Untitled Texas Attorney General Opinion

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

August 14, 2015

The Honorable Charles Schwertner Opinion No. KP-0036
Chair, Committee on Health and
Human Services Re: Whether sections 843.306 and 1301.057 of
Texas State Senate the Insurance Code apply to a pharmacy benefit
Post Office Box 12068 manager acting on behalf of a health
Austin, Texas 78711-2068 maintenance organization or a preferred provider
organization (RQ-0016-KP)

Dear Senator Schwertner:

You ask two questions concerning whether specific provisions of the Insurance Code apply
to a pharmacy benefit manager ("PBM") acting on behalf of a health maintenance organization
("HMO") or a preferred provider organization ("PP0"). 1 A PBM is "a person, other than a
pharmacy or pharmacist, who acts as an administrator in connection with pharmacy benefits."
TEX. INS. CODE ANN. § 4151.151 (West 2009). You explain that PB Ms develop "pharmacy panels
through provider participation agreements with individual pharmacy service providers." Request
Letter at 1. You further explain that PBMs then contract with HMOs and PPOs to "provide and
administer pharmacy benefits to beneficiaries or enrollees" of the HMOs or PPOs. Id.

You first ask whether section 843.306 of the Insurance Code applies to a PBM acting on
behalf of an HMO. Id. Chapter 843 of the Insurance Code governs HMOs, and Subchapter I_
addresses HMO relations with physicians and providers. See TEX. INS. CODE ANN. §§ 843.001-
.464 (West 2009 & Supp. 2014). Section 843.306 of Subchapter I states, in relevant part:

(a) Before terminating a contract with a physician or provider, a health
maintenance organization.shall provide to the physician or provider
a written explanation of the reasons for termination.

(b) On request, before the effective date of the termination and within a
period not to exceed 60 days, a physician or provider is entitled to a
review by an advisory review panel of the health maintenance
organization's proposed termination ....

'Letter from Honorable Charles Schwertner, Chair, Senate Comm. on Health & Human Servs., to Honorable
Ken Paxton, Tex. Att'y Gen. at I (Apr. 30, 2015), https://www.texasattomeygeneral.gov/opinion/requests-for-
opinions-rqs ("Request Letter").
The Honorable Charles Schwertner - Page 2 (KP-0036)

Id. § 843.306(a)-(b) (West 2009). Relevant to your question, for purposes of chapter 843,
"provider" includes, among others, "a pharmacy." Id. § 843.002(24)(A)(ii) (West Supp. 2014).
Thus, an HMO must provide notice to a pharmacy with whom it contracts before terminating a
contract with that pharmacy.

The language of section 843.306 expressly applies only to HMOs; however, an HMO "may
contract with any person to perform" administrative functions on behalf of the HMO. Id. § 843.104
(West 2009). An HMO that delegates an administrative function required by chapter 843 of the
Insurance Code "shall execute a written delegation agreement with the entity to which the function
is delegated." Id.§ 1272.052(a). The delegation agreement must provide that the "delegated entity
shall comply with each statutory or regulatory requirement relating to a function assumed by or
carried out by the entity." Id. § 1272.056(2); see also id. § 1272.002 (requiring a delegated entity
to "comply with each statutory or regulatory requirement that relates to a function assumed by or
carried out by" the entity). 2 Thus, to the extent that a PBM serves as a delegated entity of an HMO
and, pursuant to the delegation agreement, administers contracts with pharmacy providers, the
PBM must comply with the notice and review requirements of section 843.306. 3

In your second question, you ask whether section 1301.057 of the Insurance Code applies
to a PBM acting on behalf ofa PPO. Request Letter at 1. Chapter 1301 of the Insurance Code
governs preferred provider benefit plans. See TEX. INS. CODE ANN. § 1301.004l(a) (West Supp.
2014); see generally id. §§ 1301.001-.202 (West 2009 & Supp. 2014). Section 1301.057 states,
in relevant part:

(a) Before terminating a contract with a preferred provider, an insurer shall:

(1) provide written reasons for the termination; and

(2) if the affected provider is a practitioner, provide, on request, a reasonable review
mechanism, ...

(b) The review mechanism described by Subsection (a)(2) must incorporate, in an advisory
role only, a review panel selected in the manner described by Section 1301.053(b) and
must be completed within a period not to exceed 60 days.

Id. § 1301.057 (West 2009). For purposes of chapter 1301 of the Insurance Code, the term
"insurer" is defined as "a life, health, and accident insurance company, health and accident

2
"Delegated entity" is defined as "an entity, other than a health maintenance organization authorized to
engage in business under Chapter 843, that by itself, or through subcontracts with one or more entities, undertakes to
arrange for or provide medical care or health care to an enrollee in exchange for a predetermined payment on a
prospective basis and that accepts responsibility for performing on behalf of the health maintenance organization a
function regulated by ... Chapter 843 .... " TEX. INS. CODE ANN. § 1272.00l(a)(l) (West 2009); see also id.
§ 843.002(30) (West Supp. 2014).

3
You do not ask, and we do not address, whether any specific delegation of authority or contract between an
HMO and a PBM is authorized.
The Honorable Charles Schwertner - Page 3 (KP-0036)

insurance company, health insurance company, or other company operating under Chapter 841,
842, 884, 885, 982, or 1501, that is authorized to issue, deliver, or issue for delivery in this state
health insurance policies." Id. § 1301.001(5) (West Supp. 2014). The Insurance Code does not
define PPO; however, "preferred provider benefit plan" is defined as "a benefit plan in which an
insurer provides, through its health insurance policy, for the payment of a level of coverage that is
different from the basic level of coverage provided by the health insurance policy if the insured
person uses a preferred provider." Id. § 1301.001(9). Thus, under some circumstances a PPO
itself could be considered an insurer for purposes of section 1301.057.

Under the Insurance Code, "preferred provider" includes a "health care provider, or an
organization of ... health care providers, who contracts with an insurer to provide medical care or
health care to insureds covered by a health insurance policy." Id. § 1301.001(8). "Health care
provider" expressly "includes a pharmacist and a pharmacy." Id.§ 1301.001(1-a). A PPO subject
to section 1301.057 would therefore be required to provide an explanation of the reasons for
terminating a contract with a pharmacy.

The language of section 1301.057 expressly applies only to insurers and does not address
PBMs that contract with provider pharmacies. Insurance Code section 1301.061, however,
provides that "[ e]ach preferred provider benefit plan offered in this state must comply with this
chapter," which includes section 1301.057. Id. § 1301.061(c) (West 2009). That section also
states:

(a) An insurer may enter into an agreement with a [PPO] for the
purposes of offering a network of preferred providers. The
agreement may provide that either the insurer or the [PPO] on
the insurer's behalf will comply with the notice requirements
and other requirements imposed on the insurer by this
subchapter.

(b) An insurer that enters into an agreement with a preferred
provider organization under this section shall meet the
requirements of this chapter or ensure that those requirements
are met.

Id. § 1301.061(a)-(b) (emphasis added). Thus, with regard to preferred provider benefit plans,
before a contract with a preferred provider is terminated, an insurer must ensure that either itself
or the entities with whom it contracts, which could include PBMs, comply with the notice and
review process required under section 1301.057.
The Honorable Charles Schwertner - Page 4 (KP-0036)

SUMMARY

If a pharmacy benefit manager serves as a delegated entity
of a health maintenance organization and thereby terminates
contracts with pharmacy providers, the pharmacy benefit manager
must comply with the notice and review requirements of section
843.306 of the Insurance Code.

With regard to preferred provider benefit plans, before a
contract with a preferred provider is terminated, an insurer must
ensure that either itself or the entities with whom it contracts, which
could include pharmacy benefit managers, comply with the notice
and review process required under section 1301.057 of the Insurance
Code.

Very truly yours,

~?~
KEN PAXTON
Attorney General of Texas

CHARLES E. ROY
First Assistant Attorney General

BRANTLEY STARR
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee
Assistant Attorney General, Opinion Committee