BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Deborah V. Ortiz, Chair
BILL NO: AB 2911
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AUTHOR: Nunez
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AMENDED: August 28, 2006
HEARING DATE: Tuesday, August 29, 2006
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FISCAL: N/A
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CONSULTANT:
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Hansel / ak
~PURSUANT TO SENATE RULE 29.10~
SUBJECT
California Discount Prescription Drug Program
SUMMARY
This bill establishes the California Discount Prescription
Drug Program within the Department of Health Services to
provide prescription drug discounts for uninsured
California residents with income up to 300 percent of the
federal poverty level and other individuals, as specified.
ABSTRACT
Existing federal law:
1.Requires drug manufacturers, for the purposes of the
federal Medicaid program, to enter into rebate agreements
with the Secretary of the United States Department of
Health and Human Services (HHS) and provide minimum
rebates, as specified, to state Medicaid agencies for
outpatient prescription drugs provided to Medicaid
beneficiaries.
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2.Defines Medicaid "best price" as the lowest price paid to
a manufacturer for a brand name drug, taking into account
rebates, chargebacks, discounts or other pricing
adjustments, excluding nominal prices.
3.Excludes the prices charged to certain governmental
purchasers from "best price" provisions including prices
charged to the Veterans Administration, Department of
Defense, Indian tribes, Federal Supply Schedule, state
pharmaceutical assistance programs (SPAPs), Medicaid, and
340B covered entities.
4.Permits a state, upon authorization from the Secretary of
HHS, to enter directly into agreements with drug
manufacturers to negotiate deeper (supplemental)
discounts than "best price" for state Medicaid programs.
5.Specifies that a state may require, as a condition of
coverage or payment for a covered outpatient drug, the
approval of the drug before its dispensing if the system
for providing such approval meets specified criteria.
Existing state law:
1.Establishes California's Medicaid program (Medi-Cal) and
authorizes the Department of Health Services (DHS) to be
the purchaser of prescribed drugs.
2.Authorizes DHS to obtain discounts, rebates, or refunds
based on the quantities purchased by the program, as
permissible by federal law.
3.Authorizes DHS or the state's fiscal intermediary to
impose prior authorization requirements on the drug
products of manufacturers for which DHS has not received
rebate or interest payments as specified. Authorizes DHS
to use existing administrative mechanisms for any drug
for which DHS does not obtain a rebate.
4.Exempts specified drugs from prior authorization
requirements and authorizes the Director of DHS to exempt
any drug from prior authorization if it is determined
that an essential need exists for that drug and there are
no other drugs available without prior authorization that
meet that need.
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This bill:
1.Establishes the California Discount Prescription Drug
Program (Program) with DHS.
2.Provides definitions for the Program and makes findings
and declarations regarding the affordability of
prescription drugs and intent of the Program.
Eligibility for Program
3.Limits Program eligibility to residents who meet one or
more of the following:
a. Has total unreimbursed medical expenses equal to at
least 10 percent family income and family income does
not exceed 100 percent of the median family income in
the state.
b. To the extent allowed by federal law, is enrolled
in the Medicare program, but whose prescription drugs
are not covered by the Medicare program.
c. Has a family income that does not exceed 300
percent of the federal poverty level (FPL) and does
not have outpatient prescription drug coverage paid by
the following:
In whole by the Medi-Cal program.
In whole or part by the Healthy Families
program or other programs funded by the state.
In whole or part by a third party payor,
provided that the individual has not reached the
annual limit on their prescription drug coverage.
1.Limits the scope of the Program to prescription drugs
dispensed to eligible persons on an outpatient basis.
Prescription drug discounts and rebate agreements
2.Limits the amount a Program enrollee pays for a drug to
the lower of the participating pharmacy's usual and
customary charge or a pharmacy contract rate, minus a
program discount for the specific drug or an average
discount for a group of drugs or all drugs covered by the
Program.
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3.Requires DHS to negotiate drug discount agreements with
drug manufacturers to provide for discounts for
prescription drugs purchased through the Program.
4.Requires DHS to attempt to negotiate the maximum possible
discount for Program participants; further requires DHS
to attempt to negotiate, with each manufacturer,
discounts to offer single source drugs at a volume
weighted average discount that is equal to or below one
of the following benchmarks:
a. 85 percent of the average manufacturer price, as
published by the Centers for Medicaid and Medicare
Services.
b. The lowest price provided to any nonpublic entity
in California by a manufacturer to the extent Medicaid
best price exists under federal law.
c. The Medicaid best price, as defined, to the extent
it exists under federal law.
5.Defines for purposes of the bill, "volume weighted
average discount" as the average discount for the drugs
of a manufacturer, weighted by each drug's percentage of
the total prescription volume of that manufacturer's
drugs, for drugs for which DHS contracts with the
manufacturer.
6.Allows DHS to require drug manufacturers to provide
information that is reasonably necessary for the
department to carry out its duties.
7.Requires DHS to pursue manufacturer discount agreements
to ensure that the number and type of drugs available
through the Program is sufficient to give Program
participants a formulary comparable to the Medi-Cal list
of contract drugs, or if the information is available to
the department, a formulary that is comparable to that
provided to CalPERS enrollees.
8.Allows DHS to limit the number of drugs available to the
Program to obtain the most favorable discounts.
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9.Requires all drug discount agreements negotiated pursuant
to this bill to be used to reduce the cost of drugs
purchased by Program participants.
10. Provides that all information provided by drug
manufacturers shall be considered confidential and
proprietary information and shall not be subject to
disclosure under the Public Records Act; provides that
the Bureau of State Audits and the Controller shall have
access to pricing information in a manner consistent with
their access to such information under the Medi-Cal
program and existing law.
11. Allows any licensed pharmacy and manufacturer, as
defined, to participate in the Program. Requires DHS to
establish a single, basic pharmacy rate, but allows it to
contract at different rates with pharmacies in order to
provide access throughout the state.
12. Requires DHS, on August 1, 2010 and annually
thereafter, to determine whether manufacturer
participation in the Program has been sufficient to meet
both of the following benchmarks:
a. The number and type of drugs available through the
Program are sufficient to give participants a
formulary comparable to the Medi-Cal list of contract
drugs or, if the information is available to the
department, a formulary comparable to that provided to
CalPERS enrollees.
b. The volume weighted average discount of single
source prescription drugs is equal to or below any of
the benchmark prices in (7).
13. Effective on August 1, 2010, allows DHS to 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 drugs
that is equal to or lower than any of the benchmark
prices described in (7), but only to the extent such
authorization does not increase costs to the Medi-Cal
program, as specified.
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14. Conditions the authority in (16) on a determination
that manufacturer participation has been insufficient to
meet both of the benchmarks described in (15).
15. Provides that prior authorization of any drug shall
be implemented only to the extent permitted by federal
law, and in a manner consistent with state and federal
law.
16. Provides that prior authorization of a manufacturers'
drugs may be applied to any manufacturer that has not
negotiated with DHS.
17. Requires DHS to notify the Speaker and President Pro
Tempore that the department is requiring prior
authorization no later than five days after making a
determination to do so.
18. Provides that if prior authorization is required for
a drug, 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.
19. Requires the names of manufacturers of single source
drugs that do and do not enter into discount agreements
to be posted on the DHS Internet Web site.
20. Requires participating manufacturers to calculate and
pay interest on late or unpaid rebates, as specified.
21. Requires participating manufacturers to clearly
identify all rebates, interest, and other payments for
the Program in a manner designated by DHS.
22. Requires DHS to generate a monthly report, as
specified, as well as an annual report that reports on
the number of individuals enrolled, individuals receiving
prescriptions under the program, participating
pharmacies, and participating manufacturers.
Application, enrollment, and outreach
23. Specifies that the application fee is $10 annually
and allows an application to be completed at any
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pharmacy, physician office, or clinic participating in
the Program.
24. Allows the pharmacy, physician office, clinic, or
nonprofit community organization that completes the
application to keep the fee as reimbursement for its
processing costs, unless the applicant is already
enrolled in the Program.
25. Requires DHS to utilize a secure electronic
application process or a third-party vendor to enroll
applicants.
26. Requires DHS to make an eligibility determination
within 24 hours of receipt of a completed application,
using the income information reported on the application
and without requiring additional documentation.
27. Requires applicants to attest that the information
provided on the application is accurate to the best
knowledge and belief of the applicant or applicant's
guardian or custodian.
28. Requires DHS to conduct an outreach program, as
specified.
29. Allows DHS to accept on behalf of the state any gift,
bequest, or donation of outreach services or materials to
inform residents about the Program, as specified.
Patient assistance programs
30. Requires DHS to encourage participating manufacturers
to maintain their private discount drug programs at a
level comparable to which they were offered prior to the
enactment of the Program and, to the extent possible,
simplify the application and eligibility processes for
those programs.
31. Allows DHS, to the extent permitted by state and
federal law, to execute agreements with drug
manufacturers to provide a single point of entry for
eligibility determination and claims processing for drugs
available through their patient assistance programs.
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32. Requires DHS to develop a system, as specified, to
provide a Program participant with the best discounts on
prescription drugs that are available to the participant
through the Program or through a drug manufacturer
patient assistance program.
33. Requires drug manufacturers to report annually to DHS
regarding the utilization of and total value of drugs
provided through manufacturer patient assistance
programs.
34. Requires the participant's Program card to meet all
the legal requirements for a health benefit card and
serve as a single point of entry for drugs available
through patient assistance programs.
Administration
35. Provides that contracts, contract amendments, change
orders under the Program are subject to the same
exemptions provided for in the Medi-Cal drug program and
are exempt from competitive bidding requirements, as
specified.
36. Authorizes DHS to contract with a third-party vendor
or utilize existing health care service provider
enrollment and payment mechanisms, as specified.
37. Requires DHS to deposit all payments received under
the Program into the California Prescription Drug Program
Fund to be established in the State Treasury. Requires
moneys in this fund be made available to DHS upon
appropriation by the Legislature and prohibits
expenditure for any other purpose, loan or transfer to
any other fund including the General Fund.
38. Exempts Program contracts from the Public Records
Act.
39. Provides that the Director of DHS may adopt
regulations as are necessary to implement and administer
the program.
40. Permits the Director to implement the Program in
whole or in part by means of provider bulletin or other
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similar instructions, without taking regulatory action,
provided that no bulletin shall remain in effect after
August 1, 2011.
41. Expresses intent that any regulations necessary to
implement the Program be adopted on or before August 1,
2011.
42. Contains a finding establishing the state's interest
in exempting drug trade secrets and pricing information
from public disclosure, as provided for in Article I,
Section 3 of the California Constitution, as amended by
Proposition 59 in November, 2004.
FISCAL IMPACT
According to the Senate Appropriations Committee analysis
of a previous version of the bill, General Fund costs in
the range of $3 million annually for administration,
staffing, and information technology related costs.
Unknown one-time General Fund costs to advance funds to
pharmacies for manufacturer discounts for rebates during
first quarter of implementation of the program.
BACKGROUND AND DISCUSSION
Prices for prescription drugs have risen sharply in recent
years, resulting in access problems for many Californians.
A 2004 study by Families USA found that the prices of the
top 30 brand-name drugs dispensed to seniors have increased
by nearly 22 percent in just three years. Between 2001 and
2004 the prices of these 30 drugs rose by 3.6 times the
rate of inflation. A recent AARP study showed that prices
for the 197 brand-name drugs most commonly used by seniors
continued to rise at a rate more than three times greater
than inflation in 2004.
As a result of these trends, the amount that United States
(U.S.) residents spend out-of-pocket on prescription drugs
has risen dramatically in recent years: in 2002, U.S.
consumers paid $48.6 billion in out-of-pocket costs for
prescription drugs, an increase of 15.3 percent over the
previous year. In 2002, the annual increase in
out-of-pocket spending for U.S. residents was greater than
the total increase in out-of-pocket spending for all other
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kinds of health care combined. A recent survey found that
37 percent of the uninsured said they did not fill a
prescription because of cost, compared to 13 percent of the
insured. A study by the RAND Corporation found that when
out-of-pocket payments for prescription drugs doubled,
patients with diabetes and asthma cut back on their use of
drugs by over 20 percent and experienced higher rates of
emergency room visits and hospital stays.
Nationally, the percentage of cash payers (versus Medi-Cal
and third party payors) of prescription drugs have
significantly decreased over the last decade, but one out
of every four prescriptions is still paid out-of-pocket.
The Medicare Part D drug benefit, enacted in 2003 and which
commenced drug coverage under competing plans in January,
2006, provides drug coverage to Medicare beneficiaries.
However, a recent analysis by the California Health Care
Foundation in March, 2006 found that the competing plans
differ considerably in their coverage of drugs. In
addition, many plans pay no share of costs for drug
expenditures between $2,250 and $5,100 (the so-called
"donut hole").
Other states
A number of states have responded to these trends by
enacting prescription drug assistance programs. Most of
the older programs provide subsidized drug coverage while
newer programs focus on providing discounts to enrollees
through negotiated discounts with drug manufacturers and
pharmacies.
Maine's Act to Establish Fairer Prices for Prescription
Drugs was enacted in 2000 (known as the MaineRx program) is
open to all residents who do not have prescription drug
coverage. Under MaineRx, pharmacy participation is
voluntary, but compulsory for manufacturers with Medicaid
contracts in the state. MaineRx provides disincentives for
nonparticipating manufacturers, such as subjecting their
drugs to prior authorization requirements in the state
Medicaid program and advertising their refusal to
participate to health care providers and the public.
MaineRx was immediately challenged by the pharmaceutical
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industry. On May 19, 2003, the U.S. Supreme Court ruled
that the MaineRx Program was not preempted because the
Medicaid Act "gives the states substantial discretion to
choose the proper mix of amount, scope and duration
limitations on coverage, as long as care and services are
provided in the best interest of the recipients." The
Court also ruled that the MaineRx statute on its face did
not violate the Interstate Commerce Clause.
The legislature revised MaineRx soon after the Supreme
Court acted by creating the MaineRx Plus program. The new
program requires participating pharmacies to provide drugs
that are on Maine's Medicaid preferred drug list to state
residents whose family income is 350 percent or less of the
FPL or whose family incurs unreimbursed prescription drug
expenses equal to 5 percent or more of family income or
unreimbursed medical expenses of 15 percent or more of
family income.
In January 2005, the Federal District Court in Maine ruled
that under the legal doctrine of "ripeness," it would be
premature to conclude that the permissive prior
authorization scheme in MaineRx Plus in any way violates
federal Medicaid law. The court stated that since the
Maine statute explicitly requires prior authorization be
implemented only "as permitted by law" and "in a manner
consistent with the goals of the MaineCare program and the
requirements of the Social Security Act," it is possible
for Maine to implement its prior authorization without
violating the law. The court concluded that while the
Maine program was not reviewable at this time, due to lack
of ripeness, it remains subject to review by the Secretary
of HHS at the appropriate time.
A September 2005 evaluation by Prescription Policy Changes
found that average savings off cash prices for pharmacy
purchases under MaineRx were on the order of 25 percent for
brand name drugs and 50 percent for generics.
Ohio's Best Rx
Ohio's Best Rx is a voluntarily program that has been in
place since January 2005. There is no prior authorization
provision. Ohio's income eligibility is 250 percent of
FPL, which is waived for people age 60 and over.
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Prior efforts in California
SB 19 (Ortiz), also known as the Governor's California Rx
proposal, and AB 75 (Frommer) were introduced early in the
2005 - 06 Session to establish state pharmaceutical
discount programs based on discounts from drug
manufacturers that are passed on to individuals who did not
have access to affordable prescription drugs.
SB 19 as introduced relied on voluntary participation from
manufacturers to provide discounts, while AB 75 sought to
compel discounts from drug manufacturers by leveraging the
state's large purchasing power through the Medi-Cal
program. Under AB 75, drug manufacturers who did not
provide discounts for specified drugs under the new program
would have those drugs be subject to prior approval within
Medi-Cal.
Neither bill was successful and the issue moved to the
ballot in November, when Propositions 78 and 79 (similar to
SB 19 and AB 75, respectively) went before voters. Both
initiatives were defeated.
In a February 2005 evaluation of the Governor's CalRx
program (SB 19), the Legislative Analyst Office (LAO)
recommended that the Legislature try the SB 19 approach for
voluntary rebates first, but direct DHS in advance to move
forward with the type of approach included in AB 75
(leveraging the Medi-Cal program) if the Governor's program
should fail to achieve its goals. AB 2911 embodies the
LAO's recommendation.
Arguments in support
Supporters write that prescription drugs continue to rise,
driving up the cost of medical care and placing needed
medicine out of reach for too many Californians.
Supporters state that hardest hit are millions of people
who have no health insurance or inadequate coverage.
Supporters state that when consumers cannot afford the
drugs prescribed, this results in worse outcomes.
Supporters write that experiences in other states, as well
as that of the Golden Bear Pharmacy Assistance Program
established by AB 696 in 2001, demonstrate that voluntary
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discount programs work poorly, if at all. Consumers Union
points out that California has used prior authorization for
years in Medi-Cal and is widely regarded as having lower
Medicaid drug prices than states that do not use prior
authorization to negotiate supplemental rebates from drug
companies. The bill extends the benefit of these
negotiations to uninsured and underinsured Californians.
Supporters believe that this bill reflects a thoughtful
compromise between the initiatives on the ballot last year.
Arguments in opposition
The Western Center on Law and Poverty (Western Center) and
National Health Law Program oppose provisions of the bill
authorizing DHS to use prior authorization in the Medi-Cal
program to impede access to care for the state's poorest
and sickest population. The groups state that while they
support efforts to find a solution to provide discount
prescription drugs for the uninsured, they cannot support
an effort that would deny health coverage to one class of
individuals for the benefit of another class of
individuals. Western Center further states that obtaining
prior authorization is not a simple process and
beneficiaries frequently face a lengthy and cumbersome
process obtaining drugs subject to prior authorization.
The Western Center contends that while provisions of this
bill providing for continuity of care seek to lessen the
blow of the Medi-Cal hammer, there is no escaping the basic
premise of the bill which renders one population's access
to drugs more important than the other population's access.
The Pharmaceutical Research and Manufacturers of America
(PhRMA) and a number of biotechnology companies state
concerns about the system of price controls that would be
created by the bill. These groups write that while
government intervention in the market for prescription
drugs may produce some short-term savings for patients, the
long-term effects of price regulation on the biomedical
industry would be substantial. Limiting the returns that
manufacturers receive on their investments has a direct
effect on new investments into the research and development
of innovative therapies. The groups note that California
voters defeated a measure similar to AB 2911 in last year's
special election and that, like Maine Rx, the hammer
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provisions in AB 2911 will be subject to extensive
litigation.
Aside from their fundamental concerns about the hammer
provisions of AB 2911, opponents have proposed a number of
changes to the bill:
Lengthening the time period before DHS must consider
whether to impose the Medi-Cal hammer to three full years
from the time the program is implemented;
Requiring DHS to issue regulations before they must
consider whether to impose the hammer, to allow further
public participation in the implementation of the program
(the bill currently allows implementation through
provider bulletins and do not require regulations to be
issued until August, 2011);
Providing greater assistance to Medi-Cal beneficiaries
who lose access to drugs through implementation of the
hammer.
Related legislation
SB 1702 (Perata, 2006) is an identical measure to AB
2911. This measure is on the Assembly floor.
SB 19 (Ortiz, 2005) would have established the California
State Pharmacy Assistance Program (Cal Rx), a state
pharmacy assistance program under the authority of DHS,
to provide prescription drug discounts for California
residents with income up to 300 percent of FPL. This
measure failed in the Senate Health Committee.
AB 75 (Frommer, 2005) establishes a state pharmacy
assistance program for Californians with income up to 400
percent of FPL. This measure is in the Senate Health
Committee.
Prior legislation
SB 393 (Speier, Chapter 946, Statutes of 1999) requires
retail pharmacies that participate in the Medi-Cal
program to sell drugs to elderly and disabled persons on
Medicare at a discount price that is just above the
Medi-Cal price.
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SB 696 (Speier, Chapter 693, Statutes of 2001)
establishes the Golden Bear Pharmacy Assistance Program
to provide deeper discounts to Medicare recipients
through negotiated voluntary rebates with drug
manufacturers. However, in 2004 DHS ended its efforts to
implement the program because of administrative problems
passing rebates along to consumers and because few
manufacturers had been willing to provide these rebates.
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PRIOR ACTIONS
Senate Appropriations: 8 - 5 Do Pass
Senate Health: 5 - 4 Do Pass
Assembly Floor: 48 - 32 Pass
Assembly Appropriations:12 - 5 Do Pass
Assembly Health: 8 - 4 Do Pass as Amended
POSITIONS
Support: (Verified 8/18/06) (prior version except where
indicated)
OuRx Coalition (source)
AARP California
AIDS Healthcare Foundation
American Federation of State, County and
Municipal Employees
California Alliance for Retired Americans
California Consumers United
California Labor Federation, AFL-CIO
California Mental Health directors Association
(current version)
California National Organization for Women
California Pharmacists Association (if
amended)
California Public Interest Research Group
Congress of California Seniors
Consumers Union
Health Access California
Greenlining Institute
Insurance Commissioner John Garamendi
Latino Coalition for a Healthy California
Mexican American Legal Defense and Educational
Fund
Senior Action Network
Service Employees International Union
Oppose: Alpha Behavioral Health Services (unless
amended)
California Council of Community Mental Health
Agencies
California Healthcare Institute (unless
amended) (prior version)
Mental Health Association in California
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National Health Law Program
Pharmaceutical Research and Manufacturers of
America
Protection and Advocacy, Inc. (unless amended)
Western Center on Law and Poverty
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