BILL ANALYSIS                                                                                                                                                                                                    Ó






                                 SENATE HEALTH
                               COMMITTEE ANALYSIS
                       Senator Ed Hernandez, O.D., Chair


          BILL NO:       SB 866                                      
          S
          AUTHOR:        Hernandez                                   
          B
          AMENDED:       April 11, 2011                              
          HEARING DATE:  April 13, 2011                              
          8
          CONSULTANT:                                                
          6              
          Chan-Sawin                                                 
          6              
                                     SUBJECT
                                         
                    Health care coverage: prescription drugs


                                     SUMMARY 

          Directs the Departments of Managed Health Care and 
          Insurance, on or before July 1, 2012, to develop a 
          standardized prior authorization form for prescription drug 
          benefits, as specified.  Requires prescribing providers, as 
          defined, to use, and health care service plans and health 
          insurers to accept, the standardized form when requiring 
          prior authorization for prescription drug benefits.  


                             CHANGES TO EXISTING LAW  

          Existing law:
          Provides for the regulation of health care services plans 
          (health plans) by the Department of Managed Health Care 
          (DMHC), and for the regulation of health insurers by the 
          California Department of Insurance (CDI).  
          
          Imposes various requirements and restrictions on certain 
          procedures, commonly referred to as utilization review, 
          that apply to every health plan and insurer that 
          prospectively, retrospectively, or concurrently reviews and 
          approves, modifies, delays, or denies, based on medical 
          necessity, requests by providers prior to, retrospectively, 
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          or concurrent with, the provision of health care services 
          to enrollees or insureds, as specified.  
          
          Imposes various requirements and restrictions on health 
          plans and insurers, including, among other things, a 
          prohibition on health plans and insurers that provide 
          prescription drug benefits from excluding or limiting 
          coverage for a drug on the basis that the drug is 
          prescribed for a use that is different from the use for 
          which the drug has been approved for marketing by the 
          federal Food and Drug Administration. 

          Requires health plans and insurers to respond to requests 
          for authorization within five business days for non-urgent 
          medically necessary health care services, as specified, or 
          within 72 hours for situations when the enrollee or 
          insured's condition is such that he or she faces an 
          imminent and serious threat to his or her health, as 
          specified.

          Requires health plans and insurers to communicate decisions 
          to approve, modify or deny requests within 24 hours of the 
          decision to the provider, with certain exceptions.  
          Additionally requires health plans and insurers to 
          communicate decisions resulting in the denial, delay or 
          modification of all or part of the request to the enrollee 
          or insured within two business days.

          Requires health plans that provide prescription drug 
          benefits to maintain an expeditious process by which 
          prescribing providers, as described, may obtain 
          authorization for a medically necessary nonformulary 
          prescription drug, according to certain procedures.
          
          This bill:
          Directs DMHC and CDI to jointly develop a standardized 
          prior authorization form for prescription drug benefits on 
          or before July 1, 2012, which every prescribing provider is 
          required to use to request prior authorization for coverage 
          of prescription drug benefits.

          Defines "prescribing provider" as a provider authorized to 
          write a prescription to treat a medical condition of an 
          enrollee, as currently defined in existing law.

          Requires health plans and insurers that provide 




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          prescription drug benefits to accept the standardized form 
          when requiring prior authorization for prescription drug 
          benefits.

          Specifies that the form shall not exceed two pages, be made 
          electronically available by the departments and health 
          plans and insurers, and may be electronically submitted 
          from the prescribing provider to the health plan or 
          insurer.

          Requires DMHC and CDI to develop the form with input from 
          interested parties, as specified.

          Requires DMHC and CDI, in developing the form, to consider 
          existing prior authorization forms established by the 
          federal Centers for Medicare and Medicaid and the state 
          Department of Health Care Services, and national standards 
          for electronic prior authorization. 

          If the health plan or insurer fails to use or accept the 
          prior authorization form, or fails to respond within 48 
          hours to a request from a prescribing provider who has 
          submitted a prior authorization form, the prior 
          authorization request shall be deemed granted.

          Provides an exemption for a physician or physician group 
          that has been delegated the financial risk for prescription 
          drugs by a health plan and does not use a prior 
          authorization process within the group.


                                  FISCAL IMPACT  

          This bill has not been analyzed by a fiscal committee.

                            BACKGROUND AND DISCUSSION  

          According to the author, SB 866 streamlines the prior 
          authorization process and improves access to prescription 
          drugs by creating a standardized form for providers to use 
          when making such a request. Prior authorization 
          significantly delays medication accessibility for patients 
          and imposes high costs that adversely impact operating 
          margins for health care providers.  The lack of 
          standardization in the prior authorization process 
          negatively delays and impacts patient care, as indicated in 




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          a recent survey of pharmacists that found 61 percent of 
          pharmacists knew of an incident when the requirement for 
          prior authorization adversely affected patient care.  

          The lack of standardization also results in providers 
          spending excessive time on paperwork that could be spent 
          providing patient care.  Physicians spend, on average, 20 
          hours per week handling prior authorizations. Pharmacists 
          also find prior authorization time consuming, spending an 
          average of 4.6 hours a week on requests.  A May 2010 survey 
          by the American Medical Association (AMA) found nearly 
          two-thirds of physicians wait several days to receive prior 
          authorization from an insurer, and over half of physicians 
          experience difficulty obtaining approval from health plans 
          and insurers.  

          Beyond the access problems created by the lack of 
          standardization, prior authorization also increases health 
          care costs.  A September 2010 study published in the 
          Journal of Clinical Infectious Diseases revealed a direct 
          cost of $14.24 per prior authorization to the provider.  
          When the opportunity costs are combined with the direct 
          cost, the overall cost per prior authorization increased to 
          $41.60.  

          Prior authorization
          Prior authorization is a common cost-containment and 
          utilization review method used by health plans, insurers, 
          and some public coverage programs.  The practice of prior 
          authorization, also called prior approval or 
          preauthorization, requires a prescriber to obtain 
          permission from the health plan or insurer to prescribe a 
          medication before prescribing it.  

          Health plans and insurers routinely require physicians to 
          fill out prior authorization forms when the provider 
          prescribes a medicine or treatment not covered by the plan 
          or insurer's formulary.  Each plan or insurer has their own 
          prior authorization form, and some plans and insurers may 
          have multiple forms depending on the type of drug 
          requested.

          Prior authorization is intended to curb abuse and diversion 
          of controlled substances, and has been shown to be 
          effective in controlling prescription drug costs.  
          Medications that commonly require prior authorization 




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          include:


                 Brand name medications that have a generic 
               available; 

                 Expensive medications;

                 Drugs not usually covered by the insurance company, 
               but said to be medically necessary by the doctor;

                 Drugs usually covered but prescribed at a higher 
               dosage;

                 Drugs used for cosmetic reasons; and

                 Drugs prescribed to treat a non-life threatening 
               medical condition. 


          Standardization of prior authorization in public programs
          Fee-for-service Medi-Cal uses a "treatment authorization 
          request" or "TAR" process for prior authorization.  In this 
          process, both the doctor and pharmacist must obtain state 
          approval before the beneficiary can receive the medication 
          they need.  A standardized prior authorization form is 
          available in both paper and electronic form to providers 
          participating in the Medi-Cal fee-for-service program.  
          Medi-Cal managed care plans have their own prior 
          authorization procedures.  Both federal and state law 
          specifies that the state must respond to such requests 
          under the Medi-Cal program within 24 hours.

          The standard Medicare fee-for-service program does not 
          require prior authorization for services.  However, health 
          plans and insurers participating in the Medicare Advantage 
          program and Part D program may institute prior 
          authorization processes.  As part of the Medicare Part D 
          roll-out, to further simplify procedures in the new 
          Medicare drug benefit program, the American Medical 
          Association (AMA) and America's Health Insurance Plans 
          (AHIP), in conjunction with Centers for Medicare & Medicaid 
          Services (CMS), established a standardized prior 
          authorization form for physicians to use when dealing with 
          Medicare Part D drug plans.





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          Other national prior authorization efforts
          As part of CMS funded electronic prescribing pilots in 
          2006, a task force of the National Council for Prescription 
          Drug Programs (NCPDP) began examining prior authorization 
          requirements associated with the e-prescribing process.  In 
          2009, NCPDP established a technical standard for electronic 
          prior authorization transactions for broader industry pilot 
          testing.  This effort did not include establishment of a 
          standardized form or questions for prior authorization.  

          Related bills
          AB 369 (Huffman), among other things, specifies that once a 
          patient has tried and failed on two pain medications, prior 
          authorization is no longer required and the physician may 
          write the prescription for the appropriate pain medication. 
           It further specifies that a note in the patient's chart 
          that a patient has tried and failed on the health insurer's 
          step therapy or fail first protocol shall suffice as prior 
          authorization from the insurer.  Set for hearing on April 
          26, 2011 in the Assembly Committee on Health.

          Prior legislation
          SB 1169 (Lowenthal) of 2010, among other things, would have 
          required health plans and insurers to assign a tracking 
          number to a claim or provider request for prior 
          authorization, provide acknowledgment of its receipt and 
          use the tracking number in subsequent communication 
          regarding the claim or request.  These provisions were 
          subsequently amended out of the bill.
          
          SB 842 (Speier), Chapter 791, Statutes of 2002, among other 
          things, requires DMHC to develop regulations outlining the 
          standards to be used in reviewing a health plan's request 
          for approval of its proposed copayment, deductible, 
          limitation, or exclusion on its prescription drug benefits, 
          including processes for prior authorization.  Defines 
          "authorization" as approval by the health plan to provide 
          payment for the prescription drug, for purposes of a 
          specified provision in existing law requiring plans to 
          maintain an expeditious process by which prescribing 
          providers may obtain authorization for a medically 
          necessary nonformulary prescription drug.  These provisions 
          were subsequently amended out of the bill.

          SB 2046 (Speier), Chapter 852, Statutes of 2000, prohibits 
          health plan contracts and disability insurance products 




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          from excluding coverage for a drug prescribed for a chronic 
          and seriously debilitating condition, and requires health 
          plans to maintain an expeditious process by which 
          prescribing providers may obtain authorization for 
          medically necessary nonformulary drugs.
          
          SB 59 (Perata and Ortiz), Chapter 539, Statutes of 1999, 
          among other things, establishes various requirements 
          regarding health plan and insurer utilization review 
          procedures, which would include prior authorization for 
          prescription drugs.  These provisions were subsequently 
          amended out of the bill.
          
          SB 625 (Rosenthal), Chapter 69, Statutes of 1998, requires 
          health plans that include prescription drug benefits to 
          maintain an expedited process by which prescribing 
          providers may obtain authorization for a medically 
          necessary non-formulary prescription drug and requires 
          various disclosures and recordkeeping related to plan 
          formularies.
          
          AB 2305 (Runner), Chapter 984, Statutes of 1998, among 
          other things, requires health plans to cover pain 
          management medications to terminally ill enrollees, subject 
          to authorization within 72 hours.
          
          Arguments in support
          The California Medical Association writes in support, 
          stating that preauthorization policies lead to costly 
          bureaucratic hassles that take time from patient care.  The 
          Medical Oncology Association of Southern California, Inc. 
          asserts that the prior authorization process is currently 
          highly complex, lacks transparency, and the criteria and 
          processes vary significantly among health plans.  
          Furthermore, these different requirements create logistical 
          complexity for providers, as well as adding duplicative 
          overhead and staff time.  The American Academy of Private 
          Physicians concurs, stating that providers need to be able 
          to get back to the work of patient care and should not be 
          spending needless time trying to figure out which health 
          plan has what protocol and what form.
          
          The Alliance for Patient Access supports SB 866, citing 
          that health plans and insurers have great incentive to 
          limit a physician's treatment options by using prior 
          authorization as a way to cut costs.  Writing in 




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          concurrence, the Power of Pain Foundation states that they 
          receive calls regularly from Californians stating that, in 
          the course of the prior authorization process, they are 
          forced to go days and/or weeks before they obtain/continue 
          to get treatments deemed necessary by their provider, and 
          that they are forced to go through the prior authorization 
          process multiple times a year for the same medication for 
          the same condition.

          BIOCOM supports this bill, stating that, by delaying prior 
          authorization requests, plans and insurers can claim not to 
          have denied coverage altogether but achieve largely the 
          same results.  BIOCOM believes this bill solves that issue 
          by allowing a 48 hour window for denial, allowing plans and 
          insurers time to legitimately deny unreasonable requests 
          while insuring that patients are able to access vital 
          therapies and devices as prescribed by their physicians in 
          a timely manner.  
          Arguments in opposition unless amended
          The Californian Association of Health Plans (CAHP) opposes 
          the bill unless amended, citing that health plans use drug 
          specific prior authorization forms because each drug is 
          unique in its requirements for diagnosis, limitations, 
          existing diseases, treatment failures and other clinically 
          relevant information, and that applying a standardized 
          prior authorization form could create even more 
          administrative burdens if the form does not ask the 
          appropriate questions which will subsequently lead to 
          follow-up calls and faxes.  CAHP further objects to the 
          provision in the bill that deems approval of a prior 
          authorization request if a plan or insurer does not respond 
          to a prior authorization request within 48 hours or if the 
          plan or insurer fails to use the standard form, and raises 
          concerns that the bill does not address situations where 
          the provider fails to respond to a request for additional 
          information or fails to use the standardized form.  In 
          addition, CAHP notes that the implementation date for 
          plans, insurers and providers is unclear.


                                     COMMENTS
           
          1.  Existing standardized forms and standards for 
          electronic prior authorization.  Recent amendments to this 
          bill require DMHC and CDI to take into account existing 
          standardized prior authorization forms used in public 




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          programs, such as Medicare and Medi-Cal, and to consider 
          national standards for electronic prior authorization.  
          These amendments direct regulators to incorporate, and be 
          consistent with, nationally recognized standards and other 
          prior authorization standardization efforts.

          2.  When should plans and providers be required to begin 
          using the standardized form?  SB 866 requires DMHC and CDI 
          to develop a standardized form on or before July 1, 2012, 
          but is silent on when plans and providers must begin using 
          this form.  It may be appropriate to provide a set 
          implementation time for plans and providers to incorporate 
          the standardized form into their workflow and processes 
          after the regulators complete work on the standardized 
          form.   

          3.  Should flexibility be allowed in the 48 hour turnaround 
          window for plans to respond to requests for authorization?  
          Plans argue that obtaining the necessary information from a 
          prescriber to make valid authorization decisions can 
          sometimes be difficult, and often times it is necessary to 
          make follow-up calls in order to obtain information that is 
          required to approve an authorization request. In contrast, 
          providers argue that the bill requires the department to 
          craft the standardized form with stakeholder input and, if 
          properly and fully completed, the standardized form should 
          be inclusive of all the information needed for plans and 
          insurers to make a valid authorization decision.


                                    POSITIONS  

          Support:  Alliance for Patient Access
                    American Academy of Private Physicians
                    American Cancer Society
                    Association of Northern California Oncologists
                    BayBio
                    BIOCOM
                    California Academy of Family Physicians
                    California Association of Health Plans
                    California Association of Physician Groups
                    California Healthcare Institute
                    California Medical Association
                    California NeuroAlliance
                    Los Angeles County Medical Association 
                    Medical Oncology Association of Southern 




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                    California, Inc.
                    National Council of Asian Pacific Islander 
                    Physicians
                    Neuropathy Action Foundation
                    Orange County Medical Association 
                    Osteopathic Physicians and Surgeons of California
                    Pharmaceutical Research and Manufacturers of 
                    America
                    Power of Pain Foundation
                    US Pain Foundation

          Oppose:   California Association of Health Plans (unless 
          amended)


                                   -- END --