BILL ANALYSIS Ó
AB 378
Page 1
ASSEMBLY THIRD READING
AB 378 (Solorio)
As Amended May 9, 2011
Majority vote
INSURANCE 9-0 BUSINESS & PROFESSIONS 8-1
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|Ayes:|Solorio, Hagman, Charles |Ayes:|Hayashi, Bill Berryhill, |
| |Calderon, Carter, Feuer, | |Allen, Eng, Hagman, Hill, |
| |Hayashi, Miller, Skinner, | |Ma, Smyth |
| |Wieckowski | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Butler |
| | | | |
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APPROPRIATIONS 17-0
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|Ayes:|Fuentes, Harkey, | | |
| |Blumenfield, Bradford, | | |
| |Charles Calderon, Campos, | | |
| |Davis, Donnelly, Gatto, | | |
| |Hall, Hill, Lara, | | |
| |Mitchell, Nielsen, Norby, | | |
| |Solorio, Wagner | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Regulates the dispensing of compounded medications and
related products in the workers' compensation system.
Specifically, this bill :
1)Adds "pharmacy goods" to the listing of goods and services for
which a physician may not refer a patient if the physician or his
or her immediate family has a financial interest in the provider
of the goods or services.
2)Defines "pharmacy goods" as a dangerous drug or device, as
defined in the Business and Professions Code, medical food as
defined in the Health and Safety Code, and over-the-counter (OTC)
drugs as classified by the federal Food and Drug Administration
(FDA).
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3)Establishes an exception to inclusion of OTC substances for
products sold a regular retail outlets that are open to the
public.
4)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.
5)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 the drug
product; or,
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.
6)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.
7)Specifies that the fee for any product dispensed by a physician
shall not exceed the lesser of 120% of the physician's documented
costs or the physician's documented cost plus $250.
8)Specifies that for a compounded drug product dispensed by a
physician, the maximum fee shall not exceed the lesser of the
amount calculated under item 4), above, or item 6), above.
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9)Provides that the rules governing payment to physicians for drugs
that they dispense shall apply only until a fee schedule for
these medications has been adopted by the AD.
10)Contains definitions for the various terms used in the bill.
11)Contains legislative findings and declarations chronicling the
recent significant rise in the dispensing of compounded
medications, co-packs and medical foods, and declaring the need
to end inappropriate financial incentives that lead to the
unnecessary and expensive prescribing and dispensing of
substances.
12)Repeals provisions of law in the Labor Code sections being
amended by the bill that expired on January 1, 2011.
EXISTING LAW :
1)Provides for a comprehensive system of workers' compensation
benefits for injuries to employees arising out of or in the
course of employment. Injured workers are entitled to
appropriate medical treatment, including necessary medications,
among other benefits.
2)Provides for a fee schedule to govern the amount that a provider
may charge for medications, generally requiring payment based on
the Medi-Cal fee schedule.
3)Requires, by regulation, that physicians dispensing medication
directly to patients from bulk supplies bill at the amount the
Medi-Cal schedule requires for the amount of medication being
dispensed.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, undetermined but potentially significant savings to the
state's workers' compensation program.
COMMENTS :
1)This bill was introduced to address an increasingly expensive
practice of physicians dispensing compounded medications at
arguably highly inflated prices, and in arguably inappropriate
circumstances. What began as anecdotal reports of questionable
practices has now been documented by a 2010 study by the
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California Workers' Compensation Institute (CWCI), and a 2011
Report to the Commission on Health and Safety and Workers'
Compensation (CHSWC) by RAND. AB 378 (Solorio) is designed to
curb these inappropriate practices.
2)Typically, when a patient needs medication, the physician will
write a prescription, and the patient will take the prescription
to a pharmacy that will fill the prescription. However,
physicians are also allowed to "dispense" medications. In these
circumstances, the physician determines what medication he or she
wants the patient to take, and provides it directly to the
patient. When done in the workers' compensation system, the
physician then bills the employer or insurer directly for the
"cost" of the medication. This bill addresses circumstances
where the medications being dispensed, at least in the volumes
being dispensed, raise questions about whether medical needs or
financial incentives are driving the decision to provide these
medications.
3)In the regular group and individual healthcare systems,
compounded medications are used only in unusual circumstances,
and generally only after more conventional therapies have been
shown to be ineffective. This infrequent incidence of
prescription or dispensing of compounded medications was also the
norm in the workers' compensation system until approximately
2007. Based on the findings of RAND and CWCI, it is NOT
coincidental that the substantial increase in physician
dispensing of compounded medications coincides with the
prohibition of physician repackaging and dispensing of regular
medications. According to the CWCI study, compounds increased
from 2.3% of drug expenses prior to 2007 to over 12% in less than
three years. Anecdotally, insurers report that this trend is
increasing.
Prior to the regulation controlling the repackaging problem,
physicians could skirt the Medi-Cal fee schedule by buying
"repackaged" drugs from distributors in packages labeled for
direct distribution to patients. These packages had National
Drug Code (NDC) numbers that were distinct from the NDC of the
bulk ingredients normally distributed to pharmacies. Because the
Medi-Cal fee schedule is based on the NDC of the product, and the
repackaged drugs did not appear in the Medi-Cal fee schedule, the
reimbursement to the physicians was not based on the Medi-Cal fee
schedule, but rather on an artificially high AWP assigned by the
repackager. The actual cost to the physician was a fraction of
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the arbitrary AWP, yet this artificial AWP is how the drugs were
billed. This arrangement enabled the physicians who engaged in
this practice to obtain excess profits by dispensing drugs at
prices several times the price of the same drugs distributed
through pharmacies. The AD's regulation mandates that repackaged
medications be billed at the Medi-Cal schedule equivalent, even
though there is not a Medi-Cal code for the individual packages.
It is difficult to dismiss the spiking of the incidence of
dispensing compounded medications in workers' compensation with
the loophole-closing repackaging regulation as mere coincidence.
Coupled with the infrequent use of these medications in the
regular healthcare system, it is difficult to avoid the
conclusion that compounded medications are the new profit-center
that has replaced the abusive repackaging practices.
4)It is not merely the bill's supporters - the California Labor
Federation, numerous employer groups, both major insurer
associations - who believe there are abuses in the system.
Physician and pharmacist groups agree that abuses are occurring.
The California Society of Industrial Medicine and Surgery and the
California Medical Association expressly acknowledge in their
communications to the Assembly Insurance Committee that there are
substantial abuses in the marketplace. Others, such as the
California Pharmacists Association, have been working since last
year to find a solution to this problem.
5)Physicians and pharmacists, in recognition that this bill is
addressing a complex problem, have not yet proposed specific
language to address areas where they seek amendments. The
concerns relate to whether the bill's formulas for calculating
fees need amending. The author and supporters have engaged with
physicians' and pharmacists' representatives in an ongoing
dialogue over these issues.
It is clear that a fee calculation methodology is needed, and it
appears that all parties are committed to working on drafting an
appropriate formula. It is also clear that limits on
self-referral are appropriate, and it is clear that a discussion
about whether existing laws suffice is appropriate. With respect
to OTC drugs inclusion, RAND and the CHSWC staff have documented
ways that OTC substances specifically labeled for the workers'
compensation market are used in lieu of readily available less
expensive medications, in ways to obtain excessive billings. It
remains a challenge to craft the precise language that curbs the
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abuses without impeding proper uses. The author is committed to
working on these issues as the bill moves through the process.
6)Physician Therapeutics, a specialty company that produces medical
foods, has an opposed unless amended position, and objects to
language in the findings and declarations that include its
FDA-approved products with other products that are not
FDA-approved. However, the company "is NOT opposed to the bill's
current method of bringing medical foods under the regulatory and
pricing program for workers' compensation."
7)Last year, AB 2779 (Solorio) was amended in the Senate to address
the compounding issue. That bill took a different approach by
requiring a pre-authorization before a physician could dispense a
compounded medication, and requiring the physician to employ more
conventional therapies before resorting to the use of compounded
medication. These elements are required in the Medi-Cal Program,
and in general are the rules in the group and individual
healthcare system. However, it was argued that these
requirements do not work in the workers' compensation system. AB
2779 passed the Senate Committee on Labor and Industrial
Relations, but was not taken up in the Appropriations Committee.
8)In light of the issues raised with respect to AB 2779 (Solorio),
Senator DeSaulnier and Assembly Member Solorio requested CHSWC to
commission a study of the issue, and develop policy
recommendations. CHSWC contracted with RAND to perform the
study, and AB 378 (Solorio) represents the proponents' best
efforts to draft language to implement the recommendations of the
RAND Report to CHSWC.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0000863