BILL NUMBER: SB 1195	AMENDED
	BILL TEXT

	AMENDED IN SENATE  MARCH 26, 2012

INTRODUCED BY   Senator Price

                        FEBRUARY 22, 2012

   An act to  amend Section 6253.3 of the Government Code,
relating to public records   add Part 6.01 (commencing
with Section 12665) to Division 2 of the Insurance Code, relating to
health care coverage  .



	LEGISLATIVE COUNSEL'S DIGEST


   SB 1195, as amended, Price.  California Public Records
Act.   Audits of pharmacy benefits.  
   Existing law, the Pharmacy Law, provides for the licensure and
regulation of pharmacies by the California State Board of Pharmacy.
Existing law provides for the licensure and regulation of health care
service plans by the Department of Managed Health Care and for the
regulation of health insurers by the Department of Insurance.
Existing law requires health care service plan contracts and health
insurance policies to provide coverage for specified benefits and
requires contracts between plans or insurers and providers to contain
provisions requiring a fast, fair, and cost-effective dispute
resolution mechanism.  
   This bill would require a contract entered into between a pharmacy
and a health insurer, health care service plan, or pharmacy benefit
manager, as defined, for the provision of pharmacy services to
beneficiaries of a health benefit plan, to include policies and
procedures for any audits under the contract, and would impose
specified requirements on those audits. Among other things, the bill
would prohibit the entity conducting the audit from receiving payment
on any basis tied to the amount claimed or recovered from the
pharmacy and would require the entity to deliver a preliminary audit
report to the pharmacy and to give the pharmacy an opportunity to
respond to the report. The bill would require the entity to deliver a
final audit report to the pharmacy and to establish a process for
appealing the findings of that report, as specified. The bill would
prohibit the entity from using extrapolation, as defined, in
calculating penalties or amounts to be recouped from a pharmacy and
would prohibit a pharmacy from being subject to recoupment of funds
for a clerical or recordkeeping error. The bill would enact other
related provisions.  
   The California Public Records Act requires state and local
agencies to make public records available for inspection by the
public, subject to specified criteria, and with specified exceptions.
The act prohibits a state or local agency from allowing another
party to control the disclosure of information otherwise subject to
disclosure pursuant to the act.  
   This bill would make a technical, nonsubstantive change to this
provision. 
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


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

   SECTION 1.    Part 6.01 (commencing with Section
12665) is added to Division 2 of the   Insurance Code 
 , to read:  

      PART 6.01.  Audits of Pharmacy Benefits


   12665.  For purposes of this article, the following definitions
shall apply:
   (a) "Carrier" means a health care service plan, as defined in
Section 1345 of the Health and Safety Code, or a health insurer that
issues policies of health insurance, as defined in Section 106.
   (b) "Clerical or recordkeeping error" includes, but is not limited
to, a typographical error, scrivener's error, or computer error in a
required document or record.
   (c) "Extrapolation" means the practice of inferring a frequency or
dollar amount of overpayments, underpayments, nonvalid claims, or
other errors on any portion of claims submitted, based on the
frequency or dollar amount of overpayments, underpayments, nonvalid
claims, or other errors actually measured in a sample of claims.
   (d) "Health benefit plan" means any plan or program that provides,
arranges, pays for, or reimburses the cost of health benefits.
"Health benefit plan" includes, but is not limited to, a health care
service plan contract issued by a health care service plan, as
defined in Section 1345 of the Health and Safety Code, and a policy
of health insurance, as defined in Section 106, issued by a health
insurer.
   (e) "Pharmacy" has the same meaning provided in Section 4037 of
the Business and Professions Code.
   (f) "Pharmacy audit" means an audit, either onsite or remotely, of
any records of a pharmacy conducted by or on behalf of a carrier or
a pharmacy benefits manager, or a representative thereof, for
prescription drugs that were dispensed by that pharmacy to
beneficiaries of a health benefit plan pursuant to a contract with
the health benefit plan or the issuer or administrator thereof.
   (g) "Pharmacy benefit manager" means a person, business, or other
entity that, pursuant to a contract or under an employment
relationship with a carrier, health benefit plan sponsor, or other
third-party payer, either directly or through an intermediary,
manages the prescription drug coverage provided by the carrier, plan
sponsor, or other third-party payer, including, but not limited to,
the processing and payment of claims for prescription drugs, the
performance of drug utilization review, the processing of drug prior
authorization requests, the adjudication of appeals or grievances
related to prescription drug coverage, contracting with network
pharmacies, and controlling the cost of covered prescription drugs.
   12665.1.  (a) Nothing in this article shall apply to an audit
conducted because a pharmacy benefit manager, carrier, health benefit
plan sponsor, or other third-party payer has evidence or a
significant suspicion that criminal wrongdoing, willful
misrepresentation, or fraud has occurred.
   (b) Nothing in this article shall apply to an audit conducted by
the California State Board of Pharmacy, the State Department of
Health Care Services, or the State Department of Public Health.
   12665.2.  Notwithstanding any other provision of law, a contract
that is issued, amended, or renewed on or after January 1, 2013,
between a pharmacy and a carrier or a pharmacy benefit manager to
provide pharmacy services to beneficiaries of a health benefit plan
shall include policies and procedures for any audits performed under
the contract. The policies and procedures shall be consistent with
generally accepted auditing practices and shall comply with the
provisions of this part.
   12665.3.  (a) An entity conducting a pharmacy audit shall not
receive payment or any other consideration on any basis that is tied
to the amount claimed or actual amount recovered from the pharmacy
that is the subject of the audit.
   (b) An entity conducting a pharmacy audit shall not use
extrapolation in calculating penalties or amounts to be recouped from
a pharmacy. Any findings of overpayment or underpayment to a
pharmacy shall be based solely on documented instances of overpayment
or underpayment to the pharmacy and shall not be based on an
estimate or projection based on the number of patients served having
a similar diagnosis or on the number of similar orders or refills for
similar drugs.
   (c) Any calculation of overpayment to a pharmacy determined
pursuant to a pharmacy audit shall not include the portion of any
payment that constitutes dispensing fees.
   (d) A pharmacy shall not be subject to recoupment of funds for a
clerical or recordkeeping error, unless there is proof of intent to
commit fraud or that the error resulted in actual financial harm to
the pharmacy benefit manager, the carrier, or the beneficiary of a
health benefit plan.
   12665.4.  (a) Except as otherwise prohibited by state or federal
law, an entity conducting a pharmacy audit shall keep confidential
any information collected during the course of the audit and shall
not share any information with any person other than the carrier,
pharmacy benefit manager, or third-party payer for which the audit is
being performed. An entity conducting a pharmacy audit shall have
access only to previous audit reports relating to a particular
pharmacy conducted by or on behalf of the same entity. Nothing in
this subdivision shall be construed to authorize access to
information that is otherwise prohibited by law.
   (b) An entity that is not a carrier or pharmacy benefit manager
and that is conducting a pharmacy audit on behalf of a carrier or
pharmacy benefit manager shall, prior to conducting the audit,
provide the pharmacy with an attestation that the entity and the
carrier or pharmacy benefit manager have executed a business
associate agreement or other agreement as required under state and
federal privacy laws.
   (c) An entity conducting a pharmacy audit shall, prior to leaving
a pharmacy at the end of an onsite portion of the audit, provide the
pharmacist in charge with a complete list of records reviewed to
allow the pharmacy to account for disclosures as required by state
and federal privacy laws.
   12665.5.  (a) An entity conducting a pharmacy audit shall not
initiate or schedule a pharmacy audit during the first five business
days of any calendar month, unless it is expressly agreed to by the
pharmacy being audited.
   (b) An entity conducting an onsite pharmacy audit shall provide
the pharmacy at least one week's prior written notice before
conducting an initial audit.
   12665.6.  (a) A pharmacy audit that involves clinical judgment
shall be conducted by a pharmacist licensed pursuant to Chapter 9
(commencing with Section 4000) of Division 2 of the Business and
Professions Code.
   (b) An entity conducting a pharmacy audit shall make all
determinations regarding the legal validity of a prescription or
other record consistent with determinations made pursuant to Article
4 (commencing with Section 4070) of Chapter 9 of Division 2 of the
Business and Professions Code and shall accept as valid
electronically stored images of prescriptions, electronically created
annotations, and other related supporting documentation.
   (c) An entity conducting a pharmacy audit shall accept paper or
electronic signature logs that indicate the delivery of pharmacy
services as valid proof of receipt of those services by a health
benefit plan beneficiary.
   12665.7.  The time period covered by a pharmacy audit shall not
exceed a 24-month period beginning no more than 24 months prior to
the initial date of the onsite portion of the audit, and the audit
shall encompass only claims that were submitted to or adjudicated by
the carrier or pharmacy benefit manager during that 24-month period.
   12665.8.  (a) (1) An entity conducting a pharmacy audit shall
deliver a preliminary audit report to the pharmacy before issuing a
final audit report. This preliminary report shall be issued no later
than 60 days after conclusion of the audit.
   (2) A pharmacy shall be provided a time period of no less than 30
days following receipt of the preliminary audit report under
paragraph (1) to respond to the findings in the report, including
addressing any alleged mistakes or discrepancies and producing
documentation to that effect.
   (3) A pharmacy may use the records of a health facility, physician
and surgeon, or other authorized practitioner of the healing arts
involving drugs, medicinal supplies, or medical devices written or
transmitted by any means of communication for purposes of validating
the pharmacy record with respect to orders or refills of a dangerous
drug or device.
   (4) Prior to issuing a final audit report, an entity conducting a
pharmacy audit shall take into consideration any response by the
pharmacy to the preliminary audit report.
   (b) (1) An entity conducting a pharmacy audit shall deliver a
final audit report to the pharmacy no later than 90 days after the
conclusion of the audit or 30 days after receipt of a pharmacy's
response to the preliminary audit report, as applicable.
   (2) An entity conducting a pharmacy audit shall establish a
process for appealing the findings in a final audit report that
complies with the following requirements:
   (A) A pharmacy shall be provided a time period of no less than 60
days following receipt of the final audit report to file an appeal
with the entity identified in the appeal process.
   (B) A pharmacy may use the records of a hospital, physician and
surgeon, or other authorized practitioner of the healing arts
involving drugs, medicinal supplies, or medical devices written or
transmitted by any means of communication for purposes of validating
the pharmacy record with respect to orders or refills of a dangerous
drug or device.
   (C) An entity conducting a pharmacy audit shall provide the
pharmacy with a written determination of appeal issued by the entity
identified in the appeal process, which shall be appended to the
final audit report, and a copy of the determination shall be sent to
the carrier, health benefit plan sponsor, or other third-party payer.

   (D) The appeals process may include a dispute resolution option as
long as the pharmacy retains the right to file a written appeal and
obtain a written determination pursuant to this subdivision.
   (c) An entity conducting a pharmacy audit, a carrier, a health
benefit plan sponsor, or other third-party payer, or any person
acting on behalf of those entities, shall not attempt to make
chargebacks or seek recoupment from a pharmacy, or assess or collect
penalties from a pharmacy, until the time period for filing an appeal
to a final audit report has passed, or until the appeal process has
been exhausted, whichever is later.
   (d) An entity conducting a pharmacy audit, a carrier, a health
benefit plan sponsor, or other third-party payer, or any person
acting on behalf of those entities, shall not charge interest during
the audit or appeal period.
   (e) If, following final disposition of a pharmacy audit pursuant
to this section, an entity conducting a pharmacy audit, a carrier, a
health benefit plan sponsor, or other third-party payer, or any
person acting on behalf of those entities, finds that an audit report
or any portion thereof is unsubstantiated, the entity shall dismiss
the audit report or the unsubstantiated portion thereof without the
necessity of any further proceedings and shall return any moneys
recouped as a result of the lack of substantiation, as applicable.
 
  SECTION 1.    Section 6253.3 of the Government
Code is amended to read:
   6253.3.  A state or local agency may not allow another party to
control the disclosure of information otherwise subject to disclosure
pursuant to this chapter.