BILL ANALYSIS �
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