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 Page 2 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 AB 378 Page 3 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