2022 Senate Bill 163 - SD Legislature address transparency in prescription drug pricing.

An Act to address transparency in prescription drug pricing.

Be it enacted by the Legislature of the State of South Dakota:

Section 1. That   58-29E-1 be AMENDED:

58-29E-1. Terms used in this chapter mean:

(1) "Covered entity," a nonprofit hospital or medical service corporation, health insurer, health benefit plan, or health maintenance organization; a health program administered by a department or the state in the capacity of provider of health coverage; or an employer, labor union, or other group of persons organized in the state that provides health coverage to covered individuals who are employed or reside in the state. The term does not include a self   funded plan that is exempt from state regulation pursuant to ERISA, a plan issued for coverage for federal employees, or a health plan that provides coverage only for accidental injury, specified disease, hospital indemnity, medicare supplement, disability income, long   term care, or other limited benefit health insurance policies and contracts;

(2) "Covered individual," a member, participant, enrollee, contract holder, policy holder, or beneficiary of a covered entity third-party payor who is provided health coverage by the covered entity third-party payor. The term includes a dependent or other person provided health coverage through a policy, contract, or plan for a covered individual;

(3)(2) "Director," the director of the Division of Insurance;

(4)(3) "Generic drug," a chemically equivalent copy of a brand   name drug with an expired patent;

(5)(4) "Labeler," an entity or person that receives prescription drugs from a manufacturer or wholesaler and repackages those drugs for later retail sale and that has a labeler code from the federal Food and Drug Administration under 21 C.F.R.    270.20 (1999);

(6)(5) "Maximum allowable cost list," any listing of pharmaceutical products, or method for calculating reimbursement amounts, used by a pharmacy benefit manager, directly or indirectly, to establish the maximum allowable cost on which reimbursement payment, to a pharmacy or pharmacist, may be based for dispensing a prescription pharmaceutical product, including:

(a) Average acquisition cost;

(b) Average manufacturer price;

(c) Average wholesale price;

(d) Brand effective rate or generic effective rate;

(e) Discount indexing;

(f) Federal upper limits;

(g) National average drug acquisition cost;

(h) Wholesale acquisition cost; and

(i) Any other factor used by a pharmacy benefit manager or a third-party payor to establish reimbursement rates to a pharmacy or pharmacist for pharmaceutical products;

(6) "National Drug Code," a unique, three-segment numeric identifier assigned to each medication in accordance with the Federal Food, Drug, and Cosmetic Act, 21 U.S.C.    360 (as of January 1, 2022);

(7) "Pharmaceutical product," a generic drug, brand-name drug, biologic, or other prescription drug, vaccine, or device;

(8) "Pharmaceutical wholesaler," a person who:

(a) Sells and distributes, directly or indirectly, pharmaceutical products and over-the-counter pharmaceuticals; and

(b) Offers regular or private delivery to a pharmacy;

(9) "Pharmacy acquisition cost," the amount that a pharmaceutical wholesaler charges for a pharmaceutical product, as listed on the pharmacy's billing invoice;

(10) "Pharmacy benefits benefit management," the procurement of prescription drugs at a negotiated rate for dispensation within this state to covered individuals, the administration or management of prescription drug benefits provided by a covered entity third-party payor for the benefit of covered individuals, or any of the following services provided with regard to the administration of the following pharmacy benefits:

(a) Mail service pharmacy;

(b) Claims processing, retail network management, and payment of claims to pharmacies for prescription drugs dispensed to covered individuals;

(c) Clinical formulary development and management services;

(d) Rebate contracting and administration;

(e) Certain patient compliance, therapeutic intervention, and generic substitution programs; and

(f) Disease management programs involving prescription drug utilization;

(7)(11) "Pharmacy benefits benefit manager," an entity thata person who performs pharmacy benefits benefit management. The term includes a person or entity acting for a pharmacy benefits manager in a contractual or employment relationship in the performance of pharmacy benefits management for a covered entity and includes mail service pharmacy. The term does not include a health carrier that is licensed pursuant to Title 58 when the health carrier or its subsidiary is providing and relies on its own employees to provide pharmacy benefits benefit management to its own insureds; or a public self   funded pool or a private single employer self   funded plan that provides such benefits or services directly to its beneficiaries services and does not rely on the services of an affiliate, subsidiary, or any unrelated entity that otherwise qualifies as a pharmacy benefit manager through the performance of pharmacy benefit management services;

(8)(12) "Pharmacy benefit manager affiliate," a pharmacy that or a pharmacist who, directly or indirectly, through one or more intermediaries:

(a) Owns or controls a pharmacy benefit manager;

(b) Is owned or controlled by a pharmacy benefit manager; or

(c) Is under common ownership or control with a pharmacy benefit manager;

(13) "Pharmacy benefit plan or program," a plan or program that pays for, reimburses, covers the cost of, or otherwise provides for pharmaceutical products to individuals who reside in, or are employed in, this state;

(14) "Pharmacy service administrative organization," an organization that has the authority to contract with a pharmacy benefit manager on behalf of multiple independently owned pharmacies;

(15) "Proprietary information," information on pricing, costs, revenue, taxes, market share, negotiating strategies, customers, and personnel held by private entities and used for that private entity's business purposes;

(9)(16)"Third-party payor," any person involved in the financing of a pharmacy benefit plan or program, other than:

(a) The patient;

(b) A health care provider;

(c) The sponsor of a plan that is subject to regulation under Medicare Part D, 42 U.S.C.    1395w-101, et seq., as of January 1, 2022; or

(d) A plan administered by South Dakota Medicaid;

(17) "Trade secret," information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy; and

(18) "340B entity," an entity participating in the federal drug discount program, as described in section 340B of the Public Health Service Act, 42 U.S.C.    256b, as of January 1, 2022.

Section 2. That   58-29E-3 be AMENDED:

58-29E-3. Each pharmacy benefits benefit manager shall perform its duties exercising good faith and fair dealing toward the covered entitythird-party payor.

Section 3. That chapter 58-29E be amended with a NEW SECTION:

Before a pharmacy benefit manager places or provides for the continued placement of a pharmaceutical product on a maximum allowable cost list, the pharmacy benefit manager shall ensure that:

(1) The product:

(a) Is listed as therapeutically equivalent and pharmaceutically equivalent A- or B-rated in the United States Food and Drug Administration   s most recent edition of Approved Drug Products with Therapeutic Equivalence Evaluations or on the United States Food and Drug Administration's most recent list of approved animal drug products; or

(b) Has an NR rating, an NA rating, or a similar rating by a nationally recognized drug compendia provider;

(2) The product is available for purchase by any pharmacy in this state, from national or regional wholesalers operating in this state; and

(3) The product is not obsolete.

For purposes of this section, the term, NR, means not rated, and the term, NA, means not available.

Section 4. That chapter 58-29E be amended with a NEW SECTION:

A pharmacy benefit manager shall:

(1) Provide each pharmacy that is subject to the maximum allowable cost list with notification of any changes to the list;

(2) Provide each pharmacy that is subject to the maximum allowable cost list with access to the list; and

(3) Update the maximum allowable cost list within seven calendar days if:

(a) Pharmacy acquisition costs from at least sixty percent of the pharmaceutical wholesalers doing business in the state increase by ten percent or more over the previously listed cost;

(b) There is a change in the methodology on which the maximum allowable cost list is based; or

(c) There is a change in the value of a variable involved in the methodology.

Section 5. That chapter 58-29E be amended with a NEW SECTION:

A pharmacy benefit manager shall establish an administrative procedure by which a pharmacy may appeal determinations regarding the maximum allowable costs and reimbursements for a specific pharmaceutical product as:

(1) Not meeting the requirements set forth in this chapter; or

(2) Being below the pharmacy acquisition cost.

Section 6. That chapter 58-29E be amended with a NEW SECTION:

The administrative procedure required under section 5 of this Act must:

(1) Provide a telephone number, email address, and website, for initiating an appeal;

(2) Provide that an appeal may be filed directly with the pharmacy benefit manger or through a pharmacy service administrative organization; and

(3) Establish a period within which any appeal is to be filed, provided the period is at least seven days.

Section 7. That chapter 58-29E be amended with a NEW SECTION:

If an appeal is filed in accordance with the administrative procedure set forth in section 5 of this Act, the pharmacy benefit manager shall, within seven days of receipt:

(1) Find that the appeal i