BILL ANALYSIS Ó SENATE GOVERNANCE & FINANCE COMMITTEE Senator Lois Wolk, Chair BILL NO: SB 809 HEARING: 5/8/13 AUTHOR: DeSaulnier FISCAL: Yes VERSION: 5/1/13 TAX LEVY: No CONSULTANT: Miller CONTROLLED SUBSTANCES: REPORTING (URGENCY) Imposes an annual tax on Schedule II, III, and IV manufacturers, increases licensure fees on practitioners and providers, and allows grant and gift moneys for the purposes of upgrading, maintain and enforcing the CURES program. Background and Existing Law CURES The California Uniform Controlled Substances Act (the Act) regulates controlled substances; it defines opiate as any substance having an addiction-forming or addiction-sustaining liability similar to morphine or being capable of conversion into a drug having addiction-forming or addiction-sustaining liability. The Act classifies controlled substances in five schedules according to their danger and potential for abuse. The Controlled Substances Utilization Review and Evaluation System (CURES) electronically monitors Schedule II, III and IV controlled substance prescriptions. CURES provides for the electronic transmission of Schedule II, III and IV controlled substance prescription information to the Department of Justice (DOJ) at the time prescriptions are dispensed. CURES' purpose is to assist law enforcement and regulatory agencies in controlling diversion and abuse of Schedule II, III and IV controlled substances and for statistical analysis, education and research. DOJ maintain CURES, contingent upon the availability of adequate funds from the Contingent Fund of the Medical Board of California, the Pharmacy Board Contingent Fund, the State Dentistry Fund, the Board of Registered Nursing Fund and the Osteopathic Medical Board of California Contingent Fund. SB 809 -- 5/1/13 -- Page 2 Pharmacies and clinics that fill prescriptions for controlled substances must provide weekly information to DOJ including the patient's name, date of birth, the name, form, strength and quantity of the drug, and the pharmacy name, pharmacy number and the prescribing physician information. In an optional program, licensed health care practitioners that are eligible to prescribe Schedule II, III or IV controlled substances, or a pharmacist, may apply to participate in the CURES Prescription Drug Monitoring Program (PDMP). DOJ may deny an application or suspend a subscriber for materially falsifying an application, failing to maintain effective controls for access to the patient activity report, suspended or revoked DEA registration, arrest for a controlled substance arrest or accessing information for any reason other than patient care. Under the PDMP, the participating (subscribing) practitioner or pharmacist may access the electronic history of controlled substances dispensed to an individual under his or her care based on data contained in CURES. Board of Equalization (BOE) Fee and Tax programs BOE administers the property tax, the sales and use tax, the alcohol tax, the tobacco tax, and the fuel tax among others. In addition, the BOE acts as a collection agency and collects taxes and fees on three distinct groups but does not asses, enforce or administer the tax. Under these programs, BOE acts as the collection agency rather than the tax agency under the Fee Collection Procedures Law of the Revenue & Taxation Code; specifically: 1. Water Rights . The State Water Resources Control Board (SWRCB) sends BOE a notice of the name and address of each person or entity who is liable for a fee or expense, the amount of the fee or expense, and the due date and BOE collects it. SWRCB handles claims for refunds and other discrepancies. 2. Fire Prevention Fee : The State Board of Forestry and Fire Protection (Fire Board) provides BOE with the taxpayer name, address, and amount of the fee assessment, not to exceed $150. All legal actions and discrepancies of the fee must be held pending CAL SB 809 -- 5/1/13 -- Page 3 FIRE's decision on the petition. 3. Childhood Lead : The California Department of Public Health (CDPH) notifies the BOE of who to register and bill under this program. The fee is imposed on manufactures and other persons formerly, presently, or both engaged in the stream of commerce of lead or products containing lead, or who otherwise are responsible for identifiable sources of lead. Proposed Law Senate Bill 809 increases the license fees of practitioners in this state, provides that gifts may be made into the program, and imposes a tax on manufacturers of Schedule II, III, and IV drugs. The bill also delineates new requirements of the CURES program and participants and states findings and declarations to make the purpose of the bill clear. Practitioner and Provider Fees SB 809 requires the following health practitioner boards to increase licensure, certification and renewal fees for licensees under their supervision authorized to prescribe controlled substances by up to 1.16 percent annually and clarifies that in no case shall the fee increase exceed the reasonable costs association with maintaining CURES: 1. Medical Board of California 2. Dental Board of California 3. California State Board of Pharmacy 4. Veterinary Medical Board 5. Board of Registered Nursing 6. Physician Assistant Committee of the Medical Board of California 7. Osteopathic Medical Board of California 8. State Board of Optometry 9. California Board of Podiatric Medicine SB 809 also requires the Board of Pharmacy to increase licensure, certification and renewal fees for wholesalers, out-of-state wholesalers of dangerous drugs and veterinary food-animal drug retailers up to 1.16 percent annually. SB 809 -- 5/1/13 -- Page 4 Clarifies that in no case shall the fee increase exceed the reasonable costs association with maintaining CURES. Grants and gifts SB 809 allows the DOJ to seek grant moneys from insurers for the purpose of upgrading and modernizing the CURES. Insurers may contribute by submitting their payment to the Controller which her or she deposits in the CURES fund. SB 809 requires that the DOJ make any information about the amount and source of private grant funds publicly available. Manufacturers' tax SB 809 requires DOJ to determine the annual tax on manufacturers of Schedule II, III, and IV drugs by dividing the cost to establish and maintain enforcement of CURES. For calendar year 2014, the CURES cost shall be $4.2 million which is to be divided the number of "qualified manufacturers." SB 809 allows DOJ to adjust the cost of the program after January 1, 2015 by the cost of living during the prior year as measured by the Consumer Price Index. DOJ shall provide the BOE with the name and address of each qualified manufacturer that is liable for the annual tax, the amount of tax due and the due date. SB 809 requires BOE to collect the annual tax prescribed by this bill under the Fee Collection Procedures Law. The bill explicitly states that BOE shall not consider a petition for redetermination or a claim for refund except for a math error. All other matters of discrepancy are to be taken to DOJ. Miscellaneous SB 809 requires various upgrades to the CURES system, new enforcement and reporting requirements, and new "real time" data sharing before Schedule II, III, and IV drugs may be dispensed. SB 809 defines its terms, including "insurer" which is defined as a gross-premiums tax paying insurer administered by DOI. SB 809 -- 5/1/13 -- Page 5 SB 809 is an urgency measure and states that this is an urgency measure, necessary to take effect immediately so that the public is protected from the continuing threat of prescription drug abuse at the earliest possible time. State Revenue Impact According to DOJ, the intent of the bill is to pay for the system upgrade, the ongoing program and enforcement in the following amounts: 1. $1.6 million from the providers' licensure fee to pay for the ongoing program 2. $3.8 million for a one-time upgrade to the CURES system. 3. $4.2 million from the manufacturer's tax for the enforcement of the program. The manufacturer's tax is in SB 809. Comments 1. Purpose of the bill . According to the author, "While the automated Prescription Drug Monitory Program (PDMP) within the Controlled Substances Utilization Review and Evaluation System (CURES) program is a valuable preventative, investigative, and educational tool for health care providers, law enforcement, and regulatory boards, recent budget cuts to the Attorney General's Division of Law Enforcement have resulted in insufficient funding to support the CURES PDMP. The PDMP is necessary to ensure health care professionals have the necessary data to make informed treatment decisions and to allow law enforcement to investigate prescription drug diversion. Without a dedicated funding source, the CURES PDMP is not sustainable and will be suspended July 1, 2013. SB 809 establishes CURES Fund to provide sufficient revenue to upgrade and fully modernize the CURES program, maintain program operations, establish enforcement capability, and improve utilization by requiring all practitioners and pharmacists to enroll and consult the CURES PDMP once the program is capable of accommodating all users. To provide dedicated funds, SB 809 increases fees, by 1.16 SB 809 -- 5/1/13 -- Page 6 percent, per licensee, that is authorized to prescribe or dispense controlled substances and wholesalers licensed by the Board of Pharmacy; imposes annual taxes on drug manufacturers of schedule II, III, and IV controlled substances doing business in California to establish and support enforcement capability necessary to mitigate diversion and reduce the abuse of prescription narcotics; and directs the Department of Justice to seek grant funding from health insurance plans and workers compensation insurers to fund the CURES modernization upgrade. 2. General fund would be better . Pharmaceutical Research and Manufacturers of America (PhRMA) states that this bill creates an open-ended and permanent funding requirement on manufacturers to finance a "strike-team" to enforce California's anti-drug efforts. PhRMA supports the use of PDMPs and believes these and related enforcement programs should be funded with state General Fund dollars, federal grant monies, settlement programs at DOJ or other fiscal resources rather than a tax on the industry. The industry is additionally concerned that the new tax is not for the current administration of the program that may lose funding on July 1st of this year but instead for a new enforcement program. 3. Too little, too much, just right . SB 809 raises an interesting policy question: Who should bear the costs of maintain programs which everyone agrees contributes to the health and safety of all Californians? SB 809 answers that question with increased licensure fees, a tax on controlled substance manufacturing of Schedule II, III, IV manufacturers and attempts to encourage insurers to pay into the fund through a grant program. However, the cost of the bill, including a more robust enforcement program, falls disproportionately on the manufacturers. The Committee may wish to consider amending the bill to provide that each group pay equitable amounts through the tax, grants or licensing fees in order to fund the program. 4. Gross premiums tax . The bill permissively allows insurers to pay into a special fund voluntarily to assist with the startup costs of CURES funding. The previous version of the bill taxed insurers regulated by the Department of Insurance (DOI) that pay on the gross premiums tax (a type of sales tax on insurance premiums); a tax on gross premium paying insurers, however, is SB 809 -- 5/1/13 -- Page 7 unconstitutional as the gross premiums tax is considered "in lieu" of any other tax. Therefore, the author allows insurers to contribute in this manner instead of compelling them to do so. Most managed care plans are regulated by the Department of Managed Healthcare (DMHC), and pay the corporate tax but the previous version of the bill did not assess these companies. In its definition of "insurer," the bill only applies to DOI plans. However, if corporate taxpaying companies or insurance companies with a corporate taxpaying parent pay into the fund as a "gift," they may be entitled to a state and federal tax deduction. The Committee may wish to consider amending the bill to define insurers to include all health plans, even managed care plans and to disallow a state charitable deduction for this purpose since none of the other groups receive one. 5. Is there a better way ? SB 809 grants DOJ a new quasi-taxing authority by allowing the department to tell the BOE how much to assess each manufacturer, and allows DOJ to enforce the tax. This is a significant departure from tax policy (with three exceptions at the BOE) whereby the tax agency has a direct relationship with the taxpayer and generally imposes taxes as a percent of a product (sales and use tax) or income (personal income tax). The bill requires taxpayers to register with DOJ as a manufacturer so that the tax may be enforced, and DOJ has to share the taxpayer, amount of tax, and address to the BOE in a second type of registration there. Since DOJ plans to divide the cost of enforcement by the number of manufactures that make Schedule II, III, and IV drugs, it may be simpler for the DOJ to levy a registration tax instead and not require the BOE to impose the tax at all. The Committee may wish to direct staff to explore the feasibility of a registration tax. 6. Timing is everything . SB 809 is an urgency measure because California could be one of only two states that do not have a program if CURES is not funded before July 1 of this year. However, the new requirements it imposes on practitioners and the new tax it imposes on manufacturers may not be imposed immediately for administrative reasons. The Committee may wish to consider starting immediately the fee increases on licenses but delaying implementation on both the manufacturers tax to allow DOJ to gather the data and also on the data requirements of practitioners before the technology is fully functional. SB 809 -- 5/1/13 -- Page 8 7. Attorney General . This bill is sponsored by California Attorney General Kamala Harris. According to the Author, the automated prescription drug management program (PDMP) within the CURES program is a valuable investigative, preventative, and educational tool for law enforcement, regulatory boards, and health care providers, but recent budget cuts to the Attorney General's Division of Law Enforcement have resulted in insufficient funding to support the CURES PDMP. The Author states that the PDMP is necessary to ensure health care professionals have the necessary data to make informed treatment decisions and to allow law enforcement to investigate prescription drug diversion. Without a dedicated funding source, the CURES PDMP is not sustainable and will be suspended July 1, 2013. To keep the program going and increase its effectiveness, SB 809 includes an urgency clause and establishes funds to upgrade the system to be fully modernized and provides dedicated ongoing funding to ensure the program is sustainable. 8. Double referral . SB 809 was heard in the Senate Business & Professions Committee on April 16th. That Committee discussed the issues related to the licensing fees for practitioners and providers. 9. Related legislation. Senator Burton made the CURES program permanent in 2004, since then there have been various attempts at tax and fee increases, some successful, to fund the program. 1. SB 62 (Price, 2013) requires coroners' reports to be transmitted to various health practitioner boards in the event that cause of death is determined to be prescription drug overdose. SB 62 is on the Senate Appropriations Committee suspense file. 2. SB 670 (Steinberg) provides the Medical Board of California with additional authority to inspect medical records and to limit the prescribing ability of physicians during a pending investigation if there is a reasonable suspicion the physician has engaged in overprescribing of controlled substances that resulted in a patient's death. SB 670 is on the Senate Floor. SB 809 -- 5/1/13 -- Page 9 3. SB 616 (DeSaulnier, 2012) increased fees, up to $10 per licensee that is authorized to prescribe or dispense controlled substances, to fund CURES. The measure failed passage in the Assembly Committee on Business, Professions and Consumer Protection. 4. SB 360 (DeSaulnier, Chapter 418, Statutes of 2011) updated CURES to reflect the new PDMP and authorized DOJ to initiate administrative enforcement actions to prevent the misuse of confidential information collected through CURES. 5. SB 1071 (DeSaulnier, 2010) imposed a tax on manufacturers or importers of Schedule II, III and IV controlled substances to pay for ongoing costs of the CURES program. Fees would have been collected by the BOE, at the rate of $0.0025 per pill included in Schedule II, III, and IV. The bill failed passage in the Senate Committee on Health. 6. SB 151 (Burton, Chapter 406, Statutes of 2004) made CURES permanent, among other provisions. Support and Opposition (5/2/13) Support : Attorney General Kamala Harris (Sponsor);California Department of Insurance; California Labor Federation; California Narcotic Officers Association; California Pharmacists Association; California Police Chiefs Association; California State Sheriffs' Association; City and County of San Francisco; County Alcohol and Drug Program Administrators Association of California; Deputy Sheriffs' Association of San Diego County; Healthcare Distribution Management Association; National Coalition Against Prescription Drug Abuse; Troy and Alana Pack Foundation; The University of California. Opposition : Association of California Life and Health Insurance Companies; BayBio; California Healthcare Institute; Generic Pharmaceuticals Association; PhRMA; TEVA Pharmaceuticals. SB 809 -- 5/1/13 -- Page 10