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, Continued--- STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 2 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 STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 3 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 STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 4 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 STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 5 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. STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 6 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 STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 7 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 STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 8 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 STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 9 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 STAFF ANALYSIS OF SENATE BILL 866 (Hernandez) Page 10 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 --