BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 866 (Hernandez) Hearing Date: 5/26/2011 Amended: 4/11/2011 Consultant: Katie Johnson Policy Vote: Health 7-0 _________________________________________________________________ ____ BILL SUMMARY: SB 866 would require the Departments of Insurance and Managed Health Care, on or before July 1, 2012, to develop a standardized form for the prior authorization of prescription drug benefits. On and after July 1, 2012, the bill would require providers to use and insurers and health care service plans to accept the standardized form. Additionally, this bill would deem a prior authorization request approved if the insurer or health plan failed to use or accept the form or to respond within 48 hours. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund DMHC regulations up to $75 up to $150 $0 Special* Increased complaints topotentially in the hundreds of Special* DMHC thousands of dollars in first year; unknown ongoing Increased prescriptionspotentially in the hundreds of thousandsGeneral/** approved to millions of dollars annually Federal/ commencing FY 2012-13 Special/ Other *Managed Care Fund **Healthy Families costs shared 35 percent General Fund, 65 percent federal funds; CalPERS costs shared 55 percent General Fund, 45 percent special and other funds. _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED. This bill would require the California Department of Insurance (CDI) and the Department of Managed Health Care (DMHC) to jointly develop a uniform prior authorization form that every provider would be required to use when requesting permission from an insurer or health care service plan (collectively referred to as "carriers") to prescribe prescription drugs for a SB 866 (Hernandez) Page 3 patient. The form would be required to be developed on or before July 1, 2012. On and after July 1, 2012, providers would be required to use, and carriers would be required to accept, only that form when requesting prior authorization for prescription drug benefits. Standardized Form Fiscal Impact Any cost to CDI and DMHC to develop the form would be minor and absorbable. DMHC would likely need to promulgate regulations at a cost of up to $75,000 in FY 2011-2012 and up to $150,000 in FY 2012-2013 for a staff attorney. To the extent this change generates additional complaints to DMHC, there could be help center costs in the low hundreds of thousands of dollars. Since this bill would require the form to be developed and used prior to the completion of DMHC's regulatory process, discussed below, there could be more than $150,000 special fund expenditures in FY 2012-2013. Currently, each health plan, including Medi-Cal managed care plans, develops and utilizes its own prior authorization forms. The Centers for Medicare and Medicaid and California's Department of Health Care Services use standardized, two-page forms for Medicare and Medi-Cal fee-for-service treatment authorization requests. Requiring a standardized form from carriers would streamline paperwork for providers, thus giving them more time with which to see patients. This could potentially lead to an increased number of visits in a day and therefore increased reimbursement claims for services rendered, which would result in more costs to private and publicly-funded health care coverage programs such as Medi-Cal, the Healthy Families Program (Healthy Families), and the California Public Employees Retirement System (CalPERS). This bill would affect about half of Medi-Cal's 7.5 million beneficiaries who are enrolled in Medi-Cal managed care plans; costs would be shared 50 percent General Fund, 50 percent federal funds. Healthy Families covers approximately 900,000 children and costs are shared 35 percent General Fund, 65 percent federal funds. CalPERS covers approximately 1.3 million individuals of which 700,000 are state employees. Their costs are shared 55 percent General Fund, 45 percent special and other funds. 48 Hours Requirement Fiscal Impact SB 866 (Hernandez) Page 4 This bill would require that in the event that a carrier fails to use the standardized form or fails to respond to a prior authorization request from a provider within 48 hours, the request would be deemed to have been granted. Currently, private carriers have 5 business days to respond to a routine prior authorization request and 72 hours in which to respond to an urgent request. Medi-Cal managed care plans are contractually required to respond a pharmaceutical prior authorization request within 24 hours; however, if a plan required more time to obtain additional clinical information from the provider or to otherwise modify a request, the plan could give the request a "pending" status and thereby have additional time in which to approve or deny the request. The 48 hour time limit would reduce the flexibility that plans currently have when responding to these requests. The reduction in flexibility could lead to more expensive drugs being approved than are currently. For publicly-funded programs, the increased costs would be reflected in cost reports made by plans to Medi-Cal and Healthy Families; this would put cost pressure in likely in the hundreds of thousands to millions of dollars on the Department of Health Care Services and the Managed Risk Medical Insurance Board to increase the rates paid to programs. The costs would be shared 50 percent General Fund and 50 percent federal funds for Medi-Cal and 35 percent General Fund and 65 percent federal funds for Healthy Families. Staff notes that the author may want to consider amending the bill in a way that minimizes confusion surrounding the existing Medi-Cal requirements and this bill's 48 hour requirement. In contrast, if this bill would result in the denial of some requests that would have been granted if the carrier had a longer time to review the request, there would be increased paperwork for the provider and the carrier and a potentially worse health outcome for the patient if he/she went without treatment, which could drive up health care costs. The author's proposed amendments would: 1) Change the 48 hour requirement to a two-business days requirement that would begin upon the receipt of a prior authorization request; SB 866 (Hernandez) Page 5 2) Delay implementation until January 1, 2013, instead of until July 1, 2012; 3) Exempt Medi-Cal managed care plans from the two-business day requirement. Exempting Medi-Cal managed care plans would decrease the potential impact on the state due to increased prescription drug approvals. A potential impact on state funds would continue to exist because plans that contract with CalPERS and Healthy Families would continue to be subject to these provisions.