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
          
















































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          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.
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                            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 








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          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








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          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;








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             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.