California Legislature—2013–14 Regular Session

Assembly Bill No. 804

Introduced by Assembly Member Lowenthal

February 21, 2013

An act to amend Section 14105.45 of the Welfare and Institutions Code, relating to Medi-Cal.

LEGISLATIVE COUNSEL’S DIGEST

AB 804, as introduced, Lowenthal. Medi-Cal: pharmacy providers: invoices.

Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid Program provisions. Existing law requires reimbursement to Medi-Cal pharmacy providers for drugs, as prescribed, and authorizes the department to establish a new reimbursement methodology based on average acquisition cost, as defined. Under existing law, Medi-Cal pharmacy providers are required to submit drug price information, including invoice prices, to the department or a vendor designated by the department for the purposes of establishing the average acquisition cost. Under existing law, drug pricing information is confidential and exempt from public disclosure, as specified.

This bill would provide that pharmacy invoice information is confidential and exempt from public disclosure, as specified.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

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.  

Section 14105.45 of the Welfare and Institutions
Code is amended to read:

14105.45.  

(a) For purposes of this section, the following
definitions shall apply:

(1) “Average acquisition cost” means the average weighted cost
determined by the department to represent the actual acquisition
cost paid for drugs by Medi-Cal pharmacy providers, including
those that provide specialty drugs. The average acquisition cost
shall not be considered confidential and shall be subject to
disclosure pursuant to the California Public Records Act (Chapter
3.5 (commencing with Section 6250) of Division 7 of Title 1 of
the Government Code).

(2) “Average manufacturers price” means the price reported to
the department by the federal Centers for Medicare and Medicaid
Services pursuant to Section 1927 of the Social Security Act (42
U.S.C. Sec. 1396r-8).

(3) “Average wholesale price” means the price for a drug
product listed as the average wholesale price in the department’s
primary price reference source.

(4) “Estimated acquisition cost” means the department’s best
estimate of the price generally and currently paid by providers for
a drug product sold by a particular manufacturer or principal labeler
in a standard package.

(5) “Federal upper limit” means the maximum per unit
reimbursement when established by the federal Centers for
Medicare and Medicaid Services and published by the department
in Medi-Cal pharmacy provider bulletins and manuals.

(6) “Generically equivalent drugs” means drug products with
the same active chemical ingredients of the same strength and
dosage form, and of the same generic drug name, as determined
by the United States Adopted Names begin delete (USAN) end delete begin insert Council (USANC) end insert
and accepted by the federal Food and Drug Administration (FDA),
as those drug products having the same chemical ingredients.

(7) “Legend drug” means any drug whose labeling states
“Caution: Federal law prohibits dispensing without prescription,”
“Rx only,” or words of similar import.

(8) “Maximum allowable ingredient cost” (MAIC) means the
maximum amount the department will reimburse Medi-Cal
pharmacy providers for generically equivalent drugs.

(9) “Innovator multiple source drug,” “noninnovator multiple
source drug,” and “single source drug” have the same meaning as
those terms are defined in Section 1396r-8(k)(7) of Title 42 of the
United States Code.

(10) “Nonlegend drug” means any drug whose labeling does
not contain the statement referenced in paragraph (7).

(11) “Pharmacy warehouse,” as defined in Section 4163 of the
Business and Professions Code, means a physical location licensed
as a wholesaler for prescription drugs that acts as a central
warehouse and performs intracompany sales or transfers of those
drugs to a group of pharmacies under common ownership and
control.

(12) “Specialty drugs” means drugs determined by the
department pursuant to subdivision (f) of Section 14105.3 to
generally require special handling, complex dosing regimens,
specialized self-administration at home by a beneficiary or
caregiver, or specialized nursing facility services, or may include
extended patient education, counseling, monitoring, or clinical
support.

(13) “Volume weighted average” means the aggregated average
volume for a group of legend or nonlegend drugs, weighted by
each drug’s percentage of the group’s total volume in the Medi-Cal
fee-for-service program during the previous six months. For
purposes of this paragraph, volume is based on the standard billing
unit used for the legend or nonlegend drugs.

(14) “Wholesaler” means a drug wholesaler that is engaged in
wholesale distribution of prescription drugs to retail pharmacies
in California.

(15) “Wholesaler acquisition cost” means the price for a drug
product listed as the wholesaler acquisition cost in the department’s
primary price reference source.

(b) (1) Reimbursement to Medi-Cal pharmacy providers for
legend and nonlegend drugs shall not exceed the lowest of either
of the following:

(A) The estimated acquisition cost of the drug plus a professional
fee for dispensing.

(B) The pharmacy’s usual and customary charge as defined in
Section 14105.455.

(2) The professional fee shall be seven dollars and twenty-five
cents ($7.25) per dispensed prescription. The professional fee for
legend drugs dispensed to a beneficiary residing in a skilled nursing
facility or intermediate care facility shall be eight dollars ($8) per
dispensed prescription. For purposes of this paragraph “skilled
nursing facility” and “intermediate care facility” shall have the
same meaning as defined in Division 5 (commencing with Section
70001) of Title 22 of the California Code of Regulations. If the
department determines that a change in dispensing fee is necessary
pursuant to this section, the department shall establish the new
dispensing fee through the budget process and implement the new
dispensing fee pursuant to subdivision (d).

(3) The department shall establish the estimated acquisition cost
of legend and nonlegend drugs as follows:

(A) For single source and innovator multiple source drugs, the
estimated acquisition cost shall be equal to the lowest of the
average wholesale price minus 17 percent, the average acquisition
cost, the federal upper limit, or the MAIC.

(B) For noninnovator multiple source drugs, the estimated
acquisition cost shall be equal to the lowest of the average
wholesale price minus 17 percent, the average acquisition cost,
the federal upper limit, or the MAIC.

(C) Average wholesale price shall not be used to establish the
estimated acquisition cost once the department has determined
that the average acquisition cost methodology has been fully
implemented.

(4) For purposes of paragraph (3), the department shall establish
a list of MAICs for generically equivalent drugs, which shall be
published in pharmacy provider bulletins and manuals. The
department shall establish a MAIC only when three or more
generically equivalent drugs are available for purchase and
dispensing by retail pharmacies in California. The department shall
update the list of MAICs and establish additional MAICs in
accordance with all of the following:

(A) The department shall base the MAIC on the mean of the
average manufacturer’s price of drugs generically equivalent to
the particular innovator drug plus a percent markup determined
by the department to be necessary for the MAIC to represent the
average purchase price paid by retail pharmacies in California.

(B) If average manufacturer prices are unavailable, the
department shall establish the MAIC in one of the following ways:

(i) Based on the volume weighted average of wholesaler
acquisition costs of drugs generically equivalent to the particular
innovator drug plus a percent markup determined by the department
to be necessary for the MAIC to represent the average purchase
price paid by retail pharmacies in California.

(ii) Pursuant to a contract with a vendor for the purpose of
surveying drug price information, collecting data, and calculating
a proposed MAIC.

(iii) Based on the volume weighted average acquisition cost of
drugs generically equivalent to the particular innovator drug
adjusted by the department to represent the average purchase price
paid by Medi-Cal pharmacy providers.

(C) The department shall update MAICs at least every three
months and notify Medi-Cal providers at least 30 days prior to the
effective date of a MAIC.

(D) The department shall establish a process for providers to
seek a change to a specific MAIC when the providers believe the
MAIC does not reflect current available market prices. If the
department determines a MAIC change is warranted, the
department may update a specific MAIC prior to notifying
providers.

(E) In determining the average purchase price, the department
shall consider the provider-related costs of the products that
include, but are not limited to, shipping, handling, storage, and
delivery. Costs of the provider that are included in the costs of the
dispensing shall not be used to determine the average purchase
price.

(5) (A) The department may establish the average acquisition
cost in one of the following ways:

(i) Based on the volume weighted average acquisition cost
adjusted by the department to ensure that the average acquisition
cost represents the average purchase price paid by retail pharmacies
in California.

(ii) Based on the proposed average acquisition cost as calculated
by the vendor pursuant to subparagraph (B).

(iii) Based on a national pricing benchmark obtained from the
federal Centers for Medicare and Medicaid Services or on a similar
benchmark listed in the department’s primary price reference
source adjusted by the department to ensure that the average
acquisition cost represents the average purchase price paid by retail
pharmacies in California.

(B) For the purposes of paragraph (3), the department may
contract with a vendor for the purposes of surveying drug price
information, collecting data from providers, wholesalers, or drug
manufacturers, and calculating a proposed average acquisition
cost.

(C) (i) Medi-Cal pharmacy providers shall submit drug price
information to the department or a vendor designated by the
department for the purposes of establishing the average acquisition
cost. The information submitted by pharmacy providers shall
include, but not be limited to, invoice prices and all discounts,
rebates, and refunds known to the provider that would apply to the
acquisition cost of the drug products purchased during the calendar
quarter. Pharmacy warehouses shall be exempt from the survey
process, but shall provide drug cost information upon audit by the
department for the purposes of validating individual pharmacy
provider acquisition costs. begin insert Pharmacy invoice information shall be
confidential and shall be exempt from disclosure under the
California Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code). end insert

(ii) Pharmacy providers that fail to submit drug price information
to the department or the vendor as required by this subparagraph
shall receive notice that if they do not provide the required
information within five working days, they shall be subject to
suspension under subdivisions (a) and (c) of Section 14123.

(D) (i) For new drugs or new formulations of existing drugs,
begin delete where end delete begin insert if end insert drug price information is unavailable pursuant to clause
(i) of subparagraph (C), drug manufacturers and wholesalers shall
submit drug price information to the department or a vendor
designated by the department for the purposes of establishing the
average acquisition cost. Drug price information shall include, but
not be limited to, net unit sales of a drug product sold to retail
pharmacies in California divided by the total number of units of
the drug sold by the manufacturer or wholesaler in a specified
period of time determined by the department.

(ii) Drug products from manufacturers and wholesalers that fail
to submit drug price information to the department or the vendor
as required by this subparagraph may not be a reimbursable benefit
of the Medi-Cal program for those manufacturers and wholesalers
until the department has established the average acquisition cost
for those drug products.

(E) Drug pricing information provided to the department or a
vendor designated by the department for the purposes of
establishing the average acquisition cost pursuant to this section
shall be confidential and shall be exempt from disclosure under
the California Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code).

(F) Prior to the implementation of an average acquisition cost
methodology, the department shall collect data through a survey
of pharmacy providers for purposes of establishing a professional
fee for dispensing in compliance with federal Medicaid
requirements.

(i) The department shall seek stakeholder input on the retail
pharmacy factors and elements used for the pharmacy survey
relative to both average acquisition costs and dispensing costs.
Any adjustment to the dispensing fee shall not exceed the aggregate
savings associated with the implementation of the average
acquisition cost methodology.

(ii) For drug products provided by pharmacy providers pursuant
to subdivision (f) of Section 14105.3, a differential professional
fee or payment for services to provide specialized care may be
considered as part of the contracts established pursuant to that
section.

(G) When the department implements the average acquisition
cost methodology, the department shall update the Medi-Cal claims
processing system to reflect the average acquisition cost of drugs
not later than 30 days after the department has established average
acquisition cost pursuant to subparagraph (A).

(H) Notwithstanding any other provision of law, if the
department implements average acquisition cost pursuant to clause
(i) or (ii) of subparagraph (A), the department shall update actual
acquisition costs at least every three months and notify Medi-Cal
providers at least 30 days prior to the effective date of any change
in an actual acquisition cost.

(I) The department shall establish a process for providers to
seek a change to a specific average acquisition cost when the
providers believe the average acquisition cost does not reflect
current available market prices. If the department determines an
average acquisition cost change is warranted, the department may
update a specific average acquisition cost prior to notifying
providers.

(c) The director shall implement this section in a manner that
is consistent with federal Medicaid law and regulations. The
director shall seek any necessary federal approvals for the
implementation of this section. This section shall be implemented
only to the extent that federal approval is obtained.

(d) Notwithstanding Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code,
the department may implement, interpret, or make specific this
section by means of a provider bulletin or notice, policy letter, or
other similar instructions, without taking regulatory action.

(e) The department may enter into contracts with a vendor for
the purposes of implementing this section on a bid or nonbid basis.
In order to achieve maximum cost savings, the Legislature declares
that an expedited process for contracts under this section is
necessary. Therefore, contracts entered into to implement this
section, and all contract amendments and change orders, shall be
exempt from Chapter 2 (commencing with Section 10290) of Part
2 of Division 2 of the Public Contract Code.

(f) (1) The rates provided for in this section shall be
implemented only if the director determines that the rates will
comply with applicable federal Medicaid requirements and that
federal financial participation will be available.

(2) In determining whether federal financial participation is
available, the director shall determine whether the rates comply
with applicable federal Medicaid requirements, including those
set forth in Section 1396a(a)(30)(A) of Title 42 of the United States
Code.

(3) To the extent that the director determines that the rates do
not comply with applicable federal Medicaid requirements or that
federal financial participation is not available with respect to any
rate of reimbursement described in this section, the director retains
the discretion not to implement that rate and may revise the rate
as necessary to comply with federal Medicaid requirements.

(g) The director shall seek any necessary federal approvals for
the implementation of this section.

(h) This section shall not be construed to require the department
to collect cost data, to conduct cost studies, or to set or adjust a
rate of reimbursement based on cost data that has been collected.

(i) Adjustments to pharmacy drug product payment pursuant to
Section 14105.192 shall no longer apply when the department
determines that the average acquisition cost methodology has been
fully implemented and the department’s pharmacy budget reduction
targets, consistent with payment reduction levels pursuant to
Section 14105.192, have been met.

(j) Prior to implementation of this section, the department shall
provide the appropriate fiscal and policy committees of the
Legislature with information on the department’s plan for
implementation of the average acquisition cost methodology
pursuant to this section.

SEC. 2.  

The Legislature finds and declares that Section 1 of
this act imposes a limitation on the public’s right of access to
meetings of public bodies or the writings of public officials and
agencies within the meaning of Section 3 of Article I of the
California Constitution. Pursuant to that constitutional provision,
the Legislature makes the following finding to demonstrate the
interest protected by this limitation and the need for protecting
that interest: the Legislature finds and declares that in order to
protect the privacy of pharmacy providers who disclose sensitive
information, it is necessary to treat that information as confidential.