Bulletin 2024-03

South Carolina Department of Insurance Capitol Center 1201 Main Street, Suite 1000 Columbia, South Carolina 29201 _________________________ Mailing Address: P.O. Box 100105, Columbia, S.C. 29202-3105 Telephone: (803) 737-6160 HENRY MCMASTER Governor MICHAEL WISE Director BULLETIN NUMBER 2024-03 TO: All Insurers, Pharmacy Benefits Managers (PBMs), Pharmacy Services Administrative Organizations (PSAOs) and Other Interested Persons FROM: Michael Wise Director RE: Amendments to S.C. Code Ann. Regs. 69-77 Pharmacy Benefits Managers External Review Procedures DATE: May 28, 2024 I. PURPOSE This bulletin summarizes recent amendments made to Regulation 69-77 to implement that portion of Act No. 30 of 2023 providing for external review of certain Pharmacy Benefits Manager (PBM) decisions and PBM operations. The amendments, which are effective as of May 24, 2024: 1) establish the procedures for the approval of independent review organizations (IROs) and the initiation and conduct of PBM-related external reviews, 2) prescribe certain recordkeeping and reporting requirements for IROs conducting those reviews, 3) provide for regular, periodic examinations of PBMs beginning in 2025, and 4) effectuate other changes regarding the regulation of PBMs. II. APPROVAL OF INDEPENDENT REVIEW ORGANIZATIONS IROs not currently approved by the Department of Insurance that are interested in performing external reviews of PBM decisions must apply by submitting an application and fee prescribed by the Department. The application and instructions are posted on the dedicated PBM web page on the Department’s website, https://doi.sc.gov/pbm. New applicants must meet the requirements set forth in detail in Section VIII.F of the amended Regulation 69-77 and incorporated into the application and instructions. A link to the regulation is provided on the Department’s PBM webpage. IROs that are already approved by the Department to conduct external reviews in South Carolina must amend their existing application to receive approval to conduct PBM external reviews under Regulation 69-77. A copy of the amendment application is also available on the Department’s PBM web page. III. EXTERNAL REVIEW PROCESS A. Request for External Review and Initial Processing External reviews under Regulation 69-77 are limited to review of pharmacy reimbursements and recoupments resulting from audits. A pharmacy may request an external review of an internal appeal determination by a PBM involving provider reimbursements and of recoupments arising from audits. To initiate an external review, the pharmacy must submit the request within (a) sixty (60) calendar days of the pharmacy’s receipt of the PBM’s final determination resolving the pharmacy’s initial internal appeal or (b) thirty (30) calendar days of the pharmacy’s receipt of the PBM’s final audit report. The form for submission of the request for external review is available on the Department’s website. The filing fee for such requests is also published on the Department’s website.1 The Department has seven (7) business days from the date a request for an external review is filed or, if additional information is requested, the date all information requested by the Department has been received, to either (a) assign an IRO and send to it the relevant documents and information or (b) inform the pharmacy in writing that the request does not meet the criteria for external review, along with the reason for nonacceptance. Within seven (7) business days after receipt from the Department of a request for external review, the independent review organization must determine whether it has all the information, certifications, and forms required to process the external review and immediately notify the pharmacy provider and/or PBM in writing if additional information is required. In the event the request for external review is not complete, the IRO must inform the pharmacy what additional information or materials are required. If the IRO does not accept the request for external review, it must inform both the pharmacy and the PBM in writing of its reasons for doing so. B. Review and Decision Generally, the IRO is required to render a decision within thirty (30) days after receipt of a request for external review, although it may request a written extension by the Department. If the IRO finds that a PBM reimbursement amount is “inconsistent with the provisions” of Regulation 69-77 and the applicable statutes, the PBM is required to: (a) promptly make the change in the reimbursement rate effective as of the date the external review is resolved; (b) permit the appealing pharmacy to reverse and rebill the claim in question; (c) reimburse the pharmacy the amount of the filing fee; and (d) promptly make the change effective for each similarly situated pharmacy as defined by the payor subject to the Maximum Allowable Cost List effective as of the date the external review is resolved. 1 South Carolina law gives the Director the authority to set the filing fee for external review request in an amount necessary to cover the costs of administration of Chapter 71. Accordingly, the initial filing fee published on the Department’s website may be adjusted as necessary to cover the costs related to this process and the administration of Chapter 71 in accordance with applicable South Carolina law. In the event the IRO determines a recoupment was calculated in violation of the applicable statutes, the PBM must promptly refund any amounts due to the responsible party as contractually agreed upon by the parties in the audit and must reimburse the pharmacy the amount of the filing fee. C. General Provisions PBMs must pay for all costs related to an external review, regardless of result; and, as noted, must reimburse the pharmacy for the initial filing fee if the IRO determination is in favor of the latter. However, if the Department determines that the pharmacy or pharmacist has abused the external review process, it may require them to pay for costs related to the external review. The amendments shield from liability an IRO and its employees, officers, or directors, as well as any health care professional who furnishes services to an IRO from liability arising out of or related to an external review, except for cases of willful and intentional misconduct. Any information or data acquired during the external review process is considered proprietary and confidential and is not subject to the South Carolina Freedom of Information Act (FOIA). IV. REPORTING AND RECORDKEEPING IROs receiving requests for external review must maintain for a minimum of three years written records containing data in the aggregate, and by health carrier, for all external reviews performed during a calendar year. In addition, they must file with the Department by March 1st of each year a report of: (1) the total number of requests for external review and the manner in which they were resolved; (2) the average length of time for resolution; (3) a summary of the types of coverages or cases for which an external review was sought, and (4) any other information the Department may require. These reports are public information and may be disclosed under FOIA. V. REQUIRED NOTICE OF RIGHT TO EXTERNAL REVIEW Each PBM is required to include in its provider agreement or pharmacy manual a written notice and description of the external review procedure. This notice must include a statement informing the pharmacy that it has the right to contact the Director or his designee and the contact number and email address to which requests for assistance may be directed. This written notice must also be included in any denial of an internal appeal related to reimbursement or recoupment. VI. EXAMINATIONS OF PBMS Beginning January 1, 2025, the Department will conduct regular examinations of the books and records of PBMs for compliance with applicable law. PBMs are required to pay the cost of examination, which will take place at least every five (5) years. Information or data acquired during an examination is proprietary and confidential and is not subject to disclosure under FOIA. VII. OTHER CHANGES A. PBM Licensing Application Changes The amended Regulation also provides that a PBM shall provide as part of its application for licensure (1) the phone number and any other contact information provided to pharmacies and pharmacists pursuant to S.C. Code Ann. § 38-71-2235(B) through which the pharmacy can obtain answers during normal business hours within a reasonable time to questions regarding networks, patient benefits, appeals, and other contractual or service issues; and (2) the notice provided to pharmacies upon the denial of an internal appeal notifying the pharmacy or pharmacist of the right to request an external review of the internal appeal and the supporting documents describing the external review process. B. Other Changes to Rules for Pharmacy Complaints and Appeals The organization designated as the contact for the Department for complaints from pharmacy providers is now responsible for all such complaints, not just those “for alleged Maximum Allowable Cost List violations.” Similarly, the provision in Section V.C.(2) providing that a pharmacy is not required to exhaust internal appeals if a PBM has failed to abide by “its Maximum Allowable Cost List appeal processes” has been amended to read, “A pharmacy provider shall not be required to exhaust internal appeal requirements of the pharmacy benefits manager if a pharmacy benefits manager has failed to abide by its internal appeal processes.” (Italics added.) VIII. QUESTIONS Questions about the content of this bulletin should be directed to the Manager of PBM Oversight and Specialty Licensing, via telephone at (803) 737-6129 or (803) 734-0398 or by email at PBMDept@doi.sc.gov. Bulletins are the method by which the Director of Insurance formally communicates with persons and entities regulated by the Department. Bulletins are departmental interpretations of South Carolina insurance laws and regulations and provide guidance on the Department’s enforcement approach. Bulletins do not provide legal advice. Readers should consult applicable statutes and regulations or contact an attorney for legal advice or for additional information on the impact of that legislation on their specific situation.