S.F. 554 Section 1. NEW SECTION . 8A.319 Pharmacy benefits manager 1 reverse auctions. 2 1. This section may be cited as “The Iowa Competitive 3 Pharmacy Benefits Managers Marketplace Act” . 4 2. As used in this section, unless the context otherwise 5 requires: 6 a. “Market check” means a technology-driven evaluation of an 7 incumbent pharmacy benefits manager’s prescription drug pricing 8 based on benchmark comparators derived from pharmacy benefits 9 manager reverse auction processes conducted in the United 10 States over the immediately preceding twelve months. 11 b. “Participant bidding agreement” means an online 12 agreement that details common definitions, prescription drug 13 classifications, rules, data access and use rights, and other 14 optimal contract terms that benefit the state and that all 15 bidders must accept as a prerequisite for participation in a 16 pharmacy benefits manager reverse auction. 17 c. “Pharmacy benefits manager” means the same as defined in 18 section 510B.1. 19 d. “Pharmacy benefits manager reverse auction” means an 20 automated, transparent, and competitive bidding process 21 conducted online that starts with an opening round of bids 22 and allows qualified pharmacy benefits manager bidders to 23 counteroffer a lower price for as many rounds of bidding 24 as determined by the department for a multiple health plan 25 prescription drug purchasing group. 26 e. “Price” means the projected cost of a pharmacy benefits 27 manager’s bid to provide prescription drug benefits to allow 28 direct comparison of the comparably calculated costs of 29 competing pharmacy benefits managers’ proposals over the 30 duration of the pharmacy benefits manager’s services contract. 31 f. “Real-time” means within no more than one hour. 32 g. “Self-funded private sector health plan” means any 33 self-funded private sector employer or multi-employer health 34 plan. 35 -1- LSB 1509SV (1) 90 ko/rn 1/ 10

S.F. 554 h. “Self-funded public sector health plan” means any group 1 benefit plan under chapter 509A. 2 3. Consistent with section 8A.311, and notwithstanding any 3 other law to the contrary, the department shall enter into a 4 contract for the services of a pharmacy benefits manager for 5 the administration of benefits of self-funded public sector 6 health plans in compliance with this section. 7 4. Prior to November 1, 2024, the department shall 8 procure, through solicitation of proposals from qualified 9 professional services vendors, all of the following based on 10 price, capabilities, and other factors deemed relevant by the 11 department: 12 a. A technology platform with the capabilities to conduct 13 a pharmacy benefits manager reverse auction. The department 14 shall ensure that the technology platform possesses, at a 15 minimum, the capacity to do all of the following: 16 (1) Conduct an automated, online, reverse auction of 17 pharmacy benefits manager services using a software application 18 and high-performance data infrastructure to intake, cleanse, 19 and normalize pharmacy benefits manager data with development 20 methods and information security standards that have been 21 validated by receiving service organization control 2 and 22 national institute of standards and technology certification, 23 or successor information technology security certifications, as 24 identified by the office of the chief information officer. 25 (2) Automate repricing of diverse and complex pharmacy 26 benefits managers’ prescription drug pricing proposals to allow 27 direct comparison by the state of the comparably calculated 28 costs of pharmacy benefits managers’ bids using one hundred 29 percent of annual prescription drug claims data available 30 for state-funded health plans, or a multiple health plan 31 prescription drug purchasing group, and using code-based 32 classification of drugs from nationally accepted drug sources. 33 (3) Simultaneously evaluate in real-time diverse and 34 complex multiple proposals from full-service pharmacy benefits 35 -2- LSB 1509SV (1) 90 ko/rn 2/ 10

S.F. 554 managers, including average wholesale price, guaranteed 1 net cost, and national average drug acquisition cost 2 pricing models, as well as proposals from pharmacy benefits 3 administrators and specialty drug and rebate carve-out service 4 providers. 5 (4) Produce an automated report and analysis of pharmacy 6 benefits managers’ bids, including ranking of pharmacy benefits 7 managers’ bids based on comparative costs and qualitative 8 aspects of the bids in real-time following the close of each 9 round of reverse auction bidding. 10 (5) Perform real-time, electronic, line-by-line, 11 claim-by-claim review of one hundred percent of invoiced 12 pharmacy benefits managers’ prescription drug claims, and 13 identify all deviations from the specific terms of the pharmacy 14 benefits manager’s services contract that resulted from the 15 reserve auction process. 16 b. Related services from the operator of the technology 17 platform identified in paragraph “a” , which at a minimum shall 18 include all of the following: 19 (1) Evaluation of the qualifications of pharmacy benefits 20 manager bidders. 21 (2) Pharmacy benefits manager reverse auction services to 22 support the department in comparing pricing for the pharmacy 23 benefits manager procurement. 24 (3) Related professional services. 25 5. The department shall not award a contract for the 26 technology platform and technology operator services to a 27 vendor that is a pharmacy benefits manager or to a vendor that 28 is managed by, or a subsidiary or affiliate of, a pharmacy 29 benefits manager. 30 6. The vendor awarded the contract by the department shall 31 not outsource any part of the pharmacy benefits manager reverse 32 auction or any part of the automated, real-time, electronic, 33 line-by-line, claim-by-claim review of invoiced pharmacy 34 benefits manager prescription drug claims. 35 -3- LSB 1509SV (1) 90 ko/rn 3/ 10

S.F. 554 7. With technical assistance and support provided by the 1 technology platform operator, the department shall specify the 2 terms of the participant bidding agreement. The terms of the 3 participant bidding agreement shall not be modified except by 4 specific consent of the department. 5 8. a. The technology platform used to conduct the reverse 6 auction shall be repurposed over the duration of the pharmacy 7 benefits manager’s services contract as an automated pharmacy 8 claims adjudication engine to perform real-time, electronic, 9 line-by-line, claim-by-claim review of one hundred percent of 10 invoiced pharmacy benefits manager’s prescription drug claims, 11 and to identify all deviations from the specific terms of the 12 pharmacy benefits manager’s services contract. 13 b. The department shall reconcile the electronically 14 adjudicated pharmacy claims, as described in paragraph “a” , 15 with pharmacy benefits manager’s invoices on a monthly or 16 quarterly basis to ensure that state payments shall not exceed 17 the terms specified in any pharmacy benefits manager’s services 18 contract. 19 c. If following state payment to the pharmacy benefits 20 manager on the basis of the reconciliation under paragraph 21 “b” the pharmacy benefits manager asserts that the department 22 paid less than the amount owed, the pharmacy benefits manager 23 may seek resolution through a mutually acceptable dispute 24 resolution process that the parties agreed to in the terms of 25 the services contract under subsection 9, paragraph “a” . 26 9. a. The first pharmacy benefits manager reverse auction 27 shall be completed and the services contract shall be awarded 28 to the winning pharmacy benefits manager with an effective date 29 beginning July 1, 2024. Subsequent contracts must be awarded 30 no later than three months prior to termination or expiration 31 of the current pharmacy benefits manager’s services contract 32 for a covered group, such as the state employees benefits 33 group, that includes only active employees and dependents, but 34 does not include retiree participants in a Medicare part D 35 -4- LSB 1509SV (1) 90 ko/rn 4/ 10

S.F. 554 employer group waiver program pursuant to the federal Medicare 1 Prescription Drug, Improvement, and Modernization Act of 2003, 2 Pub. L. No. 108-173. 3 b. In the event an eligible covered group that includes 4 retiree participants in a Medicare part D employer group 5 waiver program pursuant to the federal Medicare Prescription 6 Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 7 108-173, opts to use the processes and procedures under this 8 section, the relevant pharmacy benefits manager reverse auction 9 shall be completed and the pharmacy benefits manager services 10 contract shall be awarded to the winning pharmacy benefits 11 manager no later than six months prior to termination or 12 expiration of the pharmacy benefits manager’s services contract 13 currently covering the retiree employer group waiver program 14 participants. 15 10. The department may perform a market check for providing 16 pharmacy benefits manager services during the term of the 17 current pharmacy benefits manager’s services contract in order 18 to ensure continuing competitiveness of incumbent prescription 19 drug pricing during the term of a pharmacy benefits manager’s 20 services contract. 21 11. To ensure that the department does not incur additional 22 expenditures associated with the pharmacy benefits manager 23 reverse auction, ongoing electronic review and validation 24 of pharmacy benefits managers’ claims, and periodic market 25 checks, the department shall implement a no-pay option that 26 obligates the winning pharmacy benefits manager, rather than 27 the state, to pay the cost of the technology platform and 28 related technology platform operator services by assessing the 29 pharmacy benefits manager a per-prescription fee in an amount 30 agreed to by the department and the technology operator, and 31 requiring the pharmacy benefits manager to pay the fees to the 32 technology operator over the duration of the pharmacy benefits 33 manager’s services contract. The obligation of the winning 34 pharmacy benefits manager to pay the per-prescription fee shall 35 -5- LSB 1509SV (1) 90 ko/rn 5/ 10

S.F. 554 be incorporated as a term of the participant bidding agreement 1 and the pharmacy benefits manager’s services contract awarded 2 to the pharmacy benefits manager reverse auction winner. 3 12. a. This section shall apply to group benefit plans 4 under chapter 509A. This section shall not apply to nonprofit, 5 nongovernmental health maintenance organizations with respect 6 to managed care plans that provide a majority of covered health 7 care services through a single contracted medical group. 8 b. After completion of the first pharmacy benefits manager 9 reverse auction, self-funded private sector health plans with 10 substantial participation by Iowa employees and the employees’ 11 dependents shall have the option to participate in a joint 12 purchasing pool with state employees for subsequent pharmacy 13 benefits manager reverse auctions. 14 c. Any self-funded public sector health plans or self-funded 15 private sector health plans that opt to participate with 16 the state employees group benefits plan in a joint pharmacy 17 benefits manager reverse auction purchasing pool shall retain 18 full autonomy over determination of the individual health 19 plan’s respective prescription drug formularies and pharmacy 20 benefit designs, and shall not be required to adopt a common 21 prescription drug formulary or common prescription pharmacy 22 benefit design. Any such entity or purchasing group shall 23 agree, before participating in the pharmacy benefits manager 24 reverse auction, to accept the prescription drug pricing plan 25 that is selected through a pharmacy benefits manager reverse 26 auction process. 27 d. Any pharmacy benefits manager providing services to the 28 department, to a self-funded public sector health plan, or 29 to a self-funded private sector health plan as described in 30 this section shall provide the department, each participating 31 self-funded public sector health plan, and each participating 32 self-funded private sector health plan access to complete 33 pharmacy claims data necessary to conduct the pharmacy 34 benefits manager reverse auction and to carry out applicable 35 -6- LSB 1509SV (1) 90 ko/rn 6/ 10

S.F. 554 administrative and management duties. 1 13. Notwithstanding subsection 3, the department may elect 2 to vacate the outcome of a pharmacy benefits manager reverse 3 auction if the lowest-cost pharmacy benefits manager’s bid 4 is not less than the projected cost trend for the incumbent 5 pharmacy benefits manager’s services contract as verified by 6 the department. The department may utilize a consultant to 7 conduct the verification. The cost trend shall be projected 8 by the technology platform operator using industry-recognized 9 data sources and shall be subject to review and approval by 10 the department in advance of the pharmacy benefits manager 11 reverse auction. Methodology shall be applied consistently in 12 projection of cost and savings to the state with regard to the 13 incumbent pharmacy benefits manager’s services contract and 14 competing pharmacy benefits manager reverse auction bids. 15 EXPLANATION 16 The inclusion of this explanation does not constitute agreement with 17 the explanation’s substance by the members of the general assembly. 18 This bill relates to pharmacy benefits manager reverse 19 auctions and group insurance for public employees. 20 “Pharmacy benefits manager reverse auction” (reverse 21 auction) is defined in the bill as an automated, transparent, 22 and competitive bidding process conducted online that starts 23 with an opening round of bids and allows qualified pharmacy 24 benefits manager (PBM) bidders to counter-offer a lower price 25 for as many rounds of bidding as determined by the department 26 of administrative services (DAS) for a multiple health plan 27 prescription drug purchasing group. “Price” is defined as 28 the projected cost of a PBM’s bid to provide prescription 29 drug benefits to allow direct comparison of the comparably 30 calculated costs of competing PBMs’ proposals over the duration 31 of the PBM’s services contract. 32 Consistent with Code section 8A.311, and notwithstanding 33 any other law to the contrary, the department shall enter into 34 a contract for the services of a PBM for the administration 35 -7- LSB 1509SV (1) 90 ko/rn 7/ 10

S.F. 554 of benefits of self-funded public sector health plans. 1 “Self-funded public sector health plans” is defined as any 2 group benefit plan under Code chapter 509A. Prior to November 3 1, 2024, DAS shall procure, through solicitation of proposals 4 from qualified professional services vendors, a technology 5 platform with capabilities to conducting a PBM reverse auction, 6 and related services from the operator of the technology 7 platform. The requirements for the technology platform and for 8 the related services are detailed in the bill. 9 DAS is prohibited from awarding a contract for either 10 the technology platform or the technology operator services 11 to a vendor that is a PBM or a vendor that is managed 12 by, or a subsidiary or affiliate of, a PBM. The vendor 13 awarded the contract by DAS shall not outsource any part 14 of the PBM reverse auction or of the automated, real-time, 15 electronic, line-by-line, claim-by-claim review of invoiced 16 PBM prescription drug claims. With technical assistance and 17 support provided by the technology platform operator, DAS shall 18 specify the terms of the participant bidding agreement. 19 The technology platform used to conduct the reverse auction 20 shall be repurposed over the duration of the PBM’s services 21 contract as an automated pharmacy claims adjudication engine 22 to perform real-time, electronic, line-by-line, claim-by-claim 23 review of 100 percent of invoiced PBM drug claims, and to 24 identify all deviations from the specific terms of the PBM’s 25 services contract. 26 DAS is required to reconcile the electronically adjudicated 27 pharmacy claims with PBM invoices on a monthly or quarterly 28 basis to ensure that state payments shall not exceed the terms 29 specified in any PBM’s services contract. If, following state 30 payment to the PBM on the basis of the reconciliation, the 31 PBM asserts that DAS has paid less than the amount owed, the 32 PBM may seek resolution through a mutually acceptable dispute 33 resolution process as agreed to in the terms of the services 34 contract between the parties. 35 -8- LSB 1509SV (1) 90 ko/rn 8/ 10

S.F. 554 The first PBM reverse auction shall be completed and the 1 PBM services contract shall be awarded to the winning PBM 2 with an effective date beginning July 1, 2024. Subsequent 3 services contracts must be awarded no later than three months 4 prior to termination or expiration of the current PBM’s 5 services contract for a covered group, such as the state 6 employees benefits group, that includes only active employees 7 and dependents, but does not include retiree participants in 8 a Medicare part D employer group waiver program (Medicare 9 employer group) pursuant to the federal Medicare Prescription 10 Drug, Improvement, and Modernization Act of 2003 (Medicare 11 Act). If an eligible covered group that includes retiree 12 participants in a Medicare employer group pursuant to the 13 Medicare Act opts to use the processes and procedures under the 14 bill, the relevant PBM reverse auction shall be completed and 15 the PBM services contract shall be awarded to the winning PBM 16 no later than six months prior to termination or expiration 17 of the current PBM’s services contract covering the Medicare 18 employer group. 19 DAS may perform a market check for providing PBM services 20 during the term of the current PBM’s services contract. 21 “Market check” is defined in the bill. DAS shall implement a 22 no-pay option that obligates the winning PBM, rather than the 23 state, to pay the cost of the technology platform and related 24 technology platform operator services by assessing the PBM a 25 per-prescription fee as detailed in the bill. 26 The bill shall apply to group benefit plans under Code 27 chapter 509A. The bill shall not apply to nonprofit, 28 nongovernmental health maintenance organizations with respect 29 to managed care plans that provide a majority of covered health 30 care services through a single contracted medical group. 31 After the first PBM reverse auction, self-funded private 32 sector health plans with substantial participation by Iowa 33 employees and their dependents shall have the option to 34 participate in a joint purchasing pool with state employees for 35 -9- LSB 1509SV (1) 90 ko/rn 9/ 10

S.F. 554 subsequent PBM reverse auctions. Any self-funded public sector 1 health plans or self-funded private sector health plans that 2 opt to participate with the state employees group benefits plan 3 in a joint PBM reverse auction purchasing pool shall retain 4 full autonomy as detailed in the bill. 5 DAS may elect to vacate the outcome of a PBM reverse auction 6 if the lowest-cost PBM bid is not less than the projected cost 7 trend for the incumbent PBM contract as verified by DAS or by 8 a consultant retained by DAS. 9 -10- LSB 1509SV (1) 90 ko/rn 10/ 10