Amended in Senate June 24, 2015

Amended in Assembly June 1, 2015

Amended in Assembly May 20, 2015

Amended in Assembly May 4, 2015

Amended in Assembly April 7, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 339

Introduced by Assembly Member Gordon

(Coauthor: Assembly Member Atkins)

February 13, 2015

An act to begin insert amend Sections 1367.24 and 1367.205 of, and to end insert add Section 1342.71 begin delete to end delete begin insert to, end insert the Health and Safety Code, and to begin insert amend Section 10123.192 of, and to end insert add begin delete Section end delete begin insert Sections end insert 10123.193 begin delete to end delete begin insert and 10123.201 to, end insert the Insurance Code, relating to health care coverage.

LEGISLATIVE COUNSEL’S DIGEST

AB 339, as amended, Gordon. Health care coverage: outpatient prescription drugs.

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 and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law requires a health care service plan or insurer that provides prescription drug benefits and maintains one or more drug formularies to make specified information regarding the formularies available to the public and other specified entities. Existing law also specifies requirements for those plans and insurers regarding coverage and cost sharing of specified prescription drugs.

This bill would require a begin insert nongrandfathered group end insert health care service plan contract or begin delete a end delete health insurance policy that is offered, renewed, or amended on or after begin delete January 1, end delete begin insert July 1, end insert 2016, begin insert and a nongrandfathered individual health care service plan contract or health insurance policy that is offered, renewed, or amended on or after January 1, 2017, end insert and that provides coverage for outpatient prescription drugs, to provide coverage for medically necessary prescription drugs, including those for which there is not a therapeutic equivalent. The bill would require copayments, coinsurance, and other cost sharing for these drugs to be reasonable, and would require that the copayment, coinsurance, or any other form of cost sharing for a covered outpatient prescription drug for an individual prescription not exceed 1⁄24 of the annual out-of-pocket limit applicable to individual coverage for a supply of up to 30 days. begin insert The bill would require these cost sharing limitations for a plan contract or policy that is a high deductible health plan to apply only once an enrollee’s or insured’s deductible has been satisfied for the year. end insert The bill would make these cost-sharing limits applicable only to covered outpatient prescription drugs that constitute essential health benefits, as defined. The bill would require a plan contract or policy to cover single-tablet and extended release prescription drug regimens, unless the plan or insurer can demonstrate that multitablet and nonextended release drug regimens, respectively, are clinically equally or more effective, as specified. The bill would prohibit, except as specified, a plan contract or policy from placing prescription medications that treat a specific condition on the highest cost tiers of a drug formulary. The bill would require a plan contract or policy to use specified definitions for each tier of a drug formulary.

begin insert

Existing law requires every health care service plan that provides prescription drug benefits to maintain an expeditious process by which prescribing providers may obtain authorization for a medically necessary nonformulary prescription drug, and requires these plans to maintain specified information that is required to be made available to the Director of the Department of Managed Health Care upon request.

end insert begin insert

This bill would also impose these requirements on a health insurer that provides prescription drug benefits, as provided. The bill would require a plan or insurer to respond to authorization requests for nonformulary prescription drugs within specified timeframes. The bill would authorize a plan or insurer to require step therapy, as defined, when more than one drug is appropriate for the treatment of a medical condition, subject to specified requirements. The bill would require a plan or insurer that requires step therapy to 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. The bill, with regard to an enrollee or insured changing plans or policies, would prohibit a new plan or insurer from requiring the enrollee or insured to repeat step therapy when that person is already being treated for a medical condition by a prescription drug, as specified. The bill, except as specified, would require a plan or insurer that provides essential health benefits to allow an enrollee or insured to access his or her prescription drug benefits at an in-network retail pharmacy, and would authorize a plan or insurer to charge an enrollee or insured a different cost sharing for obtaining a covered drug at a retail pharmacy, and would require that cost-sharing amount to count towards the plan’s or insurer’s annual out-of-pocket limitation, as specified.

end insert begin insert

This bill would require a plan or insurer to maintain a pharmacy and therapeutics committee that is responsible for developing, maintaining, and overseeing any drug formulary list, as provided. The bill would require the committee to, among other things, evaluate and analyze treatment protocols and procedures related to the plan’s or insurer’s drug formulary at least annually.

end insert begin insert

Existing law requires the Department of Managed Health Care and the Department of Insurance to jointly develop a standard formulary template by January 1, 2017, and requires plans and insurers to use that template to display formularies, as specified. Existing law requires the standard formulary template to include specified information.

end insert begin insert

This bill would require the standard formulary template to include additional specified information, including which medications are covered, including both generic and brand name.

end insert

Because a willful violation of the bill’s requirements relative to health care service plans would be a crime, this 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 1342.71 is added to the Health and Safety
Code, to read:

1342.71.  

(a) A begin insert nongrandfathered group end insert health care service
plan contract that is offered, amended, or renewed on or after
begin delete January 1, end delete begin insert July 1, end insert 2016, shall comply with this section. begin insert A
nongrandfathered individual health care service plan contract
that is offered, amended, or renewed on or after January 1, 2017,
shall comply with this section. end insert The cost-sharing limits established
by this section apply only to outpatient prescription drugs covered
by the contract that constitute essential health benefits, as defined
in Section 1367.005. This section does not apply to Medi-Cal
managed care contracts.

(b) (1) A health care service plan that provides coverage for
outpatient prescription drugs shall cover medically necessary
prescription drugs.

(2) A health care service plan that provides coverage for
outpatient prescription drugs shall cover a medically necessary
prescription drug for which there is not a therapeutic equivalent.

(c) Copayments, coinsurance, and other cost sharing for
outpatient prescription drugs shall be reasonable so as to allow
access to medically necessary outpatient prescription drugs. begin insert In
proposing cost sharing, the health care service plan shall consider
the impact of cost sharing on medication adherence as
demonstrated in peer-reviewed literature. end insert

(d) Consistent with federal law and guidance, and
notwithstanding Section 1342.7 and any regulations adopted
pursuant to that section, a health care service plan that provides
coverage for outpatient prescription drugs shall demonstrate that
the formulary or formularies maintained by the health care service
plan do not discourage the enrollment of individuals with health
conditions and do not reduce the generosity of the benefit for
enrollees with a particular condition.

(1) A health care service plan contract shall cover a single-tablet
drug regimen that is as effective as a multitablet regimen unless
the health care service plan is able to demonstrate to the director,
consistent with clinical guidelines and peer-reviewed scientific
and medical literature, that the multitablet regimen is clinically
equally or more effective and more likely to result in adherence
to a drug regimen. A health care service plan contract shall cover
an extended release prescription drug that is clinically equally or
more effective than a nonextended release product unless the health
care service plan is able to demonstrate to the director, consistent
with clinical guidelines and peer-reviewed scientific and medical
literature, that the nonextended release product is clinically equally
or more effective than the extended release product.

(2) A health care service plan contract shall not place most or
all of the prescription medications that treat a specific condition
on the highest cost tiers of a formulary unless the health care
service plan can demonstrate that such placement does not reduce
the generosity of the benefits for enrollees with a particular
condition. If there is more than one treatment that is the standard
of care for a specific condition, the health care service plan shall
not place most or all prescription medications that treat that
condition on the highest cost tiers. This shall not apply to any
medication for which there is a therapeutic equivalent available
on a lower cost tier.

(3) For coverage offered in the individual market, the health
care service plan shall demonstrate that the formulary or
formularies maintained for coverage in the individual market are
the same or comparable to those maintained for coverage in the
group market.

(4) A health care service plan shall demonstrate to the director
that any limitation or utilization management is consistent with
and based on clinical guidelines and peer-reviewed scientific and
medical literature.

(e)  begin insert (1) end insert begin insert   end insert With respect to an individual or group health care
service plan contract subject to Section 1367.006, the copayment,
coinsurance, or any other form of cost sharing for a covered
outpatient prescription drug for an individual prescription shall
not exceed one-twenty-fourth of the annual out-of-pocket limit
applicable to individual coverage under Section 1367.006 for a
supply of up to 30 days.

begin insert

(2) For a health care service plan contract that is a “high
deductible health plan” under the definition set forth in Section
223(c)(2) of Title 26 of the United States Code, paragraph (1) of
this subdivision shall apply only once an enrollee’s deductible has
been satisfied for the year.

end insert

(f) (1) If a health care service plan contract maintains a drug
formulary grouped into tiers, including a fourth tier or specialty
tier, a health care service plan contract shall use the following
definitions for each tier of the drug formulary:

(A) Tier one shall consist of preferred generic drugs and
preferred brand name drugs if the cost to the health care service
plan for a preferred brand name drug is comparable to those for
generic drugs.

(B) Tier two shall consist of nonpreferred generic drugs,
preferred brand name drugs, and any other drugs recommended
by the health care service plan’s begin delete pharmaceutical end delete begin insert pharmacy end insert and
therapeutics committee based on safety and efficacy and not solely
based on the cost of the prescription drug.

(C) Tier three shall consist of nonpreferred brand name drugs
that are recommended by the health care service plan’s
begin delete pharmaceutical end delete begin insert pharmacy end insert and therapeutics committee based on
safety and efficacy and not solely based on the cost of the
prescription drug.

(D) Tier four shall consist of specialty drugs that are biologics,
which, according to the federal Food and Drug Administration or
the manufacturer, require distribution through a specialty pharmacy
or the enrollee to have special training for self-administration or
special monitoring. Specialty drugs may include prescription drugs
that cost more than the Medicare Part D threshold if those drugs
are recommended for Tier four by the health care service plan’s
begin delete pharmaceutical end delete begin insert pharmacy end insert and therapeutics committee based on
safety and efficacy, but placement shall not be solely based on the
cost of the prescription drug.

(2) This section does not require a health care service plan
contract to include a fourth tier, but if a health care service plan
contract includes a fourth tier, the health care service plan contract
shall comply with this section.

(3) This section does not require the health care service plan’s
begin delete pharmaceutical end delete begin insert pharmacy end insert and therapeutics committee to consider
the cost of the prescription drug to the health care service plan.

(g) A health care service plan contract shall ensure that the
placement of prescription drugs on formulary tiers is not based
solely on the cost of the prescription drug to the health care service
plan, but is based on clinically indicated, reasonable medical
management practices.

begin insert

(h) This section shall not be construed to require a health care
service plan to impose cost sharing. This section shall not be
construed to require cost sharing for prescription drugs that state
or federal law otherwise requires to be provided without cost
sharing.

end insert begin delete

(h)

end delete

begin insert ( end insert begin insert i) end insert  This section does not require or authorize a health care
service plan that contracts with the State Department of Health
Care Services to provide services to Medi-Cal beneficiaries 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 insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 1367.24 of the end insert begin insert Health and Safety Code end insert begin insert is
amended to read: end insert

1367.24.  

(a)  begin insert (1) end insert begin insert   end insert Every health care service plan that provides
prescription drug benefits shall maintain an expeditious process
by which prescribing providers may obtain authorization for a
medically necessary nonformulary prescription drug. On or before
July 1, 1999, every health care service plan that provides
prescription drug benefits shall file with the department a
description of its begin delete process, including timelines, end delete begin insert process end insert for
responding to authorization requests for nonformulary drugs. Any
changes to this process shall be filed with the department pursuant
to Section 1352. begin insert The plan shall provide that the enrollee, the
enrollee’s designee, or the enrollee’s prescribing provider may
seek an authorization for a nonformulary prescription drug end insert begin insert . end insert begin delete Each end delete

begin insert

(2) Each plan shall respond to an authorization request within
72 hours following receipt of the authorization request for a
nonurgent authorization. If the plan grants the authorization
request, the plan shall provide coverage of the nonformulary drug
for the duration of the prescription, including refills.

end insert begin insert

(3) Each plan shall provide that an urgent authorization may
be obtained within 24 hours if an enrollee is suffering from a health
condition that may seriously jeopardize the enrollee’s life, health,
or ability to regain maximum function, or if an enrollee is
undergoing a current course of treatment using a nonformulary
prescription drug. A plan that grants an exception based on these
urgent circumstances shall provide coverage of the nonformulary
prescription drug for the duration of that urgent condition.

end insert begin insert

(4) If a plan imposes step therapy, the plan shall provide an
expeditious process to authorize an exception to step therapy when
medically necessary and to conform effectively and efficiently with
continuity of care requirements of this chapter and federal law,
and any regulations issued thereunder. The process to authorize
an exception to step therapy shall be consistent with this section,
including the timelines provided in this section.

end insert

begin insert (5) end insert begin insert   end insert begin insert Each end insert plan shall provide a written description of its most
current begin delete process, including timelines, end delete begin insert process end insert to its prescribing
providers. For purposes of this section, a prescribing provider shall
include a provider authorized to write a prescription, pursuant to
subdivision (a) of Section 4040 of the Business and Professions
Code, to treat a medical condition of an enrollee.

(b) Any plan that disapproves a request made pursuant to
subdivision (a) by a prescribing provider to obtain authorization
for a nonformulary drug shall provide the reasons for the
disapproval in a notice provided to the enrollee. The notice shall
indicate that the enrollee may file a grievance with the plan if the
enrollee objects to the disapproval, including any alternative drug
or treatment offered by the plan. The notice shall comply with
subdivision (b) of Section 1368.02.

(c) The process described in subdivision (a) by which
prescribing providers may obtain authorization for medically
necessary nonformulary drugs shall not apply to a nonformulary
drug that has been prescribed for an enrollee in conformance with
the provisions of Section 1367.22.

begin insert

(d) (1) A plan shall maintain a pharmacy and therapeutics
committee that shall be responsible for developing, maintaining,
and overseeing any drug formulary list. If the plan delegates
responsibility for the formulary to any entity, the obligation of the
plan to comply with this chapter shall not be waived.

end insert begin insert

(2) The pharmacy and therapeutics committee board
membership shall conform with both of the following:

end insert begin insert

(A) Represent a sufficient number of clinical specialties to
adequately meet the needs of enrollees.

end insert begin insert

(B) Consist of a majority of individuals who are practicing
physicians, practicing pharmacists, and other practicing health
professionals who are licensed to prescribe drugs.

end insert begin insert

(3) Members of the board shall abstain from voting on any issue
in which the member has a conflict of interest with respect to the
issuer or a pharmaceutical manufacturer.

end insert begin insert

(4) At least 20 percent of the board membership shall not have
a conflict of interest with respect to the issuer or any
pharmaceutical manufacturer.

end insert begin insert

(5) The pharmacy and therapeutics committee shall meet at
least quarterly and shall maintain written documentation of the
rationale for its decisions regarding the development of, or
revisions to, the formulary drug list.

end insert begin insert

(6) The pharmacy and therapeutics committee shall do all of
the following:

end insert begin insert

(A) Develop and document procedures to ensure appropriate
drug review and inclusion.

end insert begin insert

(B) Base clinical decisions on the strength of the scientific
evidence and standards of practice, including assessing
peer-reviewed medical literature, pharmacoeconomic studies,
outcomes research data, and other related information.

end insert begin insert

(C) Consider the therapeutic advantages of drugs in terms of
safety and efficacy when selecting formulary drugs.

end insert begin insert

(D) Review policies that guide exceptions and other utilization
management processes, including drug utilization review, quantity
limits, and therapeutic interchange.

end insert begin insert

(E) Evaluate and analyze treatment protocols and procedures
related to the plan’s formulary at least annually.

end insert begin insert

(F) Review and approve all clinical prior authorization criteria,
step therapy protocols, and quantity limit restrictions applied to
each covered drug.

end insert begin insert

(G) Review new federal Food and Drug
Administration-approved drugs and new uses for existing drugs.

end insert begin insert

(H) Ensure the plan’s formulary drug list or lists cover a range
of drugs across a broad distribution of therapeutic categories and
classes and recommended drug treatment regimens that treat all
disease states and does not discourage enrollment by any group
of enrollees.

end insert begin insert

(I) Ensure the plan’s formulary drug list or lists provide
appropriate access to drugs that are included in broadly accepted
treatment guidelines and that are indicative of general best
practices at the time.

end insert begin insert

(e) (1) A health care service plan may impose prior
authorization requirements on prescription drug benefits,
consistent with the requirements of this chapter.

end insert begin insert

(2) (A) 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 comply with the
requirements specified in paragraph (4) of subdivision (a).

end insert begin insert

(B) In circumstances where an enrollee is changing plans, the
new plan shall not require the enrollee to repeat step therapy when
that enrollee is already being treated for a medical condition by
a 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 this section
for the continued coverage of a 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.

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

(4) A plan that provides essential health benefits shall allow an
enrollee to access prescription drug benefits at an in-network retail
pharmacy unless the prescription drug is subject to restricted
distribution by the federal Food and Drug Administration or
requires special handling, provider coordination, or patient
education that cannot be provided by a retail pharmacy. A health
care service plan that provides essential health benefits may charge
an enrollee a different cost sharing for obtaining a covered drug
at a retail pharmacy, but all cost sharing shall count toward the
plan’s annual limitation on cost sharing consistent with Section
1367.006.

end insert begin delete

(d)

end delete

begin insert ( end insert begin insert f) end insert  The process described in subdivision (a) by which enrollees
may obtain medically necessary nonformulary drugs, including
specified timelines for responding to prescribing provider
authorization requests, shall be described in evidence of coverage
and disclosure forms, as required by subdivision (a) of Section
1363, issued on or after July 1, 1999.

begin delete

(e)

end delete

begin insert ( end insert begin insert g) end insert  Every health care service plan that provides prescription
drug benefits shall maintain, as part of its books and records under
Section 1381, all of the following information, which shall be
made available to the director upon request:

(1) The complete drug formulary or formularies of the plan, if
the plan maintains a formulary, including a list of the prescription
drugs on the formulary of the plan by major therapeutic category
with an indication of whether any drugs are preferred over other
drugs.

(2) Records developed by the pharmacy and therapeutic
committee of the plan, or by others responsible for developing,
modifying, and overseeing formularies, including medical groups,
individual practice associations, and contracting pharmaceutical
benefit management companies, used to guide the drugs prescribed
for the enrollees of the plan, that fully describe the reasoning
behind formulary decisions.

(3) Any plan arrangements with prescribing providers, medical
groups, individual practice associations, pharmacists, contracting
pharmaceutical benefit management companies, or other entities
that are associated with activities of the plan to encourage
formulary compliance or otherwise manage prescription drug
benefits.

begin delete

(f)

end delete

begin insert ( end insert begin insert h) end insert  If a plan provides prescription drug benefits, the department
shall, as part of its periodic onsite medical survey of each plan
undertaken pursuant to Section 1380, review the performance of
the plan in providing those benefits, including, but not limited to,
a review of the procedures and information maintained pursuant
to this section, and describe the performance of the plan as part of
its report issued pursuant to Section 1380.

begin delete

(g)

end delete

begin insert ( end insert begin insert i) end insert  The director shall not publicly disclose any information
reviewed pursuant to this section that is determined by the director
to be confidential pursuant to state law.

begin delete

(h)

end delete

begin insert ( end insert begin insert j) end insert  For purposes of this section, begin insert the following definitions shall
apply: end insert begin delete “authorization” end delete

begin insert (1) end insert begin insert   end insert begin insert “ end insert begin insert Authorization” end insert means approval by the health care service
plan to provide payment for the prescription drug.

begin insert

(2) “Step therapy” means a type of protocol that specifies the
sequence in which different prescription drugs for a given medical
condition and medically appropriate for a particular patient are
to be prescribed.

end insert begin delete

(i)

end delete

begin insert ( end insert begin insert k) end insert   begin insert (1) end insert begin insert   end insert Nonformulary prescription drugs shall include any drug
for which an enrollee’s copayment or out-of-pocket costs are
different than the copayment for a formulary prescription drug,
except as otherwise provided by law or regulation or in cases in
which the drug has been excluded in the plan contract pursuant to
Section 1342.7.

begin insert

(2) If a nonformulary drug is authorized consistent with this
section, the cost sharing shall be the same as for a formulary drug
consistent with subdivision (e) of Section 1342.71.

end insert begin delete

(j)

end delete

begin insert ( end insert begin insert l) end insert  Nothing in this section shall be construed to restrict or impair
the application of any other provision of this chapter, including,
but not limited to, Section 1367, which includes among its
requirements that a health care service plan furnish services in a
manner providing continuity of care and demonstrate that medical
decisions are rendered by qualified medical providers unhindered
by fiscal and administrative management.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 1367.205 of the end insert begin insert Health and Safety Code end insert begin insert is
amended to read: end insert

1367.205.  

(a) In addition to the list required to be provided
under Section 1367.20, a health care service plan that provides
prescription drug benefits and maintains one or more drug
formularies shall do all of the following:

(1) Post the formulary or formularies for each product offered
by the plan on the plan’s Internet Web site in a manner that is
accessible and searchable by potential enrollees, enrollees, begin delete and
providers. end delete begin insert providers, the general public, the department, and
federal agencies as required by federal law or regulations. end insert

(2) Update the formularies posted pursuant to paragraph (1)
with any change to those formularies on a monthly basis.

(3) No later than six months after the date that a standard
formulary template is developed under subdivision (b), use that
template to display the formulary or formularies for each product
offered by the plan.

(b) (1) By January 1, 2017, the department and the Department
of Insurance shall jointly, and with input from interested parties
from at least one public meeting, develop a standard formulary
template for purposes of paragraph (3) of subdivision (a). In
developing the template, the department and Department of
Insurance shall take into consideration existing requirements for
reporting of formulary information established by the federal
Centers for Medicare and Medicaid Services. To the extent feasible,
in developing the template, the department and the Department of
Insurance shall evaluate a way to include on the template, in
addition to the information required to be included under paragraph
(2), cost-sharing information for drugs subject to coinsurance.

(2) The standard formulary template shall include the
notification described in subdivision (c) of Section 1363.01, and
as applied to a particular formulary for a product offered by a plan,
shall do all of the following:

(A) Include information on begin delete cost-sharing end delete begin insert cost sharing end insert tiers and
utilization controls, including prior authorization or step therapy
requirements, for each drug covered by the product.

(B) Indicate any drugs on the formulary that are preferred over
other drugs on the formulary.

(C) Include information to educate enrollees about the
differences between drugs administered or provided under a health
care service plan’s medical benefit and drugs prescribed under a
health care service plan’s prescription drug benefit and about how
to obtain coverage information regarding drugs that are not covered
under the plan’s prescription drug benefit.

(D) Include information to educate enrollees that health care
service plans that provide prescription drug benefits are required
to have a method for enrollees to obtain prescription drugs not
listed in the health plan drug formulary if the drugs are deemed
medically necessary by a clinician pursuant to Section 1367.24.

begin insert

(E) Include information on which medications are covered,
including both generic and brand name.

end insert begin insert

(F) Include information on what tier of the plan’s drug
formulary each medication is in.

end insert

(c) For purposes of this section, “formulary” means the complete
list of drugs preferred for use and eligible for coverage under a
health care service plan product and includes the drugs covered
under the pharmacy benefit of the product.

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 10123.192 of the end insert begin insert Insurance Code end insert begin insert is amended
to read: end insert

10123.192.  

(a) A health insurer that provides prescription drug
benefits and maintains one or more drug formularies shall do all
of the following:

(1) Post the formulary or formularies for each product offered
by the insurer on the insurer’s Internet Web site in a manner that
is accessible and searchable by potential insureds, insureds, begin delete and
providers. end delete begin insert providers, the general public, the department, and
federal agencies as required by federal law or regulations. end insert

(2) Update the formularies posted pursuant to paragraph (1)
with any change to those formularies on a monthly basis.

(3) No later than six months after the date that a standard
formulary template is developed under subdivision (b), use that
template to display the formulary or formularies for each product
offered by the insurer.

(b) (1) By January 1, 2017, the department and the Department
of Managed Health Care shall jointly, and with input from
interested parties from at least one public meeting, develop a
standard formulary template for purposes of paragraph (3) of
subdivision (a). In developing the template, the department and
Department of Managed Health Care shall take into consideration
existing requirements for reporting of formulary information
established by the federal Centers for Medicare and Medicaid
Services. To the extent feasible, in developing the template, the
department and the Department of Managed Health Care shall
evaluate a way to include on the template, in addition to the
information required to be included under paragraph (2),
cost-sharing information for drugs subject to coinsurance.

(2) The standard formulary template shall include a notification
that the presence of a drug on the insurer’s formulary does not
guarantee that an insured will be prescribed that drug by his or her
prescribing provider for a particular medical condition. As applied
to a particular formulary for a product offered by an insurer, the
standard formulary template shall do all of the following:

(A) Include information on begin delete cost-sharing end delete begin insert cost sharing end insert tiers and
utilization controls, including prior authorization or step therapy
requirements, for each drug covered by the product.

(B) Indicate any drugs on the formulary that are preferred over
other drugs on the formulary.

(C) Include information to educate insureds about the differences
between drugs administered or provided under a health insurer’s
medical benefit and drugs prescribed under a health insurer’s
prescription drug benefit and about how to obtain coverage
information about drugs that are not covered under the health
insurer’s prescription drug benefit.

(D) Include information to educate insureds that health insurers
that provide prescription drug benefits are required to have a
method for insureds to obtain prescription drugs not listed in the
health insurer’s drug formulary if the drugs are deemed to be
medically necessary by a clinician pursuant to Section 1367.24 of
the Health and Safety Code, as required by clause (iv) of
subparagraph (A) of paragraph (2) of subdivision (a) of Section
10112.27.

begin insert

(E) Include information on which medications are covered,
including both generic and brand name.

end insert begin insert

(F) Include information on what tier of the health insurer’s drug
formulary each medication is in.

end insert

(c) The commissioner may adopt regulations as may be
necessary to carry out the purposes of this section. In adopting
regulations, the commissioner shall comply with Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code.

(d) For purposes of this section, “formulary” means the complete
list of drugs preferred for use and eligible for coverage under a
health insurance product and includes the drugs covered under the
pharmacy benefit of the product.

begin delete SEC. 2. end delete
begin insert SEC. 5. end insert   

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

10123.193.  

(a) A begin delete policy of health insurance end delete begin insert nongrandfathered
group policy of health insurance end insert that is offered, amended, or
renewed on or after begin delete January 1, end delete begin insert July 1, end insert 2016, shall comply with this
section. begin insert A nongrandfathered individual policy of health insurance
that is offered, amended, or renewed on or after January 1, 2017,
shall comply with this section. end insert The cost-sharing limits established
by this section apply only to outpatient prescription drugs covered
by the policy that constitute essential health benefits, as defined
by Section 10112.27.

(b) (1) A policy of health insurance that provides coverage for
outpatient prescription drugs shall cover medically necessary
prescription drugs.

(2) A policy of health insurance that provides coverage for
outpatient prescription drugs shall cover a medically necessary
prescription drug for which there is not a therapeutic equivalent.

(c) Copayments, coinsurance, and other cost sharing for
outpatient prescription drugs shall be reasonable so as to allow
access to medically necessary outpatient prescription drugs. begin insert In
proposing cost sharing, the health insurer shall consider the impact
of cost sharing on medication adherence as demonstrated in
peer-reviewed literature. end insert

(d) Consistent with federal law and guidance, a policy of health
insurance that provides coverage for outpatient prescription drugs
shall demonstrate that the formulary or formularies maintained by
the health insurer do not discourage the enrollment of individuals
with health conditions and do not reduce the generosity of the
benefit for insureds with a particular condition.

(1) A policy of health insurance shall cover a single-tablet drug
regimen that is as effective as a multitablet regimen unless the
health insurer is able to demonstrate to the commissioner,
consistent with clinical guidelines and peer-reviewed scientific
and medical literature, that the multitablet regimen is clinically
equally or more effective and more likely to result in adherence
to a drug regimen. A policy of health insurance shall cover an
extended release prescription drug that is clinically equally or more
effective than a nonextended release product unless the health
insurer is able to demonstrate to the commissioner, consistent with
clinical guidelines and peer-reviewed scientific and medical
literature, that the nonextended release product is clinically equally
or more effective than the extended release product.

(2) A policy of health insurance shall not place most or all of
the prescription medications that treat a specific condition on the
highest cost tiers of a formulary unless the health insurer can
demonstrate that such placement does not reduce the generosity
of the benefits for insureds with a particular condition. If there is
more than one treatment that is the standard of care for a specific
condition, the health insurer shall not place most or all prescription
medications that treat that condition on the highest cost tiers. This
shall not apply to any medication for which there is a therapeutic
equivalent available on a lower cost tier.

(3) For coverage offered in the individual market, the health
insurer shall demonstrate that the formulary or formularies
maintained for coverage in the individual market are the same or
comparable to those maintained for coverage in the group market.

(4) A health insurer shall demonstrate to the commissioner that
any limitation or utilization management is consistent with and
based on clinical guidelines and peer-reviewed scientific and
medical literature.

(e)  begin insert (1) end insert begin insert   end insert With respect to an individual or group policy of health
insurance subject to Section 10112.28, the copayment, coinsurance,
or any other form of cost sharing for a covered outpatient
prescription drug for an individual prescription shall not exceed
one-twenty-fourth of the annual out-of-pocket limit applicable to
individual coverage under Section 10112.28 for a supply of up to
30 days.

begin insert

(2) For a policy of health insurance that is a “high deductible
health plan” under the definition set forth in Section 223(c)(2) of
Title 26 of the United States Code, paragraph (1) of this subdivision
shall apply only once an insured’s deductible has been satisfied
for the year.

end insert

(f) (1) If a policy of health insurance maintains a drug formulary
grouped into tiers, including a fourth tier or specialty tier, a policy
of health insurance shall use the following definitions for each tier
of the drug formulary:

(A) Tier one shall consist of preferred generic drugs and
preferred brand name drugs if the cost to the health insurer for a
preferred brand name drug is comparable to those for generic
drugs.

(B) Tier two shall consist of nonpreferred generic drugs,
preferred brand name drugs, and any other drugs recommended
by the health insurer’s begin delete pharmaceutical end delete begin insert pharmacy end insert and therapeutics
committee based on safety and efficacy and not solely based on
the cost of the prescription drug.

(C) Tier three shall consist of nonpreferred brand name drugs
that are recommended by the health insurer’s begin delete pharmaceutical end delete
begin insert pharmacy end insert and therapeutics committee based on safety and efficacy
and not solely based on the cost of the prescription drug.

(D) Tier four shall consist of specialty drugs that are biologics,
which, according to the federal Food and Drug Administration or
the manufacturer, require distribution through a specialty pharmacy
or the insured to have special training for self-administration or
special monitoring. Specialty drugs may include prescription drugs
that cost more than the Medicare Part D threshold if those drugs
are recommended for Tier four by the health insurer’s
begin delete pharmaceutical end delete begin insert pharmacy end insert and therapeutics committee based on
safety and efficacy, but placement shall not be solely based on the
cost of the prescription drug.

(2) This section does not require a policy of health insurance to
include a fourth tier, but if a policy of health insurance includes a
fourth tier, the policy of health insurance shall comply with this
section.

(3) This section does not require the health insurer’s
begin delete pharmaceutical end delete begin insert pharmacy end insert and therapeutics committee to consider
the cost of the prescription drug to the health insurer.

begin insert

(g) This section shall not be construed to require a health
insurer to impose cost sharing. This section shall not be construed
to require cost sharing for prescription drugs that state or federal
law otherwise requires to be provided without cost sharing.

end insert begin delete

(g)

end delete

begin insert ( end insert begin insert h) end insert  A policy of health insurance shall ensure that the placement
of prescription drugs on formulary tiers is not based solely on the
cost of the prescription drug to the health insurer, but is based on
clinically indicated, reasonable medical management practices.

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 10123.201 is added to the end insert begin insert Insurance Code end insert begin insert , to
read: end insert

begin insert

begin insert 10123.201. end insert   

(a) (1) Every health insurer that provides
prescription drug benefits shall maintain an expeditious process
by which prescribing providers may obtain authorization for a
medically necessary nonformulary prescription drug. On or before
July 1, 2016, every insurer that provides prescription drug benefits
shall file with the commissioner a description of its process for
responding to authorization requests for nonformulary drugs. Any
changes to this process shall be filed with the commissioner. The
insurer shall provide that the insured, the insured’s designee, or
the insured’s prescribing provider may seek an authorization for
a nonformulary prescription drug.

(2) Each insurer shall respond to an authorization request within
72 hours following receipt of the authorization request for a
nonurgent authorization. If the insurer grants the authorization
request, the insurer shall provide coverage of the nonformulary
drug for the duration of the prescription, including refills.

(3) Each insurer shall provide that an urgent authorization may
be obtained within 24 hours if an insured is suffering from a health
condition that may seriously jeopardize the insured’s life, health,
or ability to regain maximum function, or if an insured is
undergoing a current course of treatment using a nonformulary
prescription drug. An insurer that grants an exception based on
these urgent circumstances shall provide coverage of the
nonformulary prescription drug for the duration of that urgent
condition.

(4) If an insurer imposes step therapy, the insurer shall provide
an expeditious process to authorize an exception to step therapy
when medically necessary and to conform effectively and efficiently
with continuity of care requirements of this part and federal law,
and any regulations issued thereunder. The process to authorize
an exception to step therapy shall be consistent with this section,
including the timelines provided in this section.

(5) Each insurer shall provide a written description of its most
current process to its prescribing providers. For purposes of this
section, a prescribing provider shall include a provider authorized
to write a prescription, pursuant to subdivision (a) of Section 4040
of the Business and Professions Code, to treat a medical condition
of an insured.

(b) Any insurer that disapproves a request made pursuant to
subdivision (a) by a prescribing provider to obtain authorization
for a nonformulary drug shall provide the reasons for the
disapproval in a notice provided to the insured. The notice shall
indicate that the insured may file a grievance with the insurer if
the insured objects to the disapproval, including any alternative
drug or treatment offered by the insurer. The notice shall comply
with Section 10133.661.

(c) (1) An insurer shall maintain a pharmacy and therapeutics
committee that shall be responsible for developing, maintaining,
and overseeing any drug formulary list. If the insurer delegates
responsibility for the formulary to any entity, the obligation of the
insurer to comply with this part shall not be waived.

(2) The pharmacy and therapeutics committee board
membership shall conform with both of the following:

(A) Represent a sufficient number of clinical specialties to
adequately meet the needs of insureds.

(B) Consist of a majority of individuals who are practicing
physicians, practicing pharmacists, and other practicing health
professionals who are licensed to prescribe drugs.

(3) Members of the board shall abstain from voting on any issue
in which the member has a conflict of interest with respect to the
issuer or a pharmaceutical manufacturer.

(4) At least 20 percent of the board membership shall not have
a conflict of interest with respect to the issuer or any
pharmaceutical manufacturer.

(5) The pharmacy and therapeutics committee shall meet at
least quarterly and shall maintain written documentation of the
rationale for its decisions regarding the development of, or
revisions to, the formulary drug list.

(6) The pharmacy and therapeutics committee shall do all of
the following:

(A) Develop and document procedures to ensure appropriate
drug review and inclusion.

(B) Base clinical decisions on the strength of the scientific
evidence and standards of practice, including assessing
peer-reviewed medical literature, pharmacoeconomic studies,
outcomes research data, and other related information.

(C) Consider the therapeutic advantages of drugs in terms of
safety and efficacy when selecting formulary drugs.

(D) Review policies that guide exceptions and other utilization
management processes, including drug utilization review, quantity
limits, and therapeutic interchange.

(E) Evaluate and analyze treatment protocols and procedures
related to the insurer’s formulary at least annually.

(F) Review and approve all clinical prior authorization criteria,
step therapy protocols, and quantity limit restrictions applied to
each covered drug.

(G) Review new federal Food and Drug
Administration-approved drugs and new uses for existing drugs.

(H) Ensure the insurer’s formulary drug list or lists cover a
range of drugs across a broad distribution of therapeutic
categories and classes and recommended drug treatment regimens
that treat all disease states and does not discourage enrollment
by any group of insureds.

(I) Ensure the insurer’s formulary drug list or lists provide
appropriate access to drugs that are included in broadly accepted
treatment guidelines and that are indicative of general best
practices at the time.

(d) (1) A health insurer may impose prior authorization
requirements on prescription drug benefits, consistent with the
requirements of this part.

(2) (A) When there is more than one drug that is appropriate
for the treatment of a medical condition, a health insurer may
require step therapy. A health insurer that requires step therapy
shall comply with the requirements specified in paragraph (4) of
subdivision (a).

(B) In circumstances where an insured is changing policies, the
new policy shall not require the insureds to repeat step therapy
when that insured is already being treated for a medical condition
by a 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 to
subdivision (a) for the continued coverage of a 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.

(3) An insurer 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.

(4) An insurer that provides essential health benefits shall allow
an insured to access prescription drug benefits at an in-network
retail pharmacy unless the prescription drug is subject to restricted
distribution by the federal Food and Drug Administration or
requires special handling, provider coordination, or patient
education that cannot be provided by a retail pharmacy. An insurer
that provides essential health benefits may charge an insured a
different cost sharing for obtaining a covered drug at a retail
pharmacy, but all cost sharing shall count toward the policy’s
annual limitation on cost sharing consistent with Section 10112.28.

(e) The process described in subdivision (a) by which insureds
may obtain medically necessary nonformulary drugs, including
specified timelines for responding to prescribing provider
authorization requests, shall be described in evidence of coverage
and disclosure forms, as required by Section 10603, issued on or
after January 1, 2016.

(f) Every health insurer that provides prescription drug benefits
shall maintain all of the following information, which shall be
made available to the commissioner upon request:

(1) The complete drug formulary or formularies of the insurer,
if the insurer maintains a formulary, including a list of the
prescription drugs on the formulary of the insurer by major
therapeutic category with an indication of whether any drugs are
preferred over other drugs.

(2) Records developed by the pharmacy and therapeutic
committee of the insurer, or by others responsible for developing,
modifying, and overseeing formularies, including medical groups,
individual practice associations, and contracting pharmaceutical
benefit management companies, used to guide the drugs prescribed
for the insureds of the insurer, that fully describe the reasoning
behind formulary decisions.

(3) Any insurer arrangements with prescribing providers,
medical groups, individual practice associations, pharmacists,
contracting pharmaceutical benefit management companies, or
other entities that are associated with activities of the insurer to
encourage formulary compliance or otherwise manage prescription
drug benefits.

(g) If an insurer provides prescription drug benefits, the
commissioner shall, as part of its market conduct examination,
review the performance of the insurer in providing those benefits,
including, but not limited to, a review of the procedures and
information maintained pursuant to this section, and describe the
performance of the insurer as part of its report issued as part of
its market conduct examination.

(h) The commissioner shall not publicly disclose any information
reviewed pursuant to this section that is determined by the
commissioner to be confidential pursuant to state law.

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

(1) “Authorization” means approval by the health insurer to
provide payment for the prescription drug.

(2) “Step therapy” means a type of protocol that specifies the
sequence in which different prescription drugs for a given medical
condition and medically appropriate for a particular patient are
to be prescribed.

(j) (1) Nonformulary prescription drugs shall include any drug
for which an insured’s copayment or out-of-pocket costs are
different than the copayment for a formulary prescription drug,
except as otherwise provided by law or regulation.

(2) If a nonformulary drug is authorized consistent with this
section, the cost sharing shall be the same as for a formulary drug
consistent with subdivision (e) of Section 10123.193.

(k) Nothing in this section shall be construed to restrict or
impair the application of any other provision of this part.

end insert

begin delete SEC. 3. end delete
begin insert SEC. 7. end insert   

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.