H.F. 2401 DIVISION I 1 PHARMACY BENEFITS MANAGERS 2 Section 1. Section 510B.1, Code 2024, is amended by adding 3 the following new subsections: 4 NEW SUBSECTION . 11A. “Pass-through pricing” means a 5 model of prescription drug pricing in which payments made 6 by a third-party payor to a pharmacy benefits manager for 7 prescription drugs are equivalent to the payments the pharmacy 8 benefits manager makes to the dispensing pharmacy or dispensing 9 health care provider for the prescription drugs, including any 10 professional dispensing fee. 11 NEW SUBSECTION . 21A. “Spread pricing” means a model of 12 prescription drug pricing in which a pharmacy benefits manager 13 charges a third-party payor more for prescription drugs 14 dispensed to a covered person than the amount the pharmacy 15 benefits manager reimburses the pharmacy for dispensing the 16 prescription drugs to a covered person. 17 Sec. 2. Section 510B.4, Code 2024, is amended by adding the 18 following new subsection: 19 NEW SUBSECTION . 4. A pharmacy benefits manager, health 20 carrier, health benefit plan, or third-party payor shall not 21 discriminate against a pharmacy or a pharmacist with respect to 22 participation, referral, reimbursement of a covered service, 23 or indemnification if a pharmacist is acting within the scope 24 of the pharmacist’s license and the pharmacy is operating in 25 compliance with all applicable laws and rules. 26 Sec. 3. NEW SECTION . 510B.8D Pharmacy benefits manager 27 contracts —— spread pricing. 28 1. All contracts executed, amended, adjusted, or renewed 29 on or after July 1, 2024, that apply to prescription drug 30 benefits on or after January 1, 2025, between a pharmacy 31 benefits manager and a third-party payor, or between a person 32 and a third-party payor, shall include all of the following 33 requirements: 34 a. The pharmacy benefits manager shall use pass-through 35 -1- HF 2401 (2) 90 nls/ko/md 1/ 12

H.F. 2401 pricing unless paragraph “b” applies. 1 b. The pharmacy benefits manager may use direct or indirect 2 spread pricing only if the difference between the amount the 3 third-party payor pays the pharmacy benefits manager for a 4 prescription drug and the amount the pharmacy benefits manager 5 reimburses the dispensing pharmacy or dispensing health care 6 provider for the prescription drug is passed through by the 7 pharmacy benefits manager to the person contracted to receive 8 third-party payor services. 9 c. Payments received by a pharmacy benefits manager for 10 services provided by the pharmacy benefits manager to a 11 third-party payor or to a pharmacy shall be used or distributed 12 pursuant to the pharmacy benefits manager’s contract with 13 the third-party payor or with the pharmacy, or as otherwise 14 required by law. 15 2. Unless otherwise prohibited by law, subsection 1 shall 16 supersede any contractual terms to the contrary in any contract 17 executed, amended, adjusted, or renewed on or after July 1, 18 2024, that applies to prescription drug benefits on or after 19 January 1, 2025, between a pharmacy benefits manager and a 20 third-party payor, or between a person and a third-party payor. 21 Sec. 4. NEW SECTION . 510B.8E Appeals and disputes. 22 1. A pharmacy benefits manager shall provide a reasonable 23 process to allow a pharmacy to appeal a maximum allowable cost 24 or reimbursement rate for a specific prescription drug for any 25 of the following reasons: 26 a. The pharmacy benefits manager violated section 510B.8A. 27 b. The maximum allowable cost or the reimbursement rate is 28 below the pharmacy acquisition cost. 29 2. The appeals process must include all of the following: 30 a. A dedicated telephone number at which a pharmacy may 31 contact the pharmacy benefits manager and speak directly with 32 an individual who is involved with the appeals process. 33 b. A dedicated electronic mail address or internet site for 34 the purpose of submitting an appeal directly to the pharmacy 35 -2- HF 2401 (2) 90 nls/ko/md 2/ 12

H.F. 2401 benefits manager. 1 c. A period of no less than thirty business days after the 2 date of a pharmacy’s initial submission of a clean claim during 3 which the pharmacy may initiate an appeal. 4 3. The pharmacy benefits manger shall respond to an appeal 5 within seven business days after the date on which the pharmacy 6 benefits manager receives the appeal. 7 a. If a pharmacy’s appeal is found to be substantiated, the 8 pharmacy benefits manager shall do all of the following: 9 (1) Adjust the maximum allowable cost or the reimbursement 10 rate of the prescription drug that is the subject of the appeal 11 and provide the national drug code number that the adjustment 12 is based on to the appealing pharmacy. 13 (2) Permit the appealing pharmacy to reverse and resubmit 14 the claim that is the subject of the appeal. 15 (3) Make the adjustment pursuant to subparagraph (1) 16 applicable to all of the following: 17 (a) Each pharmacy that is under common ownership with the 18 pharmacy that submitted the appeal. 19 (b) Each pharmacy in the state that demonstrates the 20 inability to purchase the prescription drug for less than the 21 established maximum allowable cost or reimbursement rate. 22 b. If a pharmacy’s appeal is found to be unsubstantiated, 23 the pharmacy benefits manager shall do all of the following: 24 (1) Provide the appealing pharmacy the national drug 25 code number and the name of a wholesale distributor licensed 26 pursuant to section 155A.17 from which the pharmacy can obtain 27 the prescription drug at or below the maximum allowable cost 28 or reimbursement rate. 29 (2) If the prescription drug identified by the national drug 30 code number provided by the pharmacy benefits manager pursuant 31 to subparagraph (1) is not available below the pharmacy 32 acquisition cost from the wholesale distributor from whom the 33 pharmacy purchases the majority of its prescription drugs for 34 resale, the pharmacy benefits manager shall adjust the maximum 35 -3- HF 2401 (2) 90 nls/ko/md 3/ 12

H.F. 2401 allowable cost or the reimbursement rate above the appealing 1 pharmacy’s pharmacy acquisition cost, and permit the pharmacy 2 to reverse and resubmit each claim affected by the pharmacy’s 3 inability to procure the prescription drug at a cost that is 4 equal to or less than the previously appealed maximum allowable 5 cost or the reimbursement rate. The adjustment to the maximum 6 allowable cost or the reimbursement rate shall be applicable 7 to all of the following: 8 (a) Each pharmacy that is under common ownership with the 9 pharmacy that submitted the appeal. 10 (b) Each pharmacy in the state that demonstrates the 11 inability to purchase the prescription drug for less than the 12 established maximum allowable cost or reimbursement rate. 13 Sec. 5. APPLICABILITY. This division of this Act applies 14 to pharmacy benefits managers that manage a prescription drug 15 benefit in the state on or after July 1, 2024. 16 DIVISION II 17 PHARMACY SERVICES ADMINISTRATIVE ORGANIZATIONS AND WHOLESALE 18 DISTRIBUTION —— REPORT 19 Sec. 6. PHARMACY SERVICES ADMINISTRATIVE ORGANIZATIONS AND 20 WHOLESALE DISTRIBUTION OF PRESCRIPTION DRUGS —— REPORT. Before 21 January 1, 2025, the commissioner or the commissioner’s 22 designee shall review pharmacy services administrative 23 organizations and the wholesale distribution of prescription 24 drugs, and submit a report to the general assembly containing 25 findings and recommendations based on the review. The report 26 shall contain, at a minimum, all of the following: 27 1. A description and analysis of the prescription drug 28 wholesale distribution supply chain, including an analysis of 29 the concentration of the market for the wholesale distribution 30 of prescription drugs, margins in the wholesale distribution of 31 prescription drugs, and the availability of competition in the 32 wholesale distribution of prescription drugs. 33 2. A description of the role that pharmacy services 34 administrative organizations serve in the prescription drug 35 -4- HF 2401 (2) 90 nls/ko/md 4/ 12

H.F. 2401 supply chain. 1 3. A description and analysis of the relationships between 2 pharmacy services administrative organizations, prescription 3 drug wholesalers, and retail pharmacies, including standard 4 contracting terms, fees charged to pharmacies, and contractual 5 restrictions and limitations applicable to retail pharmacies. 6 DIVISION III 7 PHARMACY BENEFITS MANAGER REVERSE AUCTIONS 8 Sec. 7. NEW SECTION . 8A.319 Pharmacy benefits manager 9 reverse auctions. 10 1. This section may be cited as “The Iowa Competitive 11 Pharmacy Benefits Managers Marketplace Act” . 12 2. As used in this section, unless the context otherwise 13 requires: 14 a. “Market check” means a technology-driven evaluation of an 15 incumbent pharmacy benefits manager’s prescription drug pricing 16 based on benchmark comparators derived from pharmacy benefits 17 manager reverse auction processes conducted in the United 18 States over the immediately preceding twelve months. 19 b. “Participant bidding agreement” means an online 20 agreement that details common definitions, prescription drug 21 classifications, rules, data access and use rights, and other 22 optimal contract terms that benefit the state and that all 23 bidders must accept as a prerequisite for participation in a 24 pharmacy benefits manager reverse auction. 25 c. “Pharmacy benefits manager” means the same as defined in 26 section 510B.1. 27 d. “Pharmacy benefits manager reverse auction” means an 28 automated, transparent, and competitive bidding process 29 conducted online that starts with an opening round of bids 30 and allows qualified pharmacy benefits manager bidders to 31 counteroffer a lower price for as many rounds of bidding 32 as determined by the department for a multiple health plan 33 prescription drug purchasing group. 34 e. “Price” means the projected cost of a pharmacy benefits 35 -5- HF 2401 (2) 90 nls/ko/md 5/ 12

H.F. 2401 manager’s bid to provide prescription drug benefits to allow 1 direct comparison of the comparably calculated costs of 2 competing pharmacy benefits managers’ proposals over the 3 duration of the pharmacy benefits manager’s services contract. 4 f. “Real-time” means within no more than one hour. 5 g. “Self-funded private sector health plan” means any 6 self-funded private sector employer or multi-employer health 7 plan. 8 h. “Self-funded public sector health plan” means any group 9 benefit plan under chapter 509A. 10 3. Consistent with section 8A.311, and notwithstanding any 11 other law to the contrary, the department shall enter into a 12 contract for the services of a pharmacy benefits manager for 13 the administration of benefits of self-funded public sector 14 health plans in compliance with this section. 15 4. Prior to November 1, 2024, the department shall 16 procure, through solicitation of proposals from qualified 17 professional services vendors, all of the following based on 18 price, capabilities, and other factors deemed relevant by the 19 department: 20 a. A technology platform with the capabilities to conduct 21 a pharmacy benefits manager reverse auction. The department 22 shall ensure that the technology platform possesses, at a 23 minimum, the capacity to do all of the following: 24 (1) Conduct an automated, online, reverse auction of 25 pharmacy benefits manager services using a software application 26 and high-performance data infrastructure to intake, cleanse, 27 and normalize pharmacy benefits manager data with development 28 methods and information security standards that have been 29 validated by receiving service organization control 2 and 30 national institute of standards and technology certification, 31 or successor information technology security certifications, as 32 identified by the office of the chief information officer. 33 (2) Automate repricing of diverse and complex pharmacy 34 benefits managers’ prescription drug pricing proposals to allow 35 -6- HF 2401 (2) 90 nls/ko/md 6/ 12

H.F. 2401 direct comparison by the state of the comparably calculated 1 costs of pharmacy benefits managers’ bids using one hundred 2 percent of annual prescription drug claims data available 3 for state-funded health plans, or a multiple health plan 4 prescription drug purchasing group, and using code-based 5 classification of drugs from nationally accepted drug sources. 6 (3) Simultaneously evaluate in real-time diverse and 7 complex multiple proposals from full-service pharmacy benefits 8 managers, including average wholesale price, guaranteed 9 net cost, and national average drug acquisition cost 10 pricing models, as well as proposals from pharmacy benefits 11 administrators and specialty drug and rebate carve-out service 12 providers. 13 (4) Produce an automated report and analysis of pharmacy 14 benefits managers’ bids, including ranking of pharmacy benefits 15 managers’ bids based on comparative costs and qualitative 16 aspects of the bids in real-time following the close of each 17 round of reverse auction bidding. 18 (5) Perform real-time, electronic, line-by-line, 19 claim-by-claim review of one hundred percent of invoiced 20 pharmacy benefits managers’ prescription drug claims, and 21 identify all deviations from the specific terms of the pharmacy 22 benefits manager’s services contract that resulted from the 23 reserve auction process. 24 b. Related services from the operator of the technology 25 platform identified in paragraph “a” , which at a minimum shall 26 include all of the following: 27 (1) Evaluation of the qualifications of pharmacy benefits 28 manager bidders. 29 (2) Pharmacy benefits manager reverse auction services to 30 support the department in comparing pricing for the pharmacy 31 benefits manager procurement. 32 (3) Related professional services. 33 5. The department shall not award a contract for the 34 technology platform and technology operator services to a 35 -7- HF 2401 (2) 90 nls/ko/md 7/ 12

H.F. 2401 vendor that is a pharmacy benefits manager or to a vendor that 1 is managed by, or a subsidiary or affiliate of, a pharmacy 2 benefits manager. 3 6. The vendor awarded the contract by the department shall 4 not outsource any part of the pharmacy benefits manager reverse 5 auction or any part of the automated, real-time, electronic, 6 line-by-line, claim-by-claim review of invoiced pharmacy 7 benefits manager prescription drug claims. 8 7. With technical assistance and support provided by the 9 technology platform operator, the department shall specify the 10 terms of the participant bidding agreement. The terms of the 11 participant bidding agreement shall not be modified except by 12 specific consent of the department. 13 8. a. The technology platform used to conduct the reverse 14 auction shall be repurposed over the duration of the pharmacy 15 benefits manager’s services contract as an automated pharmacy 16 claims adjudication engine to perform real-time, electronic, 17 line-by-line, claim-by-claim review of one hundred percent of 18 invoiced pharmacy benefits manager’s prescription drug claims, 19 and to identify all deviations from the specific terms of the 20 pharmacy benefits manager’s services contract. 21 b. The department shall reconcile the electronically 22 adjudicated pharmacy claims, as described in paragraph “a” , 23 with pharmacy benefits manager’s invoices on a monthly or 24 quarterly basis to ensure that state payments shall not exceed 25 the terms specified in any pharmacy benefits manager’s services 26 contract. 27 c. If following state payment to the pharmacy benefits 28 manager on the basis of the reconciliation under paragraph 29 “b” the pharmacy benefits manager asserts that the department 30 paid less than the amount owed, the pharmacy benefits manager 31 may seek resolution through a mutually acceptable dispute 32 resolution process that the parties agreed to in the terms of 33 the services contract under subsection 9, paragraph “a” . 34 9. a. The first pharmacy benefits manager reverse auction 35 -8- HF 2401 (2) 90 nls/ko/md 8/ 12

H.F. 2401 shall be completed and the services contract shall be awarded 1 to the winning pharmacy benefits manager with an effective date 2 beginning July 1, 2025. Subsequent contracts must be awarded 3 no later than three months prior to termination or expiration 4 of the current pharmacy benefits manager’s services contract 5 for a covered group, such as the state employees benefits 6 group, that includes only active employees and dependents, but 7 does not include retiree participants in a Medicare part D 8 employer group waiver program pursuant to the federal Medicare 9 Prescription Drug, Improvement, and Modernization Act of 2003, 10 Pub. L. No. 108-173. 11 b. In the event an eligible covered group that includes 12 retiree participants in a Medicare part D employer group 13 waiver program pursuant to the federal Medicare Prescription 14 Drug, Improvement, and Modernization Act of 2003, Pub. L. No. 15 108-173, opts to use the processes and procedures under this 16 section, the relevant pharmacy benefits manager reverse auction 17 shall be completed and the pharmacy benefits manager services 18 contract shall be awarded to the winning pharmacy benefits 19 manager no later than six months prior to termination or 20 expiration of the pharmacy benefits manager’s services contract 21 currently covering the retiree employer group waiver program 22 participants. 23 10. The department may perform a market check for providing 24 pharmacy benefits manager services during the term of the 25 current pharmacy benefits manager’s services contract in order 26 to ensure continuing competitiveness of incumbent prescription 27 drug pricing during the term of a pharmacy benefits manager’s 28 services contract. 29 11. To ensure that the department does not incur additional 30 expenditures associated with the pharmacy benefits manager 31 reverse auction, ongoing electronic review and validation 32 of pharmacy benefits managers’ claims, and periodic market 33 checks, the department shall implement a no-pay option that 34 obligates the winning pharmacy benefits manager, rather than 35 -9- HF 2401 (2) 90 nls/ko/md 9/ 12

H.F. 2401 the state, to pay the cost of the technology platform and 1 related technology platform operator services by assessing the 2 pharmacy benefits manager a per-prescription fee in an amount 3 agreed to by the department and the technology operator, and 4 requiring the pharmacy benefits manager to pay the fees to the 5 technology operator over the duration of the pharmacy benefits 6 manager’s services contract. The obligation of the winning 7 pharmacy benefits manager to pay the per-prescription fee shall 8 be incorporated as a term of the participant bidding agreement 9 and the pharmacy benefits manager’s services contract awarded 10 to the pharmacy benefits manager reverse auction winner. 11 12. All of the following shall be incorporated as terms of 12 the participant bidding agreement and the pharmacy benefits 13 manager’s services contract awarded to the pharmacy benefits 14 manager reverse auction winner: 15 a. The department shall require an average acquisition 16 cost reimbursement methodology for pharmacy ingredient cost 17 reimbursement of all prescription drugs covered by a pharmacy 18 benefits manager. 19 b. A reasonable professional service fee shall be provided 20 to a pharmacist for the pharmacist’s time and service included 21 in dispensing prescription drugs covered by a pharmacy benefits 22 manager. 23 c. A covered person shall not be prohibited from filling a 24 prescription drug order at any pharmacy in the state provided 25 that the pharmacy accepts the same terms and conditions as the 26 pharmacies participating in the covered person’s health benefit 27 plan’s network. 28 d. With the exception of incentives in value-based programs 29 established by a health carrier or a pharmacy benefits manager 30 to promote the use of higher quality pharmacies, a pharmacy 31 benefits manager shall not impose different cost-sharing or 32 additional fees on a covered person based on the pharmacy at 33 which the covered person fills a prescription drug order. 34 e. A pharmacy benefits manager shall not require a covered 35 -10- HF 2401 (2) 90 nls/ko/md 10/ 12

H.F. 2401 person, as a condition of payment or reimbursement, to purchase 1 pharmacy services, including prescription drugs, exclusively 2 through a mail-order pharmacy. 3 13. 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. (1) Three years after the first service contract is 9 awarded to a pharmacy benefits manager pursuant to subsection 10 9, paragraph “a” , any self-funded private sector health plan 11 with substantial participation by Iowa employees and the 12 employees’ dependents shall have the option to conduct a 13 pharmacy benefits manager reverse auction for the specific 14 self-funded private sector health plan utilizing the technology 15 platform and technology operator services selected by the 16 department under this section. The department may charge the 17 self-funded private sector health plan a fee, as established 18 by the department by rule, sufficient to cover any incremental 19 cost associated with the pharmacy benefits manager reverse 20 auction. 21 (2) A pharmacy benefits manager selected by a self-funded 22 private sector health plan as a result of a pharmacy benefits 23 manager reverse auction conducted pursuant to subparagraph 24 (1) shall be assessed a per-prescription fee, pursuant to 25 subsection 11, in an amount determined by the department by 26 rule. 27 c. Any self-funded public sector health plans or self-funded 28 private sector health plans that opt to conduct a pharmacy 29 benefits manager reverse auction shall retain full autonomy 30 over determination of the individual health plan’s respective 31 prescription drug formularies and pharmacy benefit designs, 32 and shall not be required to adopt a common prescription drug 33 formulary or common prescription pharmacy benefit design. 34 d. Any pharmacy benefits manager providing services to the 35 -11- HF 2401 (2) 90 nls/ko/md 11/ 12

H.F. 2401 department, to a self-funded public sector health plan, or 1 to a self-funded private sector health plan as described in 2 this section shall provide the department, each participating 3 self-funded public sector health plan, and each participating 4 self-funded private sector health plan access to complete 5 pharmacy claims data necessary to conduct the pharmacy 6 benefits manager reverse auction and to carry out applicable 7 administrative and management duties. 8 14. Notwithstanding subsection 3, the department may elect 9 to vacate the outcome of a pharmacy benefits manager reverse 10 auction if the lowest-cost pharmacy benefits manager’s bid 11 is not less than the projected cost trend for the incumbent 12 pharmacy benefits manager’s services contract as verified by 13 the department. The department may utilize a consultant to 14 conduct the verification. The cost trend shall be projected 15 by the technology platform operator using industry-recognized 16 data sources and shall be subject to review and approval by 17 the department in advance of the pharmacy benefits manager 18 reverse auction. Methodology shall be applied consistently in 19 projection of cost and savings to the state with regard to the 20 incumbent pharmacy benefits manager’s services contract and 21 competing pharmacy benefits manager reverse auction bids. 22 -12- HF 2401 (2) 90 nls/ko/md 12/ 12