(A30, R37, S520)
AN ACT TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY AMENDING ARTICLE 18 OF CHAPTER 71, TITLE 38, RELATING TO PHARMACY AUDIT RIGHTS, SO AS TO EXPAND THE RIGHTS AND DUTIES OF PHARMACIES DURING AUDITS; BY AMENDING ARTICLE 21 OF CHAPTER 71, TITLE 38, RELATING TO PHARMACY BENEFITS MANAGERS, SO AS TO DEFINE TERMS AND MAKE CONFORMING CHANGES; BY ADDING ARTICLE 23 TO CHAPTER 71, TITLE 38 SO AS TO DEFINE TERMS AND OUTLINE RESPONSIBILITIES AND DUTIES OF PHARMACY SERVICES ADMINISTRATIVE ORGANIZATIONS; AND BY REPEALING SECTION 38-71-147 RELATING TO FREEDOM OF SELECTION AND PARTICIPATION IN HEALTH INSURANCE POLICIES OR HEALTH MAINTENANCE ORGANIZATION PLANS.
Be it enacted by the General Assembly of the State of South Carolina:
Pharmacy audit rights
SECTION 1. Article 18, Chapter 71, Title 38 of the S.C. Code is amended to read:
Section 38-71-1810. (A) For the purposes of this article:
(1) "Insurer" means an entity that provides health insurance coverage in this State as defined in Section 38-71-670(7) and Section 38-71-840(16).
(2) "Responsible party" means the entity responsible for payment of claims for health care services other than:
(a) the individual to whom the health care services were rendered; or
(b) that individual's guardian or legal representative.
(3) "Audit" means an evaluation, investigation, or review of claims paid to a pharmacy that takes place at the pharmacy location and does not include review of claims or claims payments that an insurer conducts as a normal course of business. Nothing in this definition limits the review of claims or claims payments through an electronic or algorithmic system designed to reduce fraud, waste, or abuse, provided that recoupments may not be calculated based on extrapolation pursuant to Section 38-71-1810(21).
(4) "Abuse" means any practice that:
(a)(i) is inconsistent with sound fiscal or business practices; or
(ii) fails to meet professionally recognized standards for pharmacy services; and
(b) directly or indirectly causes financial loss to a responsible party.
(B) If a managed care organization, insurer, third-party payor, or any entity that represents a responsible party conducts an audit of the records of a pharmacy, then, with respect to this audit, the pharmacy has a right to:
(1) not have an audit initiated or scheduled during the first five days of any month without the express consent of the pharmacy, which shall cooperate with the auditor to establish an alternate date if the audit would fall within the excluded days, and no audit may be performed during a state of emergency declared by the Governor that applies to the pharmacy location unless the state of emergency extends beyond ninety days or is agreed to by the pharmacy location;
(2) have an audit that involves clinical judgment be conducted with a pharmacist who is licensed and employed by or working under contract with the auditing entity;
(3) not have clerical or recordkeeping errors, including typographical errors, scrivener's errors, and computer errors, on a required document or record considered fraudulent in the absence of any other evidence or serve as the sole basis of rejection of a claim; however, the provisions of this item do not prohibit recoupment of fraudulent payments;
(4) have the auditing entity to provide the pharmacy, upon request, all records related to the audit in an electronic format or contained in digital media;
(5) have at least thirty days to respond to an audit notice and to submit records requested by the auditing entity related to the audit in electronic format or by certified mail. If a pharmacy requests an extension during this thirty-day period, it must be granted an additional thirty days to respond. The auditing entity must confirm receipt of all materials and documentation provided by the pharmacy to the auditing entity;
(6) have the properly documented records of a hospital or of a person authorized to prescribe controlled substances for the purpose of providing medical or pharmaceutical care for their patients transmitted by any means of communication approved by the auditing entity in order to validate a pharmacy record with respect to a prescription or refill for a controlled substance or narcotic drug pursuant to federal and state regulations;
(7) have a projection of an overpayment or underpayment based on either the number of patients served with a similar diagnosis or the number of similar prescription orders or refills for similar drugs; however, the provisions of this item do not prohibit recoupments of actual overpayments unless the projection for overpayment or underpayment is part of a settlement by the pharmacy;
(8) prior to the initiation of an audit, if the audit is conducted for an identified problem, have the audit limited to claims that are identified by prescription number or by range of prescription numbers;
(9) if an audit is conducted for a reason other than described in item (8), have the audit limited to one hundred selected prescriptions per pharmacy benefits manager;
(10) if an audit reveals the necessity for a review of additional claims, the audit may be conducted on-site;
(11) except for audits initiated for the reason described in items (8) or (10), be subject to no more than one audit in one calendar year, unless fraud or misrepresentation is reasonably suspected;
(12) be free of recoupments based on either of the following subitems unless defined within the billing, submission, or audit requirements set forth in the pharmacy provider manual not inconsistent with current State Board of Pharmacy Regulations, except for cases of Food and Drug Administration regulation or drug manufacturer safety programs in accordance with federal or state regulations:
(a) documentation requirements in addition to, or exceeding requirements for, creating or maintaining documentation prescribed by the State Board of Pharmacy;
(b) a requirement that a pharmacy or pharmacist perform a professional duty in addition to, or exceeding, professional duties prescribed by the State Board of Pharmacy unless otherwise agreed to by contract with the auditing entity;
(13) be subject, so long as a claim is made within the contractual claim submission time period, to recoupment only following the correction of a claim and to have recoupment limited to amounts paid in excess of amounts payable under the corrected claim unless a prescription error occurs. For purposes of this subsection, a prescription error includes, but is not limited to, wrong drug, wrong strength, wrong dose, or wrong patient;
(14) be subject to reversals of approval, except for Medicare claims, for drug, prescriber, or patient eligibility upon adjudication of a claim only in cases in which the pharmacy obtained the adjudication by fraud or misrepresentation of claim elements;
(15) be audited under the same standards and parameters as other similarly situated pharmacies audited by the same entity;
(16) have at least thirty days following receipt of the preliminary audit report to produce documentation to address any discrepancy found during an audit;
(17) have the option of providing documentation in electronic format or by certified mail;
(18) have the period covered by an audit limited to twenty-four months from the date a claim was submitted to, or adjudicated by, a managed care organization, an insurer, a third-party payor, or an entity that represents responsible parties, unless a longer period is permitted by or under federal law;
(19) have the preliminary audit report delivered to the pharmacy within one hundred twenty days after conclusion of the audit;
(20) have a final audit report delivered to the pharmacy within ninety days after the end of the appeals period;
(21) not have the accounting practice of extrapolation used in calculating recoupments or penalties for audits, unless otherwise required by federal requirements or federal plans; and
(22) have the right to an external review pursuant to Section 38-71-2240 for any denied appeals of recoupment if the pharmacy believes the recoupment amounts were calculated in violation of this article.
(C) Notwithstanding Section 38-71-1840, the auditing entity shall provide the pharmacy, if requested, a masked list that provides a prescription number range the auditing entity is seeking to audit.
Section 38-71-1820. (A) Each entity that conducts an audit of a pharmacy shall establish an appeals process under which a pharmacy may appeal an unfavorable preliminary audit report to the entity.
(B) If, following the appeal, the entity finds that an unfavorable audit report or any portion of the unfavorable audit report is unsubstantiated, the entity shall dismiss the unsubstantiated portion of the audit report without any further proceedings.
(C) Each entity conducting an audit shall provide a copy, if required under the terms of the contract with the responsible party, of the audit findings to the plan sponsor after completion of any appeals process.
Section 38-71-1830. (A) Recoupments of any funds disputed on the basis of an audit must occur only after final internal disposition of the audit, including the appeals process as provided for in Section 38-71-1820 or the external review pursuant to Section 38-71-2240, unless fraud or misrepresentation is reasonably suspected.
(B) Recoupment on an audit must be refunded to the responsible party as contractually agreed upon by the parties involved in the audit.
(C) The entity conducting the audit may charge or assess the responsible party, directly or indirectly, based on amounts recouped if both of the following conditions are met:
(1) the responsible party or payor and the entity conducting the audit have entered into a contract that explicitly states the percentage charge or assessment to the responsible party; and
(2) a commission or other payment to an agent or employee of the entity conducting the audit is not based, directly or indirectly, on amounts recouped.
Section 38-71-1840. The provisions of this article do not apply to an audit, review, or investigation:
(1) that involves alleged insurance fraud or abuse, Medicare fraud or abuse, or other fraud or misrepresentation;
(2) conducted by or on the behalf of the Department of Health and Human Services in the performance of its duties in administering Medicaid under Titles XIX and XXI of the Social Security Act; or
(3) notwithstanding the exemptions under subitems (1) and (2) of this section, contracts between the South Carolina Department of Health and Human Services and Medicaid-managed care organizations must include provisions for biannual audits of Medicaid-managed care organizations' pharmacy pricing and include limitations on any pharmacy benefits manager contract arrangements that bill the Medicaid program for more than the total price paid to pharmacies for actual claims.
Pharmacy benefits managers
SECTION 2. Article 21, Chapter 71, Title 38 of the S.C. Code is amended to read:
Section 38-71-2200. As used in this article:
(1) "Claim" means a request from a pharmacy or pharmacist to be reimbursed for the cost of administering, filling, or refilling a prescription for a drug or for providing a medical supply or device.
(2) "Claims processing services" means the administrative services performed in connection with the processing and adjudicating of claims relating to pharmacist services that include:
(a) receiving payments for pharmacist services;
(b) making payments to pharmacists or pharmacies for pharmacist services; or
(c) both receiving and making payments.
(3) "Health benefit plan" means any individual, blanket, or group plan, policy, or contract for health care services issued or delivered by a health care insurer in this State as defined in Sections 38-71-670(6) and 38-71-840(14), including the state health plan as defined in Section 1-11-710. Notwithstanding this section, the state health plan is not subject to the provisions of this title unless specifically referenced.
(4) "Health care insurer" means an entity that provides health insurance coverage in this State as defined in Section 38-71-670(7) and Section 38-71-840(16).
(5) "Maximum Allowable Cost List" means a listing of generic drugs used by a pharmacy benefits manager to set the maximum allowable cost at which reimbursement to a pharmacy or pharmacist may be made.
(6) "Other prescription drug or device services" means services other than claims processing services, provided directly or indirectly by a pharmacy benefits manager, whether in connection with or separate from claims processing services, including without limitation:
(a) negotiating rebates, discounts, or other financial incentives and arrangements with drug companies;
(b) disbursing or distributing rebates;
(c) managing or participating in incentive programs or arrangements for pharmacist services;
(d) negotiating or entering into contractual arrangements with pharmacists or pharmacies, or both;
(e) developing formularies;
(f) designing prescription benefit programs; or
(g) advertising or promoting services.
(7) "Pharmacist" has the same meaning as provided in Section 40-43-30(65).
(8) "Pharmacist services" means products, goods, and services, or any combination of products, goods, and services, provided as a part of the practice of pharmacy.
(9) "Pharmacy" has the same meaning as provided in Section 40-43-30(67).
(10) "Pharmacy benefits manager" means an entity that contracts with pharmacists or pharmacies on behalf of an insurer, third-party administrator, or the South Carolina Public Employee Benefit Authority to:
(a) process claims for prescription drugs or medical supplies or provide retail network management for pharmacies or pharmacists;
(b) pay pharmacies or pharmacists for prescription drugs or medical supplies; or
(c) negotiate rebates with manufacturers for drugs paid for or procured as described in this article.
(11) "Pharmacy benefits manager affiliate" means a pharmacy or pharmacist that directly or indirectly, through one or more intermediaries, owns or controls, is owned or controlled by, or is under common ownership or control with a pharmacy benefits manager.
(12) "Pharmacy Services Administrative Organization" (PSAO) means an entity that has contracted with pharmacy clients in the State to conduct business on their behalf with third-party payers or pharmacy benefits managers. PSAOs provide administrative services to pharmacies and negotiate and enter into contracts with third-party payers or pharmacy benefits managers on behalf of pharmacies.
(13) "Specialized delivery drug" means a prescription drug that meets a majority of the following criteria, as set forth by the manufacturer, FDA, or other applicable law or regulatory body and:
(a) requires special handling or storage;
(b) requires complex and extended patient education or counseling;
(c) requires intensive monitoring;
(d) requires clinical oversight; or
(e) requires product support services; and the drug is used to treat chronic and complex, or rare medical conditions:
(i) that can be progressive; or
(ii) that can be debilitating or fatal if left untreated or undertreated.
Section 38-71-2210. (A)(1) A person or organization may not establish or operate as a pharmacy benefits manager in this State for health benefit plans without obtaining a license from the Director of the Department of Insurance.
(2) The director shall prescribe the application for a license to operate in this State as a pharmacy benefits manager and may charge an initial application fee of one thousand dollars and an annual renewal fee of five hundred dollars, provided the pharmacy benefits manager application form must collect the following information:
(a) the name, address, and telephone contact number of the pharmacy benefits manager;
(b) the name and address of the pharmacy benefits manager's agent for service of process in the State;
(c) the name and address of each person with management or control over the pharmacy benefits manager;
(d) the name and address of each person with a beneficial ownership interest in the pharmacy benefits manager;
(e) a signed statement indicating that, to the best of their knowledge, no officer with management or control of the pharmacy benefits manager has been convicted of a felony or has violated any of the requirements of state law applicable to pharmacy benefits managers, or, if the applicant cannot provide such a statement, a signed statement describing the relevant conviction or violation; and
(f) in the case of a pharmacy benefits manager applicant that is a partnership or other unincorporated association, limited liability company, or corporation, and has five or more partners, members, or stockholders:
(i) the applicant shall specify its legal structure and the total number of its partners, members, or stockholders who, directly or indirectly, own, control, hold with the power to vote, or hold proxies representing ten percent or more of the voting securities of any other person; and
(ii) the applicant shall agree that, upon request by the department, it shall furnish the department with information regarding the name, address, usual occupation, and professional qualifications of any other partners, members, or stockholders who, directly or indirectly, own, control, hold with the power to vote, or hold proxies representing ten percent or more of the voting securities of any other person.
(3) An applicant or a pharmacy benefits manager that is licensed to conduct business in the State shall, unless otherwise provided for in this chapter, file a notice describing any material modification of this information.
(B) The director may promulgate regulations establishing the licensing and reporting requirements of pharmacy benefits managers consistent with the provisions of this article.
(C) The fees and penalties assessed pursuant to this article must be retained by the department for the administration of this chapter.
Section 38-71-2220. (A) In any participation contracts between pharmacy benefits managers and pharmacists or pharmacies providing prescription drug coverage for health benefit plans, no pharmacy or pharmacist may be prohibited, restricted, or penalized in any way from disclosing to any covered person any health care information that the pharmacy or pharmacist deems appropriate within their scope of practice.
(B) A pharmacy or pharmacist must not be proscribed by a pharmacy benefits manager from discussing information regarding the total cost for pharmacist services for a prescription drug or from selling a more affordable alternative to the insured if a more affordable alternative is available, but a pharmacy benefits manager may proscribe a pharmacy or pharmacist from sharing proprietary