BILL ANALYSIS Ó
AB 378
Page 1
Date of Hearing: May 27, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 378 (Solorio) - As Amended: May 9, 2011
Policy Committee: InsuranceVote:9 -
0
Business and Professions 8 - 1
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill regulates the dispensing of compounded medications in
the workers' compensation system, including the establishment of
a fee schedule and maximum fees for compounded drugs dispensed
directly by physicians. Specifically, this bill:
1)Provides that for a pharmacy service, drug or other product
that is not covered by a Medi-Cal payment system, the maximum
reasonable fee shall be 83% of the average wholesale price
(AWP) of the lowest priced product of equivalent therapeutic
effect.
2)Provides that, until the Administrative Director (AD) of the
Division of Workers' Compensation (DWC) adopts a fee schedule
for compounded drug products, the maximum reasonable fee for a
compounded drug product shall be the sum of the appropriate
fees for services provided by the Medi-Cal payment system,
plus the sum of the amounts allowed for the ingredients, as
follows:
a) If an ingredient is available in bulk from three or more
suppliers listed in national pricing compendiums, the unit
price shall be the lesser of 150% of the unit price of the
lowest cost alternatives, or the unit price listed in the
Medi-Cal database.
b) If an ingredient is not available from three or more
suppliers, but is listed in the Medi-Cal database, the unit
price shall be the lesser of the Medi-Cal price or 120% of
the documented costs paid by the pharmacy that compounds
AB 378
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the drug product.
c) If an ingredient is not available from three or more
suppliers, and is not listed in the Medi-Cal database, the
unit price shall be the lesser of 83% of the AWP or the
documented costs paid by the pharmacy that compounds the
drug product.
3)Provides that no fee shall be allowed for any ingredient that
is not identified by a valid National Drug Code, number of
units, unit price, and, if applicable, documented paid cost.
FISCAL EFFECT
1)Costs for DWC to implement this legislation would be
absorbable within their existing resources.
2)Overall workers compensation insurance savings would likely be
in the range of $50 million. The state, as an employer, would
save approximately $4 million per year.
COMMENTS
1)Rationale . The intent of this legislation is to ensure that
compound medications are subject to the same billing rate as
other pharmaceuticals in the workers compensation system. This
bill is intended to close a loophole that inadvertently
allowed providers to charge more than the agreed upon price in
the fee schedule by repackaging medications into doses or
packaging that does not fit the fee schedule.
The author argues that following California's workers'
compensation reforms and the establishment of a pharmaceutical
fee schedule based on Medi-Cal rates, some physicians and
companies providing services to physicians began directly
dispensing medications that had been "repackaged" from bulk
containers into normal sized doses. In doing this, they
circumvented the Medi-Cal fee schedule's price controls by
eliminating the National Drug Code (NDC) number that would
normally apply to that count of any given medication. The
author noted, "No NDC number, no fee schedule, no price
control, and massive over-billing. There were documented
common examples of up to 1000% over the normal pharmacy price
for the same medicine. A regulation in late 2007 put a stop
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to this practice by mandating use of the fee schedule price
that applied to the same type and quantity of drugs."
According to the author, "With strikingly coincidental timing,
the incidence of dispensing of custom compounded medications
began a meteoric rise in the workers' compensation system. In
the (three) years since the abusive repackaging practices were
limited, there has been a (five)-fold increase in the use of
these custom medications, virtually all of it via physician
dispensing. This is a scandalous state of affairs, costing
employers tens of millions of dollars or more annually, and
siphoning off dollars that ought to be diverted to
re-(establishing) fair permanent disability benefits for
injured workers."
2)Compound Medications . Pharmaceutical compounding is the
practice of mixing drugs to fit the unique needs of a
particular patient. Various circumstances require the
compounding of medications. For example, changing the form of
a given drug from a solid pill to a liquid or avoiding the use
of an ingredient that a patient is allergic to may require the
compounding of a medication.
3)Opposition . In opposition to the bill, the California Medical
Association argues that this bill implements a pricing
structure for compounded medications that is problematic and
essentially undervalues them to a level that will make it
impossible for providers to cover their costs in producing
them.
4)Related Legislation . AB 2779 (Solorio) of 2010 specified
conditions under which physicians could be reimbursed under
workers' compensation for dispensing compounded drugs,
including pre-authorization and documented failure of
FDA-approved alternatives to the compounded drug. That bill
was held on the Senate Floor.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081