the other 7,000, bear in mind that a lot of the complaints that we get from pharmacies are from health plans that we don't regulate. Okay. Federal Employees Plan, Christian Health Ministry plans, some Arisa plans, Indian tribe plans. All kinds of federally regulated programs have health plans that we don't as a requirement regulate. So when the complaint comes to our PBM division, we have to have a fully regulated-- that means state regulated health plan that we can regulate and apply our laws to. So a lot of times when we don't make adjustments to below NADAC minimums, a lot of times it's because it's a self-funded plan or a grandfathered plan or it's a federal employees plan or it's something that we can't regulate.

 

Senator Gary Stubblefield I understand that. The main--.

 

Booth Rand Why is it a middleman? Because 30 to 40 years ago or longer, health insurance companies decided it was more economic, much more profitable for them to contract out their pharmacy reimbursement claims handling to a third party to do it cheaply. So when I grew up, maybe when you grew up, when we had Blue Cross Blue Shield, they had their own drug in-house pharmacy claims system or whoever your health insurer was in the 1960s or 70s. Over time, the health insurers found it much more economic for them to contract those services out to PBMs to do the drug handling processes.

 

Senator Gary Stubblefield Therefore a PBM can take 75% of the profit from Ozempic while the pharmacy gets 25.

 

Booth Rand I'd have to look at the contract, but it's all legal in terms of how they do it.

 

Senator Gary Stubblefield Thank you, Mr. Chairman.

 

Senator Ricky Hill Thank you. Senator Hammer.

 

Senator Kim Hammer Refresh my memory, Booth. When does y'all's 120 days run out?

 

Booth Rand January 12.

 

Senator Kim Hammer January 12?

 

Senator Kim Hammer All right. And if this rule is not passed out, what happens between January 12 and any solution we bring out of the legislature?

 

Booth Rand I will pull down. I will pull the emergency rule down. This permanent rule, if the permanent rule fails, I will withdraw the emergency rule. There's no sense of having an emergency rule that would last for 12 days.

 

Senator Kim Hammer Right. But what I'm asking is what happens between January 12 and the time that we would come with a legislative solution?

 

Booth Rand Nothing. Nothing.

 

Senator Kim Hammer So what happens to the pharmacists that filed complaints?

 

Booth Rand They would have to wait on legislation assuming it's granted by this body.

 

Senator Kim Hammer Okay. And in the other states that have already pioneered this rule, as you were referring to a while ago, how long ago did their rule go into effect and what does the data show as far as the actual costs or do you have that?

 

Booth Rand That's a great question. West Virginia, Tennessee and Kentucky enacted their dispensing cost laws about three-fourths of a year ago. I want to say early part of this year. When we contacted Kentucky, West Virginia, Tennessee about rate impacts or premium impacts, we had several discussions with them this fall. And this fall, all three of them said they were just now receiving health plan filings for premium. They could not give us the data because they were in the process of making those decisions back in November or October. So they did not have the data at the time for me to see what sort of impact they were seeing at that time from the dispensing costs. West Virginia suspected they would see no dispensing costs because of the way they had arranged a rebate provision in their law that allowed rebates to be used to offset these dispensing costs.

 

Senator Kim Hammer But this rule doesn't touch that area, right?

 

Booth Rand We are unable-- and I got into this discussion with Representative Wardlaw. We had tried to allow our Fairness and Cost Sharing Act, which allows rebates to go down to reduce cost sharing requirements of patients at the counter for drugs to utilize any leftover or surplus rebates to help reduce any costs from this law. And I agree with Jeff and I think the bureau and others that the law that we passed for fairness and cost sharing didn't specifically say you can use this to defray pharmacy dispensing costs. It's a legal problem.

 

Senator Kim Hammer So last thing. When do you anticipate that those other states will have their data in so that we could benchmark against what--

 

Booth Rand A month or two probably.

 

Senator Kim Hammer So it's going to align pretty much with--

 

Booth Rand What we're doing. Yes.

 

Senator Kim Hammer Okay. Thank you.

 

Senator Ricky Hill Representative Maddox.

 

Representative John Maddox Thank you. Mr. Rand, so ostensibly, if someone is paying fair and reasonable, their cost will not go up. Is that correct?

 

Booth Rand That is correct.

 

Representative John Maddox You told me that they are being cooperative now with the data. Correct?

 

Booth Rand Yes.

 

Representative John Maddox So are you getting that data now and that cooperation because of this rule?

 

Booth Rand Yes. Yes.

 

Representative John Maddox So if we don't have this rule, do you think you're getting that data?

 

Booth Rand No.

 

Representative John Maddox Okay. Thank you.

 

Senator Ricky Hill Senator Irvin.

 

Senator Missy Irvin It's nice that we're trying to just frame this as a data collection rule when it's really not. It's about increasing and guaranteeing profits with a dispensing fee. So if that's really what the intent was is data collection, why didn't you just write the rule to be a data collection rule?

 

Booth Rand I think it's both. I think it's both.

 

Senator Missy Irvin Well, let's make sure that we're real clear. Because I think you already had the authority without this rule to seek that data. And the reason why is because what does the insurance department do when they review rates from insurance networks? Because this has nothing to do with PBMs. Everybody wants to beat up on PBMs. They need to be beat up on. But this rule is not going to affect the PBMs. They are not even opposed to this rule. The PBMs are not even opposed. So you determine insurance rates by Blue Cross Blue Shield, Ambetter, whomever. You determine that every year. Okay. And in the determination of those health care insurance rates, you always look at network adequacy. Correct? Network adequacy is always a part of a rate.

 

Booth Rand This is a valuation factor.

 

Senator Missy Irvin It's an evaluation factor you evaluate. But when you talk to insurance companies, they are talking about adequacy of network in how they create their rates because they have to be able to pay providers so that they have an adequate network. So we've approved that every single time. And so you do have the ability to get that data collection without this rule because you've done it every single time that you've reviewed an insurance rate and a premium rate.

 

Booth Rand Can I ask you a question? And I want to answer your question, but I'd like to ask you. So you think it's perfectly permissible for the insurance commissioner to decide to collect the data and decide dispensing costs without going through approval with your body?

 

Senator Missy Irvin This rule is not just about data collection. This is about actually being able to set and price fixing. This is a price fixing rule because you're allowing your subjective review of the data then to go one step further and determine pricing of a brand new animal or beast or whatever you want to call it beyond the reimbursement rate.

 

Booth Rand What good would it be for me to collect all this data and do nothing with it to make a decision about the cost or fee?

 

Senator Missy Irvin But again, you're talking about data collection. We don't have an adequacy network issue or problem. That's been testified to. And we have not had. If pharmacies are closing, it's because they sold out because that's what's happening. I mean, there are corporate buyouts and there are a lot of pharmacies that are selling because guess what? They're cashing out big time and they're getting paid a lot of money and their pharmacies are getting bought out by corporate. That's happening in the dental world. That's happening in the health care medical world. I mean, that's just the nature of the business. And so much of what we've discussed today, the vertical integration, the spread pricing, all of those things is a federal issue. And there's only so much that the state can do. And so, again, I don't understand why we wrote this to be so incredibly comprehensive to allow and give ultimate authority into a whole other arena, an area that's beyond, in my opinion, where we are supposed to even go with on reimbursement rates and the NADAC and which is an average. And it's an average cost. We're not talking about a wholesale acquisition cost like in manufacturing. You have a wholesale cost, you have a retail cost. This is an average cost. And you do have access to that data, correct? That's public, the NADAC .

 

Booth Rand Again, we can get the data without this rule. Okay. But I can't make a decision about a dispensing cost without a rule.

 

Senator Missy Irvin Right. That's what I'm saying. So then I don't understand the necessity of the rule then. I mean, because I don't believe the dispensing cost or fee is something--

 

Booth Rand My intention was-- because I'm very transparent as you know. Everything I do by you before I do it. Okay. So, yes. Is it possible we could collect this data and then come back with a rule after we collect the data with our, yes.

 

Senator Missy Irvin And I would argue that at that point, then, it would then go and become a statutory change with the data, a statutory change. And that gives you solid footing and solid authority through statute versus very subjective of an opinionated and we don't know if it's going to be $1 or $2 or $5 or $9 or $10 or we don't really know. I mean, I think that there's a lot of problematicness in that. I guess the last thing I would just ask a question about is, when you look at the public information that's already available to you, what are those things that you look at?

 

Booth Rand Public? There's nothing public other than--

 

Senator Missy Irvin I think that Senator Boyd talked about the Federal Trade Commission. And I think, Mr. Galbreath--

 

Booth Rand We read the FTC reports that are critical of PBMs. But the data that we're getting is proprietary and confidential drug reimbursement data. So it's not public at all and will not be public on that. So and I appreciate your suggestion that as an alternative to this rule, AID is to go out and collect all this reimbursement data and then maybe come back with a rule with standards about what that is. I just would point out the circumstances that we found ourselves in at the first of this year. And for many of you who got emails to the commissioner, to the governor's office, others by a significant number of pharmacies complaining about these reimbursement practices is one reason why I was pushing this rule so quickly. So I understand what you're saying, but we're reacting to complaints that started way, way back.

 

Senator Missy Irvin I understand that. I just know I'm going to get more than 3,000 complaints if people's co-payment go up by $10 to cover a $10 dispensing fee every single time they get a prescription filled. And for some people, particularly the elderly, that is going to be a significant amount of money every single month. And this is going to impact our elderly population and patients more so than anybody else. And that is what I have to consider, because I have to represent all of my constituents, not just one industry. And businesses are furious. They're blowing up. They're very, very opposed to this. A lot of businesses are. And so, yes, you've gotten those complaints, but I assure you there's going to be a lot more complaints coming down the pike if this does go through.

 

Booth Rand Yes, ma'am.

 

Senator Missy Irvin And that concerns me from a policy perspective, correct? Because we have to look at policy and we have to understand it. So for me, legal authority and statutory authority is really, really important. I have one more question. Have you ever brought a bulletin through the rules promulgation process before?

 

Booth Rand No.

 

Senator Missy Irvin You have not?

 

Booth Rand No, ma'am.

 

Senator Missy Irvin Why? Why?

 

Booth Rand Because normally they're just advisory, but because this is so integral to this rule and because of the criticisms about this bulletin being amended without going through the rule process, I made this an exception to incorporate by reference into the rule so that no changes can be made to the bulletin without going through rulemaking simply because of the criticism that you and I think some others have maybe had that we might change this bulletin without going through rulemaking. That's just not going to be the case.

 

Senator Missy Irvin Okay. But that was just a decision you made. There's nothing, though, legally--

 

Booth Rand I'd have to go back and look at all of our 130 rules. We do issue bulletins quite often to the industry about data submissions and format issues. So without going through rulemaking, we have over the years, I would just have to go back and look and see if I've ever done that.

 

Senator Missy Irvin And I think my point though is that it's a subjective decision whether we brought the bulletin through rules promulgation process or not. There's nothing statutorily that says--.

 

Booth Rand There's nothing in the PBLMA that says--

 

Senator Missy Irvin Or the administrative rules process. There's nothing in there either. So you've given us your word, but actually there's nothing that says you couldn't change it after it goes through that.

 

Booth Rand Well, there's nothing saying I can't do what I'm proposing to do, which is incorporate in the rule either.

 

Senator Missy Irvin Okay. Okay. Okay. I just wanted to make sure I was clear on that. Thank you.

 

Senator Ricky Hill Representative Wooten.

 

Representative Jim Wooten Thank you, Mr. Chairman. You mentioned the pharmaceutical companies in relationship to the PBMs. They were outsourced. They outsourced to the PBMs what they were doing internally. Is that correct?

 

Booth Rand I don't understand that at all. I don't know if I said that.

 

Jake Windley The insurance companies their internal bargaining to PBMs.

 

Booth Rand Yes, 30, 40 years ago in the 50s, 40s, health insurance, when you bought it, they had in-house their own drug handling claims review process. It was internal. And over the years, and I'm just guessing, but the 70s and 80s and 90s, they found it much more economical for them to contract out their drug adjustment claims handling or reimbursement programs to PBMs to handle that, who are able to do it at a more cheap price.

 

Representative Jim Wooten Okay, so that's what I'm saying. They outsourced that under a contract between the insurance companies and I said pharmaceuticals, but I meant insurance companies. So they contracted that out? Well, why is it that they have a rate of 75% they keep and 25% they pass on to the pharmacies?

 

Booth Rand I don't know about the 75/25. You're going to have to help me out on that. Where did you get that?

 

Representative Jim Wooten Well, that was brought up by Senator Stubblefield.

 

Booth Rand  I don't know if that's true or not. The reimbursement rates between the health plan and the PBM are all governed by a contract between the PBM and the health plan about how the drugs will be priced, about how the drugs will be listed and so on. So I don't know if it's 75/25 or it just varies.

 

Representative Jim Wooten So Okay, can you answer the question of how many counties in Arkansas, if we believe what you're saying on your rule 128, can you say how many counties will be without pharmacies in Arkansas?

 

Booth Rand No, but I would defer that to Mr. Vinson, who's going to be talking, I think, last in these presenters.I do not know that, Representative Wooten. 

 

Representative Jim Wooten Thank you. Thank you, Mr. Chairman.

 

Senator Ricky Hill Senator Boyd.

 

Senator Justin Boyd Thank you, Mr. Chair. I just have two related clarifying questions. Senator Irvin threw out a couple of things. One, about how this rule was going to affect the elderly. But you had given testimony that Medicare would not be affected by this rule. And wouldn't you consider that most of the elderly are on Medicare?

 

Booth Rand Yes.

 

Senator Justin Boyd And then secondly, there was a comment made, and I'm paraphrasing, maybe I don't have it exactly right, that pharmacies are selling for big dollars by Senator Irvin. Would it surprise you to know that I know of multiple pharmacies which have recently closed or are about to close that there is no dollar? They can't sell their pharmacy. It's not worth anything. Would that surprise you?

 

Booth Rand No.

 

Senator Justin Boyd Thank you.

 

Senator Ricky Hill Senator Dismang.

 

Senator Jonathan Dismang Thank you. And I'm going to circle back to I think it was maybe in response to some questions by Senator Stubblefield. Essentially, he had asked, well, what happens if we don't pass this? And I think your first response was that you'd pull the emergency rule back. And then I think his follow up question is, well, what happens to all these complaints that have been filed? And you said nothing.

 

Booth Rand I'm sorry if I misunderstood that. We would pursue the complaints. I'm just referring to the general concept of whether they would get any relief with a dispensing cost law. So we would-- I'm sorry.

 

Senator Jonathan Dismang It's a rule.

 

Booth Rand Right. So they would not have the benefit of a rule in place or a law in place to give them a dispensing cost. I didn't mean to insinuate that we wouldn't enforce the complaints.

 

Senator Jonathan Dismang What have you been doing to enforce those complaints? What do the findings look like? 

 

Booth Rand We've got 4 or 5 enforcement actions against the larger PBMs that are ongoing enforcement. We're in negotiations with many of the PBMs related to fines for payment of a below minimum NADAC payments. I think, Senator Hickey, I will tell you this in all honesty, many of the violations below NADAC are less than $2 or $3 or $4. So we can fine a company $5,000 for violations below NADAC. But we're struggling with this issue about being reasonable about that. And so if you're $0.60 below NADAC, I'm not a regulator that's going to play gotcha and ask for $5,000 fine. I think, Senator Hickey and I had this discussion last time we were up with this discussion. It says up to 5,000. So we're developing and we need to develop first how we want to assign penalties for fractional or for violations below NADAC that are like $2.65.

 

Senator Jonathan Dismang So is that going to be a new rule?

 

Booth Rand Yeah. And it was a lot in response to Senator Hickey's and my discussion that I agree with him.

 

Senator Jonathan Dismang But we haven't taken the time to promulgate that rule yet, which hits at the heart of the PBM.

 

Booth Rand I'm going to get to that after this. I think we want to caliber the violations relative to the amount that you're belowNADAC  and not take a strict view of it's being $5,000 if it's 4 or 5 cents off NADAC. Okay. So we're trying to deal with those issues right now.

 

Senator Jonathan Dismang But those will all be new rules that will come before us.

 

Booth Rand I will definitely do that.

 

Senator Jonathan Dismang Because here's my concern is why it's taking a rule to do what we're doing here today. Senator Hickey handed this to me, but if you look at the pharmacy benefits manager network adequacy language, essentially we've given you the ability to do what it is that you say you can't do without a rule.

 

Booth Rand But I don't think you've given us the ability-- again, like I told Senator Irvin, could we have done this without a rule? Probably collected the data. But we're not defining much with fair and reasonable outside this rule like we're doing with this rule. But I like running by our initiatives and actions by this body just so that you know what we're doing. Okay?

 

Senator Jonathan Dismang I guess in a way understand that. But as far as you collecting information and be able to say the right thing is happening or the wrong thing is happening, which is still where we are. I don't know how many complaints-- I don't remember what you said, several thousand. And we get into the single digits when we talk about outcome, which is also incredibly disappointing if there is a huge problem. If we're talking about a success rate of claim issues of the 0.001%, which is what it sounds like, then that's a pretty disappointing number. I don't know what that means besides that maybe you aren't effectively enforcing what you're allowed to enforce. But I sure would love to see the information so it has a bigger picture context. Maybe we can take some of the fear that people have. But instead of doing that, we're saying, hey, we're going to collect the information and simultaneously put something into place. Well, collect the information, come back and let us know what it looks like. What is wrong with that? Because I can promise you, because I've had plenty of phone calls, too, of people that are concerned about what it is we're doing here. And when you talk to people on the street about, hey, you may have to pay a dispensing fee, I promise it's not going to be very popular.

 

Booth Rand Yes, sir.

 

Senator Jonathan Dismang But it might be tolerable if we could demonstrate what was happening before we ask for it. But for whatever reason, we think we can't do that. And I don't know why. And maybe that's the pressure that you feel from the number of phone calls and the fact that you're incapable of pursuing all of those complaints because to date you haven't done it.

 

Booth Rand Well, we've not--

 

Senator Jonathan Dismang Or they're not real complaints. One of those two things is real.

 

Booth Rand Well, what's real is we've not ever collected statistical data from any of--

 

Senator Jonathan Dismang Even though you could.

 

Booth Rand That's correct. But again--

 

Senator Jonathan Dismang I don't understand. You've been getting these complaints forever. You said these are replicas--

 

Booth Rand No, not forever.

 

Senator Jonathan Dismang You said they were common to the prior year.

 

Booth Rand I think--

 

Senator Jonathan Dismang And the prior year.

 

Booth Rand It's more complicated than that, Senator Dismang. I think within the last year we have seen a significant number of more complaints as PBMs ratchet down--

 

Senator Jonathan Dismang Just a minute ago, you said it was on par with the complaints that we normally receive.

 

Booth Rand I--

 

Senator Jonathan Dismang I listen, I try to listen. And that's what I'm hearing.

 

Booth Rand We have received a significant number of-- again,  I don't sit there and measure the numbers each day. You can talk to our PBM director, but I've seen a significant number of complaints the last year and a half over NADAC minimums--

 

Senator Jonathan Dismang And it's just now that you're waiting to try to figure out what's going on, exercising the authority that you already have.

 

Booth Rand Actually, we tried in the spring to start this initiative.

 

Senator Jonathan Dismang And again, we'll go back because I didn't add it. You added it for color in the context of your overall discussion about PBMs. You said that you knew of instances in which PBMs were paying more to their affiliates than the other pharmacies. Yet we have not done another report, another study, since 2020.

 

Booth Rand I agree. We have not done--

 

Senator Jonathan Dismang Adn you think that we need another rule in place for you all to have more work to do when we're not doing the work that we have in front of us.

 

Booth Rand Now, again, the affiliate reimbursement statistic that we require in this rule is just one of 6 or 7 factors that we're going to look at deciding.

 

Senator Jonathan Dismang I know. But you said it. I didn't. It's an issue. I promise you. That's what I hear from my pharmacists. The first phone call is about what affiliates are getting paid versus non affiliates, which is a direct violation of law. But we're not pursuing that.

 

Booth Rand We have not yet.

 

Senator Jonathan Dismang And we haven't pursued it in five years. But we want a whole other rule because I think it's easier than maybe doing that work. Maybe it's easier just to add this fee on or whatever you want to call it whenever we go to the pharmacist. I think it's just the easy way out rather than-- it's like I want to make 100 my test, but I don't want to do the homework. Let's do the homework and tell us what's actually happening.

 

Booth Rand Again, the affiliate data component is just one of six that we require in this data.

 

Senator Ricky Hill So going back to what Senator Dismang was saying, just saying and alluding to and taking a little bit farther. It still sounds to me like, pass it now, review it and we'll write everything later and tell you what it's going to cost you. This is Obamacare 2.0.

 

Booth Rand We don't know, Senator Hill, which health plans are going to be required to pay dispensing costs until we review the data. So I can't tell you the ultimate cost impact on each plan until our actuary and our commissioner and our staff review the data.

 

Senator Ricky Hill But do our citizens deserve that right to know what it's going to cost them?

 

Booth Rand That's up to you guys and gals.

 

Senator Ricky Hill Representative Beaty, you've been in and out so much. Do you really have a question this time?

 

Representative Howard Beaty Thank you, Mr. Chairman. Yes, I have a question. Earlier, there have been several questions asked about counties that maybe don't have sufficient access to pharmacies. And you've answered a couple of times, Mr. Rand, that you weren't aware and didn't know that information. You've deferred that to John Vinson with the Pharmacy Association. I'm looking at page two and I heard you read this earlier is that part of this to ensure an adequate network of pharmacy services for a health benefit plan and ensure reasonably sustainable, adequate network for such service. Can you give me a definition of what an adequate network of pharmacy services is? Because it's nowhere in the rule as far as defined what an adequate network is.

 

Booth Rand Well, an adequate network for a reasonably sustainable network would be an adequate reimbursement system above NADAC minimums, both for generic and for brand that allows the pharmacies to stay in business not only currently but in the future. And I don't know how much more specific you want me to be with that.

 

Representative Howard Beaty Well, I guess adequate network of services to me means that folks in my county and I think most of the members in this room, adequate network of service providers would mean that when someone in my county wants to have their prescription filled, there's a pharmacist within a few miles that they can go and get that service provided.

 

Booth Rand That is correct.

 

Representative Howard Beaty But all the way through right now you can't answer that question as to if there's a county anywhere in the state that has a shortage or has the threat of not having an adequate service. But that's part of what this whole rule is based on. I know it all comes down to the green salve and a little money. But the primary basis of the whole rule is to ensure an adequate network of service providers. And so I think that's what's important to all of us. And I think that's important to our employers in this state to insist their employees have an adequate network that they can go and get that service provided. So thank you.

 

Jake Windley And Senator, while I'm not as familiar with the data as Mr. Rand might be, one good thing about the statute is it does lay out a floor for pharmacy access. 23-92-509B pegs it to the federal standards established under Tricare and Medicare Part D and then lists at least some pharmacy access requirements. For example, in rural areas, at least 70% of individuals have to live within 15 miles of a network pharmacy that's a retail pharmacy. So we at least have a statutory floor for access.

 

Senator Ricky Hill Go ahead, Representative Beaty.

 

Representative Howard Beaty I'm just going to follow up. I was kind of finished, but to follow up on that, based on those requirements that you just read, can you give us some information of any county that does not meet that definition that you just read to us out of the code? Booth, not you, the gentleman in the middle that's been quoting the law to all of us.

 

Jake Windley Once again, I am not as familiar with the data as Mr. Rand.

 

Representative Howard Beaty Just a yes or no. Do you know of any counties that don't meet that definition?

 

Jake Windley No, sir.

 

Representative Howard Beaty All right. Thank you.

 

Senator Ricky Hill Last question. Senator Hammer.

 

Senator Kim Hammer Thank you, Mr. Chair. I want to go back to a comment you made earlier about, and if I remember it right, it was like midyear was when the uptick in the complaints started coming in. Is that correct?

 

Booth Rand Yes.

 

Senator Kim Hammer Okay. And you've had 3,000. What's the number of complaints you've handled since then roughly?

 

Booth Rand About three.

 

Senator Kim Hammer About three. And that represents how many pharmacies?

 

Booth Rand I'd have to ask Amy. 50, 60, 70. Just guessing.

 

Senator Kim Hammer All right. What is it that attributed to the sudden uptick?

 

Booth Rand There's speculation about that, I think. Several of the PBMs over the last two years after 2021, and this  gets to Senator Hickey's point that the state law itself under the PBM law only requires PBMs to reimburse at NADAC minimums. That was something the legislature passed. I think a few of the PBMs had better or higher reimbursement above NADAC minimums 2 or 3 years ago. And this is my speculation, that several of them start taking a very strict view of the Arkansas law, and as Representative Wardlaw has pointed out, and basically took the position, well, Arkansas only requires NADAC minimums. Let's do that. And so I think there was a change about a year and a half, two years ago, when some several of them started lowering reimbursement to NADAC minimums under a strict reading of that law. And many of the pharmacies had been being paid NADAC plus 100% or 200% on generics were now getting NADAC plus 1% or being paid right at the NADAC level in reaction to just a strict reading of the state law. That's just my speculation.

 

Senator Kim Hammer And of the 3,000 that you've dealt with, has it gotten the pharmacies that filed the complaint up to a sustainable reimbursement?

 

Booth Rand I don't think so. I don't I don't think so.

 

Senator Kim Hammer Why do you not think so? So it's not subjective.

 

Booth Rand Well, just  due to the number of complaints that we continue to get about this reimbursement being at NADAC minimums. You really need to hear from the pharmacies about this.

 

Senator Kim Hammer Okay. Thank you.

 

Senator Ricky Hill Representative Maddox.

 

Representative John Maddox Just to clarify, and we've been here a long time and I think we're done with you finally. But it's NADAC and fair and reasonable, is that correct?

 

Booth Rand That's correct.

 

Representative John Maddox It's not NADAC. It's NADAC and fair and reasonable. That's the law.

 

Booth Rand Right.

 

Representative John Maddox Thank you.

 

Senator Ricky Hill I want to ask you a question now. You referred to NADAC while ago. Who brought that bill to the General Assembly?

 

Booth Rand Pharmacy Association.

 

Senator Ricky Hill Thank you.

 

Booth Rand The Pharmacist Association.

 

Senator Ricky Hill Go ahead.

 

Alan McClain Just as I sense that we're bringing us to a close, I just wanted to sort of kind of put a kind of close it up, I guess. But of course, if y'all still have more questions that's fine. But that's kind of how we got here. And it is in the spirit of transparency, highlighted some things that we didn't have to have in a rule or a bulletin. And I think, as Booth pointed out, we just wanted to make sure we could get something here that everybody knew what was going on so that's largely-- if there was any error in the side of of transparency and getting it here. And network adequacy, that's something that's in the statute for us. 

And we just wanted to in our efforts of getting this data and us being able to analyze that those minimums are at least being adhered to. I mean, that's really the only tool. The presumption is if they're not paying those minimums that they're not going to continue to be a part of a pharmacy network. And so really, I think that was just what drove it. And these are the two lawyers in the bunch. But I think that's why we wanted to keep pushing this thing through to get it in front of you. So that's really all I want to add.

 

Senator Ricky Hill Okay. Well, thank you very much. Appreciate your time. Appreciate the answers. Appreciate the hard work y'all put into this. And thank you for the information you've given us. Okay. We're going to go to John Vinson with the Pharmacists Association. Mr. Vinson, please introduce yourself for the record.

 

John Vinson Thank you, Mr. Chair. Chairman Hill, Chairman Maddox, members of the committee. Thank you. My name is John Vinson, CEO of the Arkansas Pharmacists Association. The Arkansas Pharmacists Association represents over 2,000 pharmacists and student pharmacists in all 75 counties. Just for perspective, located here in Little Rock, been around for a long time. So thank you for the opportunity to speak today. PBM Rule 128, we are supportive of that rule and I know we've circulated our comments around, the commissioner said and his team. A lot of comments submitted. 

We do recognize from the testimony today there are concerns. And we acknowledge that the rule and the data collection is not perfect, but we do support the concept in the original law and the attempt to enforce the law and hold accountability to the law as it was written. So we're supportive of that. It has been a rough year for our pharmacists and our pharmacies around the state. It's been challenging. There have been situations from our perspective where there were contracts signed, there were rates in place, there were payments made based on what they experienced the year before and the year before. 

No changes in contract where unexplained similar to what those of you who have been around serving at the legislature back in 2015 and then also in 2018 when the governor called the special session and this law was introduced that allows the rulemaking where you thought you were going to be paid one thing, but there are clauses in the contract that give the PBMs unilateral decision making without any explanation, without any changes in the market and without any changes in what the drugs cost that dramatically reduce reimbursement. And we've even seen that since September. So the emergency rule was passed in September. We have seen plans that have blatantly, they're fearless. They don't feel like there's going to be any accountability. And there have been dramatic cuts. 

For example, I'm not going to name who it is unless you ask me, but there's a major insurer in the state, commercial plan, that was paying fair and reasonable-- to the point earlier, you were asking, are there planes that are doing that-- on November 1 or a few days before, depending on the pharmacy, cut reimbursement by 65%. No explanation, no reason, no change in drugs, no change in what it costs to operate a pharmacy. They just did it without explanation. And you call your contractor, you call the PBM, you get no answers. 

And so this rule does create some accountability to see that transparently for at least the referee on the playing field, the Insurance Department, which this body gave them the authority to review. So for that reason, we're appreciative and supportive of the rule, even though we acknowledge that there could be challenges or it's not perfect.

 

Senator Ricky Hill I'm going to go ahead and ask you to name who it is. You knew that was coming.

 

John Vinson Sure. So on that particular example, that was Arkansas Blue Cross Blue Shield, who we had even been, in early conversations with the governor's office, saying this particular plan for the last six years has tried to do the right thing. They've tried to put in a fair and reasonable compensation program, and they've been reasonable about how they've implemented it. This year, they have about 17 different networks. And forgive me if I don't know exactly the number, but they have different networks where the rates aren't exactly the same in every network. And there have been some where there were cuts in April, which we thought, well, maybe that was just the employer or the PBM. But this latest one on the fully insured product, you can't say that. It's black and white, an insured, fully insured product. And those cuts went in effect in November.

 

Senator Ricky Hill Thank you for that.

 

John Vinson And there were some questions, too, about pharmacy closures. I wish the state board of pharmacy was here to answer that question from the licensing board. But they have a website which we could circulate around or we have a PDF we could circulate around. But over the last two years there have been approximate net closure of approximately 40 pharmacies, with about 20 of those this year. And two thirds of those are independent pharmacies and one third is chain. 

Yes, there have been some pharmacies that have opened, too, but the net effect has been a net decrease of about 40 from my calculations of reviewing their data. And to the point about, are there any counties that have zero pharmacies? There are no counties right now that have zero pharmacies, but there are a few that are in trouble. And there are some areas, Little River County and Miller County have lost all of their independent pharmacies. They still do have some national chain pharmacies there. But to the point earlier about the services rendered there, they may be able to fill the prescriptions, but they may not have some services like after hours, emergency care, hospice services, long term care and assisted living nursing home services or compounding. 

So when you lose that competition, we want a market that's fair, where there's fair competition, where monopolies or not both price setters and price takers in an unfair way, as I know there's been a lot of discussion already about that. But to the point of the insurance commissioner and their team looking at these issues separately, where we're just going to look at NADAC violations or we're just going to look at fair and reasonable or we're going to look at affiliates separate and worry about that later. When we supported the language in the law at the association, it was important that all of those factors were looked at as part of one conversation, that it, on safety net claims, they weren't paid below NADAC, which is the same methodology that Medicaid uses. 

And I agree with you, Senator Irvin, it is a very low reimbursement for NADAC. Historically, the plans have paid much higher than NADAC. In Arkansas Blue Cross Blue Shield that I gave a minute ago example, even though the dispensing fee may be very little, the ingredient side of the drug reimbursement has been significantly higher than NADAC. But the federal government has interfered in this market, in my opinion. And when you take the invoices of the pharmacies and you publish them on a CMS website and then someone who is your direct competitor is setting the price and taking the price and can see what you bought the drug for on a CMS website and they can push the overall compensation. It doesn't matter if we're talking about dispensing fees or ingredients. They're pushing both sides to zero because it's on a government facing website.

And then in the same plan, and I know I've talked to Senator Dismang and several of you in the room, in the same plan, you may see large chain pharmacies, some who are owned by PBMs that are paid NADAC or the cost of the drug plus $25 or $30. And I would tell you, too, one thing that's different about this year versus previous years between 2018 and now, this is not just an Arkansas issue. They are pushing the rates to zero, particularly in independents, in all 50 states, whether you have protections or not. We just happen to be blessed to be in a state where our state lawmakers stood up for patients and they stood up for businesses and they stood up for pharmacists and they said, we aren't going to let our consumers just be run over by these middleman trillion dollar companies. 

We are going to have regulations and be able to intervene and not have to wait till legislative session. And I would say if you're not supportive of the rule and the rule doesn't go into effect and we do try to tackle this in the legislative session, we would be welcome to be part of that conversation. The rule could get implemented quickly, which is why it's nimble and allowed to happen. Our experience has been when we pass  legislation, it takes at least a year. I mean, yes, we could pass an emergency clause, but because of the way contract law works and the way the Arkansas Constitution works, historically, even when we've passed legislation, it has not been fully implemented for a year in the past. 

And with rulemaking, I understood that it could be done quicker because adequate notice was given and notice would be given to the plans and it could be implemented in 2025 and not in 2026. I'd be happy to answer any questions.

 

Senator Ricky Hill Thank you on that. And yes, it does take a little while with legislation, but I will go back to a conversation that we had in March. We've been almost a year with this. And so you've got the same results there. The question I'm going to ask you I was going to ask the commissioner. Now with the mail orders, with this fee that's going to be implemented, for out of state companies, will this be implemented? Will they be receiving that as well?

 

John Vinson That's up to the commissioner. And I heard him say the answer was yes earlier. But that would assume-- or most of those mail order facilities are owned by PBMs and insurers, or at least the ones who are filling the vast number of the claims. So it will be very interesting to see because we have seen examples in our office from our members where mail order pharmacies owned by PBMs, not in BlueCross's plan but in other plans, are still paying themselves more than the local pharmacy. 

So it'll be interesting to see what decisions they make based on that data or what the Board of Pharmacy even might feel about that. Well, I also would say that that is consistent with what, if you're reading the national news, Wall Street Journal, New York Times, Axios, Bloomberg, Federal Trade Commission, as well as US House Oversight chaired by James Comer from Kentucky. Congressman Comer is seeing the same thing nationally.

 

Senator Ricky Hill And with the interstate commerce law, I'm pretty sure they're going to have to pay it or they will get paid.

 

John Vinson Correct.

 

Senator Ricky Hill Senator Dismang.

 

Senator Jonathan Dismang So of the complaints, I think 3,000 complaints that have been submitted or whatever it may be, what is the response from your members about how those are being handled by the Insurance Department?

 

John Vinson I wish that Amy Seale, the pharmacy director over PBM regulation was up here at the table from the Insurance Department because she would have more accurate numbers than that. But my answer to your question will be.

 

Senator Jonathan Dismang I'm interested in the phone calls that you get back.

 

John Vinson Yeah. First of all, I believe those numbers are much higher than that. I don't think that's accurate. I have members tell me I alone submitted 3,000 this month in terms of numbers of claims. I think those numbers are underestimated. And I would say that we still have members in our association that have submitted claims that are valid, that are Arkansas based plans, not Medicare, not federal, not Tricare, that still are unresolved from months ago. And I'm not trying to criticize the Insurance Department. I'm just being factual.

 

Senator Jonathan Dismang I am trying to criticize. And the point behind that is we're asking to stop everything that we're supposed to be doing and start on another track and start doing something differently. And somehow we think we're going to get a better result by taking this alternative path, even though we have a solution in front of us.

 I mean, even you, as you said here, it was brought up by the Insurance Department and now by you, one of the major complaints is affiliates getting paid more. You all talk about it. You talk about it over and over and over again. And yet we haven't done a single thing since 2020 about that. We haven't done the study . And so now we're going to implement a whole other layer. By the way, they have the authority to collect all the information and look at these complaints and see if they have merit.

 But for whatever reason, we can't get those satisfied. But we want another rule that's going to allow us to make some blanket decisions and take really our work and what we're supposed to be doing as an Insurance Department and simplify it and, you know what, we're just going to pay a fee because that's really going to impact the consumer more than it is anyone else. So, the result of having to have this dispensing fee falls on the back of the consumer, not that we're going to go fix the problems with the PBMs that we say exist and the affiliation payments and all those other things that are happening. We're going to ignore those for now because we've just proven those are too hard to tackle. 

What we're going to do is dive in and we're just going to start making the consumer at home, the innocent, pay more to get their prescriptions filled. When I look at it, that's my concern that I have in looking at it.

 

John Vinson And our position would be, we agree. We want all of the aspects enforced.

 

Senator Jonathan Dismang We've got the tool, we've got the car, we're just not driving it down the road. And that's what blows my mind about this entire conversation. It's like we sidestepped everything that was put in place in the rules as they stand right now because it was a whole lot easier to start talking about making the consumer pay, the patient pay, the person at home pay, than it is to try to fix and reconcile what's happening with the PBMs that we say is happening.

 

John Vinson Just to clarify, we're not, at the association or pharmacists, wanting the consumer to have to pay this.

 

Senator Jonathan Dismang But you do. That's the only alternative that's being presented right now. If I look at this rule, the only person that has to pay one way or the other is the consumer and the patient. Read it. That's what it does. And we can sugarcoat and talk about PBMs and affiliate payments and all this other stuff that you want to color the conversation with. But at the end of the day, the person back home that we all answer to is who's going to have to pay the additional money because we're not willing to do what it takes to hold PBMs accountable. Because the tools are there. 

And the other part of that accountability is inside the, you mentioned contracts. And one of the things I've never really understood is how these contracts work. And so if you don't mind, explain that. Is my individual pharmacist back home having to work out these contracts with PBMs on their own? Because I could understand that would be a daunting task to write that out with a billion industry.

 

John Vinson We have some pharmacies, including one in Calico Rock, just as an example, who's very savvy and they do them themselves. Harps, who is in the room, they do their own contracting. There might be situations where they work with a PSAO, which is an entity that has lawyers that intervene and assist the pharmacists in signing the contracts because they're complicated, to your point. But what I will tell you is, is that whether it is Harps or the pharmacist in Calico Rock or one in Searcy, Wal Mart, Walgreens, Kroger, they all uniformly will tell you that we are all being given contracts of adhesion with little to no negotiating power at all. And there are clauses in all of the contracts that I have seen in the independent world that give the PBMs sole authority to change the reimbursement to whatever they want whenever they want. I mean, that's the issue.

 

Senator Jonathan Dismang But why don't you have authority? Why is that?

 

John Vinson Because they're monopolies. And if you turn it down-- there's a pharmacist in Carlisle right now that has tried to negotiate and turn down contracts and try to negotiate in good faith. And they just told her no. And she's closing her doors on December 31. She is not selling her pharmacy. She's putting a sign on the door and closing. She's going away. That also happened in Morrilton recently, where the Lemons, who have been in practice for 50 years, they didn't sell, there's no windfall. They just put a sign on the door in closing. 

Yes, to Senator Irvin's point earlier, there are some that have sold and been paid fair market rates in the last couple of years. But the ones right now, if you talk to bankers-- and I know some of you are bankers in the room, I appreciate that-- but I've talked to bankers in the last few weeks. They tell me that 25% of their customers right now can't make their payments and that they're in trouble. And they tell me about 5% of those are in serious risk of bankruptcy. That's what I'm being told by bankers.

 

Senator Jonathan Dismang About pharmacists? The customers being pharmacists?

 

John Vinson Yes, that have loans out on stores that they've purchased. Yes.

 

Senator Jonathan Dismang But Blue Cross Blue Shield, for instance, doesn't exist without access. If there is a free market to health care, that is the fact that access has to be paid for because, if not, you don't have a valuable enough insurance to sell to someone. If I can't get my prescriptions filled, if I can't go to the doctor, if I can't get emergent care, whatever it may be, then there's no point in having insurance. 

Because I can pay for it but if I can't use it, it does me no good. And this is one of the things that confused me, that is the leverage, is it not, with the PBMs? I mean, if PBMs put a stranglehold in such force in place that it shuts down a bunch of pharmacists, then the PBMs won't exist and neither will Blue Cross Blue Shield or anyone else. So do y'all negotiate as a collective? I mean, is there not an ability--

 

John Vinson I wish we could do that. The federal government, Department of Justice, FTC, currently does not allow pharmacies to collectively negotiate as one. They don't allow it.

 

Senator Jonathan Dismang Okay. All right. Thank you.

 

Senator Ricky Hill Senator Hammer.

 

Senator Kim Hammer  Thank you, Mr. Chair. I know for a fact-- over here, John-- I know for a fact, I don't want to call the name of the pharmacy, but the reason a lot of pharmacies sell out to the big chain stores is because they've been put into a cash flow negative because of the reimbursement rate. Would you agree with that or disagree?

 

John Vinson I agree that that is the case. And I would say that, I'm not talking about last year, but this year, based on survey data working with the National Association, 99%-- I would say 100%-- but the data says 99% survey have either cut staff significantly or completely cut services.

 

Senator Kim Hammer All right. I want to give you a scenario. You've got a chain pharmacy that's owned by a PBM. And they are reimbursing at a different rate than they are to an independent who has a contract with that PBM that owns the competing pharmacy. When it comes to the reimbursement to the pharmacy that's owned by the PBM versus the reimbursement to the independent pharmacy that has a contract with that same PBM, who ends up paying the cost for that higher reimbursement to the pharmacy that's owned by the PBM?

 

John Vinson It depends on co-pay structure and how it's designed and what the employer decided to do. But sometimes the patient does, sometimes the plan does. But inevitably the patient does through higher premiums. If they're overpaying, yes.

 

Senator Kim Hammer At the end of the day, it's either going to be because there's going to be higher premium rates because the PBM is pocketing the money or it's going to be driven down to the patient because they are having to pay above their co-pay. Is that an accurate statement?

 

John Vinson I think that's accurate. And I would also say, too, is that from the rule perspective, or if the Insurance Department intervenes, there's nothing in the rule that stops the pharmacies from competing with each other and offering a usual and customary that's lower than whatever the agreed to rate is. And that happens all the time. Pharmacies work with patients. They offer cash discounts or they even offer usual and customary that's lower than what the negotiated amount is to gain and retain business. 

But having someone who's your direct competitor put their foot on your neck and push it to zero because the price was published online by the federal government to force you out of business, that's what we're talking about. It's not just the to boost point. That's not just the affiliates being paid more. It's also the reimbursement to sustain those networks is not sufficient to safely and effectively operate. So it's both.

 

Senator Kim Hammer All right. Well, the point I wanted to make, though, or bring out is-- and if it's not accurate, say it now-- is that whether it's going to be in higher premium rates because the PBMs are pocketing the money or whether it's going to be driven down to the individual consumer because their plan requires them to pay above the co-pay or to the scenario that was referenced a while ago, it's all going to drive down to the consumer either way. It's what can we do to effectively minimize that impact on that consumer. If the PBM is the one that's driving the cost, then that's who needs to be addressed. Is that an accurate statement, in your opinion?

 

John Vinson Complicated question. But, yes, I think the answer is yes.

 

Senator Kim Hammer All right.

 

Senator Ricky Hill Representative Wooten.

 

Representative Jim Wooten Thank you, Mr. Chairman. Mr. Vinson, how many insurance companies own PBMs?

 

John Vinson The majority. I mean, the big six certainly do. Arkansas Blue Cross Blue Shield and Centene do not. Centene used to, but they do not anymore, to my understanding. But the majority of the big ones, UnitedHealth, Aetna, and Cigna, who are the big three, as well as Humana and several others are all vertically integrated with PBMs now.

 

Representative Jim Wooten How many major stores are closing-- I'm talking about chain stores-- are closing in Arkansas?

 

John Vinson So in the last two years, my numbers that I've calculated are 15 chains. There have been some Brookshires, some Super One, Walgreens locations that have closed, Forrest City, Ashdown, Little Rock, Jonesboro, etc. So it's not just urban areas. Walgreens has lost some, I think, key stores in Forrest City and Ashdown as well that were very important. Little River County and Ashdown only has four pharmacists in the entire county and one Wal Mart and one Walgreens left in the county. But about 15 of the 40 in the last two years. And 25 have been independent stores, many of whom offer additional services like compounding, delivery, hospice, long term care that maybe the chains don't.

 

Representative Jim Wooten How many compounding stores do we have left in the state?

 

John Vinson That's a good question. So sterile compounding, only a couple. And we lost a big one in Benton this last year. And then from a non-sterile compounding, which are creams and some of the common things, mouthwash, I don't know the exact number on that. I'd have to get back to you on that. But we've definitely had a decrease. And I know there are some legislators in the room today who've asked me about, is there some legislation we could do to address compounding because our constituents have lost that service.

 

Representative Jim Wooten Okay. How many Walgreens or CVS do you anticipate closing this year in Arkansas?

 

John Vinson I don't know. I mean, both companies are closing stores nationally. Walgreens has announced nationally that they're going to close 1,200 stores and that 2,500 are at risk out of their 9,000, 10,000 stores. Walgreens is in the room today and one of their leaders is going to come up and answer questions. He's on the docket to come up.

 

Representative Jim Wooten All right. One more. Well, couple of more. On the compounding situation, those prescriptions were turned over to a chain store in Saline County. As a result, and this is a personal experience, I called them. They said they have your prescription. I called them. They told me, no, we don't have it. You'll have to call this pharmacy in Saline County. I called that pharmacy to secure it within 35 miles or 45 miles of where I live. No, we're not doing it. You'll have to call Berryville and West End Pharmacy or Economy Pharmacy. Is it a true representation?

 

John Vinson That's accurate.

 

Representative Jim Wooten Okay. 50% of my pharmacies in Beebe, Arkansas, which is 17 miles south of Searcy, have told me that-- one of them said, I can't sell a drug for $90 under a plan and pay a PBM $100 for that same prescription. Is that a true and accurate statement?

 

John Vinson It happens. But if you do that too often, you're right, you will not stay in business.

 

Representative Jim Wooten Or you're not going to stay in business very long, are you? Another pharmacy told me under the new plans that have been enacted by the insurance companies and placed upon the PBMs that he will go broke in the first quarter. Is that an accurate statement?

 

John Vinson I get calls like that every day. That's common.

 

Representative Jim Wooten And that's 50% of the stores in Beebe, which represent 9,000 people in just the city of Beebe itself. And so can you tell me how many counties may be without pharmacies? Let me restate that. Is it true that Arkansas County may be without a pharmacist? Is that true?

 

John Vinson I believe every pharmacy in Arkansas County is in trouble. I really do because of the specific networks there and the rates that have been implemented that are not sustainable. And I've gotten that feedback from all of them. We have lost one in Arkansas County. The Deans did close, and that was an example-- I don't know the exact financial situation-- but I believe they did sell their files to another store. So you'd say they consolidated. That one didn't just put a sign on the door and close without merging the patient charts, if that makes sense. But that pharmacist who did close that store, they have closed two. They've closed one in Helena, which was open and now is run by the federally Qualified Health Center. So there is still a pharmacy there, but there are less services being rendered compared to when--

 

Representative Jim Wooten So it could impact the elderly as well as those who can afford to pay. Let me ask you another--

 

John Vinson One fair point I would make--

 

Senator Ricky Hill Do you have a question that pertains to the rule or the bulletin?

 

Representative Jim Wooten This pertains to the rule.

 

Senator Ricky Hill Okay. Okay.

 

Representative Jim Wooten This pertains to the rule. How many pharmacies have had to tell customers that they can't insure them or provide them with prescriptions this next year because the plans have changed?

 

John Vinson I think every pharmacy in Arkansas that is independently owned, I would say 100%, have made decisions to not stock drugs or to not provide services when those services are violating the law and are not sustainable. I think it's happening in every single store in Arkansas. So even if the pharmacy is still open, I think that we have had patients experience interruptions in care in every scenario. In the chain pharmacies, I can't comment on if they are doing that or not. But I know it's happened in every single, my opinion would be, in every store in Arkansas.

 

Representative Jim Wooten So Rule 128 as proposed by the Insurance Commission is an accurate reflection of dealing with the problem.

 

John Vinson It's a real problem. And I think it gives the pharmacists hope that there will be a referee on the playing field to look at this and apply some common sense to fixing what is broken. That's what the hope is.

 

Representative Jim Wooten Will the elderly be adversely affected because of Medicaid through the PBMs? Well, let me restate that. I'm told that Medicaid pays much faster than the private insurance company plans, PBMs, whatever you want to call them.

 

John Vinson That's true. On fee for service Medicaid, they do. They pay within 7 to 14 days as opposed to 30 days or longer with some of the private commercial.

 

Representative Jim Wooten Would you agree that what normally has been accepted in the past is no longer working in this state and we need to reevaluate Rule 128 with a new approach based on what our experience has been and what we anticipate the experience being in the future?

 

John Vinson I think, assuming the rule is reviewed, I think we'll learn a lot about the data that's submitted and we'll have some answers on what policies need to change. So I'm very interested to see what they discover.

 

Representative Jim Wooten Thank you, Mr. Chairman. Thank you, Mr. Chairman, for your forbearance. And thank you, Mr. Vinson.

 

John Vinson Thank you.

 

Senator Ricky Hill Representative Warren.

 

Representative Les Warren Thank you, Mr. Chairman. Everything keeps relating back to PBMs. I'm curious, I don't know if you have the data, but I'd love for this committee to be able to have the data that shows what cut of the total pharmacy business that the PBMs are getting out of the total costs of the pharmacy industry.

 

John Vinson I think that's a great question. I've seen data recently in the Wall Street Journal in an article where the employers of the state of Washington were overcharged in some cases 35 times compared to what it would have been filled at local pharmacies. And the PBMs and smoke and mirrors were promising them savings and then pushing them to the plans that are owned by the PBM.

 But in those studies, my estimate would be if Arkansas-- and these are just estimates-- but if Arkansas had a $4 billion spend on drugs, and I think that's pretty close, that about 50% of that, the spend, not the prescriptions, but they cherry pick the more profitable specialty and generic specialty drugs. That example, I think, earlier, about the $19,000 versus $97, they shouldn't be charging that amount. That ought to be a False Claims Act issue under federal law. That's crazy that that's happening. But it is happening. 

And the FTC, Wall Street Journal, New York Times, they're all finding it all over the country. But to your point, about 50%, 51% or so, I believe, of the revenue is being steered and sent to mail order pharmacies filled by PBM-owned insurance company pharmacies.

 

Representative Les Warren I'll take that a step further. I came into the legislature eight years ago and the senator called and said, I need you to go up to Little Rock, we've got a new issue that we're dealing with called PBMs. I'm like, What is that? On the way over, he started explaining it to me. So in eight years we're looking at that cut of the pharmacy business going to PBMs. And I think that's a fair question for our committee here to know how much of the pharmacy cost is going to PBMs. And I don't know, Mr. Chairman, if that's something we can request. But I'd love to know an answer on that.

 

John Vinson Yeah, I'd love to have an accurate answer, too. Thank you for that question.

 

Senator Ricky Hill Is that it for you, Representative Warren? Senator Hickey.

 

Senator Jimmy Hickey Thank you, Mr. Chair. John, this first question I'm asking you. I probably should have asked of Booth with the Insurance Department. But within the last ten minutes I've heard it two more times. And I guess everybody thinks it's so egregious that they think this rule is going to handle it. We literally recognized that the affiliates of the PBMs should not have been being paid more, whatever that was, six, eight years ago. And we have that legislation in place. It's like we keep skipping over that and skipping over that and skipping over that to the point-- and I guess maybe it's just a deal to try to get this rule passed or whatever we're trying to do. So my question to you on that is we do have that in place where it is already illegal within the statute for the PBM to pay their affiliate more. We've heard that over and over again. That's correct?

 

John Vinson Yes.

 

Senator Jimmy Hickey Okay. Do you believe that the Insurance Department has the tools in place to pursue that if they need to? And again, I should have asked Booth that question. But it was y'all's legislation.

 

John Vinson Well, it's not my job to tell them how to do their job. But I think they need more resources. I believe they need more staff. They need more resources to be able to enforce it. The FTC can't even get them to answer. I mean, if the Federal Trade Commission can't get them to answer, why would we think 2 or 3 people in Arkansas could get them to comply and answer? I think they need more resources.

 

Senator Jimmy Hickey Resources, resource, resources. And I'm going to say this, and I've even heard the word policy come up in this committee. This is way outside of the authority of the rule making process, and that is what I've been harping on and harping on. Whether or not I agree that they should be paid NADAC or more, whether any of us do, the key is that we've put that in place. And if we think that policy changes need to transpire, we need to bring that before the legislature and see if you can get the entire legislature with the House, the Senate and the governor to sign off on this to do it. 

But to come in here and to put in front of me things that are going to allow the insurance commissioner to set some price that's going to affect every consumer in the state of Arkansas that's over and above this whole General Assembly is just ludacris to me. And I guess my next question to you is with this rule. And I will put you on the spot here because I know it doesn't. But do you believe that this rule fully complies in totality with everything that is currently within the statute, there's nothing added whatsoever?

 

John Vinson I think that the rule, in my opinion, is trying to address the concerns with network adequacy and access to services. The Insurance Department put out bulletins after some of these PBMs cut their reimbursements without any changes in contract, without any explanations as to exactly the cost of the drug. And we've had conversations about this before. It was never to pay NADAC on every claim. NADAC was a safety net for random claims. But when they started paying NADAC on every single claim, mainly in independent pharmacies--

 

Senator Jimmy Hickey I agree with what you're saying. However, that is the statute.

 

John Vinson Which includes fair and reasonable. Right.

 

Senator Jimmy Hickey And I understand the fair and reasonable. But we can go down that little road, too. Is 3% fair and reasonable? Or it's 2.9? Or it's 3.1? So as hard as it is and the reason that I assume that your legislation doesn't have that in there is because whenever we did that, this legislature probably should have put a definition in for what was fair and reasonable. But you all knew that you could not get that through because that is where we're going to go to pieces. But now to try to put that on the insurance commissioner, which is probably outside of their authority, that should be within this legislature to put those definitions in. And here's the thing. As you all keep reminding me, I was a sponsor on that bill. So I'm also personally at fault for voting for that.

 

John Vinson And we appreciate you for that.

 

Senator Jimmy Hickey But it's not correct in this rule. This rule even exceeds that. So from my standpoint, I don't see how anyone could go forward with this because we are trying to enact policy within a body that is not authorized to do that. Thank you.

 

Senator Ricky Hill Representative Allen.

 

Representative Fred Allen Thank you, Mr. Chairman. And thank you for being here, Mr. Vinson. So if all the independent pharmacies that get paid at NADAC plus $0, plus $.50, opt out of network due to low reimbursement or go out of business right now and all those patients go to a large chain or affiliated pharmacy, would that not cause the rate paid by the employer or the patient to go up drastically?

 

John Vinson Less competition equals less service and higher prices. I agree with you.

 

Representative Fred Allen Thank you.

 

Senator Ricky Hill Senator Dismang.

 

Senator Jonathan Dismang Thank you. My question is really on access, because I just was wanting to get your take on the access portion of this and if you think that there's-- as we stand as a state right now, do you think we have issues that exist or just looming issues as far as access?

 

John Vinson I think there's both. I mean, it's a problem to have Little River County and Miller County to not have any pharmacies that do compounding, to do after hours, do hospice, do long term care services. Not saying pharmacies from surrounding areas can't come in or trying to fill those gaps. But there are longer distances to drive and challenging. So yes, there are pockets where there are real access issues. And then also on specific drugs, there are definitely issues where specific drugs are not stocked at all.

 

Senator Jonathan Dismang And that may be like a cancer treatment.

 

John Vinson And the PBMs are doing that on purpose to try to steer it to the mail order pharmacy they own so patients lose--

 

Senator Jonathan Dismang You may not be able to get the cancer treatment drugs that you need in Texarkana because it's too costly for that pharmacist to be able to provide that service?

 

John Vinson Because they're paid unfairly. Not because they can't compete. Because they're paid unfairly. And there's different rates at different pharmacies and they rigged the system to benefit the pharmacies they own or choose.

 

Senator Jonathan Dismang So you would be in favor-- because I'm in favor of just increasing access as much as possible and I'm assuming that's the same position that you have, that we should remove all barriers. We should do whatever we can to create as much free market as possible because competition, driving prices down.

 

John Vinson Yes, if there's fairness in terms of the way-- if patients have freedom of choice. Yes.

 

Senator Jonathan Dismang But as far as increasing access, you're supportive of that.

 

John Vinson Yes, if it's fair to the patient. Yes.

 

Senator Jonathan Dismang As long as it's fair to the patient.

 

John Vinson If the patient is steered, though--

 

Senator Jonathan Dismang As long as it's fair to the patient.

 

John Vinson I'm bringing that up because there was a bill last session to allow nonprofit hospitals to own permits.

 

Senator Jonathan Dismang Me too.

 

John Vinson And we wanted to work with the bill sponsor on that. And we're still going to have a conversation on that this session. I'm sure we are.

 

Senator Jonathan Dismang Let's get together.

 

John Vinson But you've got to ensure the patients have freedom of choice and access and it's fair. And if that is part of that legislation, we can have a conversation.

 

Senator Jonathan Dismang I'm all for the patient, as I think you've heard. And again, look, we can have that conversation because you'll be having it with me. Thank you.

 

John Vinson Thank you. Thank you, Senator.

 

Senator Ricky Hill Senator Boyd.

 

Senator Justin Boyd Thank you, Mr. Chair. Senator Hickey referred to this rule affecting every Arkansan. I took that to mean presumptively because price was going to increase. I don't want to put his thoughts, but that's how I interpreted it. He can correct me if I'm wrong. But will this rule affect anybody who just pays cash and leaves the insurance out? Will this rule affect anybody who is on Medicare and uses Medicare D or Medicare Advantage plan for his or her prescriptions? Will this rule affect anything for somebody on Tricare? Will this rule affect anything on Blue Cross federal employee plans? Or is this just limited to the states where--

 

John Vinson It won't. And just to remind or to educate newer members of the legislature, federal plans, Congress is very aggressive. If you saw the news today where President elect Trump was very outspoken today on Meet the Press on addressing that in federal plans. So thank you for that question. But because this was litigated through the courts over a five year period of time by the PBMs, it was very clear on pricing between PBMs and patients and employers that the states have the authority to regulate in that area.

 

Senator Justin Boyd Then, just a quick follow up. Yes or no, do you have the constitutional authority to file or amend legislation or is it that legislators have that constitutional authority?

 

John Vinson Legislators.

 

Senator Ricky Hill Senator Irvin.

 

Senator Missy Irvin Thank you. On the legislation, it gets referred to as NADAC and fair and reasonable, but that was referring to reimbursement rates.

 

John Vinson Above and beyond the cost of the drug. Yes.

 

Senator Missy Irvin Right. Well, you're saying above and beyond the cost of the drug, but it related back to the cost of the drug. And so, I mean, my interpretation and I guess every lawyer could say interpretation of legislative authority, a dispensing fee is a set cost. And it really doesn't relate back to the cost of the drug. And so my understanding that keeps getting brought up is that NADAC and fair and reasonable should be. So why wouldn't we consider a NADAC minimum plus a certain percentage based on the cost of the drug versus a set amount dispensing fee?

 

John Vinson We're open to that. I mean, as long as there's sufficient payment to pay for buying and producing and dispensing the drug, plus the overhead costs and professional services that are required by state and federal law. It doesn't really matter if it's on the ingredient drug side or dispensing fee or whatever methodology, we would be open to any of those policies. But from our perspective, NADAC is the very bare average invoice minimum of what the average cost to buy the drug is, the same methodology that Medicaid uses.

 

Senator Missy Irvin So can I ask you a question?

 

John Vinson Sure.

 

Senator Missy Irvin It's the average. So explain--

 

John Vinson Average invoice cost.

 

Senator Missy Irvin So that means that somebody is paying-- average means--

 

John Vinson If I--

 

Senator Missy Irvin It's based on whose invoices?

 

John Vinson Well, it's based on the pharmacy's invoices from their primary wholesaler. So it's based on that.

 

Senator Missy Irvin And so it's fair to say that if it's an average cost, some are actually going to get paid more than others.

 

John Vinson Yes.

 

Senator Missy Irvin Or I mean, it's an average. Some is above. Some is below. That's how you get the average. Right?

 

John Vinson My members are very close to that number. That number is a very realistic number. It's the best number that's out on the market to what it costs to actually purchase the drugs. But it would definitely incentivize you based on, if you're able to purchase it less than that, you do what you can and pharmacies do aggregate in thousands of members in purchasing groups to try to meet or equal that. 

It's very common for our members and independent pharmacies on brand name drugs, which average $500 apiece and specialty are $5,000 on average for the high cost cancer type drugs, it's very common for independent pharmacies to actually pay more than what that NADAC is because it's 50% are buying it slightly below and 50% are buying it slightly above. But there's no massive chasm, I guess, if you will, in terms of purchasing drugs across whatever that average is. 

If you're paid NADAC plus $0.50 without any markup, any percentage or dispensing fee or combination of percentage and dispensing fee, then I do have members who on average pay more than NADAC on their average purchase of drugs. And so they're not even breaking even at NADAC plus $0.50, which is why in the legislation-- and I know there's an argument about whether they have the authority or not. But we would have never agreed to just NADAC on every claim. You cannot operate a business on paying reimbursement at exactly the cost to buy the product with no markup. 

And historically, the insurance companies have negotiated or allowed or voluntarily to maintain networks as it was talked about earlier, above that number. And they're still doing that in some pharmacies in some networks. But in some cases, they're being very aggressive, I think, to try to squeeze out the independent pharmacies from the market.

 

Senator Missy Irvin Right. But this isn't a wholesale cost. This is an average cost. So it's not like I'm a manufacturer and I have a wholesale item. I mean, many of your pharmacies sell items and they marked those up, right?

 

John Vinson There's no markup on NADAC or the purchase of the drug. I mean, it's exactly your invoice.

 

Senator Missy Irvin Right. But the invoice in that pricing is reached by an average. Right?

 

John Vinson True.

 

Senator Missy Irvin Okay. So that's what I wanted to just-- so that's an average. And then you're paying what on average everybody is paid.

 

John Vinson It's just the cost of the drug, though. And there's very little, I'm telling you, very minimal difference in your overall purchase compared to that average. There used to be a wholesale acquisition cost and there still could be a wholesale acquisition cost that's used when there's no published NADAC. And sometimes they're not real numbers. They do have significant, depending on the drug, marked up over what the real invoice price is. But on NADAC values, those are an accounting firm come in and make you turn over your invoices of what you really paid. And yes, they are averages, but they're pretty close to accurate of what the actual cost is.

 

Senator Missy Irvin Right. And so with all of that information, right, I still, again, don't see how we are making sure that those that are ripping you off are the ones that are actually going to have to pay the penalty instead of the patients. Because they're not ripping you off. The patients are not ripping off. And I voted for this legislation, co-sponsor as well. If you're getting ripped off, I want to make sure that we have the tools to be able to say, no, this is wrong. We need to deal with it. We need to fix it. 

But I just do not understand how I could justify the patients having to pay for something that they did not create. And they're not the ones ripping you off. They're the ones supporting your businesses. They're the ones going into your pharmacies and buying the picture frames and the baby gifts and the candles and all of those products that you're able to make markup on. Those are the people that are supporting you. And so this rule penalizes those people. And that's where my heart is. And that is where my heart is, for those people. 

And I will finish. I appreciate it. I wanted to know the information between your reimbursement rate, the NADAC and the average and how I understood this to be a rate like we generally speak of when we look at rates that are paid particularly in Medicaid. It's a rate. We don't introduce new set costs and set fees, or we do maybe very rarely. But when we go down that path, I can't imagine the precedent that would be set at that point and how much money that would be. And so I'm just trying to be fiduciary responsible to this. B

ut my heart goes out to the patients. My heart goes out to the pharmacies as well. But I want the people that are causing the pain to be the ones to pay for it, not the patients. Thank you.

 

John Vinson I was just going to say, there are employers in the state that are doing that, where they're balancing, they've saved costs. They've done it the right way. They've got it fair and reasonable. They're not passing it on to patients. It's ultimately controlled by the employer. And if you've got a PBM that won't work with you to implement it in the way that you want, then fire them. If they're a lawbreaker, fire them and hire a new one. And there are several employers that have done that in this state, Arkansas State being one of them. I know he's on the agenda, too. They have designed a program that works. White River, I'm not sure if that's in your district or not. I think it might be. But the hospital has designed a rate that is fair and reasonable and not passed it on to their employees. So it can be done.

 

Senator Ricky Hill Mr. Vinson, we thank you for your time. There are no more questions on the queue, but I've got one for you.

 

John Vinson Yes, sir.

 

Senator Ricky Hill Is this rule in the bulletin going to solve every problem that you all have?

 

John Vinson It is not. Thank you for that question. We don't think it will, but we appreciate--

 

Senator Ricky Hill Why are we doing it then?

 

John Vinson Well, what message does it send to the people who are doing it the right way, that the people who are breaking the law and not even trying and ignoring the bulletins continue to get away with it? This rule from our perspective is an attempt to enforce the law as it was written and hold the bad actors accountable from our perspective. And we may agree to disagree. I'm not talking about you specific, but some members of the committee. We're supportive because it was a step in the right direction. And I do agree that the legislative session is coming up. And if there are issues that pop up or the data they get doesn't make sense or the way they try to implement it is not fair or is passed on to the patients, as Senator Irvin is concerned about, we definitely can address that in the legislative session. But I would rather send a message that we're serious about enforcement rather than sending a message we're not.

 

Senator Ricky Hill So the message we're sending is we're going to increase the fees on the consumer, as Senator Irvin said.

 

John Vinson I don't know if we will or not. Booth said earlier, we don't know that.

 

Senator Ricky Hill Thank you for that right there. Because that's what we're looking for. We don't know. You don't know. We don't know and we're being asked to make a decision on information we don't have. Thank you.

 

John Vinson That's fair. Thank you, Senator.

 

Senator Ricky Hill Appreciate your time. Thank you for taking the questions and talking to everyone.

 

John Vinson Appreciate you. Thanks.

 

Senator Ricky Hill Up next, we have Mark White. We've got several agencies and divisions that are coming up here. One of the main issues, I know some of you have kind of wondered what you need to present and what you don't. The main thing we want to know is what is it going to cost y'all. Please introduce yourself for the record. I think we wore them out today. Here you go. You're on.

 

Mark White Thank you, Mr. Chairman. Mark White with the Arkansas Teacher Retirement System. Thank you for having me today. The committee had asked me to come and talk about how these premiums could possibly impact our members at the teacher retirement system. So I'm going to give you a little bit of context about the teachers and other educators who are members of our system. Our sole connection to this issue is that we pay retirement benefits to our members. And then for some of our members, we deduct health insurance premiums for them for their benefit and pay those to EBD. 

Members are not required to pay their health insurance premiums through us. Some choose to be billed directly by EBD. But for those who choose to do so, we will deduct those premiums and then send those back to EBD for them. Every month we pay out approximately $120 million in retirement benefits to our to more than 57,000 retirees and beneficiaries. Out of that $120 million, we deduct about $2.5 million each month in health insurance premiums. That covers about 19,000 of our members who are having those premiums deducted, which about one third of those retirees and beneficiaries. The average premium deduction is $132.23. For those members who deduct their health insurance premiums, their average monthly benefit is just over $3,000. 

So on average, those members have a deduction that's 4.4% of their retirement benefit. And you asked about the question of what would the impact be on those premiums. So if there was a 4% change in premiums, whether it's up or down, on average, it would be a difference of $5.29 per month per member for those members for whom we are deducting premiums. Now, I do want to say there is a very wide variance there in the premium amounts. We have premiums that run everywhere from $9.03 to more than $1,200 a month, depending on what kind of plan that member's in. 

So that 4% is going to vary widely between those different ones. My number was it be a difference of between $0.36 a month and $50.18 a month for those handful of members at the very top end. With that, I will stop and will be happy to answer any questions.

 

Senator Ricky Hill How many members did you say you service?

 

Mark White 57,735 members who received a check in November.

 

Senator Ricky Hill Okay. Any questions from the committee? Senator Johnson.

 

Senator Blake Johnson All right, Mark, thank you for being here. So was that applied across the board, every member, that $9 dispensing fee?

 

Mark White That is assuming they're all impacted by it. Now, that's members who are on EBD, and my understanding is this would apply to all the members who received their insurance through EBD.

 

Senator Blake Johnson But this does not apply to every situation.

 

Mark White Yes, sir. And I make no representations as to the accuracy of the 4% increase or decrease. I just know that was in testimony earlier. That's the number I was given earlier, just as a number to use as an estimate.

 

Senator Blake Johnson Anyway, that's way above what it would be because that would be applying a $9 dollar dispensing fee to all your members. And that's not even accurate.

 

Mark White Yes, sir. And please to be clear, I do not claim to be an expert on this rule. This is outside my area, so I'm just here to bring the information just from our numbers of our members.

 

Senator Blake Johnson Thank you.

 

Senator Ricky Hill Representative Achor.

 

Representative Brandon Achor Thank you, Mr. Chairman. Mark, you mentioned a 4% increase and the dollar amount that that would translate into. Where did you come up with the 4%?

 

Mark White That was the number that Booth Rand had mentioned earlier today. I think that number's been mentioned before as a possibility. Again, I make no representations as to the accuracy of that number. I'm just taking what was given.

 

Representative Brandon Achor Right. Would you agree that having more concrete data and analysis and review of claims that have been filled would be more helpful in determining what the actual impact would be?

 

Mark White I can't argue against that.

 

Representative Brandon Achor So the tenets of Rule 128 that allow that to happen would be helpful in determining that.

 

Mark White I can certainly see that argument. Yes, sir.

 

Senator Ricky Hill I see no other questions. Thank you, Mr. White.

 

Mark White Thank you.

 

Senator Ricky Hill Grant Wallace.

 

Grant Wallace Grant Wallace, director of the Employee Benefits Division. I really would just like to start by answering questions.

 

Senator Ricky Hill Okay. The question that I asked first for all of you with the division or agency was roughly the amount of dollars it is going to cost you.

 

Grant Wallace So I believe that EBD is currently in compliance with the law as it is written. And unless we are shown otherwise, there wouldn't be a financial impact to EBD. Now if there is something that comes back different, and I've heard various numbers through the months of debate on this, that there will be a financial impact. What that exact dollar amount is, I can't tell you right now because I don't know what the end result of all of this work will be.

 

Senator Ricky Hill Okay. Thank you for that. I see the questions have started popping up now. Senator Hickey?

 

Senator Jimmy Hickey Yes, sir. Thank you, Grant. I understand. And another one of my concerns is we're looking to place a rule here that we don't have an idea of what the cost will be. But I guess what I'm going to ask you and I'm going to make an assumption you've done it because we've been in conversation about this literally for months whenever we first heard this, whenever it come up in the last fiscal session. So if you have a $1 dispensing fee, do you know how much it is for each dollar, what the cost would be to the plan? Then we can extrapolate it out from there simple enough unless you tell me otherwise. And I guess, are you going to be talking about the state and the public employees?

 

Grant Wallace This will be combined. So looking at an increase of $1 dispensing cost, that's a 0.2% increase in premium. Reflectively, a dollar per member per month premium impact.

 

Senator Jimmy Hickey And what's the total? Yeah, I want to know what the aggregate total is because we're going to have to put that in RSA. Of course, we don't know what to put in RSA because we don't know the number, but I'm gonna have to make a guess.

 

Grant Wallace They did not run me the full. I just have percentages of NADAC. I will have to go back and get you that exact figure.

 

Senator Jimmy Hickey Okay. Whenever we first started this long time ago, I don't remember if you and I was talking about $7 on a dispensing fee or $9. I might have it in a load of paper that I have here. But if I remember correctly, I thought it was going to cost the plan like $22 million on--

 

Grant Wallace  $9.

 

Senator Jimmy Hickey Was it $9?

 

Grant Wallace When we talked originally it was $9.

 

Senator Jimmy Hickey So we do know that. Okay. Whenever you say the plan, is that just the state's portion or do the employees also, are they going to have added cost to that?

 

Grant Wallace So that's a simple answer, but a complex answer. It's going to be shared. But I do want to be very transparent in this in that we have our co-pays set at $20 or $15 or whatever the plan design is. Say the drug costs $2 right now, the member pays all the $2. They pay the first $15 is the easiest way I can explain that. So up until the point that you get 15, the member is going to absorb 100% of those costs in addition to the premium increase.

 

Senator Jimmy Hickey And so in this whole Disneyland deal that we're doing today with, let's just use the 22 million. So the 22 million, are you saying that's the total cost for the state and the employees? Just let me put it that way. Or is it just 22 million for the state plus an additional amount for the employee?

 

Grant Wallace It would be 22 million for the plan. Yes.

 

Senator Jimmy Hickey And there's going to be additional costs overall because they will actually have to pick up some more of the costs themselves, correct?

 

Grant Wallace Yes, sir.

 

Senator Jimmy Hickey Thank you.

 

Senator Ricky Hill Representative Achor.

 

Representative Brandon Achor Thank you, Mr. Chairman. Grant, in reviewing the rule, I guess you've seen that you would have the opportunity to, I guess, turn over the current methodology, have that analyzed, and then if AID found that you were fair and reasonable, that would not have a cost impact. Is that correct?

 

Grant Wallace That's what I started the answer with Senator Hickey. Yes, that is correct.

 

Representative Brandon Achor And assuming that AID did some analysis and found that that there was a recommended amount that's unknown, that you would have the ability to then meet with them and appeal that and have the discussion beyond simply just applying that to every single prescription.

 

Grant Wallace I do understand that that would be kind of the normal process that any ruling that AID has, that we would have the ability to appeal that and have a conversation about it.

 

Representative Brandon Achor Right. Because the number of prescriptions filled is seemingly irrelevant if they are priced separately, like some pharmacies receiving $1.40 dispensing fee while other ones receive a $0.40 dispensing fee. If the requirement was to move it to $1, then some of those would increase $0.60 and others would decrease $0.40.

 

Grant Wallace Well, if you're all going to $9 or $10, then everybody's going up if they're under that amount.

 

Representative Brandon Achor Right. But the argument is that there are some being reimbursed in separate dispensing fee methodologies right now in the plan.

 

Grant Wallace I just see the averages. I have arm's length reach into the contracts that pharmacies have with the PBMs through their PSAO's or any of that information. The way my contract is set up with my PBM is that I have a guaranteed average over an entire plan year.

 

Representative Brandon Achor Okay. Thank you.

 

Senator Ricky Hill Senator Dismang.

 

Senator Jonathan Dismang Yes, I just want to make sure I understand dispensing fees, too, because no where in the PBM law does it mention dispensing fees. It does talk about services provided. And I'm assuming if you're in the industry, then you understand that dispensing fees are just part of the mix. I guess. So you're saying essentially on the state level, you're going to have to act like any other entity or any other self-insured, whatever it may be. And you're going to have to prove out that you're paying what's adequate. 

But if I look at this, then it's all about the cumulative services. And so we could, for instance, have a PBM that's paying at NADAC or just right above NADAC, but also paying a more significant dispensing fee and that kind of offsets and ensures adequacy. Or we can have one that's paying more for the pharmaceuticals and no dispensing fee and then that's allowing for access adequacy. I don't really understand. So how are we only talking about a dispensing fee in this rule? So essentially that's the lever that we're talking about pulling. Because if it's not adequate, it's not that we're going to ensure that they're paying adequate drug prices. We're just ensuring that they're going to pay more in a dispensing fee. 

That's not, by the way, contemplated in this legislation by name. But we are in a rule making it the lever. Is that kind of how you see it? I mean, so I'm assuming if they raise your dispensing fee, then you're going to be lowering your pharmacy fee and we're going to have this whole conversation again because there's a mix of a payment that's making someone profitable or not profitable.

 

Grant Wallace This is a dynamic aspect to how we set our premiums. The premium rate exercise is a very dynamic exercise. There are a lot of factors that go into it, whether it's the costs of pharmaceutical claims and inflationary aspects on it or medical claims and inflationary aspects on that. Any change up or down, yes, has a flow through effect to the overall rate setting exercise. And the best way that it's been explained to me, and I'm, again, I'm not in the weeds of all of this is you look at total cost. 

Total cost has got two sides of the equation here: ingredient costs and dispensing fee, and then you've got member pay and plan pay. And there's a balance that happens on all of those things. If you look at dispensing fee, that most directly correlates with member pay, and the ingredient cost most directly correlates to plan pay. So that's really how I've kind of looked at this and understand this.

 

Senator Jonathan Dismang This is my question. So is the dispensing fee purely borne by the PBM in a normal plan?

 

Grant Wallace Not necessarily, because at the point of sale-- and I'm sorry to interrupt you, sir. At the point of sale, there's not one line item that says dispensing fee and one line item that says ingredient costs. It's one dollar amount and your co-pay takes the first X dollars of that and the remaining balance goes to the plan. So there would be no way that I understand it from my own personal experience and how it's been explained to me to sit here and say, we're going to carve out this dispensing fee and strictly shoot it to the plan. Because that's not how the current system is set up.

 

Senator Jonathan Dismang But in no scenario do we just raise the lever of dispensing fee and we punish the the PBMs and they're going to pay something and then that's adequate to create a network or whatever it may be. That's not even a possibility.

 

Grant Wallace Not that it's been explained to me.

 

Senator Jonathan Dismang When I read it, that's what I-- we keep trying to say that it's about PBMs and them paying more. But it is accurate to say, at the end of the day, the only person, that individual that's going to pay it is the consumer of the policy. I mean, I don't see how you force the PBM to pay something that's being paid by the plan, maybe not necessarily by the PBM, unless I'm misunderstanding how it all works.

 

Senator Ricky Hill Thank you, Mr. Wallace. We'll see you in about an hour or two.

 

Grant Wallace Hopefully not that long.

 

Senator Ricky Hill Sorry, Senator Boyd. Go ahead.

 

Senator Justin Boyd Thank you. Sorry. I thought you saw my light on. I just want to clarify two quick points and then have one quick follow up. So who is your PBM that manages the state employees.

 

Grant Wallace Navitas Health Solutions.

 

Senator Justin Boyd Do they have affiliate pharmacies who fill their mail order prescriptions or fill other prescriptions?

 

Grant Wallace They were prevented from doing the mail order.

 

Senator Justin Boyd Well, what about Costco? Is Costco an affiliate?

 

Grant Wallace Costco is an affiliate, but we are not utilizing their mail order services. They were prevented from doing that.

 

Senator Justin Boyd Okay. So what are you doing to make sure that Costco is not being paid more than somebody else?

 

Grant Wallace We continue to monitor all the fees that are paid out and we audit those internally as we've gone. We've not seen that.

 

Senator Justin Boyd And I'm sure you've done that since day one, correct?

 

Grant Wallace Yeah, as close to day one as we could.

 

Senator Justin Boyd And then final question. Are you familiar with the Johnson & Johnson case where the employees sued Johnson & Johnson for failing to be a fiduciary?

 

Grant Wallace I've seen the headlines on it. I've not read the case.

 

Senator Justin Boyd Okay. Well, I'd suggest you read it. Thank you.

 

Senator Ricky Hill Thank you. Thank you, Mr. Wallace. Next up is Janet Mann. And Ms. Mann, you know the question.

 

Janet Mann Good afternoon. Janet Mann, DHS.

 

Lori McDonald Lori McDonald, DHS.

 

Janet Mann Thank you, Mr. Chairman. For context, Medicaid fee for service serves over half a million individuals or Arkansans every year. We have fulfilled 5.3 million scripts over the past 12 months ending November 30, 2024, which does account for about $500 million annually. The PASSE program and the QHP program is would be subject to this rule. And we are confident as long as the pharmacies remain in compliance, that we will see no change. If they are not in compliance with the law, then we will need the data to address our rates.

 

Senator Ricky Hill Thank you. Any questions, committee? Senator Irvin.

 

Senator Missy Irvin Do you have any estimates per dollar for the PASSE and for the expansion program, which will be affected.

 

Senator Ricky Hill There you go. Ms. McDonald, you can answer that. Yours came on. 

 

Janet Mann Yeah. And so as this rule has progressed, we have run lots of different scenarios, given examples, and they've all come up with different answers. So we've not been confident with what's been done. We tried to take the number-- this one is back on now. I don't know where I was. We've tried to run different scenarios. We did try to look at the 3.4%. The issue or the concern that we have is our expansion population is administered through the marketplace. And so those rates are set for the marketplace, not necessarily for Medicaid. We do operate that under an 1115 waiver that does have some limits for every year for increases. So we've had a very difficult time. I was trying to look through my notes to see if I could answer Senator Hickey's question that he'd asked Mr. Wallace about the $1 change. I don't have it with me. I will have to get it.

 

Senator Missy Irvin Okay. I think it's critically important that we know the numbers. And I understand your answer because it's all very subjective. And we really don't know. I mean, but we've gone from $1 to $10.50. And do you know how many prescriptions are on the PASSE program or how many prescriptions are on the expansion program?

 

Janet Mann I do not at this time. I have requested that information from our carriers. I don't have it yet.

 

Senator Missy Irvin Okay. So because that's really, really important because again, this is a set cost. And so there will be a financial impact to Medicaid. There's no doubt about it. So we just want to make-- in my opinion, that becomes incredibly problematic to our state budget.

 

Senator Ricky Hill Senator Hickey.

 

Senator Jimmy Hickey I understand what you're up against right here. But let me just say this. So you're sitting there saying basically, if there's no dispensing cost added, then you're not going to have any other costs. And you're kind of circling around saying, well, if it's already fair and reasonable in this. You're going to have a cost. You're going to have a cost if there's either a dispensing fee added or a percentage increase to the price of the drug. Correct? And if not, you're going to have to explain to me how that could be. I'm just going to go ahead and say that.

 

Janet Mann I don't disagree that there could be an increase, but with our rates being calculated on the marketplace and the carriers work with AID, then we do have a limit about how much that increase can be every year, according to our waiver.

 

Senator Jimmy Hickey That's you're split.

 

Janet Mann Yes. And so we have to keep that in mind.

 

Senator Jimmy Hickey Sure.

 

Janet Mann So we have other increases that will be factored into that also. But then they are subject to that limit. In addition to that, what we can charge in co-pays and deductibles to our beneficiaries is limited by 5% of the household income per Medicaid rules. So that adds another wrinkle of us calculating what is a cost.

 

Senator Jimmy Hickey So, exactly. So let's just use $9. We can use whatever. So the $9 in that particular situation, then, of course, the participants of that or the ones that you're serving, they would actually have a cap on it. But then the state itself is going to have to pick up that additional cost. Is that correct?

 

Janet Mann It could be, yes, sir. Because my rates on the QHP model currently range from $336 to roughly $1,400 a month, depending on the type of individual buying the insurance that we are purchasing. So it would be a different percentage for each one of those types of coverage. 

 

Senator Jimmy Hickey And that's all fair. You're exactly right. I hadn't even thought all that through. You do have a little more complicated calculation maybe than EBD does. So. Yeah, I appreciate that. Thank you.

 

Senator Ricky Hill Senator Dismang

 

Senator Jonathan Dismang Are any of the 3,000 complaints related to your program?

 

Janet Mann I don't know the answer to that.

 

Senator Jonathan Dismang Okay. Thank you.

 

Senator Ricky Hill Seeing no other questions. Senator Boyd, I didn't miss you this time, did I? Okay. Seeing no other questions, thank you all for being here and answering the questions. Shane Broadway and Melissa Rust, would y'all just come up at the same time and please introduce yourself for the record?

 

Shane Broadway Thank you, Mr. Chairman. Shane Broadway, Arkansas State University System.

 

Melissa Rust Melissa Rust, University of Arkansas system.

 

Shane Broadway I guess I'll go first. Mr. Chairman, thank you, and to the members of the committee, for the opportunity to be here today and talk about our plan and what if a dispensing fee was added to in terms of the question to provide that information to you. I do want to thank John Vinson for his comments earlier about the ASU system plan and give a shout out to our team, our staff, my CFO, who, and I was going to preface by saying, I'm the least expert about PBMs that should be sitting at this table talking about this. I'm not even sure I can spell PBM. 

So I'm going to give you what I've gathered in several meetings with my CFO and our benefits Vice-Chancellors and everyone who's involved in this. But what John said is to their credit. They've worked very hard these last several years to strike that balance to ensure that we are being fair and reasonable to the pharmacies that we work with, as well as trying to keep our costs to everyone who is on our plan. 

We currently cover about 4,500 members annually. It's about an $8 million pharmacy spend per year. 5,200 scripts per month, which is about 62,400 scripts a year. If there was to be a $9 dispensing fee-- I said this at the public hearing, we think we would beat any fair and reasonable standard that is established should the rule be adopted. But at a $9 dispensing fee, it would be an additional cost of $46,800 a month or $561,600 per year to our plan. Mr. Rand earlier was talking about a 3%, it would be about a 3% increase to our plan. 

I think the one difference that Melissa and I both need to make sure that we state to you as opposed to when Mr. Wallace was up here with EBD and Senator Hickey talked about if there were additional costs associated with EBD, that money would be put into their budget through general revenue and RSA. This is my 28th year. Prior even to that, any increase in costs and health care benefits or personnel cost borne by the institutions had to be raised by the institutions. 

We were not given general revenue, have never been given general revenue, and that's nothing on this General Assembly. That's everyone before you. All of that has had to be borne by the institution, either through its own reserves or ability to raise revenue, which you know what that is.

 

Senator Ricky Hill I guess a step further on that would be it could fall back on you as an employee.

 

Shane Broadway Correct. And in terms of our premiums that we would pay, Yes. Go ahead. That's all I ahead.

 

Melissa Rust Thank you, everyone, for the opportunity to be here today and to speak concerning the University of Arkansas health benefits plan. Not unlike the ASU system, the UA system has a self-insured health care plan, and we do have a PBM. We use a PBM by the name of Med Impact. To give you a sense of the scope of the UA system health and pharmacy benefits plan, we cover about 35,400 lives, which includes both employees, those employees' spouses, dependents, as well as approximately 300 retirees. 

For those 35,400 lives, we have 36,100 prescriptions that are filled on a monthly basis for UA system employees, spouses, dependents and retirees. As Shane indicated, and not to beat a dead horse, but I do want to say this, that, you know, when we have an increase to our health plan, then those increases are either paid by our employees, they're paid by our students, or they're paid by the institutions. We don't receive additional general revenue for our plan. 

Our premiums that we pay are not designed to create or build a reserve or excess reserve, but any reserves that we do have are used to offset the amount of premium increases. We heard throughout these discussions over the last many months that there potentially could be a 3.5 or 3.6% increase for a prescription fill fee. We've heard $9. We've heard $10.50. When we ran the analysis based upon a request of one of the members, we ran it when the discussion was at $9. And a $9 dispensary fee or a fill fee for the UA system plan, that would be approximately $3.6 million. Now, if, for instance, the fill fee was $10.50, as we've heard here today as well, that would be a little over $4.5 million. 

Now, that is assuming that a determination was made by the insurance commissioner that we did not have a fair and reasonable plan. And I think we believe that we do. But once again, we don't know how that determination would be made. If it were a $3.6 million increase for the UA system, that amounts to about a 2% increase in premiums. And one thing I would like to say just quickly, in the summary document that was prepared, I presume, by the insurance department, there's a statement in the summary document on page five with respect to the public comments that the UA system provided. 

And it says as follows, We already have an adequate network of pharmacies who are already being reimbursed NADAC plus 1%. The actual statement in our letter said, In the university's case, we are already reimbursing pharmacies at agreed rates that are above NADAC plus 1%. And in fact, approximately 90% of the prescriptions that we fill are generic in nature and we are paying well in excess of 10% beyond NADAC. And so we just want to be clear. It would be nice to have that corrected in the summary document, but I just wanted to be very clear that it's not that we're paying NADAC plus 1%. It's well in excess of that. And I just want to make that point. 

You know, I find myself somewhat conflicted here because as a representative of UAMS being part of the UA system, we educate a large number of pharmacists in the state of Arkansas. And so we certainly understand the important value that pharmacists bring to our state and in particular those who are servicing individuals who reside in areas of the state where we have campuses, units and divisions. 

At the same time, we believe we have a fiduciary obligation to our health plan so that we make sure that that plan, that benefits program, is not only affordable, but it's fair, it's reasonable and it is sustainable. And I'll stop my comments at that point. I'd be happy to answer any questions if you have anything.

 

Senator Ricky Hill Thank you. We do. Senator Irvin.

 

Senator Missy Irvin Thank you. I'm actually glad that you pulled that out because in your comment you had concerns over the cost impact, but you're stating that you already have an adequate network of pharmacies who are being reimbursed at NADAC plus 1%. You corrected it. Mr. Chair, I'd like for the corrected statement to be given by Ms. Rust and put into our documentation for our committee so that we all know exactly what you stated in your comment. 

But in response, the insurance department says, 'We are also concerned over health plan cost impact from additional dispensing costs and it will be one factor as well as your pharmacy network availability and rates. And our determination of where the plan will have to add the pharmacy dispensing costs.' So again, you've been told all these years that you've had an adequate network.

 Even Mr. Vinson had said that y'all have been fair and reasonable. But that's not the response from the insurance department. It's saying that, well, yeah, maybe, but we might need to add here, we may need to add there. And so I guess that was such a troubling response to what you had stated that had already been and it was a percentage versus a dispensing fee or fill fee or whatever.

 

Melissa Rust So if I could just respond to you briefly and then I think my colleague may want to respond. When Mr. Vinson was up here and he was talking about how one of the institutions basically did have a fair and reasonable plan, he was referring to the ASU system. So I just wanted to be clear about that.

 

Senator Missy Irvin Okay. I wanted to make sure that was clarified. Okay. Okay. But it's based on a percentage, right? You basically, it's determined to be fair and reasonable based on an adequate network based on what you're paying plus percentage.

 

Melissa Rust I'll try to answer the question I think that I hear and if I don't answer it, then please correct me. But our understanding based upon the operation of a self-insured plan that we administer through the UA system office and working with actuaries that we have, independent actuaries that we retain, along with a consultant that we utilize, we believe that what we are providing are fair and reasonable reimbursements to pharmacists across the state of Arkansas. It's our understanding basically that some drugs are administered or, if you will, the cost by NADAC. 

There are others that are not on NADAC. And so I want to say it's called all wholesale pricing, but I may not have that exactly correct. But I think based upon our understanding, we do believe that the plan is fair and reasonable. But obviously we don't know what kind of determination might be made once the data that this rule would mandate is provided. We don't know what standards, frankly, based upon the rule or what guidance. A determination would be made by the insurance commissioner. 

And while this is no comment clearly about this insurance commissioner or any other, it's simply impossible, I think, for us to determine what the potential impact might be, at least at this point in time based upon the draft rule that we have seen.

 

Senator Missy Irvin Okay. Thank you. If you could just submit the correct statement. I would like to have that in writing.

 

Melissa Rust Certainly.

 

Senator Ricky Hill Thank you very much for that. Representative Beaty.

 

Representative Howard Beaty Thank you, Mr. Chair. My question is for both individuals at the table. Talking about your health coverage there at the university system, what has been the increase in that cost of health care historically?

 

Shane Broadway In the health care side, that's an excellent point. And we've been talking about pharmacy all day. And I actually made a note myself, Representative Beaty, that you also have on the other side the actual health care increase. And I think ours varies from year to year. But I think one conversation I had is that we could see about a 3% increase on the health care side, non pharmacy side, in any given year. 

And like I said, it will vary from year to year what that percentage increase would be. So if there is a dispensing fee that's added and the cost is added to our plan, you could certainly look at a 6% increase to the total plan. Am I saying that right to you to answer your question correctly?

 

Representative Howard Beaty I understand what you're saying.

 

Melissa Rust Representative Beaty, I would really like to get with our individual that runs our health plan and be able to get you more accurate information, I think, than I can provide to you. But I think it's probably not too terribly different than what Mr. Broadway has said, but I'd be happy to get you that information.

 

Representative Howard Beaty Well, kind of a follow up along those lines. I know you've got actuaries. You have other folks looking at this that are providing you numbers on what your anticipated increase is. But we don't know that dollar cost either, do we, as to what your insurance premium or your insurance cost is going to go to next year? We don't have that exact number, do we? Correct?

 

Melissa Rust No, sir, we don't. And I think when we look at this, if we were just simply looking back, when we give you the figures that Shane and I are giving you today, we're simply giving you the figures based upon a proposed $9 or $10.50 fill fee, assuming worst case scenario that our plan would be required to pay. But we also have to look at any potential changes to NADAC as well in terms of what might the anticipated increase might be. For instance, if there was some kind of determination made. And then when you put all of that to the side, then you also have to just simply look at inflationary cost in increases in potential and what that impact might be on a particular plan. So at this point, we wouldn't be able to give you a firm response insofar as it concerns a definitive percentage.

 

Representative Howard Beaty So just in follow up. There's a lot of times when it comes to health care, having managed and led banking organizations in the past, health care cost always went up. I never saw them come down. So we know there's going to be an increase there. And a lot of times no one provides you with an explanation as to why there's an increase. There's just an increase. This is what your numbers and what the actuaries or what our business model calls for. 

So I would just say that when it comes to health care, we know it's going to increase. But right now, we don't know what that number is going to be. Your calculations are based on a high end of $9. I heard Booth speak that it could be $2 to $9, that it was just a moving target. So we don't know. And I guess what my question is going to be is, do we just need to get to the point where we just wait and the number is what it is and our goal is to provide health care for our constituents and folks in the state? Would you agree?

 

Shane Broadway That's an excellent question. So I'm glad I'm sitting here and you're sitting there.

 

Representative Howard Beaty Thank you.

 

Senator Ricky Hill Seeing no other questions, thank you very much.

 

Shane Broadway Thank you.

 

Senator Ricky Hill Jonathan Buxton. Please introduce yourself for the record.

 

Jonathan Buxton Thank you, Mr. Chair. Members of the committee. My name is Jonathan Buxton. I am with the Pharmaceutical Care Management Association, the National Association representing pharmacy benefit managers. We appreciate the opportunity to be with you all today to continue discussions on this rule. I want to start actually by-- I'm sorry. Am I allowed to start talking? Okay. I want to start by actually thanking the insurance department for their work on this. They have been willing to listen to concerns. 

We have been trying to work with them, educate them and others on the impact of this rule. Our members, pharmacy benefit managers, firmly believe that we are currently paying fair and reasonable dispensing fees based upon the free market. We are going out into the market and we are paying fees that pharmacies are signing contracts to accept. Any increase because of this review would be a direct increase of either premiums or co-pays. For instance, I have a $20 co-pay. When I go home and I get the script that they just texted me a little while ago was filled, it's usually costs me $4.30. If that dispensing fee was increased to $10.50, then I'm going to be paying $14 something-- not going to do the math while I'm sitting up here-- over $14 when I've otherwise been paying $4 because that's the way my benefit is designed. 

That is the way my employer has set up that benefit. And so I would be paying out of my pocket that extra dispensing fee. Or if you don't allow it to be passed on, the dispensing fees directly to the co pays, as one of the original drafts of the rule indicated, then it would be a direct increase in premiums. You can't pay more and pay less. And as access is extremely tied to the cost of health care, we know that any increase in cost will reduce access. I know there's a lot of thoughts that PBMs will be paying this. We do not pay for scripts from our bucket of money. We pay from the employers, the plan sponsors and the patient's premiums. The premiums are what we use to pay claims. It works that way on the medical side, it works that way on the prescription side. 

And so this is a direct impact, could be a direct impact on those premiums or the copays that patients in Arkansas actually pay. And with that, I'm happy to answer any questions. I had a couple of other things just to say. According to the Kaiser Family Foundation, approximately 47 million scripts are filled in Arkansas each year. And based on the numbers that we've seen and also the National Community Pharmacists Association puts out an annual report, they report over the last couple of years that the independent pharmacy market is basically stable in the United States. Independent pharmacies in Arkansas represent over 50% of the pharmacies that are currently in business in Arkansas. 

And we have not seen a reduction. We've actually seen like a 0.3% increase over the last decade in those independent pharmacy numbers. And those are the notes I made on other people's comments. But I'm happy to answer your questions.

 

Senator Ricky Hill Thank you for that, sir. Representative Achor.

 

Representative Brandon Achor Thank you, Mr. Chairman. I appreciate the great relationship you have with AID. And it sounds that you believe that your members already are paying fair and reasonable. Is that correct?

 

Jonathan Buxton Correct.

 

Representative Brandon Achor So they should have no problem complying with the request for data and then working with the insurance department on the appeals should any additional fee be rendered?

 

Jonathan Buxton Any additional fee would result in an increase in costs for people of Arkansas. And that is problematic because this allows the AID to set a dispensing fee based upon whatever they would like for it to be for that specific plan. It's going to impact big box pharmacies as much as independent pharmacies. And because they have the ability to set the dispensing fee on a plan by plan basis, we do not believe it would allow for a fair dispensing fee to be set across the board. And I think there's a lot of concerns. There is due process, but at the end of the day--

 

Representative Brandon Achor Concerns that you could exercise with the insurance department following you turning over the data that you say already exists to verify that you guys are paying fair and reasonable. If you're already paying fair and reasonable, then turning over the data should have already been an email that was sent.

 

Jonathan Buxton AID could have requested that data at any point.

 

Representative Brandon Achor And AID has not requested that?

 

Jonathan Buxton They begin the process through this rule. But the problem is the rule goes beyond just requesting the documentation into allowing them to set what is currently set by the free market.

 

Representative Brandon Achor After a due process meeting with you to establish how that came to terms.

 

Jonathan Buxton A government mandate.

 

Representative Brandon Achor After due process, sure.

 

Senator Ricky Hill Representative Wooten.

 

Representative Jim Wooten Thank you, Mr. Chairman. How many insurance companies own PBMs that you represent?

 

Jonathan Buxton I don't actually have that number, but I think some of the previous testimony was probably not inaccurate.

 

Representative Jim Wooten Do what?

 

Jonathan Buxton Well, it was probably accurate. I mean, there are several companies that own pharmacies. Yes.

 

Representative Jim Wooten How many drug chains own PBMs?

 

Jonathan Buxton I don't know exactly the who owns who. But there are relationships. Yes. Because what they found was when they integrated, they were able to obtain savings and opportunities to leverage market share.

 

Representative Jim Wooten Let me go at it in a different way. What percent of your PBMs' membership is owned by insurance companies?

 

Jonathan Buxton Well, we've got 17 members. There are 74 full service PBMs across the nation. I don't know what percentage of our members own pharmacies. I mean, I'm happy to go back and ask, but.

 

Representative Jim Wooten No, I said insurance companies. What percent of your ownership of the PBMs are owned by major insurance companies?

 

Jonathan Buxton I do not know the percentage. I do know that there are some large companies that own pharmacies and insurance companies and PBMs.

 

Representative Jim Wooten Thank you. Thank you, Mr. Chairman.

 

Senator Ricky Hill Senator Dismang.

 

Senator Jonathan Dismang There's been testimony earlier today that you have PBMs in direct violation of law where they're paying their affiliates more than they are paying local pharmacies. Are you aware that's occurring?

 

Jonathan Buxton I did receive that information from AID.

 

Senator Jonathan Dismang Okay. How is your clients or I don't know what you call them.

 

Jonathan Buxton Members.

 

Senator Jonathan Dismang Members. How are they responding to those inquiries? We've got 3,000 complaints, I think, according to insurance Department. How quickly are y'all responding to those complaints and getting that data to the insurance department or do you know?

 

Jonathan Buxton  I don't know the exact answer. I will say that in the past, AID has reached out to me personally, asking for contact information for groups that may not have been our members. And we've been responsive. We want to continue to operate within the law in the state of Arkansas, and we're happy to work with AID. Those 3,000 complaints typically are related to NADAC reimbursement, not the dispensing fee. And so once the AID gets that complaint, they send the information to the PBM that's administering it on behalf of the insurance company. And then they give them timelines to respond to that information. I do not know that there's any current outstanding PBMs not complying with the information request from the AID.

 

Senator Jonathan Dismang And just to make sure I understand how this process would work if we were to follow this. Essentially what's going to happen is you as an insurance company have got a self-insured-- that's a PBM, I'm sorry-- you're going to be contracted with by an insurance company. You're going to set up a plan program. It's going to cover this number of lives. It's going to do their actuarial studies, evaluations, whatever it needs to happen. Then we're going to come to a premium at the end of the day. And then at that point, because the premium pays for everything, everybody's work behind the scenes or the scripts or the services or whatever it may be, then AID is going to take that plan and say this one little piece in here is fair or not fair in the whole ballgame. Is that right?

 

Jonathan Buxton That is my understanding.

 

Senator Jonathan Dismang And at that point, you'd have to do a recalibration because let's just say, like I mentioned earlier, some plans may pay more for the actual prescriptions, not below what they're allowed to pay, not below the minimum, and pay a higher dispensing fee. And others are going to pay a lower dispensing fee or a higher dispensing fee and vice versa, however it's going to work. So the insurance department is going to determine at what level that's fair and reasonable on each plan, which seems like a pretty daunting task. I would think even just the calculations that go into setting these things up are fairly complex. And so we're going to insert them in the middle man. Is there any other entities-- well you wouldn't know. You're in the PBM business. So we'll stop there. Thank you.

 

Senator Ricky Hill Representative Richardson.

 

Representative Jay Richardson Thank you, Mr. Chair. Sir, did I just hear you correctly? I just wanted to make sure I heard you accurately. You said that the first time you heard about there being some price differences is when AID gave you that information.

 

Jonathan Buxton No, sir. AID reached out to us asking us for contact information about a different PBM that they had complaints that they weren't getting responses from.

 

Representative Jay Richardson Because I thought Senator Dismang asked you, were you aware that there were some price discrepancies between affiliates and non affiliates. And you said that the first time you heard that was when they provided you information.

 

Jonathan Buxton Yes. They informed me of the report they did in 2020. Because none of our members have received, that I know of, have received enforcement actions from AID on that issue, the affiliate.

 

Representative Jay Richardson Okay. Thank you.

 

Jonathan Buxton And Booth could answer that much better than I could probably.

 

Senator Ricky Hill Representative Lundstrum.

 

Representative Robin Lundstrum Thank you. You mentioned that you've known about these complaints since 2020.

 

Jonathan Buxton No, no. I'm sorry. When AID told me about the affiliate study they did in 2020. So that's when they did the report.

 

Representative Robin Lundstrum So none of your folks that are members of these PBMs have ever said, hey, you're not paying a fair amount between the two pharmacies. None of your customers, these pharmacy owners have never said there's a problem?

 

Jonathan Buxton So we just represent the pharmacy benefit managers. And they have not, to my knowledge, none of my members have received enforcement actions related to the affiliate steering provisions.

 

Representative Robin Lundstrum None?

 

Jonathan Buxton Not that I'm aware of.

 

Representative Robin Lundstrum That's pretty interesting. I run a small business, and I think I do a pretty good job, but I bet some of my customers aren't happy and they let me know. I'm wondering if there's a gap here that nobody's listening to these small town pharmacies that are telling you, you're clawing money back. You're changing contracts. I'm surprised they haven't said something about that.

 

Jonathan Buxton Well, first of all, clawbacks are illegal under Arkansas law. Affiliate steering and differential reimbursement in affiliate is illegal under Arkansas law.

 

Representative Robin Lundstrum Lots of things are illegal under the law. That doesn't stop people from speeding and that doesn't stop people from breaking the law.

 

Jonathan Buxton And the AID is responsible for enforcing those provisions of law.

 

Representative Robin Lundstrum They are responsible for enforcing them. But aren't you also responsible for following the law and taking care of your customers?

 

Jonathan Buxton Absolutely. All of our members are complying with the law.

 

Representative Robin Lundstrum I respectfully disagree. I think there's some problems here, but I'll stop there.

 

Senator Ricky Hill Seeing no other questions, thank you for your time, sir.

 

Jonathan Buxton Thank you very much, sir.

 

Senator Ricky Hill Mr. Zook. Today has been long. And I know you can talk fast, so let's do it.

 

Randy Zook I'm used to being last, Mr. Chairman. Obviously this is a very complex issue and I want to be very careful in what I express on behalf of our members. As employers of over 65% of the non-farm employment, non-farm payrolls in the state, we represent a group of employers and mostly businesses, but also non or not for profit entities and others that employ a lot of people. And that's what drives our interest in this issue. We had a couple of points and I'll be aggressively brief. 

Number one, there is a high level of concern from employers that provide health insurance to not only their direct employees, but also those employees' dependents, spouses, as well as children and others. They have seen their costs rising year over year now for 7 to 10% per year. And this is just one more piece of the increase that would be piled on top of those consistent and pernicious increases over the last several years. They're also concerned about, not just concern about the direct impact on their own profit and loss data or results, but they're also deeply concerned about the effect on employees' family budgets through co-pays and deductibles. 

And let me give you a couple of examples I had. I got some data from some real customers and real members as to how this will affect their health insurance programs and the effect on their employees. I'm not going to name the companies for obvious reasons, but the first was really startling to me, the data that they provided us. This is a self insured major business in central Arkansas with probably 700 employees in central Arkansas, another 250, maybe 300 in northwest Arkansas and even more in an adjacent state. They are a self-insured programs, so they bear all the cost of the direct employees' insurance and then their employees pay or share the cost for dependents. 

Their cost per prescription has increased by 77% since 2022, and adding a $10 increase-- that was the number we were working with at the time of the conversation-- would bump that up to 96% increase in the cost per script since 2022. I was astounded at that number and probed the executives I was talking with. I said, What in the world is driving this? He said, It's very simple. It's the diabetes prescriptions and the weight loss prescriptions. 

They have literally exploded over the last couple of years and show every sign of continuing to increase. These things cost $2,000 a month for each patient. So that's what's driving that cost. The other employer has quite a few more, maybe twice the number of other company in Arkansas employees, probably 1,500, maybe 1,600. They state that a $10 prescription fee would result in a 15% increase in cost for this plan in Arkansas. And that would be on top of an already existing national cost trend of 4 to 6% per year. They fill 23,000 scripts a year for employees and dependents total, and that would cost them about $230,000 a year.

 And this was some of the subtlety of this thing. Three of their four medical plans that are offered to employees are what's called high deductible health plans. This means that the subscriber, the employee in this case and their covered spouses and dependents, will be on the hook for the enhanced fill fees until their deductibles are met. Specifically, their programs have like a $2,000 deductible for each covered life, either the employee or the dependents. So any increase in the fill fee or the co-pay or the prescription fee would be absorbed or have to be covered in that $2,000. So that's the point there. 

The second point is that the proposed rule, in our view, is an extraordinary intrusion into the marketplace. Prices are market signals that reflect consumers' decisions. A government agency deciding what is, quote, fair and reasonable undermines the entire foundation of free market economics. That's our second point. 

The third point is if you put the legislative thumb on the scale for this business sector, you can expect a long line of 'me too's' start showing up in the lobby. And it's clear, I think, it is patently clear to me, and I hope it is to all of you, too. Obviously, this issue cries out for a lot more data before you make a very costly decision for a whole lot of the 3 million people in Arkansas. So with that, I'd be happy to take any questions. I'm not an expert on health care plans, but I'll try my best.

 

Senator Ricky Hill Representative Pilkington.

 

Representative Aaron Pilkington Thank you. Thank you, Chair. Over here. Just a real quick question. You said you want more data and more transparency. Is there any push from y'all to ask these PBMs to give us their formularies so that we can better understand and make the decisions to help lower it? We talk about individuals being able to make decisions, but it's hard to make decisions or hard for companies to make decisions on plans when they don't even understand what the mechanics inside that PBM. So would you all be willing to help push for transparency on the PBM front?

 

Randy Zook Absolutely. I think that the whole health care sector nationally, not just Arkansas, PBMs and prescription costs, the entire health care sector is crying out for transparency and market economics rather than just dictates and  bureaucratic decisions that often just aren't based on facts for very long. We need a lot of facts.

 

Representative Aaron Pilkington Thank you.

 

Senator Ricky Hill Senator Mark Johnson.

 

Senator Mark Johnson Thank you, Mr. Chairman. Randy, thank you for what you said about the market. And I agree with you. But I'm concerned. This thing's like peeling an onion. I feel like we keep peeling back and finding more things. This is the gist to me of what this rule is about. And we might agree, we might disagree on this point. But it talks about sustainability of the network adequacy. In other words, are there folks out there to take care of our folks? And in a perfect world, the market would take care of that. I just see this whole industry as a disruptor of those market forces.

 And that's why I'm kind of, I won't say I'm on the fence. I'm not on the fence. But I'm conflicted about just absolutely saying I'm a free market person when I see things that are being done in an insidious way to manipulate that market to the detriment of your members, as we heard today, state employees, people on Medicaid, the whole shebang. People. Consumers. I don't think this is going to go away as an issue. 

And I think that Senator Hickey and Senator Dismang touched on the fact that we're going to be looking at legislation. And I hope that our new chairman will keep us-- he's already stepped out-- but from having those hearings last 4 or 5 hours. But be that as it may, are you considering in any way the sustainability of the network and therefore the services as opposed to just the price thing? I don't like prices going up either. But when you bring me down to do I need to pay a little bit more to make sure I can get what I need, then I'll bite the bullet and pay a little more. How do you balance that out?

 

Randy Zook That's a really good question, and I think it's kind of where we are. It strikes me. I use this comment from time to time. Our members are all alike. They're all for free market competition, free markets, but just don't want any competition. So this plays out to a great extent in this whole conversation. Yeah, it's a deep concern in many parts of the state, but especially where I grew up down in southeast Arkansas. We're running out of doctors. They're either dying or retiring or moving. We still haven't run out of any pharmacies. We've still got an adequate number of pharmacies down there. 

But that's got to be tough to be a pharmacist in southeast Arkansas right now, just like our Ob-Gyn coverage is nonexistent. We got real problems in our health care system in lots of parts of the state. And that begins to affect the development or the ability for capital to be deployed and people who invest in businesses and start hiring people and growing if there's not health care available. This was a big problem. The status of the hospital up in northeast Arkansas for one of the steel companies recently. They're sitting there saying, how in the world are we going to attract people and keep them on the payroll if there's no hospital available in the community? 

That's a deeper issue there, obviously, than what you're talking about here. But it's all the same kettle of fish at the end of the day, adequate health care and access to it and at least a reasonable cost. I don't know about fair. But one man's fair is another man's short stick.

 

Senator Mark Johnson Randy, my dad used to say that most lawsuits were caused by the word reasonable being in a contract.

 

Randy Zook This whole thing sounds like a lawyer's relief act.

 

Senator Mark Johnson  And ultimately, a lot of things are. I just worry about those people that are on the front lines, in this particular case, the pharmacists, especially the smaller independent pharmacists, who in many cases, whether it's a perfect world or not, they are the health care provider in some of these areas like southeast Arkansas that you just mentioned. So I'm looking for a balance. We might not find it, but I'm going to support the rule. But I know that we're going to be revisiting this. I don't know if you saw President Trump has spoken out about the PBMs specifically and probably other disruptors to a real market. But anyway, thank you for your comments. Thank you, Mr. Chair.

 

Senator Ricky Hill Representative Maddox.

 

Representative John Maddox Well, I guess as the only attorney in the room, I've got to speak now. I don't want to put you on the spot, but just for some context, so these employers who came to you, are they stipulating that their plan is not paying fair and reasonable?

 

Randy Zook No, not at all.

 

Representative John Maddox Okay. So they think they're paying fair and reasonable?

 

Randy Zook They're paying the bill that shows up. Do they know if it's fair and reasonable? Do they know what NADAC is? I can assure you they, unless it's the HR person, they do not. Executives I'm talking to, all they know is the ticket. What is the price?

 

Representative John Maddox So they're most likely higher--

 

Randy Zook And it seems to be out of control.

 

Representative John Maddox So they're hiring PBMs, I guess, to manage these.

 

Randy Zook They're doing anything they can to try to mitigate the cost increase.

 

Representative John Maddox In your conversations with them, did they bring up overpayments to affiliate pharmacies? Did that come up at all?

 

Randy Zook No, not there.

 

Representative John Maddox So they just don't know. They just told you, hey, we can't pay ten bucks more for a dispensing fee or something.

 

Randy Zook Ten bucks is going to hurt.

 

Representative John Maddox But of course, if they're paying fair and reasonable, there's no cost difference. Right?

 

Randy Zook Right.

 

Representative John Maddox Got curious about that. And I have to bring up, when you bring up free markets, there's not a bigger free market advocate in this room than me. I'm a small business owner, but just so we can all remember, I can't imagine my competitor across the street setting my pay and paying me what he thinks is reasonable and paying me less than he's paying himself.

 

Randy Zook I have no defense of the healthcare market.

 

Representative John Maddox Because that's what's happening.

 

Randy Zook I have no defense of the healthcare marketplace.

 

Representative John Maddox That's what's happening where I live. That's what the independent pharmacists are telling me I've been asking for this data for three meetings now. I can't get it. So that's all I'm trying to find out. So I'm all for free markets. But this is not necessarily free market. So thank you.

 

Randy Zook Look, I think the basic problem. It's not.

 

Representative John Maddox Okay. I thought we'd agree on that. Thanks, Randy.

 

Randy Zook You bet.

 

Senator Ricky Hill Senator Penzo. Representative Wooten.

 

Representative Jim Wooten Mr. Zook, thank you for being here and being last. What percent of the increase over the past 7 to 10 years that you talked about has been because of pharmacy pricing?

 

Randy Zook Inquiries about --

 

Representative Jim Wooten How much of the plan increases can you say were directly caused by the pharmacies?

 

Randy Zook Well, coincidentally, there's a piece in Arkansas Business that just came out today that the pharmacy costs for group health insurance plans have gone up to somewhere above 20% now. For years, it was in the 5 to 10% range. Now it's up in the low 20's to mid 20's.

 

Representative Jim Wooten Well, that include all costs. I'm talking about prescriptions.

 

Randy Zook The prescriptions are 20 to 25%.

 

Representative Jim Wooten Well, I'm talking about the fee that a pharmacist charges.

 

Randy Zook I have no idea about that.

 

Representative Jim Wooten You don't have any idea?

 

Randy Zook No idea.

 

Representative Jim Wooten But there has been increases on the plans, not necessarily the pharmacy. Right?

 

Randy Zook Right.

 

Representative Jim Wooten Would you answer this question for me? What am I going to tell my constituents when they call me and complain about the fact that there's no pharmacy in their community or they don't have access to the pharmacy within a reasonable distance? What would you answer them?

 

Randy Zook I would not attempt to be in a position to have to answer that, Representative. I don't know that there's a good answer. It's like, what do you tell a pregnant woman in the county that there's no ob-gyn available?

 

Representative Jim Wooten Well, that's another problem that needs to be addressed. And I agree. There's 32 hospitals that offer maternity here in our own state. I don't have to tell you that. But what I am saying is that's the question I've got to answer. And some of them, it's not going to make any difference about the cost. They've got to have the medicine. So they'll have to drive 20, 30, 40 miles. So we've got a serious situation there. We're trying to, as some have put it, put a band aid on today. But everything changes, does it not?

 

Randy Zook Absolutely. It will be different a month from now.

 

Representative Jim Wooten Thank you.

 

Senator Ricky Hill Representative Achor. Not yet.

 

Representative Brandon Achor All right. Thank you, Mr. Chair. I heard some testimony there where you had an employer who said that their drug cost has gone up 77%. And we've got pharmacies here that see dramatic and erratic decreases in reimbursement to the pharmacies. So obviously, there's a huge disconnect between what the employer is paying and what the pharmacy is receiving for physically rendering the service that their employees are receiving. 

And I think that's where the rule aims to advocate on behalf of the employer. Your members, your HR Divisions are overleveraged by an opaque system that they do not understand. You've admitted that as much yourself. This whole committee has taken at length to basically display that. What this would do is allow them, basically require to turn over the data and see where they're being overleveraged. Mr. Buxton was here earlier unaware of the over affiliate payments. I filed those. I've filed complaints with real claims data where an employer is getting ripped off by having the affiliate paid more than local mom and pops. And there's no way to see into that without the data. 

The rule wants them to turn that over, show where if we're going to trust, we're going to verify. And I think that your members should welcome the opportunity for them to finally stop being overleveraged by an opaque system. And, to that end, I think you're doing your members a disservice by advocating against transparency for their behalf.

 

Randy Zook Well, let me be clear. Crystal clear. I'm advocating for transparency. I'm advocating for the data and for the PBMs or whoever that should be providing the data. Under current law, something is out of whack clearly.

 

Senator Ricky Hill Thank you, Mr. Zook. Seeing no other question, we appreciate you coming. And thank you for your testimony. Okay. Now we're looking at Simon Robertson from Highlands Oncology. Please state your name and who you're with for the record.

 

Simon Dobretsov Simon Dobretsov with Highlands Oncology Group in Northwest Arkansas.

 

Senator Ricky Hill Thank you. Proceed.

 

Simon Dobretsov Thank you. Thank you, Chairman. Thank you, Committee members. I'll be as brief as I can be. You guys all seem to be PBM experts after the session. So my job at Highlands Oncology and my job for the past couple of years at other facilities has been to negotiate contracts with PBMs, with insurance companies and also from the employer side, visibility into that as well. So I kind of sit on the fence between both. 

So it was very interesting to listen to all the commentary today. And I just have a few pieces of information. And I'm in support of the rule and I'll explain why I'm in support of the rule, even though I agree with a lot of the deficiencies that you guys have brought up. And I also believe that no rule is perfect. You know, we kind of refine these as we go along or that's what it seems like to me. So we run four pharmacies, but I'm not here to advocate for a dispensing fee for these pharmacies.

 To be honest, the medical side subsidizes those operations. The reason we have to have pharmacies is because at this point in time, a lot of the local pharmacies do not carry the drugs. So their reimbursement has been lowered every year. I would love for all our patients to get any medication that they need around the corner. But unfortunately, I guess as all the local pharmacies have been pressed, their funds have dwindled, they're not carrying a lot of these high dollar oncolytic drugs. And so we've had to take on that burden. And we're running four pharmacies. 

We're dispensing wherever we can, the medications that we can. And the medical side is helping fund that operation and to fund the staff that are performing those duties. I believe that's where the network adequacy issue is. It's not counting pharmacies that are closing. It's looking at what are they able to provide the citizens of Arkansas and what is being picked away from them and sent to mail order affiliate pharmacies. That's a hard word to say. As far as complaints, I have the opportunity to file at least five complaints a day to the Arkansas Insurance Department about steering. Blatant violations of the law, where they're telling me to send a prescription to their affiliate pharmacy. I don't. I'm respectful of the Arkansas Insurance Department's time. I try to aggregate the cases. Maybe I'll file two a day or maybe two a week. 

Also, you have to understand, clinically, we can't wait two weeks, three weeks for an approval that Arkansas Insurance Department has to work really hard to get and overturn. And they do. They have a lot of success. But at the end of the day, our patients are special. They're sitting and they're waiting. And we don't have that liberty. So at that point, when you're making that decision, you make the right decision. Who cares? It goes to the mail order pharmacy. But that in turn hurts the employer because we know that they're going to get charged more than what our pharmacy is contracted to do. So I just wanted to point that out. 

And then I do believe that the rule, although it's not perfect, it's probably the best way to go about it, because at the end of the day, it creates kind of a barometer of how bad are you violating, how bad is this plan acting or how bad is this PBM acting. And I would hope that that barometer comes back to us. And when that PBM says, hey, I got to raise your rates, the state of Arkansas is making me do it. Well, I know what I would do. I would push back and I would say, hey, let's take a look at my rebate dollars. Let's take a look at what you're going to do to take out of that. Let's renegotiate that contract. You know, there's a different structure there. And so, I mean, I can't speak for every employer in the state of Arkansas. But to me, it's a good gauge. 

And then I think that the Arkansas Insurance Department leaving that flexibility for themselves, I think the intent is to get everyone down to zero. If  everyone's good, then there is no dispensing fee. But at the same time, you're not punishing the good actors while you're pursuing the bad actors. And I think that the reason there's not much of flexibility there is because if you look at the PBM contracts, they're crazy. So there's some contracts that I have where they've tried to weasel in maximum, an average payment. All y'all run businesses. What is that? I can't pinpoint a prescription and what I'm going to get. And so those are kind of hard. 

The other problem with mail order pharmacies is we have a lot of patients that we do send the script over and then that pharmacy that's out of the state won't take copay assistance. So that patient is having to pay thousands of dollars out of pocket because they can't use the manufacturer coupon. I had one the other day that the Arkansas Insurance Department worked, two weeks ago. That patient saved $4,000 on the first fill by us being able to fill it here. I think that that's important. So, yeah, I don't think we're going to fix all the problems overnight, but I hope you guys take into consideration what I mentioned. I've been commenting to the AID as well. 

You know, one of the big questions was fair and reasonable. I like to borrow from the feds. The feds have the ASP standard, ASP plus 6. That was one of my recommendations. Take that into consideration. The federal government has what they consider fair and reasonable. Maybe not perfect, but can be used as a barrier. And then also, I think, you know, we have to take into consideration, and I'm no attorney, but what can Arkansas do while the feds slow roll this? Because there's so many initiatives in Congress right now targeting PBMs, but they're moving very slowly. So the next question is, what can the state of Arkansas do to protect its consumers and what does not step over federal regulation? Thank you.

 

Senator Ricky Hill Thank you, sir. Will you take any questions? Senator Dismang.

 

Senator Jonathan Dismang On the complaints that you've had to file with the insurance department, how quickly are they responding to those and how many of those have come to a resolution?

 

Simon Dobretsov I think the average resolution time is about a week to two weeks. We have to remind the PBM and follow up. The AID does set deadlines and they do tell them we expect a response. At this time, this is a cancer patient. But even then, most of the time it goes ignored.

 

Senator Jonathan Dismang This is on the steering?

 

Simon Dobretsov Yes.

 

Senator Jonathan Dismang Steering issues?

 

Simon Dobretsov We don't file anything below cost. We go ahead and fill it. We have that luxury that local pharmacies don't where we're kind of spreading the costs from our medical operations. I feel very bad for the local pharmacies because they don't have that. I mean, I guess they can sell snacks and stuff. But there's no way you're covering that. And so my intent has been-- we don't have a facility in every town, so we do have patients who have to drive a long way because sometimes we're the only pharmacy to pick it up. And we do see a lot of patients that have been into the ER and that's exacerbating costs on the medical side. And no one's looking at that because the two sides are handled separately. But yeah, if a patient can't pick up their meds locally, a lot of times they just abandon their treatment. So our preference is to enable them to do that. So it's kind of weird, we're supposed to be competitors in a healthy market, one pharmacy versus another, but I'm up here advocating for them.

 

Senator Jonathan Dismang Okay. Thank you.

 

Senator Ricky Hill Representative Maddox.

 

Representative John Maddox Very briefly, and I should probably know this, I think Senator Dismang just hit on it a little bit. But could you walk me through exactly what you mean by they're trying to steer you? Will you tell me what you mean by that? I don't really understand that.

 

Simon Dobretsov Yeah. So they every PBM has a formulary of drugs that they cover and it looks like we're in network, but they have a separate formulary for drugs that must be ordered from their mail order pharmacy. All the big names do it. The caveat there is there are a few PBMs that are better actors. They don't have that. So when I say every PBM, I'm talking about the top three. So just to clarify that. Anyway, so when we run that script in our system or we try to get an auth, it comes back with 'pharmacy out of network' or 'must call specialty pharmacy to fill.' And that instructs our staff to call a credo or a specialty pharmacy owned by that company. And then they basically will fill it.

 

Representative John Maddox So are you saying the majority of the PBMs are steering, trying to steer business away from independent pharmacies?

 

Simon Dobretsov Five a day at least.

 

Representative John Maddox Five a day that you see?

 

Simon Dobretsov But I'm also a specialty pharmacy. So we probably see more of that.

 

Representative John Maddox Thank you.

 

Senator Ricky Hill Seeing no further questions, thank you for your testimony. Oh, Senator Irvin had one.

 

Senator Missy Irvin Of the resolutions, what is the resolution? Do you get paid? Are they paying? Are they making up the cost? What's the resolution?

 

Simon Dobretsov So far it's been single fills. And so for like 30 days. And then we have to go back to them. Now  they know that we're the squeaky wheel. They're tidying up and they're pretending that's under Arisa that it's a benefit design. And I disagree with that. But I'm hoping that we will prevail because we have patients that have told me outright, I don't want it filled via mail. I want to pick it up here or anywhere locally.

 

Senator Missy Irvin But I mean the resolutions that you're getting of your complaints that you're getting resolutions and is AID then contacting the PBM and saying, hey, you've done something wrong here, you need to make this guy right?

 

Simon Dobretsov Yes. They do that.

 

Senator Missy Irvin That has happened? That's happening?

 

Simon Dobretsov Yes.

 

Senator Missy Irvin So that process is happening and it's occurring and it's working somewhat?

 

Simon Dobretsov It's kind of broken down. Now they're starting to respond back. The PBMs are responding back and saying this is benefit design. The last three came back with that.

 

Senator Missy Irvin It's a benefit design because the insurer, the self-insured company, has signed a contract with them that states that contractual agreement that they have decided that they're going to use whatever pharmacy. Is that what you're saying that's what they're telling you? It's a design. It's a benefit design.

 

Simon Dobretsov Yes and no. A lot of employers aren't really sure what they're signing. So when the PBM gives them an offer, it's like, here, I'll process your claims at 3%, but this mail order option must be enabled or you can sign this other contract for 8%. And so of course, the employer is like, yeah, that sounds like a good deal because they're not pharmacy specialists.

 

Senator Missy Irvin Okay. But I mean, they signed the contract.

 

Simon Dobretsov Yes. Yes.

 

Senator Missy Irvin I mean, that is now a legally binding contract.

 

Simon Dobretsov Yes.

 

Senator Missy Irvin Right. So, I mean. So when that has occurred, that's a legally binding contract. Then the answer that they've given you is based on a legally bound contract and situation that then cannot be resolved in the manner that you want it to be resolved, because that legally binding contract is the final resolution. I just wanted to understand, we do have a process of complaints. We do have resolution. And absolutely, if you need to be made whole, then that is occurring. But if they can't make you whole because of a contractual agreement between this employer and this health insurance company, then that is a legally binded contract. And so we can't make a resolution for you that will make you happy because that will trump it.

 

Simon Dobretsov Well, Senator, if one slight correction, it's not for me. These complaints are initiated by our patients when they see the drug on the shelf. I don't file any complaints unless the patient brings it up on their own. When our pharmacy says, unfortunately, I can't fill this for you, we're going to have to send your script to this other pharmacy.

 

Senator Missy Irvin Okay. Well, thank you for that. But I'm okay with a pharmacy making a complaint, too. I mean, I think that's the way that the system that we've put in place. And like, to your point, we have enacted this regulatory structure where as they were never regulated before. And I support that. I think that they should be regulated. But to the degree of which I think is what we're discussing today. So I appreciate that you said that, but I also think that you also have the ability to file a complaint just as a pharmacist. So thank you.

 

Simon Dobretsov Thank you.

 

Senator Ricky Hill Thank you for your testimony. Next, we have Brad Lawson with Walgreens speaking for.

 

Brad Lawson All right. Good evening, everyone. Number one, I just want to thank you all for your attention today. I know it's been a long day. Probably some stomachs are growling. I'll try to keep it as short as possible. But number one, what an honor to sit right here in front of you, in front of that great seal of the state of Arkansas, to advocate for a profession that has done so much for me. I am a long term resident of Central Arkansas, lifetime resident of Central Arkansas, graduated from Arkansas State University with a bachelor's degree in chemistry, then transferred down to UAMS here in Little Rock and received my doctorate of pharmacy. I have been providing direct patient care in Arkansas for 20 years.

 I'm honored to have the opportunity to lead pharmacy for Walgreens across the state. Walgreens has a long history of providing trusted health care services to our country for 120 years. In Arkansas, we have 81 locations, 1,600 employees, and 250 of those are pharmacists. Walgreens is an unaffiliated, non vertically integrated pharmacy. We do not own a PBM. We are not owned by a PBM. The information you're going to hear-- you've heard a lot of the same information-- but really, you want to land that point as one of the biggest things to identify: that we as Walgreens are subject to the same reimbursement challenges as our local independent colleagues and we stand in solidarity with them as a proponent for Rule 128.

 Concerning PBMs, 80% of the drug market is housed under three PBMs who also own their own pharmacies. This leverage allows them to force low reimbursements that do not reflect the actual cost to purchase or dispense medications to local independent pharmacies and unaffiliated pharmacies like Walgreens. Walgreens loses money on many of the prescriptions and services we provide on a regular basis. This leverage also allows for patient steering. We just heard that. We are losing patients because of specific PBMs requiring them to use their own vertically integrated pharmacies in which they have financial stake. 

PBMs also practice price spreading. So we talked about this spread pricing. So they charge insurance companies one amount and pay pharmacies another amount. This exacerbates the financial challenges for the unaffiliated pharmacies like Walgreens that are forced to accept lower reimbursement rates. These unfair and unreasonable business practices require pharmacies to provide less services to our patients and ultimately could end up in closing doors. This puts our patients at the greatest risk of creating health care deserts. We've talked about that time and time again today with access. And unfortunately, this also disproportionately affects those underserved communities. 

In 2019, across the US, 7,000 pharmacies closed. This last fall, we brought it up earlier, Walgreens announced the closure of 1,200 locations over the next three years. We heard Doctor Vincent talking about, in Arkansas, we've closed 40 pharmacies over the last two years. This last year, Walgreens has closed six Arkansas locations across the state. And I take each one of those personal. They're made up of pharmacists that care about their communities, technicians that show up every day. We are a proud profession. We want to be a sustainable profession and work within a sustainable business model. 

PBMs must offer consistent, predictable and reliable reimbursements that are the same for independent unaffiliated pharmacies as it is for pharmacies in which the PBMs own financial stake. PBMs should not be allowed to steer patients away from the patient's preferred pharmacy. We've heard a lot of testimony today about potential increase in costs in premiums for Arkansans and employers. I would challenge that. That's a choice that the PBMs are making. If they choose to prioritize their spread over patients' health and keeping pharmacies open, the status quo, the business model that we have right now is not sustainable. 

PBMs extract more value out of the pharmaceutical supply chain than anyone else in it, including those of us who actively provide patient care. The point of this reform is not for a PBM model to stay at is, but as they return back value to the supply chain, costs will stabilize. A permanent rule is urgently needed in Arkansas to address these unfair and unreasonable business practices and is crucial in protecting pharmacies, patients' access to medications in the services pharmacies provide. 

This Arkansas legislature has proven itself as a leader and trailblazer in the U.S. when it comes to PBM regulation. I remember standing in that doorway right there under the exit sign in 2018 when this entire building was full of white lab coats and my heart was just filled with pride. Pride for my profession. Pride for my state. Pride for my elected officials. And I did what any red blooded Arkansan would do. And I go to social media to express my pride. So I took an excerpt from my own personal social media post in 2018 I'd like to read today. 

'I'm extremely proud of our profession and our state leaders in continuing this dialog that negatively affects all Arkansas pharmacies, big and small, and all Arkansas taxpayers. Thank you to Scott Pace and all my fellow pharmacists that were in attendance today. I look forward to further conversations and the creation of solutions that will prevent the closure of integral community businesses across the state. #RXcurtain.' 

We are here. The steps that we've taken previously have led us here to today. Thank you for the role that you've played in supporting our profession. But we've seen behind that pharmacy curtain and it's not pretty. The curtain is suffocating the integral community health care providers. But unfortunately the patients are the ones that are hurt the most. I implore you to keep the work alive so that years later when we look back on this time we find ourself on the right side of history. Thank you.

 

Senator Ricky Hill Are you willing to take any questions?

 

Brad Lawson Do I have a choice?

 

Senator Ricky Hill Yes, sir. You do?

 

Brad Lawson I'm ready.

 

Senator Ricky Hill Senator Irvin.

 

Senator Missy Irvin Thank you. What is the net worth of Walgreens?

 

Brad Lawson I don't have that off the top.

 

Senator Missy Irvin I can read it to you.

 

Brad Lawson Sure.

 

Senator Missy Irvin Sure. As of December 13, 2024, Walgreens Boots Alliance has a net worth of $8.98 billion or market cap. Thank you.

 

Brad Lawson Yes, ma'am.

 

Senator Ricky Hill Representative Maddox.

 

Representative John Maddox So to follow up. Walgreens stock, I'm not certain, but it's probably gone from $60 a share to what, $10, $11 over the last five years.

 

Brad Lawson There's been a big drop in the last few years.

 

Representative John Maddox Year. Right. It's cratering. And you blame some of that on PBMs reimbursing Walgreens less than they do their own pharmacies.

 

Brad Lawson I think ultimately everything comes down to reimbursements. A lot of the issues we have, but ultimately it's about a sustainable business model that reimburses pharmacies fair and reasonable for the medications and services we provide.

 

Representative John Maddox Thank you.

 

Simon Dobretsov Yes, sir.

 

Senator Ricky Hill Representative Wooten.

 

Representative Jim Wooten Thank you, Mr. Chairman. If I painted with a wide brush when I mentioned Walgreens a few ago, I apologize. I, like Senator Irvin, look at the profitability of the stock and that thing. But you make the very point that we're trying to take care of with the Rule 128. And that is to get a fair market price out there. And price controls do not do that. So my question of you, do you consider that the PBMs have unfairly discriminated against your company and other druggists and pharmacists in Arkansas?

 

Brad Lawson Representative Wooten, I was hoping I would get a chance to speak with you. My wife is from your dream home town in Beebe, Arkansas. So Beebe runs deep in our family. There's no doubt that unaffiliated, non vertically integrated pharmacies like Walgreens, like independent pharmacies, are reimbursed at a different rate than those that are vertically integrated and in which the PBMs have financial stake.

 

Representative Jim Wooten So that would be considered price discrimination?

 

Brad Lawson Those are your words. Yes, sir.

 

Representative Jim Wooten Thank you. Thank you, Mr. Chairman.

 

Senator Ricky Hill Representative Achor.

 

Representative Brandon Achor Hey, Dr. Lawson. Thank you for being here today. It is troubling, as we've had rural pharmacies mentioned, that oftentimes Walgreens in certain areas really is the only reprieve for independent pharmacies to offload those unsustainable reimbursements. And to see Walgreens not be able to sustain that, to see their stock plummet 80% over the last five years and to see real closures limit that access, as someone who actively competes with your business model, I do acknowledge that there is real tangible value that you're able to provide that we're not able to provide. And I guess I apologize for offloading too many of those patients because apparently it's had a dramatic negative effect here in Arkansas. But this does end with access. And I just want to thank you for being here today and for your testimony.

 

Brad Lawson Thank you, Representative Achor.

 

Senator Ricky Hill Seeing no further questions, thank you for your testimony. Representative. I know you can't. So just ask it.

 

Representative Karilyn Brown [inaudible]

 

Representative Brandon Achor It's Brad. Yes, ma'am.

 

Senator Ricky Hill You're on now.

 

Representative Karilyn Brown We had a Walgreens that's been there for quite a while. They had sputtering kind of pharmacy service there for a while, like a year. Now they no longer offer pharmacy service. Their doors are still open. So then I transferred to the next closest Walgreens. It was the biggest store, really, the biggest pharmacy in the area. They have now completely shut down. So I now have a different Walgreens. We're blessed to have numerous pharmacies in the North Pulaski area. However, it concerns me now that these businesses have gone away. Because most likely it was due to low reimbursement because they were very active. Is it probable that these pharmacies have had these kinds of struggles due to low reimbursement on drug prescriptions?

 

Brad Lawson I'm very data minded as a scientist through school. If I was going to create an algorithm, I would put reimbursement rates in the denominator of the situation at hand. Everything rolls up to reimbursements and creating a sustainable business model.

 

Representative Karilyn Brown So Walgreens pharmacies are not only closing in rural areas, they're are closing in our major metropolitan areas here in the state.

 

Brad Lawson Yes, ma'am. Six this past year, one in Jonesboro, four in central Arkansas and one in Ashdown, Arkansas.

 

Representative Karilyn Brown It creates a tremendous inconvenience for me who can drive and walk and do all those things. I can walk most of the time. Right now I'm on a scooter. But for people in rural areas, it's devastating.

 

Brad Lawson Absolutely. And it's not just the patients. The patients are the most important thing, but those are those are pharmacists. Those are technicians. Those are team members that are displaced when there's not another pharmacy close that they could go to. But ultimately the patient has the biggest risk when it comes to that of becoming non adherence to their medications. And that's the biggest role that pharmacists play is allowing patients to live longer, healthier lives.

 

Representative Karilyn Brown Thank you for your testimony.

 

Brad Lawson Yes, ma'am. Thank you.

 

Senator Ricky Hill Senator Irvin.

 

Senator Missy Irvin Thank you. Again, steering is illegal already under Arkansas law, correct?

 

Brad Lawson Yes, ma'am.

 

Senator Missy Irvin Okay. That's correct. Spread pricing is illegal under Arkansas law, correct?

 

Brad Lawson Yes, ma'am.

 

Senator Missy Irvin Okay. Again, it has been testified to and we have repeatedly stated that the laws that we have in place, which you testified to be in support of, which I also voted for, created a regulatory presence that had never been there before, correct?

 

Brad Lawson Yes, ma'am.

 

Senator Missy Irvin For PBMs, correct?

 

Brad Lawson Yes, ma'am.

 

Senator Missy Irvin And it also created the illegal activity of steering and spread pricing, correct?

 

Brad Lawson Yes, ma'am.

 

Senator Missy Irvin Okay. So those have been in effect. Again, this rule has nothing to do with that. This rule allows for additional cost that's going to be directly impacting to patients. That's what this rule does. The PBMs are not going to be affected by this rule at all. So we're talking about a regulatory function absolutely making sure that all that happens. But this rule goes beyond that and directly impacts patients and the cost that they're going to have to pay for every single prescription that is filled, every single one. 

And so I just want to make sure as I'm being threatened right now by people, literally being threatened. The patients and the consumers have to be accounted for. They have to be. We can discuss your stock. We can discuss your net. We can discuss all that. But at the end of the day, I'm a policymaker. I will not yield to threats. I will not be yielding to people that are calling me horrible names right now in emails that are being sent to me. I'm not going to yield to that. I'm a policymaker that is trying to understand how we are from a statutory position to now a rule that I do not believe that two meet. That is my job. That is my responsibility.

 And so I just want to make sure we're very clear and that you acknowledge, yes, we have now regulatory laws on the books. And these things that you've testified to are already illegal. And we need to uphold the law and make sure that whatever is happening illegally needs to be enforced. 100% agree with you on that. But again, that is outside of this rule. And so I just want to make sure that is clearly stated about the policy that we are discussing right here, right now and what is already on the books. Thank you.

 

Brad Lawson Senator Irvin, thank you so much for your support of our profession and our patients across the state. I agree with you. I do think tha. A lot can be done by little people. And I think Arkansas has proven that time and time again in the fact of PBM legislation and reform, that we can be trendsetters and we can do the right thing. In my opinion, I think the rule is a step forward in furthering PBM reform.

 

Senator Ricky Hill Well, thank you for acknowledging the rule. But today is not PBM reform. It's rule 128. So thank you for your testimony.

 

Brad Lawson Thank you.

 

Senator Ricky Hill Last on the list is Loretta Boesing. I'll let her pronounce that when she gets up here. Please state your name for the record.

 

Loretta Boesing Thank you. It is Loretta Boesing. Great job. Thank you so much for having me here today. Means a lot to me to be the voice of the patients. And I am a patient advocate. I started a petition that has over 230,000 supporters to stop the forcing to mail order pharmacies. We have over 900 supporters here from Arkansas, and I'm honored today to represent them. Several here from Arkansas have written statements in support of me being here. 

I do understand that this is about reimbursements for our local pharmacies and keeping their doors open. I am also the mother of a child whose life relies on medications every 12 hours after he received a lifesaving liver transplant from a three year old little girl due to the flu. Unlike the lobbyist here today, I'm not here because I get paid to do this. I'm here because I deeply care about the declining state of pharmacy and medication access here in Arkansas. And if I can get your attention for just a moment, maybe I can stop the people who will be suffering and who are suffering here in Arkansas and their children from the pain and suffering that I and many other patients and caregivers have witnessed firsthand. 

And it was all solely for the profits of the PBMs, like OptumRX, CVS Caremark, and Express Scripts. My advocacy began when I experienced the severe consequences of choosing mail order pharmacy. One 102 degree day, I received my son's liquid oral transplant medications in only a bag without any temperature control. At the time, I had no idea that the temperatures in the truck's mailbox could soar to 120 to 170 degrees, risking the efficacy of medications. But weeks later, when my son ended up in transplant rejection again and the life that we had just fought so hard for was on the line again.

 And watching him scream and cry in agony as they tried to insert the picc line, I began to wonder if the heat had affected the medications. And I promised myself at that time, I will never again use mail order pharmacy unless I could prove it was safe. But then we were forced to it. The letters from our insurance told us that we had no choice. Use mail order or pay full price. I was stunned. It felt wrong. It felt monopolistic. 

But I thought, this can't be allowed in America. I ignored the letters. Then one day I went to fill my son's prescription. I found out that we can no longer use our pharmacy. We didn't have enough medications to wait for mail order. The pharmacy benefit manager's response to the medication rejection was that the hospital pharmacy was an inappropriate place to fill my child's medications. I will tell you today that hospital pharmacy was the most appropriate place. They worked well with my son's physicians. Over 100 different providers handled his care during the time of his transplant and after. 

They could ensure that his medications were handled properly. But we had no choice but to trust the CVS pharmacy with my son's life. They assured me they ship the medication safely, but they arrived on a hot day, no protection. When I called them, eventually they would admit that it shouldn't exceed 86 degrees. But they were assured me that they would use extra bubble wrap during the extreme weather. And one pharmacist even offered me the option to drive 260 miles one way to get the medications. But this medication is five minutes from my home. I contacted the FDA hoping for support. They tell me to discard my son's medications. And you can also read about this in NBC and New York Times. 

The response I received is that the FDA doesn't regulate the issues. So my doctor appealed for us to use the hospital pharmacy. CVS refused. Even worse, they lied to the employer, claimed that they'll store the medication safe. But they didn't. They said it would be okay to store outside those recommended temperature ranges. And even at CVS, some pharmacists admitted that it wouldn't be . A cycle of frustration continued. I filed a complaint with the Department of Insurance, which was later forwarded to the US Department of Labor. It was confirmed that they get complaints like mine. But although it's unethical, it's not illegal. PBMs and their insurance companies partners don't disclose the massive number of complaints, and suffering continues. 

Eventually, I found a solution. That was media. So now I can get my son's medications locally and they deliver safely in a temperature controlled vehicle. It was special treatment. It was then I realized that I had to become an advocate. And I contacted my husband's employer, which was owned by Koch Industries at the time. And I was bracing for the possibility that my husband might be fired for my strong voice. I was surprised when the corporate HR actually thanked me for my advocacy, and they, too, agreed that transparency would lower drug prices. That wasn't by far my only surprise. I started the petition and I quickly uncovered also there are massive complaints. I was far from the only one, but I was really shocked to learn that these same companies that are forcing us to mail order oversee their competitor reimbursements. And they are closing, they are absolutely closing. 

And we see this across our nation. I do not know how anyone can deny that we're losing our pharmacies, both independent and chains. But I realized then what good would it be to stop the forcing of mail order pharmacy if all of our pharmacies close due to below cost reimbursements? As I connected with more patients, I realize the amount of patient harm and America's pharmacy and medication access was in trouble. PBMs claim that pharmacy steering is a tool that they use to lower prescription drug costs. But across the nation, we know that's just simply not true. Many patients would agree that the only tool these companies are using is similar to a rusty scalpel in unqualified surgeon's hands. 

And it's cutting away at the quality of care in favor of profit. We hear their claims that they're improving adherence, but we see the truth. Check out the Better Business Bureau complaints one star ratings. This situation is just not a crisis for patients. It's a crisis for pharmacists as well. Many corporate chains have a high error rate. Many pharmacists say that's due to the understaffing. As a result, many are choosing to leave the industry, some who are multi-generational pharmacists. And students, many are refusing to even enter the profession. And that's an absolute consequence of delayed legislative and regulatory action. As independent pharmacies close across our nation, patients are forced to travel further to access care. 

But PBMs and their corporate partners continue to claim that everything is fine, as if devasting impacts of entire communities and counties without a pharmacy are just a minor inconvenience that we're just supposed to accept, just a simple sacrifice for their billion dollar profits. And as if insurance companies and PBMs profits are just more important than keeping the critical lifesaving doors of our local community pharmacies open. PCLA will continue to say that the number of local pharmacies are increasing, as we heard today. 

But this claim is misleading as pharmacies in underserved and rural areas are closing, urban and rural areas, while pharmacies opening are often mostly in the wealthier neighborhoods. And it's leaving those in our nation that need the access the most without. So let's not let them continue to get off the hook so easily with that statement. Health insurers, PBMs and stakeholders involved, we trusted you when we paid our premiums. We did not expect for those premiums to be used against us to pay our local independent pharmacies or any pharmacies below their cost. 

There is no business that should be allowed or expected to survive when they're only allowed to be paid not even the cost of their product and a life saving product at that. And so many are forced to close if one pharmacy closes due to this. It's an injustice in America. And it's abuse of their power. Independent pharmacies have proven to be an essential part of our health care system and public health. During the pandemic, they provided vaccines and treatments more effectively than large corporate pharmacies offering a lifeline that mail order services failed and continue to fail. 

Please don't allow PBMs or lobbyists to take away this any longer. When I first started, PBMs and PCMA claim that simply allowing pharmacists to tell us the cash price, I just want you to remember this. They would also tell us that that would raise health care costs. But once these gag clauses were removed, lives were saved. And many now pay less for medications without using their insurance thanks to the removal of gag clauses. Now, PBMs claim that the simple act as today, that ensuring our pharmacies are reimbursed enough to cover their costs will raise prices. 

They just can't find it in the billion dollar profits to pay our small, locally owned, independent pharmacies more. It was well known today that they're not going to take anything from their profits, even though in my family's experience, as we were forced to mail order pharmacy, they reimburse their own pharmacy over ten times more than the two months when we were allowed to use our local pharmacy. 

There's where you can get the money to keep the doors of our local pharmacies open, drug pricing manipulation that results in billion dollars profits. That's their number one tool. People standing at the counter, they're trying to get their medications that their lives depend on, finding out that it's not covered or they're only told about the medications on the formulary that are hundreds of dollars, even when there's a lower generic available. 

This may have been the cause for the death of a young man named Cole who lost his life because he went to a corporate chain pharmacy and they only told them about the medication that was hundreds of dollars more. It wasn't until after his father, who was on the same medication, learned about the lower cost generic when he went to a local independent pharmacy that they realized what happened to their son. So unlike corporate chains, another reason why it's important that we save independent pharmacies and make sure that they keep their doors open is they have the time to help us when drug prices are high and we're having to navigate, how are we going to get our child's life saving medications in an affordable way? 

Allowing PBMs to reimburse pharmacies less than the cost of drugs is hurting patients, and independent pharmacies save lives when the chain pharmacies are too understaffed or when mail order fails. Under reimbursement means that lifeline, we're losing it. PBMs, they claim that they also have thousands of pharmacies in network, but it means nothing to us when we go to get our medications filled and we're told we can't use that pharmacy. We cry out for help, but too often the answer we get is that our children's lives and ours just must be sacrificed for billion dollar profits of the insurance and PBM industries. 

We don't believe that and we don't believe the claims that the corporations' pharmacies are safer, more affordable. Many are giving up hope in our legislators' ability to protect us from harm. I knew that the patient stories were vast and heartbreaking. I was not surprised about what happened the last couple of weeks when it comes to the amount of patient stories. But what I was surprised about was that so many patients in our nation feel abandoned and unheard. Patients, they feel hopeless and helpless in securing medications or even a pharmacy for their children. But I refuse to give up on our government, which is why I'm here today--

 

Senator Ricky Hill Ms. Boesing, we're going to have to wrap it up. We need to get to the point of how it affects this rule.

 

Loretta Boesing Thank you. So my husband's a veteran who fought hard to defend our nation the frontlines in the most dangerous places. And we believe in our government's ability to defend and protect Americans in harm ways. For example, like our locally owned pharmacies being able to serve their patients and patients like my son and to be able to serve their communities. Let's leave our children with a better system, one that their lives are valued more than just solely being used as a safe haven for corporate profits. Let's show them that they can have hope in American's government to protect, serve, justice and stop the monopolistic below cost reimbursements that they obviously know they're doing against what this rule. This rule was supposed to protect these local pharmacies, and they're obviously under reimbursing our local pharmacies. They're paying their own pharmacies more and they show absolutely no care.

 

Senator Ricky Hill Thank you very much for your testimony. I see no question for you. So thank you for coming.

 

Loretta Boesing Thank you.

 

Senator Ricky Hill With that being said, we're back to Mr. Grant Wallace. It's going to be the consideration of state employer contribution for plan year 2025.

 

Grant Wallace Grant Wallace, Director, Employee Benefits Division. What you have before you is a proposal to have the state-- I'm sorry.

 

Senator Ricky Hill Just a second, Mr. Grant. Yes. Yes, We're finished with the first. We've done our review. According to this, the action on the rule is a response that the committee heard the presentation to the rule and met its obligation. Go ahead, Mr. Grant.

 

Grant Wallace So what you have before you is the proposal or a recommendation from the employee benefits division for the state match to be $660 per budgeted position for calendar going into plan year 2025, which is January to December. I'd be glad to answer any questions. 

 

Senator Ricky Hill Representative Wooten.

 

Representative Jim Wooten Mr. Wallace?

 

Grant Wallace Yes, sir.

 

Representative Jim Wooten Did you address the $20 million involved in funding phantom employees?

 

Grant Wallace We are still studying alternative approaches.

 

Representative Jim Wooten We've had four months. You had a year. The act has been in place for two sessions and you hadn't done anything. Are you all going to do something? I understand. What I'm hearing is it's the governor's office that's delaying some action taking place on these employees. We've talked about money and money and more money today. But we're talking about $20 million in salaries for 400 employees for just last year. That doesn't include the other 400 from before. So when are y'all going to have a plan?

 

Grant Wallace Well, respectfully, sir, the action--

 

Representative Jim Wooten When are you going to have a plan? When are you going to have a plan? I don't want ifs. I want to know when you're going to have a plan.

 

Grant Wallace I can only speak to the health insurance. I am not involved in the conversations around the budgeted positions.

 

Representative Jim Wooten You're funding them. Are you not funding them?

 

Grant Wallace We are funded by them.

 

Representative Jim Wooten Did you take money out of the of the $660 for the 400 employees that we're paying? In my opinion, it is pure fraud. And I know that offends some in here. Some may even feel threatened. But I'm telling you, it's fraud. And if you had an employee that you caught paying an employee that didn't exist, you'd have them prosecuted. Right? Is that right?

 

Grant Wallace Well, I'm not in a position to make that decision.

 

Representative Jim Wooten Well, who would? The governor?

 

Grant Wallace I'm not sure.

 

Representative Jim Wooten Would you not make a recommendation to the Secretary of Transformation?

 

Grant Wallace When it comes to funding employee benefits, this has been a longstanding funding mechanism and was decided by the legislature a long time ago. I was tasked a couple of months ago--

 

Representative Jim Wooten I guess you can put it off on us because we failed to recognize it. We have not been truthful and transparent with the taxpayers of this state to exactly what the real cost of health insurance is. Is that not true? Do we have a number anywhere that is a number that's just for employees who are paid by the state and receive the $660 you're talking about.

 

Grant Wallace I don't have that available with me. I can get it. I just don't have it right now.

 

Representative Jim Wooten But have we told the public that this includes 400 employees that are nonexistent?

 

Grant Wallace I have not.

 

Representative Jim Wooten Okay. Thank you, Mr. Chairman. My point is made.

 

Representative John Maddox Thank you, Representative. Any other questions from the committee? Seeing none, thank you, Mr. Wallace. Committee, I'm instructed that we need a motion for favorable advice. Do I hear such a motion being made? Yes, sir. Okay. Well, I'm hoping for a motion on this one. Well, let's get through this first, okay? We have a motion for favorable advice on Item D. Is there a second? Second. All in favor? Any opposed? Motion carries. Thank you.

 

Senator Ricky Hill Okay, we're going to back up to Item C now. Senator Hickey. 

 

Senator Jimmy Hickey My only thing with item C is, is I agree with what your comment was if there's not a motion. However, I think the importance is that this body is just given the opportunity to make a motion if they need to.

 

Senator Ricky Hill Okay. But we didn't have a motion. But I will ask now for a motion.

 

Representative Robin Lundstrum All these hearings with no discussion. We just want to hear it and not make any motions or decisions or a vote? 

 

Senator Ricky Hill With us hearing this, it just goes on to Rules. Rules will actually be the one that does a vote on it. We have to review it.

 

Representative Robin Lundstrum So do we give a positive review or a negative review or just say that we're reviewing it?

 

Senator Ricky Hill We're just saying we are reviewing it. If you make a motion, it can be whatever way you want it to be.

 

Representative Robin Lundstrum I'd like to hear discussion from the body, from just this group, to see what their thoughts are. I don't want to just slide it by and say, Yeah, we said that, see ya. If that's what the body wants, I guess that's fine.

 

Senator Ricky Hill Representative Maddox.

 

Representative John Maddox Well, just for clarification-- and staff can correct me if I'm wrong, I certainly can be-- my understanding is no matter what we do, it's going to be on Rules Thursday. We can vote on it. We don't have to. But we have performed our statutory obligation by what we've just done. But we'll defer to the body, but we've performed our obligation.

 

Representative Robin Lundstrum Thank you. It just sped by so fast. I wasn't sure what that was all about.

 

Representative John Maddox That's my understanding. If Marty or someone wants to correct me, I believe that's correct though.

 

Senator Ricky Hill That is correct.

 

Representative John Maddox I think she's affirming that we're good.

 

Senator Ricky Hill Yes, she's affirming that we are correct. Senator Hickey, do you have anything else?

 

Senator Jimmy Hickey No, but I'm going to be very clear here. As far as everything that we've done, I think that we at least have to slow down for this body to have the opportunity to make a motion. I don't have a motion, but if somebody else here wants to make one, I just think that they need to be, for this to be correct, I think they needed to be afforded the opportunity to make that motion. And then if they didn't, then of course it would still be reviewed. But that was the part that I was struggling with. Again, I don't have a motion here, but if somebody else was, I think that they needed that opportunity.

 

Senator Ricky Hill Thank you for that. And that's the reason I said what I did back to you a while ago whenever you stopped me the first time.

 

Senator Jimmy Hickey Yes, sir. Thank you, Mr. Chair.

 

Senator Ricky Hill Representative Lundstrum.

 

Representative Robin Lundstrum I'm fine. I just wanted to make sure we're clear on what we're doing. Thank you.

 

Senator Ricky Hill So are we all good to go on? Everyone's good. So we're going to move on to Item E, Public Service Commission. Sorry. Senator Irvin.

 

Senator Missy Irvin Right. I mean, I just think for point of discussion back on item C, there was a lot of back and forth. I think we've met our statutory obligation to review. However, I think it's important that no motion to review or recommend was made. And I think that needs to be clearly stated in the chairman's report.

 

Senator Ricky Hill I agree with you. Okay. PS. Please introduce yourself for the record. Thank you all for staying with us all day.

 

Danni Hoefer Thank you for having us. Danni Hoefer, Chief of Staff.

 

Doyle Webb Doyle Webb, chairman of the Public Service Commission. And I have an opinion on the PBMs. No, I'm just kidding.

 

Senator Ricky Hill Please go ahead.

 

Danni Hoefer Good evening, chairs, committee. We're grateful to be here today with this opportunity to present the APSC's Pipeline investigative report to this committee. We took a multifaceted approach to reviewing and ultimately preparing the report now in front of you all, including meetings with the APSC Pipeline Safety Office, review of that office's processes and procedures, review of inspection reports from our pipeline Safety Office, annual ratings of our pipeline Safety Office given by the U.S. Pipeline and Hazardous Materials Safety Administration, review of filings by Summit and other parties as part of their rate case, review of filings by Summit and other parties in the sale and acquisition case and other materials available to the APSC.

 Following that review, five findings were made. The APSC does not find deficiencies in its pipeline safety officers oversight of CenterPoint Arkansas and Summit and instead finds that the Pipeline Safety Office has gone above and beyond in its charge to regulate the safety of gas pipelines in Arkansas. Number two, the APSC has not found evidence, neither in its dockets nor in other readily available information that CenterPoint Arkansas was non-compliant in its maintenance of its pipeline infrastructure. Number three, the APSC has not found evidence, neither in its dockets nor in other readily available information that Summit has been and/or is non-compliant in its maintenance of its pipeline infrastructure. Number four, the APSC has not found evidence, neither in its dockets nor in other readily available information, that Summit overinvested in its pipeline infrastructure. 

And number five, the APSC has determined that whether or not Summit overpaid for the assets purchased from CenterPoint Arkansas that Summit shall not be able to recover any goodwill in excess of book value from Arkansas ratepayers. And we stand open to any kind of questions that you guys might have for us.

 

Senator Ricky Hill Representative Eubanks.

 

Representative Jon Eubanks Thank you, Mr. Chair. I'm trying to remember back to the the last meeting that precipitated some of this study. But I'm trying to remember, I thought that Summit had stated that they found that the condition of the infrastructure was such that they had to make such a large investment in that. So I guess if they made that statement, I'm a little confused with the answers to these questions here. Because I believe also in that meeting it was stated that the Public Service Commission has a responsibility for the pipeline safety so that the inspections should have shown whether or not the infrastructure was deficient in any way. So there again, I guess I'm a little confused that your study has shown this. But they made the statement, if I recall correctly. And now we're trying to collect some of that on the backs of the rate payers, which is what it appeared to me.

 

Danni Hoefer So I don't recall that Summit was actually in attendance or testified at that meeting. I do recall that there were a number of members who referenced conversations they had.

 

Representative Jon Eubanks I think you might be correct there because I was in a meeting with the Summit CEO the day prior to. So I stand corrected on that.

 

Danni Hoefer No, I wanted to make sure that I was tracking correctly. What I can offer to you in terms of our investigation into this, Summit did not state anywhere in testimony for their rate case that there was anything beyond normal wear and tear, the normal business expectations of needing to update pipeline and other infrastructure that was out of the ordinary. And our pipeline safety office provided a lot of extensive inspection records. I did not include those in the report because, truthfully, I did not want this report to be burdensome. But I am certainly willing to provide anything you'd like to see. But going back the last five years of CenterPoint ownership and all of Summitt's ownership up to this point, there's been a lot of inspections done. I can actually pull a number for you in terms of that. And our pipeline safety office did not find that there was--

 

Representative Jon Eubanks I don't need to hear that. But follow up, Mr. Chair. If I remember correctly, they said they were going to invest $500 million. Is that the right number that Summit stated that they needed to invest in Arkansas infrastructure? And I guess my question is, whatever that amount was, it seems exorbitant. And if that wasn't absolutely needed for pipeline safety or make the infrastructure safe, I don't know how you justify the rate increase.

 

Danni Hoefer I'm flipping through our report right now to find specific numbers. I believe that the number was actually in the 300 millions. But I can tell you in terms of our review, we didn't find anything outside of the course of normal business operations, things that would be prudently replaced or repaired. But we also didn't find anything that was exceptionally non-compliant, unsafe, something that should have been caught and replaced previously. But we also didn't find records or inspections or suggestions that there was imprudent overspending. In fact, I do have-- let's see if I can pull a number here--

 

Representative Jon Eubanks I do have another question, though. The rate increase just applies to the transmission portion of the bills that the constituents will receive. Is that correct? Because there's different items broken out on on the bill, the cost of the gas and etc., etc., etc. So the rate increases for the transmission portion--

 

Danni Hoefer I didn't mean to cut you off. I thought you were done.

 

Representative Jon Eubanks Of the bill.

 

Danni Hoefer So it applies to the base rates is what it applies to.

 

Doyle Webb Explain that.

 

Danni Hoefer So your base rates are going to be-- sorry. I'm trying to think of an explanation for your base rates or something that's not flowed through a rider,.

 

Representative Jon Eubanks But it doesn't include the cost of the gas.

 

Danni Hoefer It does not include the cost of the gas. You're absolutely correct.

 

Representative Jon Eubanks So the rate increase isn't on everything that's listed on the statement.

 

Danni Hoefer That is correct.

 

Representative Jon Eubanks And like I stated in the last meeting, this is going to put a pretty good hardship on a lot of, particularly poultry growers in the state of Arkansas, anybody that's hooked up to natural gas. So I thought it was a little excessive for the size of the increase.

 

Doyle Webb Mr. Representative, I'd like to say that, and you know this, just because someone says they're going to spend a certain amount of money doesn't mean that they spend that. And it's our responsibility to check to see what they spend and if it was reasonable and prudent in the delivery of gas in the state of Arkansas.

 

Representative Jon Eubanks But you approved a rate increase of, what, 24%?

 

Doyle Webb 24%. But I know you realize this. We have four parties contesting the rate increase. All of those four parties entered into a settlement, which if we don't have an advocate for a different amount, as a judicial body, we can't find something when we don't have the evidence. So the main thing that we could do is to reduce the impact of that increase until the full impact until the spring months. So the full impact would not happen in these winter months.

 

Senator Ricky Hill Anything else from you, Representative? Seeing no one else in the queue, thank you.

 

Danni Hoefer Thank you.

 

Doyle Webb Thank you.

 

Senator Ricky Hill We are adjourned.