BILL NUMBER: AB 399	AMENDED
	BILL TEXT

	AMENDED IN SENATE  JUNE 6, 2011

INTRODUCED BY   Assembly Member Bonnie Lowenthal

                        FEBRUARY 14, 2011

    An act to amend Section 5024.2 of the Penal Code,
relating to corrections.   An act to amend Sections
14105.192, 14105.45, and 14105.451 of the Welfare and Institutions
Code, relating to Medi-Cal. 



	LEGISLATIVE COUNSEL'S DIGEST


   AB 399, as amended, Bonnie Lowenthal.  Corrections:
offender pharmacies.  Medi-Cal: pharmacy providers 
 : drug reimbursement.  
   Existing law provides for the Medi-Cal program, which is
administered by the State Department of Health Care Services, under
which qualified low-income individuals receive health care services.
The Medi-Cal program is, in part, governed and funded by federal
Medicaid Program provisions. Existing law requires reimbursement to
Medi-Cal pharmacy providers for drugs, as prescribed.  
   This bill would modify the way in which reimbursement to Medi-Cal
pharmacy providers is calculated by, in part, authorizing the
department to establish a new reimbursement methodology based on
average acquisition cost. This bill would make other related changes.
 
   Existing law authorizes the Department of Corrections and
Rehabilitation to maintain and operate a comprehensive pharmacy
services program for those facilities under the jurisdiction of the
department that may incorporate specified features, including a
statewide pharmacy administration system with direct authority and
responsibility for program administration and oversight, and a
multidisciplinary, statewide Pharmacy and Therapeutics Committee with
specified responsibilities.  
   This bill would, instead, require a comprehensive pharmacy
services program to incorporate those specified features. 

   Existing law authorizes the department to operate and maintain a
centralized pharmacy distribution center and states that the
centralized pharmacy distribution center and institutional pharmacies
should be licensed as pharmacies by the California State Board of
Pharmacy and should meet all applicable regulations applying to a
pharmacy.  
   This bill would, instead, require that the centralized pharmacy
distribution center and institutional pharmacies be licensed as
pharmacies by the California State Board of Pharmacy and meet all
applicable regulations applying to a pharmacy.  
    Existing law states that the centralized pharmacy distribution
center should maintain a system of quality control checks on each
process used to package, label, and distribute medications, and that
the department should ensure that there is a program providing for
the regular inspection of all department pharmacies in the state to
verify compliance with applicable laws, rules, regulations, and other
standards as may be appropriate to ensure the health, safety, and
welfare of the department's inmate patients.  
   This bill would, instead, require the centralized pharmacy
distribution center to maintain a system of quality control checks on
each process used to package, label, and distribute medications, and
would require the department to ensure that there is a program
providing for the regular inspection of all department pharmacies in
the state to verify compliance with applicable laws, rules,
regulations, and other standards as may be appropriate to ensure the
health, safety, and welfare of the department's inmate patients.

   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


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

   SECTION 1.    Section 14105.192 of the  
Welfare and Institutions Code   is amended to read: 
   14105.192.  (a) The Legislature finds and declares the following:
   (1) Costs within the Medi-Cal program continue to grow due to the
rising cost of providing health care throughout the state and also
due to increases in enrollment, which are more pronounced during
difficult economic times.
   (2) In order to minimize the need for drastically cutting
enrollment standards or benefits during times of economic crisis, it
is crucial to find areas within the program where reimbursement
levels are higher than required under the standard provided in
Section 1902(a)(30)(A) of the federal Social Security Act and can be
reduced in accordance with federal law.
   (3) The Medi-Cal program delivers its services and benefits to
Medi-Cal beneficiaries through a wide variety of health care
providers, some of which deliver care via managed care or other
contract models while others do so through fee-for-service
arrangements.
   (4) The setting of rates within the Medi-Cal program is complex
and is subject to close supervision by the United States Department
of Health and Human Services.
   (5) As the single state agency for Medicaid in California, the
department has unique expertise that can inform decisions that set or
adjust reimbursement methodologies and levels consistent with the
requirements of federal law.
   (b) Therefore, it is the intent of the Legislature for the
department to analyze and identify where reimbursement levels can be
reduced consistent with the standard provided in Section 1902(a)(30)
(A) of the federal Social Security Act and consistent with federal
and state law and policies, including any exemptions contained in the
provisions of the act that added this section, provided that the
reductions in reimbursement shall not exceed 10 percent on an
aggregate basis for all providers, services and products.
   (c) Notwithstanding any other provision of law, the director shall
adjust provider payments, as specified in this section.
   (d) (1)  Except as otherwise provided in this section, payments
shall be reduced by 10 percent for Medi-Cal fee-for-service benefits
for dates of service on and after June 1, 2011.
   (2) For managed health care plans that contract with the
department pursuant to this chapter or Chapter 8 (commencing with
Section 14200), except contracts with Senior Care Action Network and
AIDS Healthcare Foundation, payments shall be reduced by the
actuarial equivalent amount of the payment reductions specified in
this section pursuant to contract amendments or change orders
effective on July 1, 2011, or thereafter.
   (3) Payments shall be reduced by 10 percent for non-Medi-Cal
programs described in Article 6 (commencing with Section 124025) of
Chapter 3 of Part 2 of Division 106 of the Health and Safety Code,
and Section 14105.18, for dates of service on and after June 1, 2011.
This paragraph shall not apply to inpatient hospital services
provided in a hospital that is paid under contract pursuant to
Article 2.6 (commencing with Section 14081).
   (4) (A) Notwithstanding any other provision of law, the director
may adjust the payments specified in paragraphs (1) and (3) of this
subdivision with respect to one or more categories of Medi-Cal
providers, or for one or more products or services rendered, or any
combination thereof, so long as the resulting reductions to any
category of Medi-Cal providers, in the aggregate, total no more than
10 percent.
   (B) The adjustments authorized in subparagraph (A) shall be
implemented only if the director determines that, for each affected
product, service or provider category, the payments resulting from
the adjustment comply with subdivision (m).
   (e) Notwithstanding any other provision of this section, payments
to hospitals that are not under contract with the State Department of
Health Care Services pursuant to Article 2.6 (commencing with
Section 14081) for inpatient hospital services provided to Medi-Cal
beneficiaries and that are subject to Section 14166.245 shall be
governed by that section.
   (f) Notwithstanding any other provision of this section, the
following shall apply:
   (1) Payments to providers that are paid pursuant to Article 3.8
(commencing with Section 14126) shall be governed by that article.
   (2) (A) Subject to subparagraph (B), for dates of service on and
after June 1, 2011, Medi-Cal reimbursement rates for intermediate
care facilities for the developmentally disabled licensed pursuant to
subdivision (e), (g), or (h) of Section 1250 of the Health and
Safety Code, and facilities providing continuous skilled nursing care
to developmentally disabled individuals pursuant to the pilot
project established by Section 14132.20, as determined by the
applicable methodology for setting reimbursement rates for these
facilities, shall not exceed the reimbursement rates that were
applicable to providers in the 2008-09 rate year.
   (B) (i) If Section 14105.07 is added to the Welfare and
Institutions Code during the 2011-12 Regular Session of the
Legislature, subparagraph (A) shall become inoperative.
   (ii) If Section 14105.07 is added to the Welfare and Institutions
Code during the 2011-12 Regular Session of the Legislature, then for
dates of service on and after June 1, 2011, payments to intermediate
care facilities for the developmentally disabled licensed pursuant to
subdivision (e), (g), or (h) of Section 1250 of the Health and
Safety Code, and facilities providing continuous skilled nursing care
to developmentally disabled individuals pursuant to the pilot
project established by Section 14132.20, shall be governed by the
applicable methodology for setting reimbursement rates for these
facilities and by Section 14105.07.
   (g) The department may enter into contracts with a vendor for the
purposes of implementing this section on a bid or nonbid basis. In
order to achieve maximum cost savings, the Legislature declares that
an expedited process for contracts under this subdivision is
necessary. Therefore, contracts entered into to implement this
section and all contract amendments and change orders shall be exempt
from Chapter 2 (commencing with Section 10290) of Part 2 Division 2
of the Public Contract Code.
   (h) To the extent applicable, the services, facilities, and
payments listed in this subdivision shall be exempt from the payment
reductions specified in subdivision (d) as follows:
   (1) Acute hospital inpatient services that are paid under
contracts pursuant to Article 2.6 (commencing with Section 14081).
   (2) Federally qualified health center services, including those
facilities deemed to have federally qualified health center status
pursuant to a waiver pursuant to subsection (a) of Section 1115 of
the federal Social Security Act (42 U.S.C. Sec. 1315(a)).
   (3) Rural health clinic services.
   (4) Payments to facilities owned or operated by the State
Department of Mental Health or the State Department of Developmental
Services.
   (5) Hospice services.
   (6) Contract services, as designated by the director pursuant to
subdivision (k).
   (7) Payments to providers to the extent that the payments are
funded by means of a certified public expenditure or an
intergovernmental transfer pursuant to Section 433.51 of Title 42 of
the Code of Federal Regulations. This paragraph shall apply to
payments described in paragraph (3) of subdivision (d) only to the
extent that they are also exempt from reduction pursuant to
subdivision (l).
   (8) Services pursuant to local assistance contracts and
interagency agreements to the extent the funding is not included in
the funds appropriated to the department in the annual Budget Act.
   (9) Breast and cervical cancer treatment provided pursuant to
Section 14007.71 and as described in paragraph (3) of subdivision (a)
of Section 14105.18 or Article 1.5 (commencing with Section 104160)
of Chapter 2 of Part 1 of Division 103 of the Health and Safety Code.

   (10) The Family Planning, Access, Care, and Treatment (Family
PACT) Program pursuant to subdivision (aa) of Section 14132.
   (i) Subject to the exception for services listed in subdivision
(h), the payment reductions required by subdivision (d) shall apply
to the benefits rendered by any provider who may be authorized to
bill for the service, including, but not limited to, physicians,
podiatrists, nurse practitioners, certified nurse-midwives, nurse
anesthetists, and organized outpatient clinics.
   (j) Notwithstanding any other provision of law, for dates of
service on and after June 1, 2011, Medi-Cal reimbursement rates
applicable to the following classes of providers shall not exceed the
reimbursement rates that were applicable to those classes of
providers in the 2008-09 rate year, as described in subdivision (f)
of Section  14105.91   14105.191  , reduced
by 10 percent:
   (1) Intermediate care facilities, excluding those facilities
identified in paragraph (2) of subdivision (f). For purposes of this
section, "intermediate care facility" has the same meaning as defined
in Section 51118 of Title 22 of the California Code of Regulations.
   (2) Skilled nursing facilities that are distinct parts of general
acute care hospitals. For purposes of this section, "distinct part"
has the same meaning as defined in Section 72041 of Title 22 of the
California Code of Regulations.
   (3) Rural swing-bed facilities.
   (4) Subacute care units that are, or are parts of, distinct parts
of general acute care hospitals. For purposes of this subparagraph,
"subacute care unit" has the same meaning as defined in Section
51215.5 of Title 22 of the California Code of Regulations.
   (5) Pediatric subacute care units that are, or are parts of,
distinct parts of general acute care hospitals. For purposes of this
subparagraph, "pediatric subacute care unit" has the same meaning as
defined in Section 51215.8 of Title 22 of the California Code of
Regulations.
   (6) Adult day health care centers.
   (7) Freestanding pediatric subacute care units, as defined in
Section 51215.8 of Title 22 of the California Code of Regulations.
   (k) Notwithstanding Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code, the
department may implement and administer this section by means of
provider bulletins, or similar instructions, without taking
regulatory action.
   (l) The reductions described in this section shall apply only to
payments for services when the General Fund share of the payment is
paid with funds directly appropriated to the department in the annual
Budget Act and shall not apply to payments for services paid with
funds appropriated to other departments or agencies.
   (m) Notwithstanding any other provision of this section, the
payment reductions and adjustments provided for in subdivision (d)
shall be implemented only if the director determines that the
payments that result from the application of this section will comply
with applicable federal Medicaid requirements and that federal
financial participation will be available.
   (1) In determining whether federal financial participation is
available, the director shall determine whether the payments comply
with applicable federal Medicaid requirements, including those set
forth in Section 1396a(a)(30)(A) of Title 42 of the United States
Code.
   (2) To the extent that the director determines that the payments
do not comply with the federal Medicaid requirements or that federal
financial participation is not available with respect to any payment
that is reduced pursuant to this section, the director retains the
discretion to not implement the particular payment reduction or
adjustment and may adjust the payment as necessary to comply with
federal Medicaid requirements.
   (n) The department shall seek any necessary federal approvals for
the implementation of this section.
   (o) This section shall not be implemented until federal approval
is obtained. When federal approval is obtained, the payments
resulting from the application of subdivision (d) shall be
implemented retroactively to June 1, 2011, or on such other date or
dates as may be applicable. 
   (p) Adjustments to pharmacy drug product reimbursement pursuant to
this section shall no longer apply when the department determines
that the average acquisition cost methodology has been fully
implemented pursuant to Section 14105.45. 
   SEC. 2.    Section 14105.45 of the   Welfare
and Institutions Code   is amended to read: 
   14105.45.  (a) For purposes of this section, the following
definitions shall apply: 
   (1) "Average manufacturers price" means the price reported to the
department by the Centers for Medicare and Medicaid Services pursuant
to Section 1927 of the Social Security Act (42 U.S.C. Sec. 1396r-8).
In the event an average manufacturer's price is not available, the
department shall use the direct price as the average manufacturer's
price.  
   (1) "Average acquisition cost" or "AAC" means the cost or basis
for reimbursement to pharmacy providers for drug products. The AAC
shall be the average of the invoice costs paid by individual
pharmacies to wholesalers, manufacturers, or distribution centers for
individual drug products based on the 11-digit National Drug Code
(NDC) number. 
   (2) "Average wholesale price"  or "AWP"  means the price
for a drug product listed as the average wholesale price in the
department's primary price reference source. 
   (3) "Direct price" means the price for a drug product purchased by
a pharmacy directly from a drug manufacturer listed in the
department's primary reference source.  
   (4) "Estimated acquisition cost" means the department's best
estimate of the price generally and currently paid by providers for a
drug product sold by a particular manufacturer or principal labeler
in a standard package.  
   (3) "Estimated acquisition cost" or "EAC" means the AAC of the
drug or, in cases where no AAC is available, the wholesale
acquisition cost plus not less than 3 percent.  
   (5) 
    (4)  "Federal upper limit"  or "FUL"  means the
maximum per unit reimbursement when established by the Centers for
Medicare and Medicaid Services and published by the department in
Medi-Cal pharmacy provider bulletins and manuals. 
   (6) 
    (5)  "Generically equivalent drugs" means drug products
with the same active chemical ingredients of the same strength
 , quantity, and dosage form, and of the same
generic drug name, as determined by the United States Adopted Names
(USAN) and accepted by the federal Food and Drug Administration
(FDA), as  those drug products having the same chemical
ingredients   therapeutically equivalent in the FDA
Approved Drug Products with Therapeutic Equivalent Evaluations (the
Orange Book)  . 
   (7) 
    (6)  "Legend drug" means any drug whose labeling states
"Caution: Federal law prohibits dispensing without prescription," "Rx
only," or words of similar import. 
   (8) "Maximum allowable ingredient cost" (MAIC) means the maximum
amount the department will reimburse Medi-Cal pharmacy providers for
generically equivalent drugs.  
   (9) 
    (7)  "Innovator multiple source drug," "noninnovator
multiple source drug," and "single source drug" have the same meaning
as those terms are defined in Section 1396r-8(k)(7) of Title 42 of
the United States Code. 
   (10) 
    (8)  "Nonlegend drug" means any drug whose labeling does
not contain the statement referenced in paragraph  (7)
  (6)  . 
   (11) "Selling price" means the price used in the establishment of
the estimated acquisition cost. The department shall base the selling
price on the average manufacturer's price plus a percent markup
determined by the department to be necessary for the selling price to
represent the average purchase price paid by retail pharmacies in
California. The selling price shall not be considered confidential
and shall 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).  
   (12) "Volume weighted average" means the aggregated average volume
for generically equivalent drugs, weighted by each drug's percentage
of the total volume in the Medi-Cal fee-for-service program during
the previous six months. For purposes of this paragraph, volume is
based on the standard billing unit used for the generically
equivalent drugs.  
   (9) "Pharmacy warehouse" means a physical location licensed as a
wholesaler for prescription drugs that acts as a central warehouse
and performs intracompany sales or transfers of those drugs to a
group of pharmacies under common ownership and control.  
   (10) "Specialty pharmacy drug" means a drug that generally
requires special handling, complex dosing regimens, administration by
self-administration in the home or by a provider in the home,
clinic, or a practitioner's office, patient education, special
monitoring, or clinical support.  
   (11) "Wholesaler" means a drug wholesaler that is engaged in
wholesale distribution of prescription drugs to retail pharmacies in
California.  
   (13) 
    (12)  "Wholesaler acquisition cost"  or "WAC" 
means the price for a drug product listed as the wholesaler
acquisition cost in the department's primary price reference source.

   (b) (1) Reimbursement to Medi-Cal pharmacy providers for legend
and nonlegend drugs shall consist of the estimated acquisition cost
of the drug plus a professional fee for dispensing. The professional
fee shall be seven dollars and twenty-five cents ($7.25) per
dispensed prescription. The professional fee for legend drugs
dispensed to a beneficiary residing in a skilled nursing facility or
intermediate care facility shall be eight dollars ($8) per dispensed
prescription. For purposes of this paragraph "skilled nursing
facility" and "intermediate care facility" shall have the same
meaning as defined in Division 5 (commencing with Section 70001) of
Title 22 of the California Code of Regulations.  
   (2) The department shall establish the estimated acquisition cost
of legend and nonlegend drugs as follows:  
   (A) For single source and innovator multiple source drugs, the
estimated acquisition cost shall be equal to the lowest of the
average wholesale price minus 17 percent, the selling price, the
federal upper limit, or the MAIC.  
   (B) For noninnovator multiple source drugs, the estimated
acquisition cost shall be equal to the lowest of the average
wholesale price minus 17 percent, the selling price, the federal
upper limit, or the MAIC.  
   (3) For purposes of paragraph (2), the department shall establish
a list of MAICs for generically equivalent drugs, which shall be
published in pharmacy provider bulletins and manuals. The department
shall establish a MAIC only when three or more generically equivalent
drugs are available for purchase and dispensing by retail pharmacies
in California. The department shall update the list of MAICs and
establish additional MAICs in accordance with all of the following:
 
   (A) The department shall base the MAIC on the mean of the average
manufacturer's price of drugs generically equivalent to the
particular innovator drug plus a percent markup determined by the
department to be necessary for the MAIC to represent the average
purchase price paid by retail pharmacies in California. 

   (B) If average manufacturer prices are unavailable, the department
shall establish the MAIC in either of the following ways: 

   (i) Based on the volume weighted average of wholesaler acquisition
costs of drugs generically equivalent to the particular innovator
drug plus a percent markup determined by the department to be
necessary for the MAIC to represent the average purchase price paid
by retail pharmacies in California.  
   (ii) Pursuant to a contract with a vendor for the purpose of
surveying drug price information, collecting data, and calculating a
proposed MAIC. 
   (C) The department may enter into contracts with a vendor for the
purpose of this section on a bid or nonbid basis. In order to achieve
maximum cost savings, the Legislature declares that an expedited
process for contracts under this section is necessary. Therefore,
contracts entered into on a nonbid basis shall be exempt from Chapter
2 (commencing with Section 10290) of Part 2 of Division 2 of the
Public Contract Code.  
   (D) The department shall update MAICs at least every three months
and notify Medi-Cal providers at least 30 days prior to the effective
date of a MAIC.  
   (E) The department shall establish a process for providers to seek
a change to a specific MAIC when the providers believe the MAIC does
not reflect current available market prices. If the department
determines a MAIC change is warranted, the department may update a
specific MAIC prior to notifying providers.  
   (F) In determining the average purchase price, the department
shall consider the provider-related costs of the products that
include, but are not limited to, shipping, handling, storage, and
delivery. Costs of the provider that are included in the costs of the
dispensing shall not be used to determine the average purchase
price.  
   (c) The department shall update the Medi-Cal claims processing
system to reflect the selling price of drugs not later than 30 days
after receiving the average manufacturer's price.  
   (d) In order to maintain beneficiary access to prescription drug
services, no later than 30 days after the department initially
implements selling price as a component of estimated acquisition
cost, pursuant to paragraph (2) of subdivision (b), the department
shall make a one-time adjustment to the dispensing fees paid to
pharmacy providers in accordance with paragraph (1) of subdivision
(b). This change shall only be made if selling price results in a
lower aggregate drug reimbursement. Any increase in dispensing fee
made pursuant to this subdivision shall not exceed the aggregate
savings associated with the implementation of selling price. At least
30-days prior to implementing the dispensing fee increase, the
department shall issue a copy of the department's request for federal
approval pursuant to subdivision (e), to the chairperson in each
house that considers appropriations and the Chairperson of the Joint
Legislative Budget Committee, or whatever lesser time the Chairperson
of the Joint Legislative Budget Committee or his or her designee may
determine.  
   (b) (1) Reimbursement to Medi-Cal pharmacy providers for legend
and nonlegend drugs shall not exceed the lowest of all of the
following:  
   (A) The FUL for certain multiple source drugs as established and
published by the federal Centers for Medicare and Medicaid Services
(CMS) plus a reasonable dispensing fee.  
   (B) The EAC for the drug plus a reasonable dispensing fee. 

   (C) The provider's usual and customary charge to the general
public for the drug.  
   (D) For legend and nonlegend drugs that do not have a FUL, AAC, or
WAC, the AWP minus ____ percent, plus a reasonable dispensing fee.
 
   (2) (A) Until the department implements the average acquisition
cost methodology pursuant to paragraph (3) and the reasonable
dispensing fee is established pursuant to subparagraph (B), retail
pharmacy providers shall be paid a professional fee of seven dollars
and twenty-five cents ($7.25) per dispensed prescription. The
professional fee for legend drugs dispensed to a beneficiary residing
in a skilled nursing facility or intermediate care facility shall be
eight dollars ($8) per dispensed prescription. For purposes of this
section, "skilled nursing facility" and "intermediate care facility"
shall have the same meaning as defined in Division 5 (commencing with
Section 70001) of Title 22 of the California Code of Regulations.
 
   (B) When the AAC methodology is implemented pursuant to paragraph
(3), the department shall pay pharmacy providers the dispensing fee
established pursuant to this subparagraph, including payment to
retail pharmacy providers of the annually adjusted dispensing fee if
the fee is greater than seven dollars and twenty-five cents ($7.25).
The reasonable dispensing fee shall be established as follows: 

   (i) At least 60 days prior to implementing the AAC methodology,
the department shall complete a cost-of-dispensing study and shall
make the results available to all retail pharmacy providers. 

   (ii) The retail pharmacy factors and elements used for the
cost-of-dispensing study to determine the dispensing fee shall be
agreed upon and negotiated with retail pharmacies.  
   (iii) The cost-of-dispensing study shall include a separate
determination of the cost of dispensing specialty drugs. The
department shall establish a separate reasonable dispensing fee for
dispensing specialty drugs.  
   (iv) The department shall begin paying retail pharmacy providers
the dispensing fee, including the dispensing fee for specialty drugs
determined by the cost-of-dispensing study, at the time of
implementation of the AAC methodology.  
                               (v) The January after implementation
of the AAC methodology, and each January thereafter, the department
shall conduct a cost of dispensing study and pay retail pharmacy
providers the dispensing fee determined by the cost-of-dispensing
study, or alternatively, the department shall annually, on January 1
of each year, adjust the dispensing fee based on the Bureau of Labor
Employment Cost Index (ECI).  
   (3) For the purposes of paragraph (1), the department may
establish the average acquisition cost for single source drugs,
innovator multiple source drugs, and noninnovator multiple source
drugs.  
   (A) The department may, at its discretion, establish average
acquisition cost in one of the following ways:  
   (i) Based on a national pricing benchmark obtained from the
federal Centers for Medicare and Medicaid Services or on a similar
benchmark listed in the department's primary price reference source
adjusted by the department to ensure that the average acquisition
price represents the average purchase price paid by retail pharmacies
in California.  
   (ii) Based on the proposed average acquisition cost as calculated
by the vendor pursuant to a contract described in paragraph (4).
 
   (B) The average acquisition cost shall be the net cost to
individually enrolled retail pharmacy provider locations and shall
include additional costs included on the pharmacy providers'
invoices. In establishing the AAC, the department or the vendor shall
conduct a survey of enrolled pharmacies, or wholesalers when
applicable, at least every three months to collect drug acquisition
cost information including, but not limited to, pharmacy invoices
from individual retail pharmacy locations.  
   (i) Retail pharmacy warehouses shall not be required to submit
pharmacy invoices.  
   (ii) At the time of survey, a retail pharmacy provider location
may be exempt from having to provide pharmacy invoices if the
information is not reasonably available or retrievable due to
circumstances outside the control of the retail pharmacy provider
location.  
   (iii) An individual retail pharmacy location surveyed pursuant to
this subparagraph shall have the option of having the department
collect the pharmacy invoices from its wholesale drug distributor.
 
   (iv) Individual retail pharmacy locations may not be surveyed more
than once every two years.  
   (v) Survey information, including pharmacy invoices, provided to
the department or a vendor pursuant to this section shall be used
solely for the purposes of establishing the average acquisition cost
pursuant to this section, shall be confidential, and shall be exempt
from disclosure under the California Public Records Act (Chapter 3.5
(commencing with Section 6250) of Division 7 of Title 1 of the
Government Code), and shall be destroyed within four months after the
survey is completed.  
   (C) Average acquisition costs established pursuant to this
paragraph shall be implemented for payment to retail pharmacy
providers not more than 10 business days after completion of the
survey.  
   (4) For the purposes of paragraph (3), the department may contract
with a vendor for the purpose of surveying drug price information,
collecting data from individual retail pharmacy locations, or their
wholesalers if applicable, and calculating a proposed average
acquisition cost.  
   (e) 
    (c)  The director shall implement this section in a
manner that is consistent with federal Medicaid law and regulations.
The director shall seek any necessary federal approvals for the
implementation of this section. This section shall be implemented
only to the extent that federal approval is obtained. 
   (f) 
    (d)  Notwithstanding Chapter 3.5 (commencing with
Section 11340) of Part 1 of Division 3 of Title 2 of the Government
Code, the department may take the actions specified in this section
 by providing not less than 60 days prior notice to retail
pharmacy providers  by means of a provider bulletin or notice,
 policy letter, or other similar instructions, 
without taking regulatory action. 
   (g) The department shall issue a Medi-Cal pharmacy reimbursement
fact sheet to the chairperson of the committee in each house of the
Legislature that considers appropriations no later than March 1,
2008. The reimbursement fact sheet shall contain, but not be limited
to, available data and information regarding the change in
reimbursement due to the federal Deficit Reduction Act of 2005
implementation of average manufacturer's price based federal upper
limits, the implementation of selling price, change in the average
wholesale price reported to the department by the primary price
reference source, change in pharmacy dispensing fees, prescription
drug volume trends, and the number of active Medi-Cal pharmacy
providers. The fact sheet shall also contain general information and
definitions regarding drug pricing terminology and a description of
pharmacy claims processing in Medi-Cal.  
   (e) The department may enter into contracts with a vendor for the
purposes of implementing this section on a bid or nonbid basis. In
order to achieve maximum cost savings, the Legislature declares that
an expedited process for contracts under this section is necessary.
Therefore, contracts entered into to implement this section, and all
contract amendments and change orders, shall be exempt from Chapter 2
(commencing with Section 10290) of Part 2 of Division 2 of the
Public Contract Code.  
   (f) (1) The rates provided for in this section shall be
implemented only if CMS determines that the rates will comply with
applicable federal Medicaid requirements and that federal financial
participation will be available.  
   (2) In assessing whether federal financial participation is
available, the director shall comply with the CMS determination on
whether the rates comply with applicable federal Medicaid
requirements, including those set forth in Section 1396a(a)(30)(A) of
Title 42 United States Code.  
   (3) To the extent that the director determines that the rates do
not comply with applicable federal Medicaid requirements or that
federal financial participation is not available with respect to any
rate of reimbursement described in this section, the director retains
the discretion not to implement that rate and may revise the rate as
necessary to comply with federal Medicaid requirements.  
   (g) The director shall seek any necessary federal approvals for
the implementation of this section. The director shall not implement
any rate revised pursuant to paragraph (3) of subdivision (f) until
after the director has sought and received approval from CMS. 

   (h) Adjustments to pharmacy drug product reimbursement made
pursuant to Section 14105.192 shall no longer apply when the
department determines that the average acquisition cost methodology
has been fully implemented. 
   SEC. 3.    Section 14105.451 of the  
Welfare and Institutions Code   is amended to read: 
   14105.451.  (a) (1) The Legislature finds and declares all of the
following:
   (A) The United States Department of Health and Human Services has
identified the critical need for state Medicaid agencies to establish
pharmacy reimbursement rates based on a pricing benchmark that
reflects actual acquisition costs.
   (B) The Medi-Cal program currently uses a methodology based on
average wholesale price  (AWP)  .
   (C) Investigations by the federal Office of Inspector General have
found that average wholesale price is inflated relative to average
acquisition cost.
   (2) Therefore, it is the intent of the Legislature to enact
legislation by August 1, 2011, that provides for development of a new
reimbursement methodology that will enable the department to achieve
savings while continuing to reimburse pharmacy providers in
compliance with federal law.
   (b) The department may require providers, manufacturers, and
wholesalers to submit any data the director determines necessary or
useful in preparing for the transition from a methodology based on
average wholesale price to a methodology based on actual acquisition
cost. 
   (c) If the AWP ceases to be listed by the department's primary
price reference source vendor, the department may direct the fiscal
intermediary to establish a process with the primary price reference
source vendor to temporarily report the AWP, consistent with the
definition of AWP in Section 14105.45. If this process is
established, it shall be limited in scope and duration, and shall
cease when the department has fully implemented the average
acquisition cost methodology pursuant to Section 14105.45. 

  SECTION 1.    Section 5024.2 of the Penal Code is
amended to read:
   5024.2.  (a) The Department of Corrections and Rehabilitation is
authorized to maintain and operate a comprehensive pharmacy services
program for those facilities under the jurisdiction of the department
that is both cost effective and efficient, that program shall
incorporate all of the following:
   (1) A statewide pharmacy administration system with direct
authority and responsibility for program administration and
oversight.
   (2) Medically necessary pharmacy services using professionally and
legally qualified pharmacists, consistent with the size and the
scope of medical services provided.
   (3) Written procedures and operational practices pertaining to the
delivery of pharmaceutical services.
   (4) A multidisciplinary, statewide Pharmacy and Therapeutics
Committee responsible for all of the following:
   (A) Developing and managing a department formulary.
   (B) Standardizing the strengths and dosage forms for medications
used in department facilities.
   (C) Maintaining and monitoring a system for the review and
evaluation of corrective actions related to errors in prescribing,
dispensing, and administering medications.
   (D) Conducting regular therapeutic category reviews for
medications listed in the department formulary.
   (E) Evaluating medication therapies and providing input to the
development of disease management guidelines used in the department.
   (5) A requirement for the use of generic medications, when
available, unless an exception is reviewed and approved in accordance
with an established nonformulary approval process.
   (6) Use of an enterprise-based pharmacy operating system that
provides management with information on prescription workloads,
medication utilization, prescribing data, and other key pharmacy
information.
   (b) The department is authorized to operate and maintain a
centralized pharmacy distribution center to provide advantages of
scale and efficiencies related to medication purchasing, inventory
control, volume production, drug distribution, workforce utilization,
and increased patient safety. The centralized pharmacy distribution
center and institutional pharmacies shall be licensed as pharmacies
by the California State Board of Pharmacy and shall meet all
applicable regulations applying to a pharmacy.
   (1) To the extent it is cost effective and efficient, the
centralized pharmacy distribution center should include systems to do
the following:
   (A) Order and package bulk pharmaceuticals and prescription and
stock orders for all department correctional facilities.
   (B) Label medications as required to meet state and federal
prescription requirements.
   (C) Provide barcode validation matching the drug to the specific
prescription or floor stock order.
   (D) Sort completed orders for shipping and delivery to department
facilities.
   (2) Notwithstanding any other requirements, the department
centralized pharmacy distribution center is authorized to do the
following:
   (A) Package bulk pharmaceuticals into both floor stock and
patient-specific packs.
   (B) Reclaim, for reissue, unused and unexpired medications.
   (C) Distribute the packaged products to department facilities for
use within the state corrections system.
   (3) The centralized pharmacy distribution center shall maintain a
system of quality control checks on each process used to package,
label, and distribute medications. The quality control system may
include a regular process of random checks by a licensed pharmacist.
   (c) The department may investigate and initiate potential
systematic improvements in order to provide for the safe and
efficient distribution and control of, and accountability for, drugs
within the department's statewide pharmacy administration system,
taking into account factors unique to the correctional environment.
   (d) The department shall ensure that there is a program providing
for the regular inspection of all department pharmacies in the state
to verify compliance with applicable law, rules, regulations, and
other standards as may be appropriate to ensure the health, safety,
and welfare of the department's inmate patients.
   (e) On March 1, 2012, and each March 1 thereafter, the department
shall report all of the following to the Joint Legislative Budget
Committee, the Senate Committee on Appropriations, the Senate
Committee on Budget and Fiscal Review, the Senate Committee on
Health, the Senate Committee on Public Safety, the Assembly Committee
on Appropriations, the Assembly Committee on Budget, the Assembly
Committee on Health, and the Assembly Committee on Public Safety:
   (1) The extent to which the Pharmacy and Therapeutics Committee
has been established and achieved the objectives set forth in this
section, as well as the most significant reasons for achieving or not
achieving those objectives.
   (2) The extent to which the department is achieving the objective
of operating a fully functioning and centralized pharmacy
distribution center, as set forth in this section, that distributes
pharmaceuticals to every adult prison under the jurisdiction of the
department, as well as the most significant reasons for achieving or
not achieving that objective.
   (3) The extent to which the centralized pharmacy distribution
center is achieving cost savings through improved efficiency and
distribution of unit dose medications.
   (4) A description of planned or implemented initiatives to
accomplish the next 12 months' objectives for achieving the goals set
forth in this section, including a fully functioning and centralized
pharmacy distribution center that distributes pharmaceuticals to
every adult facility under the jurisdiction of the department.
   (5) The costs for prescription pharmaceuticals for the previous
fiscal year, both statewide and at each adult prison under the
jurisdiction of the department, and a comparison of these costs with
those of the prior fiscal year.
   (f) The requirement for submitting a report imposed under
subdivision (e) is inoperative on March 1, 2016, pursuant to Section
10231.5 of the Government Code.