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.  




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          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  





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               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.   





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          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.





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          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  





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          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  





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          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.  





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          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.   







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             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. 
            








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