BILL NUMBER: AB 2911	CHAPTERED
	BILL TEXT

	CHAPTER  619
	FILED WITH SECRETARY OF STATE  SEPTEMBER 29, 2006
	APPROVED BY GOVERNOR  SEPTEMBER 29, 2006
	PASSED THE ASSEMBLY  AUGUST 30, 2006
	PASSED THE SENATE  AUGUST 29, 2006
	AMENDED IN SENATE  AUGUST 28, 2006
	AMENDED IN ASSEMBLY  MAY 2, 2006
	AMENDED IN ASSEMBLY  APRIL 17, 2006

INTRODUCED BY   Assembly Member Nunez
   (Coauthor: Senator Perata)

                        FEBRUARY 24, 2006

   An act to add Division 112 (commencing with Section 130500) to the
Health and Safety Code, relating to pharmacy assistance.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2911, Nunez  California Discount Prescription Drug Program.
   Under existing law, the State Department of Health Services
administers the Medi-Cal program, and is authorized, among other
things, to enter into contracts with certain drug manufacturers.
Under existing law, the department is entitled to drug rebates in
accordance with certain conditions, and drug manufacturers are
required to calculate and pay interest on late or unpaid rebates.
   This bill would establish the California Discount Prescription
Drug Program within the department, applicable only to prescription
drugs dispensed to recipients on an outpatient basis. The bill would
require the department to negotiate drug discount agreements with
drug manufacturers, as specified. The bill would authorize any
licensed pharmacy and any drug manufacturer, as defined, to
participate in the program. The bill would authorize the department,
on August 1, 2010, to require prior authorization in the Medi-Cal
program for any drug of a manufacturer if specified conditions are
met. The bill would establish eligibility criteria and application
procedures for eligible Californians to participate in the program.
   The bill would establish the California Discount Prescription Drug
Program Fund into which all payments received under the program
would be deposited. The bill would provide that moneys in the fund
shall be made available, upon appropriation, to the department for
purposes of the program.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  The Legislature hereby finds and declares all of the
following:
   (a) Affordability is critical in providing access to prescription
drugs for California residents, particularly the uninsured and those
with inadequate insurance.
   (b) The California Discount Prescription Drug Program is enacted
to make prescription drugs more affordable for qualified California
residents, thereby increasing the overall health of California
residents, promoting healthy communities, and protecting the public
health and welfare.
   (c) It is not the intent of the state to discourage employers from
offering or paying for prescription drug benefits for their
employees or to replace employer-sponsored prescription drug benefit
plans that provide benefits comparable to those made available to
qualified California residents under this program.
  SEC. 2.  Division 112 (commencing with Section 130500) is added to
the Health and Safety Code, to read:

      DIVISION 112.  CALIFORNIA DISCOUNT PRESCRIPTION DRUG PROGRAM

      CHAPTER 1.  General Provisions

   130500.  This division shall be known, and may be cited, as the
California Discount Prescription Drug Program.
   130501.  For purposes of this division, the following definitions
shall apply:
   (a) "Average manufacturer's price" has the same meaning as this
term is defined in Section 1927(k)(1) of the federal Social Security
Act (42 U.S.C. Sec. 1396r-8)(k)(1).
   (b) "Department" means the State Department of Health Services.
   (c) "Eligible Californian" means a resident of the state who meets
any one or more of the following:
   (1) Has total unreimbursed medical expenses equal to at least 10
percent of his or her family's income where the family's income does
not exceed the state median family income.
   (2) To the extent allowed by federal law, is enrolled in the
Medicare Program, but whose prescription drugs are not covered by the
Medicare Program.
   (3) Has a family income that does not exceed 300 percent of the
federal poverty guidelines and who does not have outpatient
prescription drug coverage paid for by any one of the following:
   (A) In whole by the Medi-Cal program.
   (B) In whole or in part by the Healthy Families Program or other
programs funded by the state.
   (C) In whole or in part by another third-party payer, provided
that the individual has not reached the annual limit on his or her
prescription drug coverage.
   (4) For purposes of this subdivision, the cost of drugs provided
under this division is considered an expense incurred by the family
for eligibility determination purposes.
   (d) "Fund" means the California Discount Prescription Drug Program
Fund.
   (e) "Manufacturer" means a drug manufacturer as defined in Section
4033 of the Business and Professions Code.
   (f) "Manufacturer's rebate" means the rebate for an individual
drug or aggregate rebate for a group of drugs necessary to make the
price for the drug ingredients equal to or less than the applicable
benchmark price.
   (g) "Medicaid best price" has the same meaning as this term is
defined in Section 1927(c)(1)(C) of the Social Security Act (42
U.S.C. Sec. 1396r-8)(c)(1)(C).
   (h) "Multiple-source drug" has the same meaning as this term is
defined in Section 1927(k)(7) of the Social Security Act (42 U.S.C.
Sec. 1396r-8)(k)(7).
   (i) "National drug code" or "NDC" means the unique 10-digit,
three-segment number assigned to each drug product listed under
Section 510 of the federal Food, Drug, and Cosmetic Act (21 U.S.C.
Sec. 360). This number identifies the labeler or vendor, product, and
trade package.
   (j) "National sales data" means prescription data obtained from a
national-level prescription tracking service.
   (k) "Participating manufacturer" means a drug manufacturer that
has contracted with the department to provide an individual drug or
group of drugs for the program.
   (l) "Participating pharmacy" means a pharmacy that has executed a
pharmacy provider agreement with the department for this program.
   (m) "Pharmacy contract rate" means the negotiated per prescription
reimbursement rate for drugs dispensed to eligible Californians. The
department shall establish a single, basic pharmacy rate, but may
contract at different rates with pharmacies in order to provide
access throughout the state.
   (n) "Prescription drug" means any drug that bears the legend:
"Caution: federal law prohibits dispensing without prescription," "Rx
only," or words of similar import.
   (o) "Private discount drug program" means a prescription drug
discount card or manufacturer patient assistance program that
provides discounted or free drugs to eligible individuals. For the
purposes of this division, a private discount drug program is not
considered insurance or a third-party payer program.
   (p) "Program" means the California Discount Prescription Drug
Program.
   (q) "Single-source drug" has the same meaning as this term, and
the term innovator multiple-source drug, are defined in Section 1927
(k)(7) of the Social Security Act (42 U.S.C. Sec. 1396r-8)(k)(7).
   (r) "Therapeutic category" means a drug or a grouping of drugs
determined by the department to have similar attributes and to be
alternatives for the treatment of a specific disease or condition.
   (s) "Volume weighted average discount" means the aggregated
average discount for the drugs of a manufacturer, weighted by each
drug's percentage of the total prescription volume of that
manufacturer's drugs. Drugs excluded from contracting by the
department, pursuant to subdivision (d) of Section 130506 and in a
manner consistent with subdivision (c) of Section 130506, shall be
excluded from the calculation of the volume weighted average
discount.  National sales data shall be used to calculate the volume
weighted average discount pursuant to Section 130506. Program
utilization data shall be used to calculate the volume weighted
average discount pursuant to Section 130507.
   130502.  The California Discount Prescription Drug Program is
hereby established within the department.
      CHAPTER 2.  Prescription Drug Discounts

   130505.  (a) The amount a participating, eligible Californian pays
for a drug through the program shall be equal to the lower of the
participating pharmacy's usual and customary charge or the pharmacy
contract rate pursuant to subdivision (c), less a program discount
for the specific drug or an average discount for a group of drugs or
all drugs covered by the program.
   (b) In determining program discounts on individual drugs, the
department shall take into account the rebates provided by the drug's
manufacturer.
   (c) The department may contract with participating pharmacies for
a rate other than the pharmacies' usual and customary rate for
prescription drugs, including multiple-source drugs.
   (d) This division shall apply only to prescription drugs dispensed
to eligible Californians on an outpatient basis.
   130506.  (a) The department shall negotiate drug discount
agreements with manufacturers to provide discounts for single-source
and multiple-source prescription drugs through the program. The
department shall attempt to negotiate the maximum possible discount
for an eligible Californian. The department shall attempt to
negotiate, with each manufacturer, discounts to offer single-source
prescription drugs under the program at a volume weighted average
discount that is equal to or below any one of the following benchmark
prices:
   (1) Eighty-five percent of the average manufacturer price for a
drug, as published by the Centers for Medicare and Medicaid Services.

   (2) The lowest price provided to any nonpublic entity in the state
by a manufacturer to the extent that the Medicaid best price exists
under federal law.
   (3) The Medicaid best price, to the extent that this price exists
under federal law.
   (b) The department may require the drug manufacturer to provide
information that is reasonably necessary for the department to carry
out its duties pursuant to this division.
   (c) The department shall pursue manufacturer discount agreements
to ensure that the number and type of drugs available through the
program is sufficient to give an eligible Californian a formulary
comparable to the Medi-Cal list of contract drugs, or if this
information is available to the department, a formulary that is
comparable to that provided to CalPERS enrollees.
   (d) To obtain the most favorable discounts, the department may
limit the number of drugs available through the program.
   (e) The drug discount agreements negotiated pursuant to this
section shall be used to reduce the cost of drugs purchased by
program participants.
   (f) All information reported by a manufacturer to, negotiations
with, and agreements executed with, the department or its third-party
vendor pursuant to this section, shall be considered confidential
and corporate proprietary information. This information shall not be
subject to disclosure under the California Public Records Act
(Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1
of the Government Code). The Bureau of State Audits and the
Controller shall have access to pricing information in a manner that
is consistent with their access to this information under the
Medi-Cal program and under law. The Bureau of State Audits and the
Controller may use this information only to investigate or audit the
administration of the program. Neither the Bureau of State Audits,
the Controller, nor the department may disclose this information in a
form that identifies a specific manufacturer or wholesaler or prices
charged for drugs of this manufacturer or wholesaler. Information
provided to the department pursuant to subdivision (e) of Section
130530 shall not be affected by the confidentiality protections
established by this subdivision.
   (g) (1) Any pharmacy licensed pursuant to Chapter 9 (commencing
with Section 4000) of Division 2 of the Business and Professions Code
may participate in the program.
   (2) Any manufacturer may participate in the program.
   130507.  (a) On August 1, 2010, the department shall determine
whether manufacturer participation in the program has been sufficient
to meet both of the following benchmarks:
   (1) The number and type of drugs available through the program are
sufficient to give eligible Californians a formulary comparable to
the Medi-Cal list of contract drugs or, if this information is
available to the department, a formulary comparable to that provided
to CalPERS enrollees.
   (2) The volume weighted average discount of single-source
prescription drugs offered pursuant to this program is equal to or
below any one of the benchmark prices described in subdivision (a) of
Section 130506.
   (b) On and after August 10, 2010, the department shall reassess
program outcomes, at least once every year, consistent with the
benchmarks described in subdivision (a).
   130508.  To the maximum extent possible, the department shall
assure that enrollment and other administrative actions are seamless
to all eligible Californians.
   130509.  (a)  The department may require prior authorization in
the Medi-Cal program for any drug of a manufacturer if the
manufacturer fails to agree to a volume weighted average discount for
single-source prescription drugs that is equal to or below any one
of the benchmark prices described in subdivision (a) of Section
130506 and only to the extent that this requirement does not increase
costs to the Medi-Cal program, as determined pursuant to subdivision
(c).
   (b) If prior authorization is required for a drug pursuant to this
section, a Medi-Cal beneficiary shall not be denied the continued
use of a drug that is part of a prescribed therapy until that drug is
no longer prescribed for that beneficiary's therapy. The department
shall approve or deny requests for prior authorization necessitated
by this section as required by state or federal law.
   (c) The department, in consultation with the Department of
Finance, shall determine the fiscal impact of placing a drug on prior
authorization pursuant to this section. In making this
determination, the department shall consider all of the following:
   (1) The net cost of the drug, including any rebates that would be
lost if the drug is placed on prior authorization.
   (2) The projected volume of purchases of the drug, before and
after the drug is placed on prior authorization, considering the
continuity of care provisions set forth in subdivision (b).
   (3) The net cost of comparable drugs to which volume would be
shifted if a drug is placed on prior authorization, including any
additional rebates that would be received.
   (4) The projected volume of purchases of comparable drugs, before
and after the drug is placed on prior authorization.
   (5) Any other factors determined by the department to be relevant
to a determination of the fiscal impact of placing a drug on prior
authorization.
   (d) This section shall be implemented only to the extent permitted
under federal law, and in a manner consistent with state and federal
laws.
   (e) This section may apply to any manufacturer that has not
negotiated with the department.
   (f) The department shall notify the Speaker of the Assembly and
the President pro Tempore of the Senate that the department is
requiring prior authorization no later than five days after making
this requirement.
   (g) (1) Subject to paragraph (2), this section shall become
operative on August 1, 2010.
   (2) This section shall become operative only if the department
determines that participation by manufacturers has been insufficient
to meet both of the benchmarks identified in Section 130507.
   130510.  The names of manufacturers of single-source drugs that do
or do not enter into discount agreements with the department
pursuant to this division shall be public information and shall be
posted on the department's Internet Web site when the discount
agreements are reached or the manufacturer ends negotiations,
commencing within six months after the initial implementation date of
this division and updated on the first of each month thereafter.
   130511.  (a) Each drug discount agreement shall do all of the
following:
   (1) Specify which of the manufacturer's drugs are included in the
agreement.
   (2) Permit the department to remove a drug from the agreement if
there is a dispute over the drug's utilization.
   (3) Permit a manufacturer to audit claims for the drugs the
manufacturer provides under the program. Claims information provided
to manufacturers shall comply with all federal and state privacy laws
that protect a program participant's health information.
   (b) In addition to the requirements of subdivision (a), each drug
discount agreement with a single-source manufacturer shall do all of
the following:
   (1) Require the manufacturer to make a rebate payment to the
department for each drug described in paragraph (1) of subdivision
(a) dispensed to a program participant.
   (2) Require the manufacturer to make the rebate payments to the
department on at least a quarterly basis.
   (3) Require the manufacturer to provide, upon request,
documentation to validate the rebate.
   (c) The department may collect prospective rebates from
single-source manufacturers for payment to pharmacies.  The amount of
the prospective discount shall be specified in the drug rebate
agreements.
   (d) (1) Manufacturers shall calculate and pay interest on late or
unpaid rebates. The interest shall not apply to any prior period
adjustments of unit rebate amounts or department utilization
adjustments.
   (2) For rebate payments to the program, manufacturers shall
calculate and pay interest on late or unpaid rebates for quarters
that begin on or after January 1, 2007.
   (e) Interest required by subdivision (d) shall begin accruing 38
calendar days from the date of mailing of the invoice, including
supporting utilization data sent to the manufacturer. Interest shall
continue to accrue until the date of mailing of the manufacturer's
payment. Interest rates and calculations for purposes of this section
shall be at 10 percent.
   (f) A participating manufacturer shall clearly identify all
rebates, interest, and other payments, and payment transmittal forms
for the program, in a manner designated by the department.
   130512.  (a) The department shall generate a monthly report that,
at a minimum, provides all of the following:
   (1) Drug utilization information.
   (2) Amounts paid to pharmacies.
   (3) Program discounts compared to the usual customary price.
   (4) Aggregate amounts of rebates collected from manufacturers.
   (5) A summary of the problems or complaints reported regarding the
program.
   (b) Information provided in paragraphs (1), (2), and (3) of
subdivision (a) shall be at the national drug code level.
   (c) The department shall generate an annual report that, in
addition to the information described in subdivision (a), reports on
the number of all of the following:
   (1) Individuals enrolled.
   (2) Individuals receiving a prescription under the program.
   (3) Participating pharmacies.
   (4) Participating manufacturers.
   (d) All reports shall be made available on the department's
Internet Web site.
   130513.  (a) The department shall establish and maintain a claims
processing system that complies with all of the following
requirements:
   (1) Charges a price that meets the requirements of this division.

   (2) Provides the pharmacy with the dollar amount of the discount
to be returned to the pharmacy.
   (3) Provides drug utilization review warnings to pharmacies
consistent with the drug utilization review standards provided in
federal law.
   (b) The department shall pay a participating pharmacy the discount
provided to program participants pursuant to this division by a date
that is not later than two weeks after the claim is received.
   (c) The department shall develop a mechanism for the program
participants to report problems or complaints.
      CHAPTER 3.  Application, Enrollment, and Outreach

   130520.  (a) The department shall develop an application and
reapplication form for the determination of a resident's eligibility
for the program. An applicant, or a guardian or custodian of an
applicant, may apply or reapply on behalf of the applicant and the
applicant's spouse and children.
   (b) The application shall, at a minimum, do all of the following:

   (1) Specify the information that an applicant or the applicant's
representative must include in the application.
   (2) Require that the applicant, or the applicant's guardian or
custodian, attest that the information provided in the application is
accurate to the best knowledge and belief of the applicant or the
applicant's guardian or custodian.
   (3) Specify that the application fee due upon submission of the
applicable form is ten dollars ($10) annually.
   (c) In assessing the income requirement for eligibility, the
department shall use the income information reported on the
application and not require additional documentation.
   (d) An application may be completed at any pharmacy, physician
office, or clinic participating in the program through an Internet
Web site or call center staffed by trained operators approved by the
department. A pharmacy, physician's office, clinic, or nonprofit
community organization that completes the application may keep the
application fee as reimbursement for its processing costs. If it is
determined that the applicant is already enrolled in the program, the
fee shall be returned to the applicant and the applicant shall be
informed of his or her current status as a program participant.
   (e) The department shall utilize a secure electronic application
process that can be used by a pharmacy, physician's office, or
clinic, by an Internet Web site, by a call center staffed by trained
operators, by a nonprofit community organization, or through the
third-party vendor to enroll applicants in the program.
   (f) During the department's normal working hours, the department
shall make a determination of eligibility within 24 hours of receipt
by the program of a completed application. The department shall mail
the program participant an identification card no later than seven
days after eligibility has been determined.
   (g) For applications submitted through a pharmacy, the department
may issue a participant identification number for eligible applicants
to the pharmacy for immediate access to the California Discount
Prescription Drug Program.
   (h) Any program participant that has been determined to be
eligible shall be enrolled for 12 months or until the program
participant notifies the department of an intent to end enrollment.
   (i) The department shall notify a program participant of
termination of enrollment 30 days prior to the termination.
   (j) A person shall be required to apply pursuant to this section
for each 12-month period of eligibility.
   130521.  (a) The department may conduct an outreach program to
inform California residents of their opportunity to participate in
the program. The department shall coordinate outreach activities with
the California Department of Aging, the Employment Development
Department, and other state and local agencies, and nonprofit
organizations that serve residents who may be eligible for the
program. No outreach material shall contain the name or likeness of a
drug.
   (b) The department may accept on behalf of the state any gift,
bequest, or donation of outreach services or materials to inform
residents about the program. The name of the organization sponsoring
the materials shall in no way appear on the material but shall be
reported to the public and the Legislature as otherwise provided by
law.
      CHAPTER 4.  Pharmaceutical Manufacturer Patient Assistance
Programs

   130530.  (a) The department shall encourage a participating
manufacturer to maintain those private discount drug programs that
are comparable to or more extensive than those provided prior to the
enactment of this division. To the extent possible, the department
shall encourage a participating manufacturer to simplify the
application and eligibility processes for its private discount drug
program.
   (b) The department may execute agreements with drug manufacturers
and other private patient assistance programs to provide a single
point of entry for eligibility determination and claims processing
for drugs available through those programs to the extent permitted by
state and federal law.
   (c) The department shall develop a system to provide a program
participant under this division with the best discounts on
prescription drugs that are available to the participant through this
program or through a drug manufacturer or other private patient
assistance program.
   (d) (1) The department may require an applicant to provide
additional information to determine the applicant's eligibility for
other discount card and patient assistance programs.
   (2) The department shall not require an applicant to participate
in a drug manufacturer patient assistance program or to disclose
information that would determine the applicant's eligibility to
participate in a drug manufacturer patient assistance program in
order to participate in the California Discount Prescription Drug
Program.
   (e) In order to verify that California residents are being served
by drug manufacturer patient assistance programs, the department
shall require drug manufacturers to provide the department annually
with all of the following information:
   (1) The total value of the manufacturer's drugs provided at no or
very low cost to California residents during the previous year.
   (2) The total number of prescriptions or 30-day supplies of the
manufacturer's drugs provided at no or very low cost to California
residents during the previous year.
   (f) The California Discount Prescription Drug Program card issued
pursuant to this division shall serve as a single point of entry for
drugs available pursuant to subdivision (a), and shall meet all legal
requirements for a health benefit card.
      CHAPTER 5.  Administration

   130540.  (a) Contracts, contract amendments, change orders, change
requests, and any project or systems development notices, entered
into for purposes of this division, shall be subject to the same
exemptions provided for in the Medi-Cal drug program and those
provided to the department in paragraph (4) of subdivision (c) of
Section 124977. In addition, contracts, contract amendments, change
orders, change requests, and any project or systems development
notices, entered into for purposes of this division, are specifically
exempt from:
   (1) Part 2 (commencing with Section 10100) of Division 2 of the
Public Contract Code.
   (2) The competitive bidding requirements of State Administrative
Manual Management Memo 03-10.
   (3) The project authority requirements of State Administrative
Manual, Section 4800 et seq.
   (4) Section 11.00 and Provision 6 of Item 4260-001-0001 of Section
2 of the Budget Act of 2006 and related Budget letters.
   (b) Contracts with pharmacies and drug manufacturers may be
entered into on a bid or nonbid basis.
   (c) Change orders entered into pursuant to this division shall not
require a contract amendment.
   (d) To the extent that any exemption set forth in this section
conflicts with exemptions set forth in paragraph (4) of subdivision
(c) of Section 124977, the exemption in this section shall govern
over the conflicting provision in Section 124977.
   130541.  To implement the program, the department may contract
with a third-party vendor or utilize existing health care service
provider enrollment and payment mechanisms, including the Medi-Cal
program's fiscal intermediary.  Drug discount agreements negotiated
by a third party shall be subject to review by the department. The
department may cancel a contract that it finds not in the best
interests of the state or program participants. Participating
pharmacy contracts entered into pursuant to Section 130505 shall be
considered contracts between the participating pharmacy and the
department and shall not be associated with, or leveraged against,
other third-party agreements.
   130542.  (a) The department shall deposit all payments the
department receives pursuant to this division into the California
Discount Prescription Drug Program Fund, which is hereby established
in the State Treasury.
   (b) Moneys in the fund shall be made available to the department,
upon appropriation by the Legislature, for purposes of the program.
Notwithstanding any other provision of law, no
                     money in the fund is available for expenditure
for any other purpose or for loaning or transferring to any other
fund, including the General Fund. The fund shall also contain any
interest accrued on moneys in the fund.
   130543.  (a) The director may adopt regulations as are necessary
to implement and administer this division.
   (b) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the director
may implement this division, in whole or in part, by means of a
provider bulletin or other similar instructions, without taking
regulatory action, provided that no bulletin or other similar
instructions shall remain in effect after August 1, 2011. It is the
intent that regulations adopted pursuant to this section shall be
adopted on or before August 1, 2011.
   130544.  If any provision of this division, or the application
thereof, is for any reason, held invalid, ineffective, or
unconstitutional by a court of competent jurisdiction, the remainder
of this division, or the application of this provision, shall not be
affected thereby, and to this end the provisions of this division are
severable.
  SEC. 3.  The Legislature finds and declares the following: Section
2 of this act, which adds Section 130506 to the Health and Safety
Code, imposes a limitation on the public's rights of access to the
writings of public officials and agencies within the meaning of
Section 3 of Article I of the California Constitution. Pursuant to
that constitutional provision, the Legislature makes the following
findings to demonstrate the interest protected by this limitation and
the need for protecting that interest:
   In order to facilitate manufacturer participation and deliver
affordable prescription drugs to low-income Californians, it is
necessary to protect the confidentiality trade secrets and pricing
information.