S.B. NO.



















     SECTION 1.  The legislature finds that:

     (1)  The program under section 340B of the Public Health Service Act (42 U.S.C. 256b) ("340B Program") enables health care settings that serve a disproportionate share of underserved patient populations ("covered entities") to stretch scarce resources as far as possible, reaching more patients and providing more comprehensive services than without such program;

     (2)  The 340B Program provides covered entities with a discount from drug manufacturers on covered outpatient drugs they purchase to meet the health care needs of the community;

     (3)  Covered entities that qualify for participation under the 340B Program meet rigorous eligi1bility criteria, proving they are safety net health care providers for many underserved patients;

     (4)  Such discounts are provided to covered entities rather than directly to individual patients;

     (5)  The discounts described in paragraph (2) provided through the 340B Program enable covered entities to deliver comprehensive services to the communities they serve, which may include providing free or discounted drugs to vulnerable populations, although providing free or discounted drugs to patients is not the sole purpose of the program;

     (6)  The 340B Program is also designed to help covered entities promote health for underserved communities and patients, regardless of a particular patient's insurance status or inability to pay;

     (7)  Savings from the 340B Program are used by covered entities to reach more patients and provide more comprehensive services, and covered entities are in the best position to assess the use of their savings for community needs;

     (8)  Drugs purchased under the 340B Program account for a small proportion of overall drug spending and the discounts described in paragraph (2) provided through the 340B Program are not funded by taxpayers;

     (9)  Manufacturer rebate money may cause pharmacy benefit managers to favor more costly brand-name drugs over generic or lower-cost, therapeutically equivalent brand-name drugs and the business practices of pharmacy benefit managers generally lack transparency;

    (10)  Mergers between pharmacy benefit managers and pharmaceutical manufacturers and large pharmacy chains have also occurred which have raised numerous concerns; and

    (11)  Some of the biggest concerns are potential conflicts of interest, inhibiting competition in the dispensing of prescription drugs, actual increased out-of-pocket costs for consumers, denying consumer choice, and determining whether patients and covered entities have received the discounts and other price concessions negotiated by the program on their behalf.

     Currently, pharmacy benefit managers in Hawaii are required to register with the insurance commissioner pursuant to chapter 431S, Hawaii Revised Statutes, and are subject to certain transparency laws set forth in section 326-108, Hawaii Revised Statutes.  However, the existing laws lack an appropriate enforcement mechanism or incentive for pharmacy benefit managers to comply with the disclosure of maximum allowable cost lists, as required by section 326-108, Hawaii Revised Statutes.  This lack of oversight and transparency regarding the business operations of pharmacy benefit managers has generated numerous questions.  The legislature finds that there is a need for the industry to fully disclose how much it is actually saving consumers and what portion of those savings are actually passed along to consumers by more strictly regulating pharmacy benefit managers.

     SECTION 2.  Section 431S-1, Hawaii Revised Statutes, is amended as follows:

     1.  By adding ten new definitions to be appropriately inserted and to read:

     ""340B covered entity" shall have the meaning as in section 2566(a)(4) of title 42 of the United States Code.

     "Claim" means a request from a covered entity or contract pharmacy to be reimbursed for the cost of filling or refilling a prescription for a drug or for providing a medical supply or service.

     "Contract pharmacy" means a pharmacy operating under contract with a 340B covered entity to provide dispensing services to the 340B covered entity as described in 75 Federal Register 10,272 published on March 5, 2010.

     "Enrollee" means an individual who has enrolled for coverage in a health benefit plan for which a pharmacy benefit manager has contracted with the insurer to reimburse claims submitted to covered entities or contract pharmacies for the costs for drugs prescribed for the individual.

     "Insurer" means an insurance company, a health maintenance organization, or a hospital and medical service corporation.

     "Out-of-pocket cost" means the amount paid by an enrollee under the enrollee’s coverage, including deductibles, copayments, coinsurance or other expenses as prescribed by the insurance commissioner by rule.

     "Pharmacist services" means products, good, and services, or any combination or products, goods, and services, provided as part of the practice of pharmacy as defined in Chapter 461‑1.

     "Rebate" means a discount or other price concession, or a payment that is:

     (1)  Based on a utilization of a prescription drug; and

     (2)  Paid by a manufacturer or third-party, directly or indirectly to a pharmacy benefit manager after a claim has been processed and paid at the covered entity or contract pharmacy.

     "Spread pricing" means the model of prescription drug pricing in which the pharmacy benefit manager charges a health benefit plan a contracted price for prescription drugs, and the contracted price for prescription drugs differs from the amount the pharmacy benefit manager directly or indirectly pays the covered entity or contract pharmacy for pharmacy services.

     "Third-party" means a person, business, or entity other than a pharmacy benefit manager that is not an enrollee or insured in a health benefit plan."

     2.  By amending the definition of "covered entity" to read:

     ""Covered entity" means:

     (1)  A health benefits plan regulated under chapter 87A; health insurer regulated under article 10A of chapter 431; mutual benefit society regulated under article 1 of chapter 432; or health maintenance organization regulated under chapter 432D; provided that a "covered entity" under this paragraph shall not include a health maintenance organization regulated under chapter 432D that owns or manages its own pharmacies;

     (2)  A health program administered by the State in the capacity of a provider of health coverage; or

     (3)  An employer, labor union, or other group of persons organized in the State that provides health coverage to covered persons employed or residing in the State[.]; and

     (4)  The same as it means in section 2566(a)(4) of title 42 of the United States Code.

"Covered entity" shall not include any plans issued for coverage for federal employees or specified disease or limited benefit health insurance as provided by section 431:10A-607."

     3.  By amending the definition of "pharmacy benefit manager" to read:

     ""Pharmacy benefit manager" means [any]:

     (1)  Any person that performs pharmacy benefit management, including but not limited to a person or entity in a contractual or employment relationship with a pharmacy benefit manager to perform pharmacy benefit management for a covered entity[.]; and

     (2)  A person, business, or other entity that contracts with pharmacies on behalf of an insurer to perform pharmacy benefit management, including but not limited to:

          (A)  Contracting directly or indirectly with pharmacies to provide prescription drugs to enrollees or other covered individuals;

          (B)  Administering a prescription drug benefit;

          (C)  Processing or paying pharmacy claims;

          (D)  Creating or updating prescription drug formularies;

          (E)  Making or assisting in making prior authorizations on prescription drugs;

          (F)  Administering rebates on prescription drugs; or

          (G)  Establishing a network to provide pharmacist services for health benefit plans."

"Pharmacy benefit manager" shall not include the department of human services."

     SECTION 3.  Chapter 431S, Hawaii Revised Statutes, is amended by adding three new sections to be appropriately designated and to read as follows:

     "§431S-A  Pharmacy benefit managers; duties.  A pharmacy benefit manager registered under chapter 431S-3 shall:

     (1)  Comply with the requirements of chapter 328-106;

     (2)  Not reimburse a covered entity differently than any other pharmacy that contracts with a pharmacy benefit manager based on the covered entity's participation in the 340B program or otherwise discriminate against such covered entity with respect to the terms of any reimbursement, including terms related to the level and amount of reimbursement;

     (3)  Not reimburse a covered entity or contract pharmacy for a drug on a maximum allowable cost basis, unless the pharmacy benefit manager strictly complies with the requirements of chapter 328-106;

     (4)  Not penalize a covered entity or contract pharmacy for, or otherwise directly or indirectly prevent, a covered entity or contract pharmacy from informing an enrollee of the difference between the out-of-pocket cost to the enrollee to purchase a prescription drug using the enrollee's pharmacy benefit and the pharmacy's usual and customary charge for the prescription drug;

     (5)  Not conduct spread pricing; and

     (6)  Not retroactively deny or reduce a claim for reimbursement of the cost of services after the claim has been adjudicated by the pharmacy benefit manager unless the:

          (A)  Adjudicated claim was submitted fraudulently;

          (B)  Pharmacy benefit manager's payment on the adjudicated claim was incorrect because the covered entity or contract pharmacy had already been paid for the services;

          (C)  Services were improperly rendered by the covered entity or contract pharmacy; or

          (D)  Covered entity or contract pharmacy agrees to the denial or reduction prior to the pharmacy benefit manager notifying the covered entity or contract pharmacy that the claim had been denied or reduced.

Paragraph (6) may not be construed to limit pharmacy claim audits under section 431S-C.  This section does not apply to retail drugs that are reimbursed by the State on a fee-for-service basis pursuant to a state plan approved under Title XIX of the Social Security Act.

     §431S-B  Pharmacy benefit managers; quarterly reports required.  (a)  A pharmacy benefit manager shall report to the insurance commissioner on a quarterly basis for each insurer or third-party the following information:

     (1)  The aggregate amount of rebates received by the pharmacy benefit manager;

     (2)  The aggregate amount of rebates distributed to the appropriate insurer or third-party;

     (3)  The aggregate amount of rebates passed on to the enrollees of each insurer or third-party at the point of sale that reduced the enrollees' applicable deductible, copayment, coinsurance, or other cost-sharing amount;

     (4)  The individual and aggregate amount paid by the insurer or third-party to the pharmacy benefit manager for pharmacist services itemized by pharmacy, by product, and by goods and services; and

     (5)  The individual and aggregate amount a pharmacy benefit manager paid for pharmacist services itemized by pharmacy, by product, and by goods and services.

     (b)  The report required under subsection (a) is:

     (1)  Proprietary and confidential under chapter 431:2‑209(e)(3); and

     (2)  Not subject to the Freedom of Information Act of 1967, or Uniform Information Practices Act pursuant to the exception found at chapter 92F‑13(4).

     §431S-C  Pharmacy benefit manager; program integrity.  The insurance commissioner may commence audits of an insurer or pharmacy benefit manager that reimburses a covered entity or its contract pharmacy for drugs that are subject to an agreement under section 431S-A to ensure the integrity of the program including the level and amount of reimbursement, on the basis that the covered entity participates in the program under section 431S-A."

     SECTION 4.  Section 431S-3, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§431S-3[]]  Registration required.  (a) Notwithstanding any law to the contrary, no person shall act or operate as a pharmacy benefit manager without first obtaining a valid registration issued by the commissioner pursuant to this chapter.

     (b)  Each person seeking to register as a pharmacy benefit manager shall file with the commissioner an application on a form prescribed by the commissioner.  The application shall include:

     (1)  The name, address, official position, and professional qualifications of each individual who is responsible for the conduct of the affairs of the pharmacy benefit manager, including all members of the board of directors; board of trustees; executive commission; other governing board or committee; principal officers, as applicable; partners or members, as applicable; and any other person who exercises control or influence over the affairs of the pharmacy benefit manager;

     (2)  The name and address of the applicant's agent for service of process in the State; and

     (3)  A nonrefundable application fee [of $140.] not to exceed two hundred dollars."

     SECTION 5.  Section 431S-4, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§431S-4[]]  Annual renewal requirement.  (a)  Each pharmacy benefit manager shall renew its registration by March 31 each year.

     (b)  When renewing its registration, a pharmacy benefit manager shall submit to the commissioner the following:

     (1)  An application for renewal on a form prescribed by the commissioner; and

     (2)  A renewal fee [of $140.] not to exceed two hundred dollars.

     (c)  Failure on the part of a pharmacy benefit manager to renew its registration as provided in this section shall result in a penalty of $140 and may cause the registration to be revoked or suspended by the commissioner until the requirements for renewal have been met."

     SECTION 6.  Section 431S-5, Hawaii Revised Statutes, is amended to read as follows:

     "[[]§431S-5[]]  Penalty.  Any person who acts as a pharmacy benefit manager in this State without first being registered pursuant to this chapter shall be subject to a fine of [$500 for each violation.] not less than one thousand dollars per day for the period the pharmacy benefit manager is found to be in violation of this chapter."

     SECTION 7.  In codifying the new sections added by section 2 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

     SECTION 8.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 9.  This Act shall take effect on July 1, 2021.
















Report Title:

Consumer Protection; Pharmacy Benefit Managers



Ensures the community health system remains financially viable in the face of healthcare value transformation; ensures access to quality and affordable prescription drugs by vulnerable populations served by community health centers, special needs clinics and other nonprofit healthcare entities covered by the federal 340B pharmacy program.




The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.