AH015 - PBM Legislation, Contracting, and More, with Lloyd Fiorini

April 26, 2024

Capital Rx

In this episode of the Astonishing Healthcare podcast, Capital Rx General Counsel and Chief Compliance Officer Lloyd Fiorini shares his expertise and experiences from over 25 years in the pharmacy space. He acknowledges that employers and benefits consultants face challenges in a rapidly evolving, complex healthcare landscape. Lloyd covers several topics impacting health plan sponsors and fiduciaries, including the implications of the Consolidated Appropriations Act (CAA) and avoiding penalties and personal liability through effective procurement processes, and the Inflation Reduction Act (IRA) and how disruptive M3P (the Medicare Prescription Payment Plan) implementation could be. 

Beyond the CAA and IRA, Lloyd discusses some potential changes in the industry driven by recent lawsuits and legislation; and for all the hockey fans out there, there's a prediction at the end! Listen below, and remember to subscribe on Apple, Spotify, or YouTube Music!


Lightly edited for clarity.

[00:27] Justin Venneri: Hello and thank you for listening to this episode of the Astonishing Healthcare podcast. I'm Justin Veneer, your host and director of communications at Capital Rx. And joining me today is Lloyd Fiorini, our General Counsel and Chief Compliance Officer. We're going to chat about PBM legislation, what resources plan sponsors need or might need to run a better procurement or RFP process, fiduciary responsibility, and maybe even a little hockey. Lloyd, thanks for taking the time. Can you start us off with a bit more about your background and how you got into the PBM industry?

Lloyd Fiorini: Well, yeah, Justin, it's good to be here and thanks for asking me to participate. A bit about my background. I've been practicing law since 1994 when I was called to the Bar. Initially, I worked in several law firms in the Washington DC area before I went in-house at a company called TLC Vision -- we did refractive eye care -- and then moved into the PBM space.  

So, I’ve have been in the pharmacy space probably for about 25+ years in one way or the other, either working directly with the PBMs in representing the PBMs, or with pharmacy working with the PBMs and reimbursement, and in healthcare in general. So, I'm one of the few people that had the desire to get into healthcare law right from the get-go. And so that, that's kind of how my career path has grown.

[01:47] Justin Venneri: Interesting. Is managed care pharmacy or PBMs, is that something you thought you'd be doing? It seems like an interesting career path for legal professionals. What do you like about it?

Lloyd Fiorini: Well, I mean, when I first came to Caremark, I did target Caremark as a company that I wanted to work with. So, I did want to get into the prescription benefits space, if you would. In my private practice, I did work with retail pharmacies as well as representing one of the earlier PBMs that were a division of pharmaceutical manufacturers at the time. And so, I think I've been at the ground zero, if you would, of the PBM industry and have kind of worked my way through the evolution and where it has come to. It has been a very interesting ride, if you would, of watching the evolution of this industry from several small whole bunch of companies that just administered pharmacy benefits because medical plans didn't want to do it at the time what they are today, which is, you know, huge conglomerates for the most part that have practices that we would say are less than transparent at times.

[03:01] Justin Venneri: So last year, and I'll include a link in the show notes, you hosted a PBM legislation webinar for our audience, and we focused on the Consolidated Appropriations Act (CAA), the IRA -- the Inflation Reduction act -- and more. You talked about what plan sponsors should do to avoid penalties and personal liability. I think this is more specific to the CAA. So, I’d like to ask you for an update, given the recent lawsuits we’ve seen spring up, could you share your thoughts about fiduciary responsibility for one, employers and two benefits consultants? I think everyone draws a comparison between the financial services industry and the retirement plan 401K lawsuits of decades past, and then what’s coming for our industry. So, what do you think, Lloyd?

[03:44] Lloyd Fiorini: Yeah, its a great question. I mean, I think last year and the year before, people were kind of staying to the industry, this is coming. You better be prepared. And the CAA was the means of that kind of identification of the new standards that health benefit managers or benefit plans need to kind of work with or be aware of in their day to day work. Because I think, for the most part, health benefit HR groups or what have you and they're making their decisions have been kind of a little off to the side, if you would, as compared to the 401K plans and the financial administrators in regards to protecting assets of the plan.  

I think that lawsuit has brought that to the forefront of, there are serious issues that have to be addressed by the benefit plans as they look at their medical and prescription benefits. If I was to be thinking as a benefit consultant, I want to make sure that I'm disclosing all my fees upfront to my clients so that they're aware of and they can make an informed decision as to what fees are reasonable and what they should be paying their benefit consultants for the work that they're doing on behalf of the plan.  

You know, benefit plans administrators should have appropriate processes and committees to make practical decisions about what benefits they should be providing and what benefit providers or service providers they should be engaging and how that contract kind of plays out and what aspects of that contract they should have full disclosure of revenues and compensation that their service providers otherwise are making in providing the services directly or indirectly and related to their services.

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[05:30] Justin Venneri: Got it. And I think one area that received some focus was gag clauses in the contracts. Have those largely been removed from contracts by now or are there still lingering issues out there?

Lloyd Fiorini: From what I've seen in the industry, there may be some tail, if you would, of some gag clauses that are still in existence to this day. And I think there's some question as to whether or not certain entities should remove gag clauses or subject to the gag clause restrictions that are in the CAA. For the most part, I think most of the industry has moved to the removal of those conditions.  

And as you know, at Capital Rx, we specifically put in all our PBM client contracts that we have no such things as gag clauses in our contracts with our clients or with our providers that participate in our pharmacy network. So, I think that's kind of like an industry leading type of approach. I don't think others in the PBM industry have put such similar conditions in their client contracts as we have. But I think that's where we have differentiated ourselves from the field.

[06:35] Justin Venneri: Makes sense. And then the Inflation Reduction Act, I believe the M3P, or the Medicare Prescription Payment Plan is baked into that. And of course, the ability to negotiate drug prices, among other aspects of the IRA. Do you have any updated views on the impact the IRA may have on health plans on the industry?

Lloyd Fiorini: Well, I think as it relates to the IRA, from a perspective of negotiation of drug pricing, I think we have to see how that plays out a little bit more. I know that pharmaceutical manufacturers have sued on several fronts on whether or not that aspect of the IRA is allowed under US law, or the Constitution, or what have you. I'm not going to talk about whether those lawsuits are going to win or lose or where that's going to end up.  

I think it should be interesting, and I've always said, whether there's a balloon squeeze as to how Medicare negotiates its pricing and whether or not other commercial plans, if you would, have to bear the brunt of the costs associated with the IRA in the negotiations of pharmaceutical pricing for Medicare. I'm not sure. That's one thing I'm concerned about.  

The other side, though, from the M3P, I think that's going to become an administrative nightmare for a lot of plans, and they should be concerned about the solutions that they're going to implement to basically meet that standard. And I think it's a nice thing to have where the beneficiary can defer costs at the point of sale. But I think there's a lot of aspects of that from an implementation point of view, that plans need to be thinking about and exploring options that are available to them. I know we have one that we're promoting to the industry, but I think that's going to be a troubling concern for the next six months anyways (Click Here for more information about Capital Rx's M3P solution).

[08:24] Justin Venneri: Yeah, it sounded pretty disruptive to all the normal workflows and file transfers and all the processes that have been in place for years between all stakeholders. So, it will be interesting. And then one other thing you discussed on the webinar last year that we've all observed is the flurry of activity at the federal and state levels. It was fast and furious, Florida and New Jersey signed bills in the law, and there's been some movement in West Virginia and other states more recently, but things seem to have stalled out in other areas. A lot of the legislation attacks the same practices, spread pricing, fees, and clawbacks that hurt pharmacies rebates and pass through rebates. Can you share a quick update on where you see the most potential for meaningful change or what all this activity likely means for PBMS plans and pharmacies?

Lloyd Fiorini: Yeah, I mean, that's a great question, Justin. I mean, last year, I don't think we've seen that type of activity before from previous years or what have you. This year I anticipate a lot of “me too” type of legislation. I think there's a little concern from an ERISA perspective on whether the Florida law withstands scrutiny.  

The Florida law, I think I've said in previous statements that is probably the most comprehensive state legislation related to prescription benefit services and has probably gone beyond what some people would say from an ERISA perspective, is appropriate for state legislation because it's applying what otherwise have been known for plan design issues that have been preempted by ERISA from the state perspective to be non-enforceable against self-funded ERISA plans. But it does apply, right? So unless that statute is challenged in the courts, which I've not seen anything yet from appropriate parties, it is the law in the land of Florida, at least, that that law applies to self-funded ERISA plans.  

So, whether or not other states follow suit, I think they're going to wait to see what happens with Florida first before they jump into that type of approach. But I do see a lot more states who have not passed laws looking at spread pricing, MAC list reimbursement, DIR clawbacks, all the elements that you mentioned already. I see other states looking at that type of legislation as well. And another interesting area that has popped up, if you would, as another means of the states to get a better handle on how PBMs are operating today, is New York and New Mexico, for instance, have passed laws that they get to approve any merger between a PBM and another PBM. And I think that's something new that hasn't been thought of before or looked at very closely but has an impact on how PBMs might want to consolidate further.  

If there is any of that element that you have to run through that type of review, I guess, at the state level, where most PBMs have to be licensed these days to operate within a state. So, their license would then be subject to review on whether or not a proposed merger would be appropriate for that state. And I think the state looks at elements of whether or not access, reimbursement or pro elements of advancing healthcare interests would be advanced by that merger. Or would there be the opposite effect that we have often raised where consolidation within the industry has actually led to less competition?

[11:53] Justin Venneri: Thats a good one worth watching. Okay. I’d like to switch gears a little bit. Kind of goes back to an earlier question, and it was a good question from a past guest, Jeff Hogan. Actually, episode four. I’d like to just kind of bounce this off you. And yes, listeners, if there’s a topic you’d like us to cover or a question I can seek an answer to, I’m always happy to do that. So, Jeff and I talked about how, how to attack and reverse the pharmacy spend trend because inflation there has been uncontrollable largely, and legacy PBMs remain a black box to a degree. The question is for most employers who don't know where to start with procurement and evaluation, or those who have this top of mind. And since we see a lot of quote unquote point solutions integrated with PBMs and carriers from a legal and contracts perspective, here's the question: where does an employer start and exactly what legal resources do they need to retain to help with the process, including contracting in the procurement process?

Lloyd Fiorini: They definitely would need to have some type of idea of what they're trying to accomplish in the process. I think a lot of people, when they go through the procurement of their, of their existing PBM, probably just looking for savings of some sort.  

But I don't think they really think about their benefit plan other than, oh, I'll get $3 million savings year over year or something to that effect. And I don't know if that's really the best way to look at your benefit. I think if you have someone who actually looks at their benefit as to what they're trying to accomplish with the plan, how they're going to use their benefit to enhance their employees work productivity, lives and overall health, I think they just make it an aspect of their culture as opposed to just, I want savings of $3 million or something of that effect. And I think if you do it from that perspective, you'll find a benefit provider like that would probably align with your interests and help manage that goal as opposed to just simply dollars and cents. But that's probably a little more theoretical than what you were looking for there, Justin.  

But I think also the other, the other aspect that I would say from a contracting point of view is to engage someone that has experience with PBM contracting. A legal expert is probably advisable. Law firms, I know of several that I've run into over my career, that I think are very reasonable and rational in helping the benefit plan negotiate a contract and avoid the pitfalls, if you would, that some PBMs tend to reuse in their contracts, that you're not really getting the benefit of the bargain that you're looking for. So that's what I would recommend to people, is to get reputable, experienced people who have expertise in the contracting field.

[14:39] Justin Venneri: Do those folks at the law firms, others, do they normally involve actuarial assessment or other consultants or advisors that may have more accountability to the projections in the RFP?

Lloyd Fiorini: Well, the law firms probably would be more focused on the actual contract document itself and how the traps that may exist could be sprung, so to speak, and kind of provide that type of guidance.

[15:09] Justin Venneri: Thanks for that. And this is a question that I ask everyone. It's not my last question today, but because I have one more for you. But what's the most astonishing thing that you've seen over your time relating to these discussion topics that you can share? Of course. And can you tell us a good story, funny, interesting or otherwise?

Lloyd Fiorini: I'm going to take the fifth on that. I'm going to have to assert that. But I have seen quite a bit in my career and it's probably too numerous for me to point out to one aspect of -- what was it, mostly the astonishing thing? I have run into some situations where I have been quite surprised. I just don't know if I can repeat them.

[15:52] Justin Venneri: You’re pleading the fifth on my astonishing question? Okay, so then I will go to a last question. Let's post out your crystal ball. How about your thoughts on the Blackhawks future and give us your Stanley cup prediction.

Lloyd Fiorini: Okay, well, this, this is something I could talk about. Blackhawks, although they are not doing well in the standings as of now, I think have an opportunity to do something pretty remarkable in the future provided they draft well in this next coming year. But I think they have a high ceiling, if you would, provided things fall into place. Whether they win three Stanley Cups in the next ten years or so, we'll have to wait and see, but they have a very bright future indeed for this year's Stanley cup.  

If you want me to put my money on a team, I would look to the west, the Western Conference, as the likely champion for this year as well. And whether Vegas is able to repeat again, I'm not so sure. I have my hopes on Connor McDavid finally winning his first Stanley cup.

Justin Venneri: Okay, well, Lloyd, thanks so much for taking the time today and sharing your experience and insights with us. Hope you have a great rest of your day and thanks everyone for listening.

Lloyd Fiorini: Yeah, thank you.

If you would like to learn more about Capital Rx’s full-service PBM or PBA solutions, including our clinical programs, CLICK HERE to get in touch with our team.

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