S.F. 2071 DIVISION I 1 PHARMACY BENEFITS MANAGERS 2 Section 1. Section 510.21, Code 2009, is amended to read as 3 follows: 4 510.21 Certificate of registration required. 5 1. A person shall not act as or represent oneself to be 6 a third-party administrator in this state, other than an 7 adjuster licensed in this state for the kinds of business for 8 which the person is acting as a third-party administrator, 9 unless the person holds a current certificate of registration 10 as a third-party administrator issued by the commissioner of 11 insurance. A certificate of registration as a third-party 12 administrator is renewable every three years. Failure to hold 13 a certificate subjects the third-party administrator to the 14 sanctions set out in section 507B.7. The certificate shall 15 be issued by the commissioner to a third-party administrator 16 unless the commissioner, after due notice and hearing, 17 determines that the third-party administrator is not competent, 18 trustworthy, financially responsible, or of good personal and 19 business reputation, or has had a previous application for an 20 insurance license denied for cause within the preceding five 21 years. 22 2. An application for registration shall be accompanied by 23 a filing fee of one hundred dollars. After notice and hearing, 24 the commissioner may impose any or all of the sanctions set out 25 in section 507B.7, upon finding that either the third-party 26 administrator violated any of the requirements of sections 27 510.12 through 510.20 and this section, or the third-party 28 administrator is not competent, trustworthy, financially 29 responsible, or of good personal and business reputation. 30 In addition, if the third-party administrator is a pharmacy 31 benefits manager as defined in section 510B.2, the commissioner 32 may impose any or all of the sanctions set out in section 33 507B.7 upon finding that the pharmacy benefits manager has 34 violated any provision of chapter 510B. 35 -1- LSB 5726XS (5) 83 pf/nh 1/ 8

S.F. 2071 Sec. 2. Section 510B.1, subsection 7, Code 2009, is amended 1 by striking the subsection and inserting in lieu thereof the 2 following: 3 7. “Pharmacy benefits management” means the procurement 4 of prescription drugs at a negotiated rate for dispensing 5 within the state to covered individuals, the administration or 6 management of prescription drug benefits provided by a covered 7 entity for the benefit of covered individuals, or any of the 8 following services provided with regard to the administration 9 of pharmacy benefits: 10 a. Mail service pharmacy. 11 b. Claims processing or retail network management and 12 payment of claims to pharmacies for prescription drugs 13 dispensed to covered individuals. 14 c. Clinical formulary development and management services. 15 d. Rebate contracting and administration. 16 e. Certain patient compliance, therapeutic intervention, and 17 generic substitution programs. 18 f. Disease management programs. 19 Sec. 3. Section 510B.3, Code 2009, is amended to read as 20 follows: 21 510B.3 Enforcement —— rules —— penalties . 22 1. The commissioner shall enforce the provisions of this 23 chapter. 24 2. The commissioner shall adopt rules pursuant to chapter 25 17A to administer this chapter including rules relating to all 26 of the following: 27 a. Timely payment of pharmacy claims. 28 b. A process for adjudication of complaints and settlement 29 of disputes between a pharmacy benefits manager and a licensed 30 pharmacy related to pharmacy auditing practices, termination of 31 pharmacy agreements, and timely payment of pharmacy claims. 32 3. A violation of this chapter is subject to the sanctions 33 and penalties as specified in section 510.21. 34 Sec. 4. Section 510B.4, Code 2009, is amended to read as 1 -2- LSB 5726XS (5) 83 pf/nh 2/ 8

S.F. 2071 follows: 2 510B.4 Performance of duties —— good faith —— conflict of 3 interest —— required practices . 4 1. A pharmacy benefits manager shall perform the pharmacy 5 benefits manager’s duties exercising good faith and fair 6 dealing in the performance of its contractual obligations 7 toward the covered entity. 8 2. A pharmacy benefits manager shall notify the covered 9 entity in writing of any activity, policy, practice ownership 10 interest, or affiliation of the pharmacy benefits manager 11 that directly or indirectly presents any conflict of interest 12 pursuant to the requirements of this chapter . 13 3. A pharmacy benefits manager owes a fiduciary duty to a 14 covered entity and shall discharge that duty in accordance with 15 the provisions of state and federal law. 16 4. A pharmacy benefits manager shall perform its duties with 17 care, skill, prudence, and diligence and in accordance with the 18 standards of conduct applicable to a fiduciary in an enterprise 19 of a like character and with like aims. 20 5. a. A pharmacy benefits manager shall provide to a 21 covered entity all financial and utilization information 22 requested by the covered entity relating to the provision of 23 benefits to covered individuals through that covered entity and 24 all financial and utilization information relating to services 25 to that covered entity. 26 b. A pharmacy benefits manager shall disclose to the covered 27 entity all financial terms and arrangements for remuneration 28 of any kind that apply between the pharmacy benefits manager 29 and any prescription drug manufacturer or labeler, including 30 but not limited to formulary management and drug switching 31 programs, educational support, claims processing and pharmacy 32 network fees that are charged from retail pharmacies and data 33 sales fees. 34 c. A pharmacy benefits manager disclosing information under 35 this subsection may designate that material as confidential. 1 -3- LSB 5726XS (5) 83 pf/nh 3/ 8

S.F. 2071 Information designated as confidential by a pharmacy benefits 2 manager and disclosed to a covered entity under this subsection 3 shall not be disclosed by the covered entity to any person 4 without the consent of the pharmacy benefits manager, except 5 that disclosure may be made in a court filing under state law 6 governing deceptive trade practices or when authorized by state 7 law or ordered by a court for good cause shown or made in a 8 court filing under seal unless or until otherwise ordered by a 9 court. 10 d. Nothing in this subsection limits the authority of the 11 attorney general to investigate violations of this chapter. 12 Sec. 5. Section 510B.6, Code 2009, is amended to read as 13 follows: 14 510B.6 Dispensing of substitute prescription drug for 15 prescribed drug —— passing on payments or benefits . 16 1. The following provisions shall apply when a pharmacy 17 benefits manager requests the dispensing of a substitute 18 prescription drug for a prescribed drug to a covered 19 individual: 20 a. The pharmacy benefits manager may request the 21 substitution of a lower priced generic and therapeutically 22 equivalent drug for a higher priced prescribed drug. 23 b. If the substitute drug’s net cost to the covered 24 individual or covered entity exceeds the cost of the prescribed 25 drug, the substitution shall be made only for medical reasons 26 that benefit the covered individual. 27 2. A pharmacy benefits manager shall obtain the approval 28 of the prescribing practitioner prior to requesting any 29 substitution under this section. 30 3. A pharmacy benefits manager shall not substitute an 31 equivalent prescription drug contrary to a prescription drug 32 order that prohibits a substitution. 33 4. If a pharmacy benefits manager makes a substitution in 34 which the substitute drug’s net cost to the covered individual 35 or covered entity exceeds the cost of the prescribed drug, the 1 -4- LSB 5726XS (5) 83 pf/nh 4/ 8

S.F. 2071 pharmacy benefits manager shall disclose to the covered entity 2 the cost of both drugs and any benefit or payment directly 3 or indirectly accruing to the pharmacy benefits manager as a 4 result of the substitution. 5 5. The pharmacy benefits manager shall transfer in full 6 to the covered entity any benefit or payment received in any 7 form by the pharmacy benefits manager either as a result of 8 a prescription drug substitution under subsection 4 or as a 9 result of the pharmacy benefits manager substituting a lower 10 priced generic and therapeutically equivalent drug for a higher 11 priced prescribed drug. 12 6. A pharmacy benefits manager that derives any payment or 13 benefit for the dispensing of a prescription drug within the 14 state based on volume of sales for certain prescription drugs 15 or classes or brands of drugs within the state shall pass that 16 payment or benefit on in full to the covered entity. 17 Sec. 6. NEW SECTION . 510B.8 Market conduct review and 18 audit. 19 The commissioner may review compliance with this chapter by 20 pharmacy benefits managers through market conduct reviews and 21 audits, and may assess an annual fee proportional to the cost 22 to the division of insurance associated with conducting the 23 market conduct review and audit. A market conduct review and 24 audit shall be completed at least once every three years for 25 each pharmacy benefits manager certified in the state. 26 DIVISION II 27 SECTION 340B PRESCRIPTION DRUG PURCHASING 28 Sec. 7. LEGISLATIVE INTENT. It is the intent of the general 29 assembly to reduce prescription drug costs to the state by 30 ensuring maximum use of prescription drug pricing available 31 through section 340B of the federal Public Health Service Act. 32 Sec. 8. WORKGROUP AND REPORT. 33 1. The department of public health shall convene a 34 workgroup to study the feasibility of providing discounted 35 prescription drugs to the most vulnerable of Iowa’s citizens 1 -5- LSB 5726XS (5) 83 pf/nh 5/ 8

S.F. 2071 through the use of section 340B of the federal Public Health 2 Service Act, 42 U.S.C. § 256b (1999). The workgroup shall 3 include representatives of 340B hospitals, the corrections 4 system, the medical assistance program, low-income nonprofit 5 advocacy organizations, and a representative of federally 6 qualified health centers or a related federally qualified 7 health centers’ association. The workgroup, in collaboration 8 with the department of public health, shall work with other 9 state agencies, representatives of state employees, and 10 representatives of health care providers and facilities in the 11 state to provide all of the following information: 12 a. Covered entities. A description of all health care 13 providers and facilities in the state potentially eligible for 14 designation as “covered entities” under section 340B, including 15 but not limited to all hospitals eligible as disproportionate 16 share hospitals; recipients of grants from the United States 17 public health service; federally qualified health centers; 18 federally qualified look-alikes; state-operated AIDS drug 19 assistance programs; Ryan White CARE Act Title I, Title II, and 20 Title III programs; tuberculosis, black lung, family planning, 21 and sexually transmitted disease clinics; hemophilia treatment 22 centers; public housing primary care clinics; and clinics for 23 homeless people. 24 b. Potential applications and benefits. A listing of 25 potential applications of section 340B and the potential 26 benefits to public, private, and third-party payors for 27 prescription drugs, including but not limited to: 28 (1) Application to inmates and employees in juvenile 29 correctional facilities, county jails, and state correctional 30 institutions. 31 (2) Maximizing the use of section 340B within state-funded 32 managed care plans. 33 (3) Including section 340B providers in state bulk 34 purchasing initiatives. 35 (4) Utilizing sole source contracts with section 340B 1 -6- LSB 5726XS (5) 83 pf/nh 6/ 8

S.F. 2071 providers to furnish high-cost chronic care drugs. 2 c. Section 340B discounts. Discounts available through 3 section 340B contracts, including estimated cost savings to 4 the state as a result of retail markup avoidance, negotiated 5 subceiling prices, and coordination with the medical assistance 6 program in order to minimize costs to the program and to other 7 purchasers of prescription drugs. 8 d. Identification of resources. The resources available to 9 potential applicants for designation as covered entities for 10 the application process, establishing a section 340B program, 11 restructuring the health care system, or other methods of 12 lowering the cost of prescription drugs. The resources shall 13 include state and federal agencies and private philanthropic 14 grants to be used for the purposes of this section. 15 2. The workgroup shall report its findings to the governor 16 and the general assembly not later than December 15, 2010. 17 EXPLANATION 18 This bill relates to the cost of prescription drugs 19 including practices of pharmacy benefits managers and the 20 federal section 340B program. 21 Division I of the bill relates to pharmacy benefits 22 managers. Pharmacy benefits managers are considered 23 third-party administrators under current law, and the bill 24 provides that in addition to violations of law relating to 25 third-party administrators, if a pharmacy benefits manager 26 violates provisions of law relating to pharmacy benefits 27 managers, the sanctions and penalties applicable to third-party 28 administrators apply to such violations. The bill redefines 29 “pharmacy benefits management” to include specific services 30 including mail services pharmacy and specifies required 31 practices of pharmacy benefits managers including the fiduciary 32 duties, provision of financial and utilization information, and 33 disclosure of financial terms and arrangements for remuneration 34 between the pharmacy benefits manager and any prescription drug 35 manufacturer or labeler. The bill also requires a pharmacy 1 -7- LSB 5726XS (5) 83 pf/nh 7/ 8

S.F. 2071 benefits manager to disclose payments or benefits to a pharmacy 2 benefits manager for substitution of prescription drugs, and to 3 transfer any payment or benefit to the covered entity that is 4 realized through substitution or based on volume of sales. The 5 bill also authorizes the commissioner of insurance to perform a 6 market conduct review and audit at least every three years for 7 each pharmacy benefits manager. 8 Division II of the bill relates to prescription drug 9 purchasing through section 340B of the federal Public Health 10 Services Act (the section 340B program). The bill provides 11 that it is the intent of the general assembly to reduce 12 prescription drug costs to the state by ensuring maximum use of 13 prescription drug pricing available through the section 340B 14 program and directs the department of public health to convene 15 a workgroup to study the feasibility of providing discounted 16 prescription drugs to the most vulnerable of Iowa’s citizens 17 through the section 340B program. The bill specifies the 18 membership of the workgroup, and specifies the information the 19 workgroup is to provide regarding covered entities under the 20 section 340B program, potential applications and benefits, 21 section 340B discounts, and identification of resources. The 22 bill directs the workgroup to report its findings to the 23 governor and the general assembly no later than December 15, 24 2010. 25 -8- LSB 5726XS (5) 83 pf/nh 8/ 8