BILL NUMBER: SB 1195 CHAPTERED
BILL TEXT
CHAPTER 706
FILED WITH SECRETARY OF STATE SEPTEMBER 28, 2012
APPROVED BY GOVERNOR SEPTEMBER 28, 2012
PASSED THE SENATE AUGUST 31, 2012
PASSED THE ASSEMBLY AUGUST 31, 2012
AMENDED IN ASSEMBLY AUGUST 30, 2012
AMENDED IN ASSEMBLY AUGUST 13, 2012
AMENDED IN ASSEMBLY JUNE 26, 2012
AMENDED IN SENATE MAY 1, 2012
AMENDED IN SENATE MARCH 26, 2012
INTRODUCED BY Senator Price
FEBRUARY 22, 2012
An act to add Chapter 9.5 (commencing with Section 4430) to the
Business and Professions Code, relating to health care coverage.
LEGISLATIVE COUNSEL'S DIGEST
SB 1195, Price. 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 impose specified requirements on an audit of
pharmacy services provided to beneficiaries of a health benefit plan.
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.
The bill would require the entity conducting a pharmacy audit 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, in its contract with the pharmacy, a process for
appealing the findings of that report, as specified. The bill would
allow either party who, following the appeal, is not satisfied with
the appeal, to seek relief under the terms of the contract. The bill
would provide that if an identified discrepancy for a single audit
exceeds $30,000, future payments to the pharmacy in excess of $30,000
may be withheld pending adjudication of an appeal. The bill would
prohibit interest accruing for either party during pendency of the
audit, as specified. The bill would require that when the entity is
using extrapolation, as defined, in calculating penalties or amounts
to be recouped from a pharmacy, that the pharmacy be given an
opportunity to provide evidence validating certain orders. The bill
also would prohibit a pharmacy from being subject to recoupment of
funds for a clerical or recordkeeping error, as defined. The bill
would enact other related provisions.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Chapter 9.5 (commencing with Section 4430) is added to
Division 2 of the Business and Professions Code, to read:
CHAPTER 9.5. AUDITS OF PHARMACY BENEFITS
4430. For purposes of this chapter, 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 of the
Insurance Code.
(b) "Clerical or recordkeeping error" includes 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 of the Insurance Code,
issued by a health insurer.
(e) "Pharmacy" has the same meaning as provided in Section 4037.
(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.
"Pharmacy audit" does not include a concurrent review or desk audit
that occurs within three business days of transmission of a claim, or
a concurrent review or desk audit where no chargeback or recoupment
is demanded.
(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.
4431. (a) Nothing in this chapter shall apply to an audit
conducted because a pharmacy benefit manager, carrier, health benefit
plan sponsor, or other third-party payer has indications that
support a reasonable suspicion that criminal wrongdoing, willful
misrepresentation, fraud, or abuse has occurred.
(b) Nothing in this chapter shall apply to an audit conducted by,
or at the direction of, the California State Board of Pharmacy, the
State Department of Health Care Services, the State Department of
Public Health, or the Medicare program.
4432. Notwithstanding any other 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 comply with
the provisions of this chapter.
4433. (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. Nothing in this subdivision shall be
construed to prevent the pharmacy benefit manager or health benefit
plan from charging or assessing the plan sponsor, directly or
indirectly, based on amounts recouped if both of the following
conditions are met:
(1) The plan sponsor and the pharmacy benefit manager or health
benefit plan have a contract that explicitly states the percentage
charge or assessment to the plan sponsor.
(2) No commission or financial incentive is paid to an agent or
employee of the entity conducting the pharmacy audit based, directly
or indirectly, on amounts recouped.
(b) A pharmacy shall not be subject to recoupment of funds for a
clerical or recordkeeping error, unless the error resulted in actual
financial harm to the pharmacy benefit manager, the carrier, or the
beneficiary of a health benefit plan.
4434. (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. Nothing in this
subdivision shall be construed to prohibit any employer, trust fund,
government agency, or any other entity for which the audit is being
performed from disclosing its general opinions or conclusions
regarding the business practices of the pharmacy based on the audit.
(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, notify
the pharmacy in writing 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.
4435. (a) An entity conducting an onsite 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 two weeks' prior written notice before
conducting an initial audit.
4436. (a) A pharmacy audit that involves clinical judgment shall
be conducted by, or in consultation with, a licensed pharmacist.
(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.
(c) Nothing in this section shall be construed to prohibit a
pharmacy benefits manager from denying a claim, either in whole or in
part, for failure to comply with federal Food and Drug
Administration or manufacturer requirements, the prescription drug
formulary, prior authorization requirements, days' supply
requirements, or other coverage or plan design requirement, or for
failure to include a National Provider Identification number.
(d) An entity conducting a pharmacy audit shall accept paper or
electronic signature logs that document the delivery of pharmacy
services to a health plan beneficiary or his or her agent.
4437. The time period covered by a pharmacy audit shall not
exceed 24 months from the date that the claim was submitted to, or
adjudicated by, the pharmacy benefits manager, unless a longer period
is required under state or federal law or unless the originating
prescription is required.
4438. (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 at least 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) To validate the pharmacy record and delivery, the pharmacy may
use authentic and verifiable statements or records, including
medication administration records of a nursing home, assisted living
facility, hospital, physician and surgeon, or other authorized
prescriber, or additional documentation parameters located in the
provider manual.
(4) Any legal prescription may be used to validate claims in
connection with prescriptions, refills, or changes in prescriptions,
including medication administration records, facsimiles, electronic
prescriptions, electronically stored images of prescriptions,
electronically created annotations, or documented telephone calls
from the prescriber or the prescriber's agent. Unless specifically
addressed in the audit policies and procedures contained in the
contract or provider manual, documentation of an oral prescription
order that has been verified by the prescriber shall meet the
requirements of this subdivision.
(5) If an entity conducting a pharmacy audit uses extrapolation to
calculate penalties or amounts to be recouped, the pharmacy may
present evidence to validate orders for dangerous drugs or devices
that are subject to invalidation due to extrapolation.
(6) 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 provided within the
timeframes allowed under this section, unless otherwise agreed to by
the entity conducting the audit.
(b) (1) An entity conducting a pharmacy audit shall deliver a
final audit report to the pharmacy no later than 120 days after
receipt of a pharmacy's response to the preliminary audit report.
(2) An entity conducting a pharmacy audit shall establish, in the
contract between the pharmacy and the contracting entity, 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 at least 30 days
following receipt of the final audit report to file an appeal with
the entity identified in the appeal process.
(B) 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.
(C) If, following the appeal, either party is not satisfied with
the appeal, the party may seek relief under the terms of the
contract.
(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. Should the identified discrepancy
for a single audit exceed thirty thousand dollars ($30,000), future
payments to the pharmacy in excess of thirty thousand dollars
($30,000) may be withheld pending adjudication of an appeal.
(d) Interest shall not accrue during the audit period for either
party, beginning with the notice of the audit and ending with the
conclusion of the appeal process.
(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.
4439. This chapter shall not be construed to suggest or imply
that the Department of Consumer Affairs or the California State Board
of Pharmacy has any jurisdiction or authority over the provisions of
this chapter.