California Legislature—2013–14 Regular Session

Assembly Bill No. 889

Introduced by Assembly Member Frazier

February 22, 2013

An act to amend Sections 1342.7 and 1374.30 of the Health and Safety Code, and to amend Section 10169 of, and to add Section 10123.193 to, the Insurance Code, relating to health care coverage.

LEGISLATIVE COUNSEL’S DIGEST

AB 889, as introduced, Frazier. Health care coverage.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care. Existing law requires health care service plan contracts to provide specified coverage to enrollees and subscribers, including specified benefits regarding prescription drugs. Existing law requires the department to develop a regulation outlining standards to be used in reviewing a plan’s request for approval of its proposed copayment, deductible, limitation, or exclusion on its prescription drug benefits, and to consider alternative benefit designs in developing those standards. Existing law makes a willful violation of that act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance.

This bill would delete those provisions regarding development of a regulation outlining the standards to be used in reviewing a plan’s request for approval. The bill instead would codify the department’s regulation and require every health care service plan or health insurance policy that provides coverage for outpatient prescription drug benefits, as defined, to provide coverage for all medically necessary outpatient prescription drugs, except as specified. The bill would set forth additional standards regarding outpatient prescription drug benefits, including requiring a plan or insurer seeking to establish limitations or exclusions on outpatient prescription drug benefits to establish those limitations or exclusions consistent with up-to-date evidence-based outcomes and current published, peer-reviewed medical and pharmaceutical literature. The bill would also place restrictions on copayments, coinsurance and deductibles, including, among other things, prohibiting a copayment or percentage coinsurance from exceeding 50% of the cost to the plan or insurer.

Existing law establishes the Independent Medical Review System in the Department of Managed Health Care and the Department of Insurance. Existing law authorizes an enrollee or an insured to apply to the department for an independent medical review of a decision to deny, modify, or delay health care services, based in whole or in part on a finding that the disputed health care services are not medically necessary, within 6 months of any specified qualifying periods or events. Existing law requires all necessary information and documents to be delivered to an independent medical review organization within 24 hours of approval of the request for review if there is an imminent and serious threat to the health of the enrollee, as specified.

This bill would authorize an enrollee or an insured or an enrollee’s or insured’s provider or the respective departments to request an expeditious medical review of denied, modified, or delayed health care services if there is an imminent and serious threat to the health of the enrollee or insured, as specified.

Because a willful violation of these requirements with respect to health care service plans would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 1342.7 of the Health and Safety Code is
amended to read:

1342.7.  

(a) The Legislature finds that in enacting Sections
1367.215, 1367.25, 1367.45, 1367.51, and 1374.72, it did not
intend to limit the department’s authority to regulate the provision
of medically necessary prescription drug benefits by a health care
service plan to the extent that the plan provides coverage for those
benefits.

(b) (1) Nothing in this chapter shall preclude a plan from filing
relevant information with the department pursuant to Section 1352
to seek the approval of a copayment, deductible, limitation, or
exclusion to a plan’s prescription drug benefits. If the department
approves an exclusion to a plan’s prescription drug benefits, the
exclusion shall not be subject to review through the independent
medical review process pursuant to Section 1374.30 on the grounds
of medical necessity. The department shall retain its role in
assessing whether issues are related to coverage or medical
necessity pursuant to paragraph (2) of subdivision (d) of Section
1374.30.

(2) A plan seeking approval of a copayment or deductible may
file an amendment pursuant to Section 1352.1. A plan seeking
approval of a limitation or exclusion shall file a material
modification pursuant to subdivision (b) of Section 1352.

(c) Nothing in this chapter shall prohibit a plan from charging
a subscriber or enrollee a copayment or deductible for a
prescription drug benefit or from setting forth by contract, a
limitation or an exclusion from, coverage of prescription drug
benefits, if the copayment, deductible, limitation, or exclusion is
reported to, and found unobjectionable by, the director and
disclosed to the subscriber or enrollee pursuant to the provisions
of Section 1363.

begin insert

(d) Every health care service plan that provides coverage for
outpatient prescription drug benefits shall provide coverage for
all medically necessary outpatient prescription drugs, except as
described in this section.

end insert begin insert

(1) “Outpatient prescription drugs” are self-administered drugs
approved by the federal Food and Drug Administration for sale
to the public through retail or mail order pharmacies that require
prescriptions and are not provided for use on an inpatient basis.

end insert begin insert

(2) Coverage for outpatient prescription drugs shall include
coverage for disposable devices that are medically necessary for
the administration of a covered outpatient prescription drug, such
as spacers and inhalers for the administration of aerosol outpatient
prescription drugs, and syringes for self-injectible outpatient
prescription drugs that are not dispensed in prefilled syringes.
For purposes of this paragraph, the term “disposable” includes
devices that may be used more than once before disposal. This
section does not create an obligation for a plan to provide coverage
for a durable medical equipment benefit.

end insert begin insert

(e) Standards for an outpatient prescription drug benefit shall
be as follows:

end insert begin insert

(1) An outpatient prescription drug benefit offered by a plan
shall comply with the requirements of this chapter and the
regulations promulgated by the director, including, but not limited
to, Sections 1342, 1343.5, 1342.7, 1363, 1363.01, 1363.03, 1363.5,
1367.01, 1367.06, 1367.20, 1367.21, 1367.22, 1367.24, and
subdivisions (e), (g), and (h) of Section 1367, of this chapter, and
subparagraph (A) of paragraph (3) of subdivision (a) of Section
1300.67.4 of Title 28 of the California Code of Regulations.

end insert begin insert

(2) All clinical aspects of a plan’s outpatient prescription drug
benefit shall be developed by qualified medical and pharmacy
professionals in accordance with good professional practice. The
plan shall establish and document an internal process for ongoing
review by qualified medical and pharmacy professionals of the
clinical aspects of the outpatient prescription drug benefit,
including review of limitations and exclusions, and the safety,
efficacy, and utilization of an outpatient prescription drugs,
including step therapy, if any.

end insert begin insert

(3) Plans seeking to establish limitations or exclusions on an
outpatient prescription drug benefit shall do so consistent with
up-to-date evidence-based outcomes and current published,
peer-reviewed medical and pharmaceutical literature.

end insert begin insert

(4) A plan that provides coverage for outpatient prescription
drugs through a mail order pharmacy shall have written policies
and procedures documenting that the plan’s mail order
arrangements are in compliance with the requirements of this
chapter, and applicable California and federal laws regarding
pharmacists and pharmacy services. The mail order pharmacy
process shall conform effectively and efficiently with a plan’s
processes for prior authorization for coverage of medically
necessary drugs as required by this chapter, and shall include
standards for timely delivery and a contingency mechanism for
providing the drug if a mail order provider fails to meet the
delivery standards.

end insert begin insert

(5) In reviewing copayments, coinsurance, deductibles,
limitations, or exclusions for compliance with subdivisions (e) and
(h) of Section 1367 and subparagraph (A) of paragraph (3) of
subdivision (a) of Section 1300.67.4 of Title 28 of the California
Code of Regulations, the department’s approval or disapproval
may be based upon all relevant factors, including, but not limited
to, the following:

end insert begin insert

(A) The type and number of enrollees affected.

end insert begin insert

(B) The clinical efficacy of the drug or drugs proposed to be
limited or excluded.

end insert begin insert

(C) The availability of therapeutic equivalents or other drugs
medically necessary for treatment of health conditions.

end insert begin insert

(D) The specific health plan products to which the copayment,
coinsurance, deductible, limitation, or exclusion will apply.

end insert begin insert

(E) The duration of the limitation or exclusion.

end insert begin insert

(F) The rationale for the copayment, coinsurance, deductible,
limitation, or exclusion.

end insert begin insert

(G) The projected effect of the copayment, coinsurance,
deductible, limitation, or exclusion on the affordability and
accessibility of coverage.

end insert begin insert

(H) The projected comparative clinical effect, including any
potential risk of adverse health outcomes, based upon utilization
data and review of peer-reviewed professional literature.

end insert begin insert

(I) The overall copayment structure of the product, including
whether the copayment, coinsurance, or deductible contributes to
the overall out-of-pocket maximum for the product.

end insert begin insert

(J) Information regarding similar copayments, coinsurance
levels, deductibles, limitations, or exclusions previously approved
by the department.

end insert begin insert

(K) Evidence-based clinical studies and professional literature.

end insert begin insert

(L) The description of the copayment, coinsurance, deductible,
limitation, or exclusion as compared to other benefits and products
in the marketplace.

end insert begin insert

(M) Any other historical, statistical, or other information that
the submitting plan considers pertinent to the request for approval
of the copayments, coinsurance level, deductibles, limitation, or
exclusion.

end insert begin insert

(f) Copayments, coinsurance, and deductibles shall be consistent
with Sections 1367.006, 1367.007, 1367.009, and 1366.6.

end insert begin insert

(1) A plan’s outpatient prescription drug benefit shall provide
that if the pharmacy’s retail price for a prescription drug is less
than the applicable copayment amount, the enrollee shall not be
required to pay any more than the retail price.

end insert begin insert

(2) Proposed copayment structures or ranges, coinsurance, or
deductibles submitted to the director for approval shall be based
upon a methodology that is fully described and documented, and
that complies with the standards set forth in this section. A plan
may use actual cost data on prescription drugs or, for contracted
services or products, nationally recognized data sources used by
the plan in developing the contract rates.

end insert begin insert

(3) A copayment or percentage coinsurance shall not exceed
50 percent of the cost to the plan. A percentage coinsurance shall
meet each of the following additional requirements:

end insert begin insert

(A) Have a maximum dollar amount cap on the percentage
coinsurance that will be charged for an individual prescription.

end insert begin insert

(B) Apply towards an annual out-of-pocket maximum for the
product.

end insert begin insert

(C) Apply towards an annual out-of-pocket maximum for the
outpatient prescription drug benefit, if any.

end insert begin insert

(4) In addition to compliance with this subdivision, copayments
and coinsurances shall comply with the standards identified at
subdivision (e), including that they shall be reasonable so as to
allow access to medically necessary outpatient prescription drugs,
and the department’s determination may be based on all relevant
factors as provided in paragraph (5) of subdivision (e).

end insert begin insert

(5) As used in paragraph (3), the “cost to the plan” means the
actual cost incurred by the plan or its contracting provider to
acquire and dispense a covered outpatient prescription drug,
without subtracting or otherwise considering any copayment or
coinsurance amount to be paid by enrollees. The cost to the plan
may include average cost calculations as described in this section,
and shall include all discounts and other prospective cost and
pricing arrangements, as applicable. Plans shall account for any
rebates and other retrospective cost and pricing arrangements for
outpatient prescription drugs by verifying that the rebates and
other retrospective cost and pricing arrangements for outpatient
prescription drugs are applied by the plan to reduce costs for the
plan’s subscribers.

end insert begin insert

(g) Plans that provide coverage for outpatient prescription drug
benefits may apply the following limitations:

end insert begin insert

(1) A plan may impose prior authorization requirements on
outpatient prescription drug benefits, consistent with the
requirements of this chapter and corresponding regulations.

end insert begin insert

(2) When there is more than one drug that is appropriate for
the treatment of a medical condition, a plan may require step
therapy. A plan that requires step therapy shall have an expeditious
process in place to authorize exceptions to step therapy when
medically necessary and to conform effectively and efficiently with
continuity of care requirements of this chapter and regulations.
In circumstances where an enrollee is changing plans, the new
plan may not require the enrollee to repeat step therapy when that
enrollee is already being treated for a medical condition by an
outpatient prescription drug, provided that the drug is
appropriately prescribed and is considered safe and effective for
the enrollee’s condition. Nothing in this section shall preclude the
new plan from imposing a prior authorization requirement
pursuant to Section 1367.24 for the continued coverage of an
outpatient prescription drug prescribed pursuant to step therapy
imposed by the former plan, or preclude the prescribing provider
from prescribing another drug covered by the new plan that is
medically appropriate for the enrollee. Step therapy, including the
expeditious process for exception and the instances when an
enrollee is changing plans, shall be subject to subdivision (e). For
purposes of this section, “step therapy” means a protocol that
specifies the sequence in which different prescription drugs for a
given medical condition that are medically appropriate for a
particular patient are to be prescribed.

end insert begin insert

(3) A plan shall provide coverage for the medically necessary
dosage and quantity of the drug prescribed for the treatment of a
medical condition consistent with professionally recognized
standards of practice.

end insert begin insert

(A) A plan may limit the amount of the drug dispensed at any
one time to a 30-day supply or, if the treatment is for less than 30
days, for the medically necessary amount of the drug.

end insert begin insert

(B) A plan may impose a requirement that maintenance drugs
be dispensed in a two-month or greater supply.

end insert begin insert

(C) A plan may establish a mandatory mail order process for
maintenance drugs when dispensed in a three-month supply or
greater quantities, but shall not impose any fees or costs for
mandatory mail order prescriptions other than the applicable
copayment or coinsurance. A plan shall not require an enrollee
to fill a prescription by mail if the prescribed drug is not available
to be filled in that manner.

end insert begin insert

(D) For purposes of this section, “maintenance drugs” means
those outpatient prescription drugs that are prescribed for the
enrollee on a continual basis to treat a chronic condition.

end insert begin insert

(4) Plans may require enrollees who are prescribed drugs for
smoking cessation to be enrolled in or to have completed a smoking
cessation program, if covered by the plan prior to or concurrent
with receiving the prescription drug.

end insert begin insert

(5) Other limitations that the department may approve pursuant
to this section.

end insert begin insert

(h) Plans that provide coverage for outpatient prescription drug
benefits are not required to provide coverage for prescription
drugs that meet any of the following conditions:

end insert begin insert

(1) When prescribed for cosmetic purposes. For purposes of
this section “cosmetic purposes” means solely for the purpose of
altering or affecting normal structures of the body to improve
appearance rather than function.

end insert begin insert

(2) When prescribed solely for the treatment of hair loss, sexual
dysfunction, athletic performance, anti-aging for cosmetic
purposes, and mental performance. Drugs for mental performance
shall not be excluded from coverage when they are used to treat
diagnosed mental illness or medical conditions affecting memory,
including, but not limited to, treatment of the conditions or
symptoms of dementia or Alzheimer’s disease.

end insert begin insert

(3) When prescribed solely for the purposes of losing weight,
except when medically necessary for the treatment of morbid
obesity. Plans may require enrollees who are prescribed drugs
for morbid obesity to be enrolled in a comprehensive weight loss
program, if covered by the plan, for a reasonable period of time
prior to or concurrent with receiving the prescription drug.

end insert begin insert

(4) When prescribed solely for the purpose of shortening the
duration of the common cold.

end insert begin insert

(5) Drugs that are available over the counter. A plan shall not
exclude coverage of an entire class of prescription drugs when
one drug within that class becomes available over the counter. A
plan that seeks to exclude coverage for an entire class of drugs
when more than one drug within that class become available over
the counter shall first file a notice of material modification and
obtain the department’s prior approval in accordance with this
section.

end insert begin insert

(6) Replacement of lost or stolen drugs.

end insert begin insert

(7) When prescribed by noncontracting providers for
noncovered procedures that are not authorized by a plan or a plan
provider except when coverage is otherwise required in the context
of emergency services.

end insert begin insert

(8) Other categories of prescription drugs approved by the
department pursuant to this section.

end insert begin insert

(i) A plan shall have written policies and procedures for its
outpatient prescription drug benefits, and quality assurance
systems in place for the early identification and swift correction
of problems in the accessibility and availability of outpatient
prescription drug benefits. A contract between a health care service
plan and a prescription drug benefit provider shall include
provisions, terms, and conditions sufficient to ensure that the
standards and requirements of this section are met.

end insert begin insert

(j) (1) Any exclusion or limitation on an outpatient prescription
drug benefit that is not described in subdivision (g) or (h) shall
not be applied to a plan’s outpatient prescription drug benefit
unless a plan has filed a notice of material modification with the
department and received approval by order to apply the exclusion
or limitation. The order of approval may be issued subject to
specified terms and conditions, or for specified periods, as the
department may determine are necessary and appropriate.
Following issuance of an order approving an exclusion or
limitation, any other health care service plan may apply the same
exclusion or limitation to its outpatient prescription drug benefit
if it files an amendment with the department not less than 30 days
prior to implementation of the exclusion or limitation, and
represents that it is exactly the same as that previously approved
by order, provides specific reference to the order number and date
issued, and addresses any specified terms and conditions upon
that order, as applicable.

end insert begin insert

(2) A plan may meet the material modification filing
requirements of paragraph (1) with respect to exclusions and
limitations contained in contracts issued, renewed, or amended
on or before January 1, 2007, by filing within six months of the
effective date of Section 1300.67.4 of Title 28 of the California
Code of Regulations a report disclosing and describing all such
exclusions and limitations on prescription drug benefits covered
under all subscriber contracts subject to the requirements of this
section. The department will provide an expeditious review of the
exclusions and limitations disclosed in the report.

end insert begin delete

(d) The department in developing standards for the approval of
a copayment, deductible, limitation, or exclusion to a plan’s
prescription drug benefits, shall consider alternative benefit
designs, including, but not limited to, the following:

(1) Different out-of-pocket costs for consumers, including
copayments and deductibles.

(2) Different limitations, including caps on benefits.

(3) Use of exclusions from coverage of prescription drugs to
treat various conditions, including the effect of the exclusions on
the plan’s ability to provide basic health care services, the amount
of subscriber or enrollee premiums, and the amount of
out-of-pocket costs for an enrollee.

(4) Different packages negotiated between purchasers and plans.

(5) Different tiered pharmacy benefits, including the use of
generic prescription drugs.

(6) Current and past practices.

(e) The department shall develop a regulation outlining the
standards to be used in reviewing a plan’s request for approval of
its proposed copayment, deductible, limitation, or exclusion on its
prescription drug benefits.

(f)

end delete

begin insert (k) end insert  Nothing in subdivision (b) or (c) shall permit a plan to limit
prescription drug benefits provided in a manner that is inconsistent
with Sections 1367.215, 1367.25, 1367.45, 1367.51, and 1374.72.

begin delete

(g)

end delete

begin insert (l) end insert  Nothing in this section shall be construed to require or
authorize a plan that contracts with the State Department of Health
Services to provide services to Medi-Cal beneficiaries or with the
Managed Risk Medical Insurance Board to provide services to
enrollees of the Healthy Families Program to provide coverage for
prescription drugs that are not required pursuant to those programs
or contracts, or to limit or exclude any prescription drugs that are
required by those programs or contracts.

begin delete

(h)

end delete

begin insert (m) end insert  Nothing in this section shall be construed as prohibiting or
otherwise affecting a plan contract that does not cover outpatient
prescription drugs begin insert , as defined in subdivision (d), end insert except for
coverage for limited classes of prescription drugs because they are
integral to treatments covered as basic health care services,
including, but not limited to, immunosuppressives, in order to
allow for transplants of bodily organs.

begin delete

(i)

end delete

begin insert (n) end insert  The department shall periodically review its regulations
developed pursuant to this section.

begin delete

(j) This section shall become operative on January 2, 2003, and
shall only apply to contracts issued, amended, or renewed on or
after that date.

end delete

SEC. 2.  

Section 1374.30 of the Health and Safety Code, as
amended by Section 1 of Chapter 872 of the Statutes of 2012, is
amended to read:

1374.30.  

(a) Commencing January 1, 2001, there is hereby
established in the department the Independent Medical Review
System.

(b) For the purposes of this chapter, “disputed health care
service” means any health care service eligible for coverage and
payment under a health care service plan contract that has been
denied, modified, or delayed by a decision of the plan, or by one
of its contracting providers, in whole or in part due to a finding
that the service is not medically necessary. A decision regarding
a disputed health care service relates to the practice of medicine
and is not a coverage decision. A disputed health care service does
not include services provided by a specialized health care service
plan, except to the extent that the service (1) involves the practice
of medicine, or (2) is provided pursuant to a contract with a health
care service plan that covers hospital, medical, or surgical benefits.
If a plan, or one of its contracting providers, issues a decision
denying, modifying, or delaying health care services, based in
whole or in part on a finding that the proposed health care services
are not a covered benefit under the contract that applies to the
enrollee, the statement of decision shall clearly specify the
provision in the contract that excludes that coverage.

(c) For the purposes of this chapter, “coverage decision” means
the approval or denial of health care services by a plan, or by one
of its contracting entities, substantially based on a finding that the
provision of a particular service is included or excluded as a
covered benefit under the terms and conditions of the health care
service plan contract. A “coverage decision” does not encompass
a plan or contracting provider decision regarding a disputed health
care service.

(d) (1) All enrollee grievances involving a disputed health care
service are eligible for review under the Independent Medical
Review System if the requirements of this article are met. If the
department finds that an enrollee grievance involving a disputed
health care service does not meet the requirements of this article
for review under the Independent Medical Review System, the
enrollee request for review shall be treated as a request for the
department to review the grievance pursuant to subdivision (b) of
Section 1368. All other enrollee grievances, including grievances
involving coverage decisions, remain eligible for review by the
department pursuant to subdivision (b) of Section 1368.

(2) In any case in which an enrollee or provider asserts that a
decision to deny, modify, or delay health care services was based,
in whole or in part, on consideration of medical necessity, the
department shall have the final authority to determine whether the
grievance is more properly resolved pursuant to an independent
medical review as provided under this article or pursuant to
subdivision (b) of Section 1368.

(3) The department shall be the final arbiter when there is a
question as to whether an enrollee grievance is a disputed health
care service or a coverage decision. The department shall establish
a process to complete an initial screening of an enrollee grievance.
If there appears to be any medical necessity issue, the grievance
shall be resolved pursuant to an independent medical review as
provided under this article or pursuant to subdivision (b) of Section
1368.

(e) Every health care service plan contract that is issued,
amended, renewed, or delivered in this state on or after January
1, 2000, shall, effective January 1, 2001, provide an enrollee with
the opportunity to seek an independent medical review whenever
health care services have been denied, modified, or delayed by the
plan, or by one of its contracting providers, if the decision was
based in whole or in part on a finding that the proposed health care
services are not medically necessary. For purposes of this article,
an enrollee may designate an agent to act on his or her behalf, as
described in paragraph (2) of subdivision (b) of Section 1368. The
provider may join with or otherwise assist the enrollee in seeking
an independent medical review, and may advocate on behalf of
the enrollee.

(f) Medi-Cal beneficiaries enrolled in a health care service plan
shall not be excluded from participation. Medicare beneficiaries
enrolled in a health care service plan shall not be excluded unless
expressly preempted by federal law. Reviews of cases for Medi-Cal
enrollees shall be conducted in accordance with statutes and
regulations for the Medi-Cal program.

(g) The department may seek to integrate the quality of care
and consumer protection provisions, including remedies, of the
Independent Medical Review System with related dispute
resolution procedures of other health care agency programs,
including the Medicare and Medi-Cal programs, in a way that
minimizes the potential for duplication, conflict, and added costs.
Nothing in this subdivision shall be construed to limit any rights
conferred upon enrollees under this chapter.

(h) The independent medical review process authorized by this
article is in addition to any other procedures or remedies that may
be available.

(i) No later than January 1, 2001, every health care service plan
shall prominently display in every plan member handbook or
relevant informational brochure, in every plan contract, on enrollee
evidence of coverage forms, on copies of plan procedures for
resolving grievances, on letters of denials issued by either the plan
or its contracting organization, on the grievance forms required
under Section 1368, and on all written responses to grievances,
information concerning the right of an enrollee to request an
independent medical review in cases where the enrollee believes
that health care services have been improperly denied, modified,
or delayed by the plan, or by one of its contracting providers.

(j) An enrollee may apply to the department for an independent
medical review when all of the following conditions are met:

(1) (A) The enrollee’s provider has recommended a health care
service as medically necessary, or

(B) The enrollee has received urgent care or emergency services
that a provider determined was medically necessary, or

(C) The enrollee, in the absence of a provider recommendation
under subparagraph (A) or the receipt of urgent care or emergency
services by a provider under subparagraph (B), has been seen by
an in-plan provider for the diagnosis or treatment of the medical
condition for which the enrollee seeks independent review. The
plan shall expedite access to an in-plan provider upon request of
an enrollee. The in-plan provider need not recommend the disputed
health care service as a condition for the enrollee to be eligible for
an independent review.

For purposes of this article, the enrollee’s provider may be an
out-of-plan provider. However, the plan shall have no liability for
payment of services provided by an out-of-plan provider, except
as provided pursuant to subdivision (c) of Section 1374.34.

(2) The disputed health care service has been denied, modified,
or delayed by the plan, or by one of its contracting providers, based
in whole or in part on a decision that the health care service is not
medically necessary.

(3) The enrollee has filed a grievance with the plan or its
contracting provider pursuant to Section 1368, and the disputed
decision is upheld or the grievance remains unresolved after 30
days. The enrollee shall not be required to participate in the plan’s
grievance process for more than 30 days. In the case of a grievance
that requires expedited review pursuant to Section 1368.01, the
enrollee shall not be required to participate in the plan’s grievance
process for more than three days.

(k)  begin insert (1) end insert begin insert   end insert An enrollee may apply to the department for an
independent medical review of a decision to deny, modify, or delay
health care services, based in whole or in part on a finding that the
disputed health care services are not medically necessary, within
six months of any of the qualifying periods or events under
subdivision (j). The director may extend the application deadline
beyond six months if the circumstances of a case warrant the
extension.

begin insert

(2) An enrollee or an enrollee’s provider may request an
expeditious medical review pursuant to Section 1374.31 if there
is an imminent and serious threat to the health of the enrollee,
including, but not limited to, serious pain, the potential loss of life,
limb, or major bodily function, or the immediate and serious
deterioration of the health of the enrollee. Whether or not the
enrollee or the enrollee’s provider requests an expeditious medical
review, if the department determines that there is an imminent and
serious threat to the health of the enrollee, the department shall
refer the decision for an expeditious medical review consistent
with Section 1374.31 without completing the requirements of
subdivision (m).

end insert

(l) The enrollee shall pay no application or processing fees of
any kind.

(m) As part of its notification to the enrollee regarding a
disposition of the enrollee’s grievance that denies, modifies, or
delays health care services, the plan shall provide the enrollee with
a one-page application form approved by the department, and an
addressed envelope, which the enrollee may return to initiate an
independent medical review. The plan shall include on the form
any information required by the department to facilitate the
completion of the independent medical review, such as the
enrollee’s diagnosis or condition, the nature of the disputed health
care service sought by the enrollee, a means to identify the
enrollee’s case, and any other material information. The form shall
also include the following:

(1) Notice that a decision not to participate in the independent
medical review process may cause the enrollee to forfeit any
statutory right to pursue legal action against the plan regarding the
disputed health care service.

(2) A statement indicating the enrollee’s consent to obtain any
necessary medical records from the plan, any of its contracting
providers, and any out-of-plan provider the enrollee may have
consulted on the matter, to be signed by the enrollee.

(3) Notice of the enrollee’s right to provide information or
documentation, either directly or through the enrollee’s provider,
regarding any of the following:

(A) A provider recommendation indicating that the disputed
health care service is medically necessary for the enrollee’s medical
condition.

(B) Medical information or justification that a disputed health
care service, on an urgent care or emergency basis, was medically
necessary for the enrollee’s medical condition.

(C) Reasonable information supporting the enrollee’s position
that the disputed health care service is or was medically necessary
for the enrollee’s medical condition, including all information
provided to the enrollee by the plan or any of its contracting
providers, still in the possession of the enrollee, concerning a plan
or provider decision regarding disputed health care services, and
a copy of any materials the enrollee submitted to the plan, still in
the possession of the enrollee, in support of the grievance, as well
as any additional material that the enrollee believes is relevant.

(n) Upon notice from the department that the health care service
plan’s enrollee has applied for an independent medical review, the
plan or its contracting providers shall provide to the independent
medical review organization designated by the department a copy
of all of the following documents within three business days of
the plan’s receipt of the department’s notice of a request by an
enrollee for an independent review:

(1) (A) A copy of all of the enrollee’s medical records in the
possession of the plan or its contracting providers relevant to each
of the following:

(i) The enrollee’s medical condition.

(ii) The health care services being provided by the plan and its
contracting providers for the condition.

(iii) The disputed health care services requested by the enrollee
for the condition.

(B) Any newly developed or discovered relevant medical records
in the possession of the plan or its contracting providers after the
initial documents are provided to the independent medical review
organization shall be forwarded immediately to the independent
medical review organization. The plan shall concurrently provide
a copy of medical records required by this subparagraph to the
enrollee or the enrollee’s provider, if authorized by the enrollee,
unless the offer of medical records is declined or otherwise
prohibited by law. The confidentiality of all medical record
information shall be maintained pursuant to applicable state and
federal laws.

(2) A copy of all information provided to the enrollee by the
plan and any of its contracting providers concerning plan and
provider decisions regarding the enrollee’s condition and care, and
a copy of any materials the enrollee or the enrollee’s provider
submitted to the plan and to the plan’s contracting providers in
support of the enrollee’s request for disputed health care services.
This documentation shall include the written response to the
enrollee’s grievance, required by paragraph (4) of subdivision (a)
of Section 1368. The confidentiality of any enrollee medical
information shall be maintained pursuant to applicable state and
federal laws.

(3) A copy of any other relevant documents or information used
by the plan or its contracting providers in determining whether
disputed health care services should have been provided, and any
statements by the plan and its contracting providers explaining the
reasons for the decision to deny, modify, or delay disputed health
care services on the basis of medical necessity. The plan shall
concurrently provide a copy of documents required by this
paragraph, except for any information found by the director to be
legally privileged information, to the enrollee and the enrollee’s
provider. The department and the independent medical review
organization shall maintain the confidentiality of any information
found by the director to be the proprietary information of the plan.

(o) This section shall become inoperative on July 1, 2015, and,
as of January 1, 2016, is repealed, unless a later enacted statute,
that becomes operative on or before January 1, 2016, deletes or
extends the dates on which it becomes inoperative and is repealed.

SEC. 3.  

Section 1374.30 of the Health and Safety Code, as
added by Section 2 of Chapter 872 of the Statutes of 2012, is
amended to read:

1374.30.  

(a) Commencing January 1, 2001, there is hereby
established in the department the Independent Medical Review
System.

(b) For the purposes of this chapter, “disputed health care
service” means any health care service eligible for coverage and
payment under a health care service plan contract that has been
denied, modified, or delayed by a decision of the plan, or by one
of its contracting providers, in whole or in part due to a finding
that the service is not medically necessary. A decision regarding
a disputed health care service relates to the practice of medicine
and is not a coverage decision. A disputed health care service does
not include services provided by a specialized health care service
plan, except to the extent that the service (1) involves the practice
of medicine, or (2) is provided pursuant to a contract with a health
care service plan that covers hospital, medical, or surgical benefits.
If a plan, or one of its contracting providers, issues a decision
denying, modifying, or delaying health care services, based in
whole or in part on a finding that the proposed health care services
are not a covered benefit under the contract that applies to the
enrollee, the statement of decision shall clearly specify the
provision in the contract that excludes that coverage.

(c) For the purposes of this chapter, “coverage decision” means
the approval or denial of health care services by a plan, or by one
of its contracting entities, substantially based on a finding that the
provision of a particular service is included or excluded as a
covered benefit under the terms and conditions of the health care
service plan contract. A “coverage decision” does not encompass
a plan or contracting provider decision regarding a disputed health
care service.

(d) (1) All enrollee grievances involving a disputed health care
service are eligible for review under the Independent Medical
Review System if the requirements of this article are met. If the
department finds that an enrollee grievance involving a disputed
health care service does not meet the requirements of this article
for review under the Independent Medical Review System, the
enrollee request for review shall be treated as a request for the
department to review the grievance pursuant to subdivision (b) of
Section 1368. All other enrollee grievances, including grievances
involving coverage decisions, remain eligible for review by the
department pursuant to subdivision (b) of Section 1368.

(2) In any case in which an enrollee or provider asserts that a
decision to deny, modify, or delay health care services was based,
in whole or in part, on consideration of medical necessity, the
department shall have the final authority to determine whether the
grievance is more properly resolved pursuant to an independent
medical review as provided under this article or pursuant to
subdivision (b) of Section 1368.

(3) The department shall be the final arbiter when there is a
question as to whether an enrollee grievance is a disputed health
care service or a coverage decision. The department shall establish
a process to complete an initial screening of an enrollee grievance.
If there appears to be any medical necessity issue, the grievance
shall be resolved pursuant to an independent medical review as
provided under this article or pursuant to subdivision (b) of Section
1368.

(e) Every health care service plan contract that is issued,
amended, renewed, or delivered in this state on or after January
1, 2000, shall provide an enrollee with the opportunity to seek an
independent medical review whenever health care services have
been denied, modified, or delayed by the plan, or by one of its
contracting providers, if the decision was based in whole or in part
on a finding that the proposed health care services are not medically
necessary. For purposes of this article, an enrollee may designate
an agent to act on his or her behalf, as described in paragraph (2)
of subdivision (b) of Section 1368. The provider may join with or
otherwise assist the enrollee in seeking an independent medical
review, and may advocate on behalf of the enrollee.

(f) Medi-Cal beneficiaries enrolled in a health care service plan
shall not be excluded from participation. Medicare beneficiaries
enrolled in a health care service plan shall not be excluded unless
expressly preempted by federal law. Reviews of cases for Medi-Cal
enrollees shall be conducted in accordance with statutes and
regulations for the Medi-Cal program.

(g) The department may seek to integrate the quality of care
and consumer protection provisions, including remedies, of the
Independent Medical Review System with related dispute
resolution procedures of other health care agency programs,
including the Medicare and Medi-Cal programs, in a way that
minimizes the potential for duplication, conflict, and added costs.
Nothing in this subdivision shall be construed to limit any rights
conferred upon enrollees under this chapter.

(h) The independent medical review process authorized by this
article is in addition to any other procedures or remedies that may
be available.

(i) Every health care service plan shall prominently display in
every plan member handbook or relevant informational brochure,
in every plan contract, on enrollee evidence of coverage forms, on
copies of plan procedures for resolving grievances, on letters of
denials issued by either the plan or its contracting organization,
on the grievance forms required under Section 1368, and on all
written responses to grievances, information concerning the right
of an enrollee to request an independent medical review in cases
where the enrollee believes that health care services have been
improperly denied, modified, or delayed by the plan, or by one of
its contracting providers.

(j) An enrollee may apply to the department for an independent
medical review when all of the following conditions are met:

(1) (A) The enrollee’s provider has recommended a health care
service as medically necessary, or

(B) The enrollee has received urgent care or emergency services
that a provider determined was medically necessary, or

(C) The enrollee, in the absence of a provider recommendation
under subparagraph (A) or the receipt of urgent care or emergency
services by a provider under subparagraph (B), has been seen by
an in-plan provider for the diagnosis or treatment of the medical
condition for which the enrollee seeks independent review. The
plan shall expedite access to an in-plan provider upon request of
an enrollee. The in-plan provider need not recommend the disputed
health care service as a condition for the enrollee to be eligible for
an independent review.

For purposes of this article, the enrollee’s provider may be an
out-of-plan provider. However, the plan shall have no liability for
payment of services provided by an out-of-plan provider, except
as provided pursuant to subdivision (c) of Section 1374.34.

(2) The disputed health care service has been denied, modified,
or delayed by the plan, or by one of its contracting providers, based
in whole or in part on a decision that the health care service is not
medically necessary.

(3) The enrollee has filed a grievance with the plan or its
contracting provider pursuant to Section 1368, and the disputed
decision is upheld or the grievance remains unresolved after 30
days. The enrollee shall not be required to participate in the plan’s
grievance process for more than 30 days. In the case of a grievance
that requires expedited review pursuant to Section 1368.01, the
enrollee shall not be required to participate in the plan’s grievance
process for more than three days.

(k)  begin insert (1) end insert begin insert   end insert An enrollee may apply to the department for an
independent medical review of a decision to deny, modify, or delay
health care services, based in whole or in part on a finding that the
disputed health care services are not medically necessary, within
six months of any of the qualifying periods or events under
subdivision (j). The director may extend the application deadline
beyond six months if the circumstances of a case warrant the
extension.

begin insert

(2) An enrollee or an enrollee’s provider may request an
expeditious medical review pursuant to Section 1374.31 if there
is an imminent and serious threat to the health of the enrollee,
including, but not limited to, serious pain, the potential loss of life,
limb, or major bodily function, or the immediate and serious
deterioration of the health of the enrollee. Whether or not the
enrollee or the enrollee’s provider requests an expeditious medical
review, if the department determines that there is an imminent and
serious threat to the health of the enrollee, the department shall
refer the decision for an expeditious medical review consistent
with Section 1374.31 without completing the requirements of
subdivision (m).

end insert

(l) The enrollee shall pay no application or processing fees of
any kind.

(m) As part of its notification to the enrollee regarding a
disposition of the enrollee’s grievance that denies, modifies, or
delays health care services, the plan shall provide the enrollee with
a one- or two-page application form approved by the department,
and an addressed envelope, which the enrollee may return to initiate
an independent medical review. The plan shall include on the form
any information required by the department to facilitate the
completion of the independent medical review, such as the
enrollee’s diagnosis or condition, the nature of the disputed health
care service sought by the enrollee, a means to identify the
enrollee’s case, and any other material information. The form shall
also include the following:

(1) Notice that a decision not to participate in the independent
medical review process may cause the enrollee to forfeit any
statutory right to pursue legal action against the plan regarding the
disputed health care service.

(2) A statement indicating the enrollee’s consent to obtain any
necessary medical records from the plan, any of its contracting
providers, and any out-of-plan provider the enrollee may have
consulted on the matter, to be signed by the enrollee.

(3) Notice of the enrollee’s right to provide information or
documentation, either directly or through the enrollee’s provider,
regarding any of the following:

(A) A provider recommendation indicating that the disputed
health care service is medically necessary for the enrollee’s medical
condition.

(B) Medical information or justification that a disputed health
care service, on an urgent care or emergency basis, was medically
necessary for the enrollee’s medical condition.

(C) Reasonable information supporting the enrollee’s position
that the disputed health care service is or was medically necessary
for the enrollee’s medical condition, including all information
provided to the enrollee by the plan or any of its contracting
providers, still in the possession of the enrollee, concerning a plan
or provider decision regarding disputed health care services, and
a copy of any materials the enrollee submitted to the plan, still in
the possession of the enrollee, in support of the grievance, as well
as any additional material that the enrollee believes is relevant.

(4) A section designed to collect information on the enrollee’s
ethnicity, race, and primary language spoken that includes both of
the following:

(A) A statement of intent indicating that the information is used
for statistics only, in order to ensure that all enrollees get the best
care possible.

(B) A statement indicating that providing this information is
optional and will not affect the independent medical review process
in any way.

(n) Upon notice from the department that the health care service
plan’s enrollee has applied for an independent medical review, the
plan or its contracting providers shall provide to the independent
medical review organization designated by the department a copy
of all of the following documents within three business days of
the plan’s receipt of the department’s notice of a request by an
enrollee for an independent review:

(1) (A) A copy of all of the enrollee’s medical records in the
possession of the plan or its contracting providers relevant to each
of the following:

(i) The enrollee’s medical condition.

(ii) The health care services being provided by the plan and its
contracting providers for the condition.

(iii) The disputed health care services requested by the enrollee
for the condition.

(B) Any newly developed or discovered relevant medical records
in the possession of the plan or its contracting providers after the
initial documents are provided to the independent medical review
organization shall be forwarded immediately to the independent
medical review organization. The plan shall concurrently provide
a copy of medical records required by this subparagraph to the
enrollee or the enrollee’s provider, if authorized by the enrollee,
unless the offer of medical records is declined or otherwise
prohibited by law. The confidentiality of all medical record
information shall be maintained pursuant to applicable state and
federal laws.

(2) A copy of all information provided to the enrollee by the
plan and any of its contracting providers concerning plan and
provider decisions regarding the enrollee’s condition and care, and
a copy of any materials the enrollee or the enrollee’s provider
submitted to the plan and to the plan’s contracting providers in
support of the enrollee’s request for disputed health care services.
This documentation shall include the written response to the
enrollee’s grievance, required by paragraph (4) of subdivision (a)
of Section 1368. The confidentiality of any enrollee medical
information shall be maintained pursuant to applicable state and
federal laws.

(3) A copy of any other relevant documents or information used
by the plan or its contracting providers in determining whether
disputed health care services should have been provided, and any
statements by the plan and its contracting providers explaining the
reasons for the decision to deny, modify, or delay disputed health
care services on the basis of medical necessity. The plan shall
concurrently provide a copy of documents required by this
paragraph, except for any information found by the director to be
legally privileged information, to the enrollee and the enrollee’s
provider. The department and the independent medical review
organization shall maintain the confidentiality of any information
found by the director to be the proprietary information of the plan.

(o) This section shall become operative on July 1, 2015.

SEC. 4.  

Section 10123.193 is added to the Insurance Code, to
read:

10123.193.  

(a) Every health insurer that provides coverage
for outpatient prescription drug benefits shall provide coverage
for all medically necessary outpatient prescription drugs, except
as described in this section.

(1) “Outpatient prescription drugs” are self-administered drugs
approved by the federal Food and Drug Administration for sale to
the public through retail or mail order pharmacies that require
prescriptions and are not provided for use on an inpatient basis.

(2) Coverage for outpatient prescription drugs shall include
coverage for disposable devices that are medically necessary for
the administration of a covered outpatient prescription drug,
including spacers and inhalers for the administration of aerosol
outpatient prescription drugs, and syringes for self-injectible
outpatient prescription drugs that are not dispensed in prefilled
syringes. For purposes of this paragraph, the term “disposable”
includes devices that may be used more than once before disposal.
This section does not create an obligation for a plan to provide
coverage for a durable medical equipment benefit.

(b) Standards for an outpatient prescription drug benefit shall
be as follows:

(1) An outpatient prescription drug benefit offered by a health
insurer policy shall comply with the requirements of this part and
the regulations promulgated by the commissioner.

(2) All clinical aspects of a policy’s outpatient prescription drug
benefit shall be developed by qualified medical and pharmacy
professionals in accordance with good professional practice. The
insurer shall establish and document an internal process for ongoing
review by qualified medical and pharmacy professionals of the
clinical aspects of the outpatient prescription drug benefit,
including review of limitations and exclusions, and the safety,
efficacy, and utilization of outpatient prescription drugs, including
step therapy, if any.

(3) Insurers seeking to establish limitations or exclusions on an
outpatient prescription drug benefit shall do so consistent with
up-to-date evidence-based outcomes and current published,
peer-reviewed medical and pharmaceutical literature.

(4) A health insurance policy that provides coverage for
outpatient prescription drugs through a mail order pharmacy shall
have written policies and procedures documenting that the health
insurance policy’s mail order arrangements are in compliance with
the requirements of this part, and applicable California and federal
laws regarding pharmacists and pharmacy services. The mail order
pharmacy process shall conform effectively and efficiently with
an insurer’s processes for prior authorization for coverage of
medically necessary drugs as required by this part, and shall include
standards for timely delivery and a contingency mechanism for
providing the drug if a mail order provider fails to meet the delivery
standards.

(5) In reviewing copayments, coinsurance, deductibles,
limitations, or exclusions, the department’s approval or disapproval
may be based upon all relevant factors, including, but not limited
to, the following:

(A) The type and number of insureds affected.

(B) The clinical efficacy of the drug or drugs proposed to be
limited or excluded.

(C) The availability of therapeutic equivalents or other drugs
medically necessary for treatment of health conditions.

(D) The specific health insurance products to which the
copayment, coinsurance, deductible, limitation, or exclusion will
apply.

(E) The duration of the limitation or exclusion.

(F) The rationale for the copayment, coinsurance, deductible,
limitation or exclusion.

(G) The projected effect of the copayment, coinsurance,
deductible, limitation, or exclusion on the affordability and
accessibility of coverage.

(H) The projected comparative clinical effect, including any
potential risk of adverse health outcomes, based upon utilization
data and review of peer-reviewed professional literature.

(I) The overall copayment structure of the product, including
whether the copayment, coinsurance, or deductible contributes to
the overall out-of-pocket maximum for the product.

(J) Information regarding similar copayments, coinsurance
levels, deductibles, limitations, or exclusions previously approved
by the department.

(K) Evidence-based clinical studies and professional literature.

(L) The description of the copayment, coinsurance, deductible,
limitation, or exclusion as compared to other benefits and products
in the marketplace.

(M) Any other historical, statistical, or other information that
the submitting insurer considers pertinent to the request for
approval of the copayments, coinsurance level, deductibles,
limitation, or exclusion.

(c) Copayments, coinsurance and deductibles shall be consistent
with Sections 10112.28, 10112.29, and 10112.3.

(1) A policy’s outpatient prescription drug benefit shall provide
that if the pharmacy’s retail price for a prescription drug is less
than the applicable copayment amount, the insured shall not be
required to pay any more than the retail price.

(2) Proposed copayment structures or ranges, coinsurance, or
deductibles submitted to the commissioner for approval shall be
based upon a methodology that is fully described and documented,
and that complies with the standards set forth in this section. A
health insurer may use actual cost data on prescription drugs or,
for contracted services or products, nationally recognized data
sources used by the health insurer in developing the policy rates.

(3) A copayment or percentage coinsurance shall not exceed 50
percent of the cost to the insurer. A percentage coinsurance shall
meet each of the following additional requirements:

(A) Have a maximum dollar amount cap on the percentage
coinsurance that will be charged for an individual prescription.

(B) Apply towards an annual out-of-pocket maximum for the
product.

(C) Apply towards an annual out-of-pocket maximum for the
outpatient prescription drug benefit, if any.

(4) In addition to compliance with this subdivision, copayments
and coinsurances shall comply with the standards identified in
subdivision (b), including that they shall be reasonable so as to
allow access to medically necessary outpatient prescription drugs,
and the department’s determination may be based on all relevant
factors as provided in paragraph (5) of subdivision (b).

(5) As used in paragraph (3), the “cost to the insurer” means
the actual cost incurred by the insurer or its contracting provider
to acquire and dispense a covered outpatient prescription drug,
without subtracting or otherwise considering any copayment or
coinsurance amount to be paid by insureds. The cost to the insurer
may include average cost calculations as described in this section,
and shall include all discounts and other prospective cost and
pricing arrangements, as applicable. Insurers shall account for any
rebates and other retrospective cost and pricing arrangements for
outpatient prescription drugs by verifying that the rebates and other
retrospective cost and pricing arrangements for outpatient
prescription drugs are applied by the insurer to reduce costs for
the policyholders.

(d) Policies that provide coverage for outpatient prescription
drug benefits may apply the following limitations:

(1) A policy may impose prior authorization requirements on
outpatient prescription drug benefits, consistent with the
requirements of this part and corresponding regulations.

(2) When there is more than one drug that is appropriate for the
treatment of a medical condition, a policy may require step therapy.
A policy that requires step therapy shall have an expeditious
process in place to authorize exceptions to step therapy when
medically necessary and to conform effectively and efficiently
with continuity of care requirements of this part and regulations.
In circumstances where an insured is changing policies, the new
policy may not require the insured to repeat step therapy when that
insured is already being treated for a medical condition by an
outpatient prescription drug, provided that the drug is appropriately
prescribed and is considered safe and effective for the insured’s
condition. Nothing in this section shall preclude the new policy
from imposing a prior authorization requirement pursuant for the
continued coverage of an outpatient prescription drug prescribed
pursuant to step therapy imposed by the former policy, or preclude
the prescribing provider from prescribing another drug covered
by the new policy that is medically appropriate for the insured.
Step therapy, including the expeditious process for exception and
the instances when an insured is changing policies, shall be subject
to subdivision (b). For purposes of this section, “step therapy”
means a protocol that specifies the sequence in which different
prescription drugs for a given medical condition that are medically
appropriate for a particular patient are to be prescribed.

(3) A policy shall provide coverage for the medically necessary
dosage and quantity of the drug prescribed for the treatment of a
medical condition consistent with professionally recognized
standards of practice.

(A) A policy may limit the amount of the drug dispensed at any
one time to a 30-day supply or, if the treatment is for less than 30
days, for the medically necessary amount of the drug.

(B) A policy may impose a requirement that maintenance drugs
be dispensed in a two-month or greater supply.

(C) A policy may establish a mandatory mail order process for
maintenance drugs when dispensed in a three-month supply or
greater quantities, but shall not impose any fees or costs for
mandatory mail order prescriptions other than the applicable
copayment or coinsurance. A policy shall not require an insured
to fill a prescription by mail if the prescribed drug is not available
to be filled in that manner.

(D) For purposes of this section, “maintenance drugs” means
those outpatient prescription drugs that are prescribed for the
insured on a continual basis to treat a chronic condition.

(4) Policies may require an insured who is prescribed drugs for
smoking cessation to be enrolled in or to have completed a smoking
cessation program, if covered by the policy prior to or concurrent
with receiving the prescription drug.

(5) Other limitations that the department may approve pursuant
to this section.

(e) Policies that provide coverage for outpatient prescription
drug benefits are not required to provide coverage for prescription
drugs that meet the following conditions:

(1) When prescribed for cosmetic purposes. For purposes of
this section “cosmetic purposes” means solely for the purpose of
altering or affecting normal structures of the body to improve
appearance rather than function.

(2) When prescribed solely for the treatment of hair loss, sexual
dysfunction, athletic performance, anti-aging for cosmetic
purposes, and mental performance. Drugs for mental performance
shall not be excluded from coverage when they are used to treat
diagnosed mental illness or medical conditions affecting memory,
including, but not limited to, treatment of the conditions or
symptoms of dementia or Alzheimer’s disease.

(3) When prescribed solely for the purposes of losing weight,
except when medically necessary for the treatment of morbid
obesity. Policies may require insureds who are prescribed drugs
for morbid obesity to be enrolled in a comprehensive weight loss
program, if covered by the policy, for a reasonable period of time
prior to or concurrent with receiving the prescription drug.

(4) When prescribed solely for the purpose of shortening the
duration of the common cold.

(5) Drugs that are available over the counter. A policy shall not
exclude coverage of an entire class of prescription drugs when one
drug within that class becomes available over the counter. A policy
that seeks to exclude coverage for an entire class of drugs when
more than one drug within that class become available over the
counter shall first file a notice of material modification and obtain
the department’s prior approval in accordance with subdivision
(g).

(6) Replacement of lost or stolen drugs.

(7) Drugs when prescribed by noncontracting providers for
noncovered procedures that are not authorized by an insurer or a
provider except when coverage is otherwise required in the context
of emergency services.

(8) Other categories of prescription drugs approved by the
department pursuant to this section.

(f) A health insurer policy shall have written policies and
procedures for its outpatient prescription drug benefits and quality
assurance systems in place for the early identification and swift
correction of problems in the accessibility and availability of
outpatient prescription drug benefits. A contract between a health
insurer and a prescription drug benefit provider shall include
provisions, terms, and conditions sufficient to ensure that the
standards and requirements of this section are met.

(g) Any exclusion or limitation on an outpatient prescription
drug benefit that is not described in subdivision (d) or (e) shall not
be applied to a policy’s outpatient prescription drug benefit unless
an insurer has filed a notice of material modification with the
department and received approval by order to apply the exclusion
or limitation. The order of approval may be issued subject to
specified terms and conditions, or for specified periods, as the
department may determine are necessary and appropriate.
Following issuance of an order approving an exclusion or
limitation, any other insurer may apply the same exclusion or
limitation to its outpatient prescription drug benefit if it files an
amendment with the department not less than 30 days prior to
implementation of the exclusion or limitation, represents that it is
exactly the same as that previously approved by order, provides
specific reference to the order number and date issued, and
addresses any specified terms and conditions upon that order, as
applicable.

SEC. 5.  

Section 10169 of the Insurance Code, as amended by
Section 7 of Chapter 872 of the Statutes of 2012, is amended to
read:

10169.  

(a) Commencing January 1, 2001, there is hereby
established in the department the Independent Medical Review
System.

(b) For the purposes of this chapter, “disputed health care
service” means any health care service eligible for coverage and
payment under a disability insurance contract that has been denied,
modified, or delayed by a decision of the insurer, or by one of its
contracting providers, in whole or in part due to a finding that the
service is not medically necessary. A decision regarding a disputed
health care service relates to the practice of medicine and is not a
coverage decision. A disputed health care service does not include
services provided by a group or individual policy of vision-only
or dental-only coverage, except to the extent that (1) the service
involves the practice of medicine, or (2) is provided pursuant to a
contract with a disability insurer that covers hospital, medical, or
surgical benefits. If an insurer, or one of its contracting providers,
issues a decision denying, modifying, or delaying health care
services, based in whole or in part on a finding that the proposed
health care services are not a covered benefit under the contract
that applies to the insured, the statement of decision shall clearly
specify the provision in the contract that excludes that coverage.

(c) For the purposes of this chapter, “coverage decision” means
the approval or denial of health care services by a disability insurer,
or by one of its contracting entities, substantially based on a finding
that the provision of a particular service is included or excluded
as a covered benefit under the terms and conditions of the disability
insurance contract. A coverage decision does not encompass a
disability insurer or contracting provider decision regarding a
disputed health care service.

(d) (1) All insured grievances involving a disputed health care
service are eligible for review under the Independent Medical
Review System if the requirements of this article are met. If the
department finds that an insured grievance involving a disputed
health care service does not meet the requirements of this article
for review under the Independent Medical Review System, the
insured request for review shall be treated as a request for the
department to review the grievance. All other insured grievances,
including grievances involving coverage decisions, remain eligible
for review by the department.

(2) In any case in which an insured or provider asserts that a
decision to deny, modify, or delay health care services was based,
in whole or in part, on consideration of medical necessity, the
department shall have the final authority to determine whether the
grievance is more properly resolved pursuant to an independent
medical review as provided under this article.

(3) The department shall be the final arbiter when there is a
question as to whether an insured grievance is a disputed health
care service or a coverage decision. The department shall establish
a process to complete an initial screening of an insured grievance.
If there appears to be any medical necessity issue, the grievance
shall be resolved pursuant to an independent medical review as
provided under this article.

(e) Every disability insurance contract that is issued, amended,
renewed, or delivered in this state on or after January 1, 2000,
shall, effective, January 1, 2001, provide an insured with the
opportunity to seek an independent medical review whenever
health care services have been denied, modified, or delayed by the
insurer, or by one of its contracting providers, if the decision was
based in whole or in part on a finding that the proposed health care
services are not medically necessary. For purposes of this article,
an insured may designate an agent to act on his or her behalf. The
provider may join with or otherwise assist the insured in seeking
an independent medical review, and may advocate on behalf of
the insured.

(f) Medicare beneficiaries enrolled in Medicare + Choice
products shall not be excluded unless expressly preempted by
federal law.

(g) The department may seek to integrate the quality of care
and consumer protection provisions, including remedies, of the
Independent Medical Review System with related dispute
resolution procedures of other health care agency programs,
including the Medicare program, in a way that minimizes the
potential for duplication, conflict, and added costs. Nothing in this
subdivision shall be construed to limit any rights conferred upon
insureds under this chapter.

(h) The independent medical review process authorized by this
article is in addition to any other procedures or remedies that may
be available.

(i) No later than January 1, 2001, every disability insurer shall
prominently display in every insurer member handbook or relevant
informational brochure, in every insurance contract, on insured
evidence of coverage forms, on copies of insurer procedures for
resolving grievances, on letters of denials issued by either the
insurer or its contracting organization, and on all written responses
to grievances, information concerning the right of an insured to
request an independent medical review in cases where the insured
believes that health care services have been improperly denied,
modified, or delayed by the insurer, or by one of its contracting
providers.

(j) An insured may apply to the department for an independent
medical review when all of the following conditions are met:

(1) (A) The insured’s provider has recommended a health care
service as medically necessary, or

(B) The insured has received urgent care or emergency services
that a provider determined was medically necessary, or

(C) The insured, in the absence of a provider recommendation
under subparagraph (A) or the receipt of urgent care or emergency
services by a provider under subparagraph (B), has been seen by
a contracting provider for the diagnosis or treatment of the medical
condition for which the insured seeks independent review. The
insurer shall expedite access to a contracting provider upon request
of an insured. The contracting provider need not recommend the
disputed health care service as a condition for the insured to be
eligible for an independent review.

For purposes of this article, the insured’s provider may be a
noncontracting provider. However, the insurer shall have no
liability for payment of services provided by a noncontracting
provider, except as provided pursuant to Section 10169.3.

(2) The disputed health care service has been denied, modified,
or delayed by the insurer, or by one of its contracting providers,
based in whole or in part on a decision that the health care service
is not medically necessary.

(3) The insured has filed a grievance with the insurer or its
contracting provider, and the disputed decision is upheld or the
grievance remains unresolved after 30 days. The insured shall not
be required to participate in the insurer’s grievance process for
more than 30 days. In the case of a grievance that requires
expedited review, the insured shall not be required to participate
in the insurer’s grievance process for more than three days.

(k)  begin insert (1) end insert begin insert   end insert An insured may apply to the department for an
independent medical review of a decision to deny, modify, or delay
health care services, based in whole or in part on a finding that the
disputed health care services are not medically necessary, within
six months of any of the qualifying periods or events under
subdivision (j). The commissioner may extend the application
deadline beyond six months if the circumstances of a case warrant
the extension.

begin insert

(2) An insured or an insured’s provider may request an
expeditious medical review pursuant to Section 10169.1 if there
is an imminent and serious threat to the health of the insured,
including, but not limited to, serious pain, the potential loss of life,
limb, or major bodily function, or the immediate and serious
deterioration of the health of the insured. Whether or not the
insured or the insured’s provider requests an expeditious medical
review, if the department determines that there is an imminent and
serious threat to the health of the insured, then the department
shall refer the decision for an expeditious medical review consistent
with Section 10169.1 without completing the requirements of
subdivision (m).

end insert

(l) The insured shall pay no application or processing fees of
any kind.

(m) As part of its notification to the insured regarding a
disposition of the insured’s grievance that denies, modifies, or
delays health care services, the insurer shall provide the insured
with a one-page application form approved by the department, and
an addressed envelope, which the insured may return to initiate an
independent medical review. The insurer shall include on the form
any information required by the department to facilitate the
completion of the independent medical review, such as the
insured’s diagnosis or condition, the nature of the disputed health
care service sought by the insured, a means to identify the insured’s
case, and any other material information. The form shall also
include the following:

(1) Notice that a decision not to participate in the independent
review process may cause the insured to forfeit any statutory right
to pursue legal action against the insurer regarding the disputed
health care service.

(2) A statement indicating the insured’s consent to obtain any
necessary medical records from the insurer, any of its contracting
providers, and any noncontracting provider the insured may have
consulted on the matter, to be signed by the insured.

(3) Notice of the insured’s right to provide information or
documentation, either directly or through the insured’s provider,
regarding any of the following:

(A) A provider recommendation indicating that the disputed
health care service is medically necessary for the insured’s medical
condition.

(B) Medical information or justification that a disputed health
care service, on an urgent care or emergency basis, was medically
necessary for the insured’s medical condition.

(C) Reasonable information supporting the insured’s position
that the disputed health care service is or was medically necessary
for the insured’s medical condition, including all information
provided to the insured by the insurer or any of its contracting
providers, still in the possession of the insured, concerning an
insurer or provider decision regarding disputed health care services,
and a copy of any materials the insured submitted to the insurer,
still in the possession of the insured, in support of the grievance,
as well as any additional material that the insured believes is
relevant.

(n) Upon notice from the department that the insured has applied
for an independent medical review, the insurer or its contracting
providers, shall provide to the independent medical review
organization designated by the department a copy of all of the
following documents within three business days of the insurer’s
receipt of the department’s notice of a request by an insured for
an independent review:

(1) (A) A copy of all of the insured’s medical records in the
possession of the insurer or its contracting providers relevant to
each of the following:

(i) The insured’s medical condition.

(ii) The health care services being provided by the insurer and
its contracting providers for the condition.

(iii) The disputed health care services requested by the insured
for the condition.

(B) Any newly developed or discovered relevant medical records
in the possession of the insurer or its contracting providers after
the initial documents are provided to the independent medical
review organization shall be forwarded immediately to the
independent medical review organization. The insurer shall
concurrently provide a copy of medical records required by this
subparagraph to the insured or the insured’s provider, if authorized
by the insured, unless the offer of medical records is declined or
otherwise prohibited by law. The confidentiality of all medical
record information shall be maintained pursuant to applicable state
and federal laws.

(2) A copy of all information provided to the insured by the
insurer and any of its contracting providers concerning insurer and
provider decisions regarding the insured’s condition and care, and
a copy of any materials the insured or the insured’s provider
submitted to the insurer and to the insurer’s contracting providers
in support of the insured’s request for disputed health care services.
This documentation shall include the written response to the
insured’s grievance. The confidentiality of any insured medical
information shall be maintained pursuant to applicable state and
federal laws.

(3) A copy of any other relevant documents or information used
by the insurer or its contracting providers in determining whether
disputed health care services should have been provided, and any
statements by the insurer and its contracting providers explaining
the reasons for the decision to deny, modify, or delay disputed
health care services on the basis of medical necessity. The insurer
shall concurrently provide a copy of documents required by this
paragraph, except for any information found by the commissioner
to be legally privileged information, to the insured and the insured’s
provider. The department and the independent medical review
organization shall maintain the confidentiality of any information
found by the commissioner to be the proprietary information of
the insurer.

(o) This section shall become inoperative on July 1, 2015, and,
as of January 1, 2016, is repealed, unless a later enacted statute,
that becomes operative on or before January 1, 2016, deletes or
extends the dates on which it becomes inoperative and is repealed.

SEC. 6.  

Section 10169 of the Insurance Code, as added by
Section 8 of Chapter 872 of the Statutes of 2012, is amended to
read:

10169.  

(a) Commencing January 1, 2001, there is hereby
established in the department the Independent Medical Review
System.

(b) For the purposes of this chapter, “disputed health care
service” means any health care service eligible for coverage and
payment under a disability insurance contract that has been denied,
modified, or delayed by a decision of the insurer, or by one of its
contracting providers, in whole or in part due to a finding that the
service is not medically necessary. A decision regarding a disputed
health care service relates to the practice of medicine and is not a
coverage decision. A disputed health care service does not include
services provided by a group or individual policy of vision-only
or dental-only coverage, except to the extent that (1) the service
involves the practice of medicine, or (2) is provided pursuant to a
contract with a disability insurer that covers hospital, medical, or
surgical benefits. If an insurer, or one of its contracting providers,
issues a decision denying, modifying, or delaying health care
services, based in whole or in part on a finding that the proposed
health care services are not a covered benefit under the contract
that applies to the insured, the statement of decision shall clearly
specify the provision in the contract that excludes that coverage.

(c) For the purposes of this chapter, “coverage decision” means
the approval or denial of health care services by a disability insurer,
or by one of its contracting entities, substantially based on a finding
that the provision of a particular service is included or excluded
as a covered benefit under the terms and conditions of the disability
insurance contract. A coverage decision does not encompass a
disability insurer or contracting provider decision regarding a
disputed health care service.

(d) (1) All insured grievances involving a disputed health care
service are eligible for review under the Independent Medical
Review System if the requirements of this article are met. If the
department finds that an insured grievance involving a disputed
health care service does not meet the requirements of this article
for review under the Independent Medical Review System, the
insured request for review shall be treated as a request for the
department to review the grievance. All other insured grievances,
including grievances involving coverage decisions, remain eligible
for review by the department.

(2) In any case in which an insured or provider asserts that a
decision to deny, modify, or delay health care services was based,
in whole or in part, on consideration of medical necessity, the
department shall have the final authority to determine whether the
grievance is more properly resolved pursuant to an independent
medical review as provided under this article.

(3) The department shall be the final arbiter when there is a
question as to whether an insured grievance is a disputed health
care service or a coverage decision. The department shall establish
a process to complete an initial screening of an insured grievance.
If there appears to be any medical necessity issue, the grievance
shall be resolved pursuant to an independent medical review as
provided under this article.

(e) Every disability insurance contract that is issued, amended,
renewed, or delivered in this state on or after January 1, 2000, shall
provide an insured with the opportunity to seek an independent
medical review whenever health care services have been denied,
modified, or delayed by the insurer, or by one of its contracting
providers, if the decision was based in whole or in part on a finding
that the proposed health care services are not medically necessary.
For purposes of this article, an insured may designate an agent to
act on his or her behalf. The provider may join with or otherwise
assist the insured in seeking an independent medical review, and
may advocate on behalf of the insured.

(f) Medicare beneficiaries enrolled in Medicare + Choice
products shall not be excluded unless expressly preempted by
federal law.

(g) The department may seek to integrate the quality of care
and consumer protection provisions, including remedies, of the
Independent Medical Review System with related dispute
resolution procedures of other health care agency programs,
including the Medicare program, in a way that minimizes the
potential for duplication, conflict, and added costs. Nothing in this
subdivision shall be construed to limit any rights conferred upon
insureds under this chapter.

(h) The independent medical review process authorized by this
article is in addition to any other procedures or remedies that may
be available.

(i) Every disability insurer shall prominently display in every
insurer member handbook or relevant informational brochure, in
every insurance contract, on insured evidence of coverage forms,
on copies of insurer procedures for resolving grievances, on letters
of denials issued by either the insurer or its contracting
organization, and on all written responses to grievances,
information concerning the right of an insured to request an
independent medical review in cases where the insured believes
that health care services have been improperly denied, modified,
or delayed by the insurer, or by one of its contracting providers.

(j) An insured may apply to the department for an independent
medical review when all of the following conditions are met:

(1) (A) The insured’s provider has recommended a health care
service as medically necessary, or

(B) The insured has received urgent care or emergency services
that a provider determined was medically necessary, or

(C) The insured, in the absence of a provider recommendation
under subparagraph (A) or the receipt of urgent care or emergency
services by a provider under subparagraph (B), has been seen by
a contracting provider for the diagnosis or treatment of the medical
condition for which the insured seeks independent review. The
insurer shall expedite access to a contracting provider upon request
of an insured. The contracting provider need not recommend the
disputed health care service as a condition for the insured to be
eligible for an independent review.

For purposes of this article, the insured’s provider may be a
noncontracting provider. However, the insurer shall have no
liability for payment of services provided by a noncontracting
provider, except as provided pursuant to Section 10169.3.

(2) The disputed health care service has been denied, modified,
or delayed by the insurer, or by one of its contracting providers,
based in whole or in part on a decision that the health care service
is not medically necessary.

(3) The insured has filed a grievance with the insurer or its
contracting provider, and the disputed decision is upheld or the
grievance remains unresolved after 30 days. The insured shall not
be required to participate in the insurer’s grievance process for
more than 30 days. In the case of a grievance that requires
expedited review, the insured shall not be required to participate
in the insurer’s grievance process for more than three days.

(k)  begin insert (1) end insert begin insert   end insert An insured may apply to the department for an
independent medical review of a decision to deny, modify, or delay
health care services, based in whole or in part on a finding that the
disputed health care services are not medically necessary, within
six months of any of the qualifying periods or events under
subdivision (j). The commissioner may extend the application
deadline beyond six months if the circumstances of a case warrant
the extension.

begin insert

(2) An insured or an insured’s provider may request an
expeditious medical review pursuant to Section 10169.1 if there
is an imminent and serious threat to the health of the insured,
including, but not limited to, serious pain, the potential loss of life,
limb, or major bodily function, or the immediate and serious
deterioration of the health of the insured. Whether or not the
insured or the insured’s provider requests an expeditious medical
review, if the department determines that there is an imminent and
serious threat to the health of the insured, then the department
shall refer the decision for an expeditious medical review consistent
with Section 10169.1 without completing the requirements of
subdivision (m).

end insert

(l) The insured shall pay no application or processing fees of
any kind.

(m) As part of its notification to the insured regarding a
disposition of the insured’s grievance that denies, modifies, or
delays health care services, the insurer shall provide the insured
with a one- or two-page application form approved by the
department, and an addressed envelope, which the insured may
return to initiate an independent medical review. The insurer shall
include on the form any information required by the department
to facilitate the completion of the independent medical review,
such as the insured’s diagnosis or condition, the nature of the
disputed health care service sought by the insured, a means to
identify the insured’s case, and any other material information.
The form shall also include the following:

(1) Notice that a decision not to participate in the independent
review process may cause the insured to forfeit any statutory right
to pursue legal action against the insurer regarding the disputed
health care service.

(2) A statement indicating the insured’s consent to obtain any
necessary medical records from the insurer, any of its contracting
providers, and any noncontracting provider the insured may have
consulted on the matter, to be signed by the insured.

(3) Notice of the insured’s right to provide information or
documentation, either directly or through the insured’s provider,
regarding any of the following:

(A) A provider recommendation indicating that the disputed
health care service is medically necessary for the insured’s medical
condition.

(B) Medical information or justification that a disputed health
care service, on an urgent care or emergency basis, was medically
necessary for the insured’s medical condition.

(C) Reasonable information supporting the insured’s position
that the disputed health care service is or was medically necessary
for the insured’s medical condition, including all information
provided to the insured by the insurer or any of its contracting
providers, still in the possession of the insured, concerning an
insurer or provider decision regarding disputed health care services,
and a copy of any materials the insured submitted to the insurer,
still in the possession of the insured, in support of the grievance,
as well as any additional material that the insured believes is
relevant.

(4) A section designed to collect information on the insured’s
ethnicity, race, and primary language spoken that includes both of
the following:

(A) A statement of intent indicating that the information is used
for statistics only, in order to ensure that all insureds get the best
care possible.

(B) A statement indicating that providing this information is
optional and will not affect the independent medical review process
in any way.

(n) Upon notice from the department that the insured has applied
for an independent medical review, the insurer or its contracting
providers, shall provide to the independent medical review
organization designated by the department a copy of all of the
following documents within three business days of the insurer’s
receipt of the department’s notice of a request by an insured for
an independent review:

(1) (A) A copy of all of the insured’s medical records in the
possession of the insurer or its contracting providers relevant to
each of the following:

(i) The insured’s medical condition.

(ii) The health care services being provided by the insurer and
its contracting providers for the condition.

(iii) The disputed health care services requested by the insured
for the condition.

(B) Any newly developed or discovered relevant medical records
in the possession of the insurer or its contracting providers after
the initial documents are provided to the independent medical
review organization shall be forwarded immediately to the
independent medical review organization. The insurer shall
concurrently provide a copy of medical records required by this
subparagraph to the insured or the insured’s provider, if authorized
by the insured, unless the offer of medical records is declined or
otherwise prohibited by law. The confidentiality of all medical
record information shall be maintained pursuant to applicable state
and federal laws.

(2) A copy of all information provided to the insured by the
insurer and any of its contracting providers concerning insurer and
provider decisions regarding the insured’s condition and care, and
a copy of any materials the insured or the insured’s provider
submitted to the insurer and to the insurer’s contracting providers
in support of the insured’s request for disputed health care services.
This documentation shall include the written response to the
insured’s grievance. The confidentiality of any insured medical
information shall be maintained pursuant to applicable state and
federal laws.

(3) A copy of any other relevant documents or information used
by the insurer or its contracting providers in determining whether
disputed health care services should have been provided, and any
statements by the insurer and its contracting providers explaining
the reasons for the decision to deny, modify, or delay disputed
health care services on the basis of medical necessity. The insurer
shall concurrently provide a copy of documents required by this
paragraph, except for any information found by the commissioner
to be legally privileged information, to the insured and the insured’s
provider. The department and the independent medical review
organization shall maintain the confidentiality of any information
found by the commissioner to be the proprietary information of
the insurer.

(o) This section shall become operative on July 1, 2015.

SEC. 7.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.