BILL ANALYSIS Ó
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1195|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 1195
Author: Price (D)
Amended: 5/1/12
Vote: 21
SENATE HEALTH COMMITTEE : 5-2, 4/25/12
AYES: Hernandez, Alquist, De León, Rubio, Wolk
NOES: Harman, Blakeslee
NO VOTE RECORDED: Anderson, DeSaulnier
SUBJECT : Audits of pharmacy benefits
SOURCE : California Pharmacists Association
DIGEST : This bill (1) requires a contract entered
between a pharmacy and a health insurer, health care
service plan, or pharmacy benefit manager (PBM), as
defined, to include policies and procedures for any audits
under the contract, (2) imposes specified requirements on
those audits, including prohibiting the entity conducting
the audit (auditing entity) from receiving payment on any
basis tied to the amount claimed or recovered from the
pharmacy, (3) prohibits a pharmacy from being subject to
recoupment of funds for a clerical or recordkeeping error,
(4) requires the auditing entity to deliver a preliminary
audit report to the pharmacy and to give the pharmacy an
opportunity to respond to the report, and (5) requires the
auditing entity to deliver a final audit report to the
pharmacy and to establish a process for appealing the
findings of that report, as specified.
CONTINUED
SB 1195
Page
2
ANALYSIS :
Existing law:
1. Requires, under the Pharmacy Law, the licensure and
regulation of pharmacies by the California State Board
of Pharmacy.
2. Requires health care service plans to be regulated by
the Department of Managed Health Care and health
insurers to be regulated by the Department of Insurance.
3. 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:
1. Requires a contract that is issued, amended, or renewed
on or after January 1, 2013, between a pharmacy and a
carrier or a PBM to provide pharmacy services to
beneficiaries of a health benefit plan to include
policies and procedures for any audits performed under
the contract. Requires the policies and procedures to
be consistent with generally accepted auditing practices
and to comply with the provisions of this bill.
2. Prohibits an auditing entity from receiving 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.
3. Prohibits a pharmacy from being 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 PBM, the
carrier, or the beneficiary of a health benefit plan.
4. Requires, except as otherwise prohibited by state or
federal law, an entity conducting a pharmacy audit to
CONTINUED
SB 1195
Page
3
keep confidential any information collected during the
course of the audit, and prohibits an entity from
sharing any information with any person other than the
carrier, PBM, or third-party payer for which the audit
is being performed.
5. Requires an auditing entity to have access only to
previous audit reports relating to a particular pharmacy
conducted by or on behalf of the same entity. Prohibits
this provision from being construed to authorize access
to information that is otherwise prohibited by law.
6. Requires an auditing entity that is not a carrier or
PBM, prior to conducting the audit, to provide the
pharmacy with an attestation that the entity and the
carrier or PBM have executed a business associate
agreement or other agreement as required under state and
federal privacy laws.
7. Requires an auditing entity, prior to leaving a pharmacy
at the end of an onsite portion of the audit, to 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.
8. Prohibits an auditing entity from initiating or
scheduling a pharmacy audit during the first five
business days of any calendar month, unless it is
expressly agreed to by the pharmacy being audited.
9. Requires an auditing entity to provide the pharmacy at
least one week's prior written notice before conducting
an initial audit.
10.Requires a pharmacy audit that involves clinical
judgment to be conducted by a pharmacist licensed under
California law.
11.Requires an auditing entity to make all determinations
regarding the legal validity of a prescription or other
record consistent with determinations made under
specified provisions of existing law, and electronically
stores images of prescriptions, electronically created
CONTINUED
SB 1195
Page
4
annotations, and other related supporting documentation.
12.Permits a pharmacy to submit to an auditing entity 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.
13.Prohibits the time period covered by a pharmacy audit
from exceeding a 24-month period beginning no more than
24 months prior to the initial date of the onsite
portion of the audit. Requires the audit to encompass
only claims that were submitted to or adjudicated by the
carrier or PBM during that 24-month period.
14.Requires an auditing entity to deliver a preliminary
audit report to the pharmacy before issuing a final
audit report. Requires this preliminary report to be
issued no later than 60 days after conclusion of the
audit.
15.Requires a pharmacy to be provided a time period of no
less than 30 days following receipt of the preliminary
audit report to respond to the findings in the report,
including addressing any alleged mistakes or
discrepancies and producing documentation to that
effect.
16.Permits a pharmacy to use the records of a health
facility, physician, 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.
17.Requires, prior to issuing a final audit report, an
auditing entity to take into consideration any response
by the pharmacy to the preliminary audit report.
18.Requires an auditing entity to 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.
CONTINUED
SB 1195
Page
5
19.Requires an auditing entity to establish a process for
appealing the findings in a final audit report that
complies with the following requirements:
A. Requires a pharmacy to 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. Permits a pharmacy to use the records of a
hospital, physician, 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. Requires an auditing entity to provide the
pharmacy with a written determination of appeal
issued by the entity identified in the appeal
process, which is required to be appended to the
final audit report, and requires a copy of the
determination to be sent to the carrier, health
benefit plan sponsor, or other third-party payer.
D. 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.
E. Permits the appeals process to include a dispute
resolution option as long as the pharmacy retains
the right to file a written appeal and obtain a
written determination.
20.Prohibits an auditing entity, a carrier, a health
benefit plan sponsor, or other third-party payer, or any
person acting on behalf of those entities, from
attempting 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
CONTINUED
SB 1195
Page
6
a final audit report has passed, or until the appeal
process has been exhausted, whichever is later.
21.Prohibits an auditing entity, a carrier, a health
benefit plan sponsor, or other third-party payer, or any
person acting on behalf of those entities, from charging
interest during the audit or appeal period.
22.Requires, following final disposition of a pharmacy
audit, if 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, an auditing entity
conducting a pharmacy audit to dismiss the audit report
or the unsubstantiated portion thereof without the
necessity of any further proceedings.
23.Prohibits anything in the bill from applying to an audit
conducted because a PBM, 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.
Background
Employers, labor unions, the state, and managed care
companies (collectively, "plan sponsors") that offer
prescription drug insurance coverage are increasingly
hiring PBMs to manage these benefits. According to a
September 2011 report commissioned by the Pharmaceutical
Care Management Association to estimate the savings that
these PBMs generate for plan sponsors and consumers, PBMs
implement prescription drug benefits for more than 215
million Americans who have health insurance from a variety
of sponsors: commercial health plans, self-insured employer
plans, union plans, Medicare Part D plans, the Federal
Employees Health Benefits Program, state government
employee plans, and others. Working under contract with
plan sponsors, PBMs manage drug benefit programs that give
consumers more efficient and affordable access to
medications. The report's major findings included:
1.From 2012 to 2021, PBMs will save plan sponsors and
consumers almost $2 trillion, or about 35 percent,
CONTINUED
SB 1195
Page
7
compared with drug expenditures made without pharmacy
benefit management.
2.Available PBM savings for individual plan sponsors can
range from 20 percent for those that make limited use of
PBM tools to 50 percent for those that adopt best
practices recommended by PBMs.
3.If all plan sponsors adopt PBM-recommended best
practices, projected prescription drug expenditures could
fall by an additional $550 billion over the next decade.
4.Limiting the tools that PBMs use to manage costs could
increase projected prescription drug costs by more than
$550 billion over the next decade.
Pharmacy audits . According to the Academy of Managed Care
Pharmacy (AMCP) "Model Audit Guidelines for Pharmacy
Claims," historically, health care services (including
prescription medications) were paid by the patient as an
out-of-pocket expense. These payments may then have been
reimbursed by a third party or self-funded insurance plan.
Over the course of the twentieth century, health care
insurance evolved from indemnity pre-paid insurance to
managed care as a major mechanism of coverage. The growth
of plan design, administration and payment by third-party
entities, coupled with increases in the total costs of
care, have led to more oversight of plans and their
financial services. Audits of claims made by pharmacies,
and payments made to pharmacies, are included in the
oversight process. The auditing of pharmacy claims serves
two main purposes: a) detecting fraud, waste and abuse, and
b) validating data entry and documentation to ensure they
meet regulatory and contractual requirements.
AMCP Model Audit Guidelines for Pharmacy Claims . The AMCP
established the Community Pharmacy Outreach Advisory
Council to address issues that managed care pharmacy and
community pharmacy share and that would lead to an enhanced
relationship. The Council identified auditing of pharmacy
claims as a high priority issue largely because of the
friction it causes for both community and managed care
pharmacy. In January 2012, AMCP released model audit
guidelines for pharmacy claims. According to the document,
CONTINUED
SB 1195
Page
8
the guidelines are the result of over a year-long effort by
a Task Force comprised of representatives of the
pharmacists (including those in managed care organizations
ÝMCOs], retailers, and PBMs). These guidelines were meant
to assist MCOs in developing a pharmacy claims audit
program and to help pharmacy providers to better understand
the audit requirements and process. The document states
that while the guidelines were developed as a way to
improve the relationship between the parties, the contract
between the MCO and the pharmacy should define the actual
audit process.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/8/12)
California Pharmacists Association (source)
National Community Pharmacists Association
Raley's Family of Fine Stores
Walgreens
OPPOSITION : (Verified 5/8/12)
American Federation of State, County and Municipal
Employees, AFL-CIO
California Association of Health Plans
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Labor Federation
California Teamsters Public Affairs
Council Engineers and Scientists of CA, IFPTE Local 20
CVS Caremark
Express Scripts, Inc.
Health Access California
Health Net
International Longshoremen and Warehouse Union
Jockeys' Guild
Professional and Technical Engineers, IFPTE Local 21
UNITE-HERE, AFL-CIO
Utility Workers Union of America
ARGUMENTS IN SUPPORT : The California Pharmacists
CONTINUED
SB 1195
Page
9
Association (CPA), the sponsor of this bill, states that
they do not dispute that, as claims adjudicators, PBMs have
a necessary role in auditing pharmacy claims, and they
support responsible auditing and a strict adherence to
legal and ethical standards for everyone who provides
medications to California consumers. CPA asserts that PBM
pharmacy audits have in many instances evolved away from
their legitimate purpose and embraced a profit-seeking game
of "gotcha" against pharmacies. CPA writes that
pharmacists are being driven from the workplace or placed
unnecessarily in precarious financial corners due to
aggressive PBM audits that retroactively deny pharmacy
claims based on trivial issues and non-substantive
technicalities where no fraud exists, there are no
questions that the right drug was provided to the right
patient, and the plan was billed the correct amount. PBMs
often contract with auditing firms on a contingency fee
basis for the amount the audit firm recoups, thereby
creating an enormous incentive for auditors to aggressively
err on the side of the PBM and harshly punish minor
clerical issues that no objective individual would consider
"fraud." The National Community Pharmacists Association
states that rather than legitimately using the audit
process to guard and protect against fraud, many PBMs now
view the pharmacy audit process as a profitable revenue
stream and that audits can claim hundreds of thousands of
dollars for nothing more than basic administrative or
typographical mistakes, many not even being the fault of
the pharmacist or staff.
ARGUMENTS IN OPPOSITION : Health Net states that this
bill will undermine their ability to protect their
policyholders and insureds by placing unreasonable limits
on pharmacy limits in state law because it includes several
provisions that hamper an auditor's ability to detect such
fraud and recover overpayments. Health Net states that
this bill places unnecessary limitations on the disclosure
and sharing of audit results and makes it difficult for an
auditing entity to discover a trend or compile evidence of
fraud among a group of commonly owned pharmacies, creating
an incentive for those would seek to commit fraud. CVS
Caremark states that this bill would severely restrict its
ability to conduct all manner of pharmacy audits, which are
a necessary and effective tool used to, among other things:
CONTINUED
SB 1195
Page
10
assist pharmacies in proper billing; detect fraud; recoup
overpayment of claims due to errors and to identify and
stop abusive practices. The California Association of
Health Plans (CAHP) states that this bill includes a myriad
of problems that would make it more difficult to detect
fraud and recover overpayments. CAHP asserts that this
bill places unreasonable limitations on the disclosure of
audit results, which is problematic as health plans, PBMs,
and labor trusts seek the right pharmacies to serve their
beneficiaries.
CTW:do 5/9/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED