BILL ANALYSIS Ó AB 339 Page A Date of Hearing: April 28, 2015 ASSEMBLY COMMITTEE ON HEALTH Rob Bonta, Chair AB 339 (Gordon) - As Amended April 7, 2015 SUBJECT: Health care coverage: outpatient prescription drugs. SUMMARY: Expands coverage for outpatient prescriptions drugs by a health care service plan or insurer and places specified restrictions on copayments, coinsurance, and other cost sharing. Specifically, this bill: 1)Requires a plan or policy that covers prescription drugs to cover all medically necessary prescription drugs, including those for which there is no other therapeutic equivalent. 2)Requires that copayments, coinsurance, and other cost sharing for outpatient prescription drugs be reasonable. 3)Requires the plan or insurer to demonstrate to the regulatory agency that the proposed cost sharing will not discourage medication adherence. Requires the plan or insurer to demonstrate that the formulary does not discourage the enrollment of individuals with health conditions and does not reduce the generosity of the benefit for enrollees with specific conditions. AB 339 Page B 4)Requires the plan or policy to cover of single-tablet and extended release regimens if they are clinically as, or more, effective than a multi-tablet drug regimen. 5)Prohibits a plan or policy from placing most or all of the drugs to treat a single condition on the highest cost tier of a formulary, unless there is a therapeutic equivalent drug available in a lower cost tier. 6)Requires a plan or policy formulary to be the same or comparable in the individual market as in the group market. 7)Limits, for plans and policies in both individual and group market, the copayment, coinsurance, or other cost sharing for an individual outpatient prescription drug to 1/24 of the annual out-of-pocket limit for a 30 day supply. 8)Requires plans and insurers to use formulary tiers defined as: a) Tier one consists of preferred generic drugs or comparably priced preferred branded drugs; b) Tier two consists of nonpreferred generic drugs, preferred branded drugs, and any other drugs recommend by the pharmaceutical and therapeutics committee (P&T) based on safety and efficacy and not solely based on the cost of the drug; c) Tier three consists of nonpreferred brand name drugs that are recommended by the P&T based on safety and efficacy and not solely based on the cost of the drug; and, AB 339 Page C d) Tier four consist of biologics, as defined, or drugs that cost more than the Medicare Part D threshold, if recommended by the P&T based on safety and efficacy. Prohibits placement in this tier based solely on the cost of the drug. EXISTING LAW: 1)Regulates health plans through the Department of Managed Health Care and health insurance policies through the Department of Insurance. 2)Mandates the 10 federally required Essential Health Benefits (EHBs) and establishes Kaiser Small Group health plan as California's EHB benchmark plan. 3)Requires, on or after January 1, 2015, for non-grandfathered health plan contracts or health insurance policies in the individual and small group markets, to provide for a limit on annual out-of-pocket expenses for all covered benefits that meet the definition of EHB, including out-of-network emergency care, as specified. For large group, requires a non-grandfathered health plan or health insurer to provide for a limit on annual out-of-pocket expenses for covered benefits, including out-of-network emergency care, as specified. Requires this limit to only apply to EHBs that are covered under the plan or policy to the extent that this provision does not conflict with federal law or guidance on out-of-pocket maximums. AB 339 Page D 4)Requires the maximum out-of-pocket limit to apply to any copayment, coinsurance, deductible and any other form of cost sharing for all covered benefits that meet the definition of EHB. 5)Limits the total maximum out-of-pocket limit for all EHBs to the dollar amounts in effect under the Internal Revenue Service, as specified, as adjusted by the Patient Protection and Affordable Care Act (ACA), as specified. 6)Limits, for an individual or group health care service plan contract or health insurance policy issued, amended, or renewed on or after January 1, 2015, that provides coverage for prescribed, orally administered anticancer medications used to kill or slow the growth of cancerous cells, the total amount of copayments and coinsurance an enrollee or insured is required to pay for orally administered anticancer medications to $200 for an individual prescription of up to a 30-day supply. 7)Establishes Covered California as California's health benefit exchange where individuals and small employers can purchase standardized health insurance from selectively contracted qualified health plans based on bronze, silver, gold and platinum actuarial level categories. FISCAL EFFECT: This bill has not been analyzed by a fiscal committee. COMMENTS: AB 339 Page E 1)PURPOSE OF THIS BILL. According to the author, the goal of this bill is to implement and improve upon concepts from federal guidance and Covered California in order to ensure that Californians are better able to afford their prescription drugs and that the anti-discrimination provisions of the ACA remain intact. The author asserts that this bill is needed to address the devastating financial effects of high out-of-pocket prescription expenses. High cost drugs are often on the highest cost tier of a drug formulary with coinsurance of up to 20%. As a result, a patient may exhaust their annual out-of-pocket limit of $6,600 with a single prescription in the first month. Too many patients are forced to choose between paying for their life-saving drugs and paying for housing, child care, or food. When patients cannot afford their medication, research shows that they skip doses, they cut pills in half, and they don't fill their prescription. The author argues that this bill benefits Californians with chronic and serious health conditions by implementing concepts from federal guidance, improving upon them around the anti-discrimination provisions of the ACA, and by increasing Californians' access to essential prescription drugs 2)BACKGROUND. According to the California Health Benefits Review Program (CHBRP), prescription drug benefits are a specific type of covered benefit usually subject to cost sharing as part of the medical benefit or a separate outpatient prescription drug benefit. The separate drug benefit designs can be characterized by the number of tiers (up to four) into which drug classes and specific medications are assigned. Each tier has a distinct cost sharing level and/or form; the lower tiers are less costly to both the enrollee and to the health plan or insurer. Some payers use a four-tier system which includes life-style drugs and specialty drugs in the fourth tier; typically these are the most costly drugs. The four-tier design frequently results in greater enrollee out-of-pocket expenses. CHBRP notes that there is no AB 339 Page F standard industry definition of specialty prescription drugs, but it is generally recognized by many payers as prescription drugs with an average minimum monthly cost of $1,150. Other criteria may include prescription drugs that treat a rare disease, require special handling, or have a limited distribution network. Most of the conditions targeted by these specialty drugs tend to be chronic and progressive in nature and can impact quality of life, along with morbidity and mortality. Examples include growth hormone disorders, rheumatoid arthritis, asthma, multiple sclerosis, hepatitis C, hemophilia, cancer, and lupus. In 2013, the annual California HealthCare Foundation employer benefits survey found that 66% of covered California workers had a three- or four-tier cost sharing formula for prescription drugs. Nationally, 82% of covered workers were subject to three- or four-tier formulas. 3)Cost Sharing for Outpatient Prescription Drugs in California. Payment for covered health insurance benefits is shared between the payer (e.g., health plan/insurer or employer) and the enrollee. Specifically, the patient cost-share is the portion that enrollees are responsible for paying out-of-pocket directly to the provider for the health care service or treatment (including prescription drugs) covered by the plan or policy. Noncovered services or treatments are always paid in full by the enrollee. Common cost-sharing mechanisms include copayments, coinsurance, and/or deductibles (but do not include premium payments), collectively out-of-pocket expenses. Health plans and insurers use many different combinations of cost-sharing mechanisms to help assure medically necessary treatment and control costs. AB 339 Page G The following steps describe a common interaction of a set of cost-sharing mechanisms. CHBRP notes that there are numerous cost-sharing combinations, and this example will not apply to all situations. a) Deductibles. Deductibles are a fixed dollar amount (lump sum for one or more services) an enrollee is required to pay out-of-pocket within a given time period (e.g., a year) before the health plan or insurer begins to pay, in part or in whole, for covered health care services. A plan or policy can have more than one deductible, for example, a general deductible that applies to a specified set of covered medical benefits and another deductible that applies to prescription drugs or hospital admissions. Deductibles can range from $200 for an outpatient pharmacy benefit to $2,500 or more for a family medical benefit. Not all plans and policies have deductibles. b) Copayments and/or Coinsurance. Copayments and coinsurance are activated after the deductible has been met, if a plan/policy has a deductible. Copayment is a form of cost sharing in which an enrollee pays a predetermined, flat dollar amount out-of-pocket at the time of receiving a health care service or when paying for a prescription, such as a $5 copayment for a generic prescription drug. Copayments can vary across covered benefits, and a plan or policy may not require any copayments or may only require copayments for some covered benefits. Coinsurance is the percentage of covered health care costs for which an enrollee is responsible, such as 25% of a hospitalization charge. As with copayments, coinsurance percentages can vary across covered benefits, and a plan or policy may not require any coinsurance or may only require coinsurance for some covered benefits. It is not unusual for a prescription drug benefit plan to use copayments and coinsurance. For example, many times, generics are subject to a copayment, whereas specialty AB 339 Page H drugs are subject to a coinsurance. c) Annual out-of-pocket maximums. Annual out-of-pocket maximums are limits on the enrollee's cost-sharing obligations in a 1-year period. Health care services that are not covered by the health plan or insurer would not be included in the maximum; enrollees are responsible for the full charges associated with noncovered services. 4)SINGLE AND MULTIPLE TABLET REGIMENS. Single-tablet regimens typically refer to fixed-dose pills that combine multiple drugs from the same or different drug classes into a single tablet<1>. This is in contrast to multiple tablet regimens where prescribed medications to treat a condition are taken as separate tablets<2>. This is primarily seen in chronic conditions requiring multiple pills each day. The advantages of the single-tablet combination drug regimen are that taking one single daily pill simplifies treatment, cuts down on errors, and leads to better adherence with the treatment regimen. 5)PHARMACY AND THERAPEUTICS COMMITTEE. The P&T committee is a medical staff advisory group of a hospital, health or --------------------------- <1> U.S. Food and Drug Administration (FDA). Combination Products. Silver Spring, Maryland: FDA; 2011. Accessed March 12, 2015. http://www.fda.gov/CombinationProducts/AboutCombinationProducts/u cm118332.htm. <2> Sax PE, Meyers JL, Mugavero M, Davis KL (2012) Adherence to Antiretroviral Treatment and Correlation with Risk of Hospitalization among Commercially Insured HIV Patients in the United States. PLoS ONE 7(2): e31591. doi:10.1371/journal.pone.0031591 AB 339 Page I insurance plan, or pharmacy benefit manager (PBM) that decides which drugs will appear on that entity's drug formulary. The P&T committee is responsible for managing the formulary system. It is composed of actively practicing physicians, other prescribers, pharmacists, nurses, administrators, quality improvement managers, and other health care professionals and staff who participate in the medication-use process. The P&T committee serves in an evaluative, educational, and advisory capacity to the medical staff and organizational administration in all matters pertaining to the use of medications. The P&T committee's primary role is make clinical decisions based on scientific evidence, such as peer-reviewed medical literature, and standards of practice, such as well-established clinical practice guidelines. Depending on the size of the entity, the P&T committee may weigh the costs and benefits of each drug and decide which ones provide the most efficacy per dollar. 6)RECENT FEDERAL REGULATIONS ON DRUG BENEFIT DESIGN. On November 26, 2014, the Federal Government released the HHS Notice of Benefit and Payment Parameters for 2016 proposed rule and reiterated the prohibition on discrimination found in Section 1302(b(4) of the Affordable Care Act and 45 CFR 156.125. In this notice, Centers for Medicare and Medicaid Services (CMS) cautions issuers - meaning plans and insurers - to avoid discouraging enrollment of individuals with chronic health needs and cites different examples of practices that effectively discriminate against or discourage enrollment by individuals who have chronic medical conditions. The final rule, released on February 27, 2015, reaffirmed the guidance provided in the proposed rule and cautioned health plans and insurers that the examples cited appear discriminatory in their application when looking at the totality of the circumstances, and may be prohibited. The examples cited are as follows: AB 339 Page J a) Placing Most or All Drugs that Treat a Specific Condition on the Highest Cost Tiers. The federal guidance states that placing most or all drugs that treat a specific condition on the highest cost tiers in effect discriminates against or discourages enrollment based on health condition. A number of health plans and insurers have placed on the fourth tier of the drug formulary a number of high cost or "specialty" drugs that meet the criteria enunciated by CMS as "most or all drugs that treat a specific condition." b) Refusal to Cover a Single-Tablet Drug Regimen or Extended-Release Product. The federal rule also cites as discriminatory the "refusal to cover a single-tablet drug regimen or extended-release product that is customarily prescribed and is just as effective as a multi-tablet drug regimen, absent an appropriate reason for such refusal." Without a valid, nondiscriminatory reason for not covering these drug products, "such a plan design effectively discriminates against, or discourages enrollment by, individuals who would benefit from such innovative therapeutic options." Some products in the California individual market in 2014 failed to cover the HIV/AIDS drug cocktail, which is a single-tablet drug regimen that is the standard of care for persons with HIV/AIDS. Advocates in the HIV/AIDS community indicate that some individuals have stayed on the AIDS Drug Assistance Program rather than transitioning to comprehensive coverage in the individual market precisely because some health plans appear not to cover the HIV/AIDS drug cocktail. Exclusion of the HIV/AIDS drug cocktail, a customarily prescribed product that is just as effective as other regimens, is pointed to as a benefit design that effectively discriminates against, or discourages AB 339 Page K enrollment by, persons with HIV/AIDS, making it a discriminatory benefit design. In a report entitled "Disease Matters: Comparing Prescription Drug Benefits in Covered California Plans," the California Health Foundation found that some consumers with chronic diseases or those who rely on specialty drugs, including those with HIV/AIDS, may have faced access and affordability challenges in 2014. c) Formulary Design Must be Based on Clinical Guidelines and/or Medical Evidence. In its final rule, CMS reiterates the requirement that in designing formularies, "Issuers are expected to impose limitations and exclusions based on clinical guidelines and medical evidence, and are expected to use reasonable medical management." As previously stated, health plans and insurers have put a number of drugs to treat a specific condition, commonly known as specialty drugs, on the highest cost tiers of the formulary based solely on the cost of the drug to the health plan without any regard for clinical guidelines, medical evidence, or reasonable medical management. The final rule also requires health plans to use a P&T committee to develop drug formularies and specifies standards for this process. The standards require P&T committees to "make clinical decisions based on scientific evidence, such as peer-reviewed medical literature, and standards of practice, such as well-established clinical practice guidelines." In addition, P&T committees are required to ensure that a formulary drug list does not "discourage enrollment by any group of enrollees." AB 339 Page L Health plans and insurers that base the fourth/specialty tier of a formulary purely on the cost of the drug to the health plan, without regard for whether the drug requires special handling, special monitoring or specialty administration, is problematic for consumers with serious or chronic health conditions. Such practices has led in some instances to all HIV/AIDS drugs being placed on a specialty tier: the average cost of these drugs is $1,000 - $1,500 per monthly prescription and the cost threshold most commonly used to place drugs on the fourth/specialty tier is $600. This formulary design has a discriminatory impact for those living with HIV/AIDS. Similarly, those with multiple sclerosis who are commonly treated with two drugs, one a biologic and another (a DMARD), will find that their drugs are on a specialty tier. These drugs can cost as much as $5,000 or $10,000 for a monthly prescription. Consumers with multiple sclerosis describe going to the pharmacy never knowing how much they will pay in any given month. 7)Recent Covered California Actions on Specialty Drugs. On March 5, 2015, Covered California adopted guidelines for formulary design in health plans sold through the Exchange. The new guidelines: a) Standardize definitions of formulary tiers as: i) Tier 1: most generic drugs and low cost preferred brands; ii) Tier 2: nonpreferred generic drugs, preferred branded drugs, drugs recommended by the plan's P&T committee based on safety, efficacy, and cost; iii) Tier 3: non-preferred branded drugs, drugs recommended by the plan's P&T committee based on safety, AB 339 Page M efficacy, and cost, drugs that generally have a preferred or less costly therapeutic alternative at a lower cost; amd, iv) Tier 4: biologics, drugs with specialty handling limitations, drugs that are self-administered and require training and clinical management, or cost more than $600. b) State that if three or more treatment options are available for a chronic condition that would otherwise be in Tier 4 / specialty tier, then at least one drug for that condition must be in a lower tier. c) Covered California is considering limiting consumers' cost-sharing for drugs on Tier 4 / specialty tier. Covered California is gathering information on premium impacts of implementing cost-sharing caps for these drugs for consideration at the next board meeting in May 2015. 8)SUPPORT. Health Access California, sponsor of this bill, states that this bill is would prevent discrimination against consumers with health conditions by setting standards for cost sharing of prescription drugs. This bill would put in place consumer protections that are consistent with federal law and regulations to offer important consumer protections to Californians with chronic conditions. Biocom states that this bill sets realistic limits on out-of-pocket expenses for patients, while maintaining a plan's ability to direct patients to therapeutically equivalent lower cost drugs. This bill will help insure that patients have access to medications deemed by their physician to be the best course of treatment for the specific patient. The California Academy of Physician Assistants write that if patients have consistent, affordable access to their medications they are more likely to adhere to the medications regiment prescribed by their provider. Medication adherence is essential to improving health and outcomes for people with chronic conditions. Pricing AB 339 Page N specialty medications far out of reach, due to excessively high co-insurance, often results in an inability of the patient to adhere to their treatment plan, further jeopardizing their health. 9)OPPOSITION. California Association of Health Plans states that this bill does nothing to control the high underlying cost of pharmaceuticals, nor does it do anything to encourage the makers of drugs to be more efficient and lower costs. Opponents argue that this bill would increase costs for all consumers because health plans will be forced to absorb almost all of the cost of expensive drugs and then spread that cost across all enrollees. California Association of Health Underwriters states that this bill's real world impact, if enacted, will be to ensure that costs for specialty drugs are shifted from out of pocket costs to premiums increases for all health care consumers. The Pharmaceutical Care Management Association states that annual out-of-pocket expense caps were just implemented in 2013, and it is therefore too early to be changing the metrics by which caps are determined. They state that administration of this proposal would be burdensome because current computer and benefit management systems are not configured to adjudicate monthly maximums and partial transactions. Opponents of this bill state that restrictions on formulary design are burdensome and unnecessary, and will not be consistent with Covered California's broader policies emphasizing cost-savings and access. Kaiser Permanente, with an oppose unless amended position, states the need to wait until Covered California's final action is determined before having a clear sense of amendments that would be requested in this bill. 10)RELATED LEGISLATION. AB 463 (Chiu) requires a pharmaceutical manufacturer that sells a prescription drug in California that has a wholesale acquisition cost of $10,000 or more per year to file an annual report with the Office of Statewide Health Planning and Development regarding the pricing of prescription AB 339 Page O drugs. AB 463 bill is pending in Assembly Health Committee. 11)PREVIOUS LEGISLATION. a) AB 1917 (Gordon) of 2014 would have established limits on the copayment, coinsurance, or any other form of cost sharing for a covered outpatient prescription drug for an individual prescription of 1/12 (equivalent to $529 for 2014) of the annual out-of-pocket limit as specified under the ACA. b) AB 219 (Perea), Chapter 661, Statutes of 2013, limits the total amount of copayments and coinsurance an enrollee or insured is required to pay for orally administered anticancer medications to $200 for an individual prescription of up to a 30-day supply. Governor Brown wrote in a message approving AB 219 that this policy is not without the potential for unintended consequences and that placing a price cap on a specific class of drugs for a specific class of diseases might not be a policy for the ages. A sunset on the bill allows for examination of intended and unintended consequences before embracing the policy long term. c) SB 639 (Ed Hernández), Chapter 316, Statutes of 2013, places in California law provisions of the ACA relating to out-of-pocket limits on health plan enrollee and insured cost-sharing, health plan and insurer actuarial value coverage levels and catastrophic coverage requirements, and requirements on health insurers with regard to coverage for out-of-network emergency services. Applies health plan enrollee and insured out-of-pocket limits to specialized AB 339 Page P products that offer EHBs. Allows carriers in the small group market to establish an index rate no more frequently than each calendar quarter. d) AB 1000 (Perea) of 2011 would have required a health plan contract or health insurance policy that provides coverage for prescription drugs and cancer chemotherapy treatment to limit enrollee out-of-pocket costs for prescribed, orally administered anti-cancer medications. AB 1000 was vetoed by Governor Brown, stating that the bill doesn't distinguish between health plans and insurers who make these drugs available at a reasonable cost and those who do not. e) SB 961 (Wright, 2010) which was virtually identical to AB 1000, was vetoed by Governor Schwarzenegger, who stated in his veto message that the bill would have added costs to increasingly expensive health insurance premiums and it was unnecessary in light of federal health reform. 12)POLICY COMMENTS. a) This bill will be reviewed by CHBRP. The Committee submitted a request to CHBRP, housed within the University of California, to review this bill and perform an analysis of the clinical efficacy, cost-effectiveness, and public health impact of its provisions. CHBRP is established in state statute to assess legislation that proposes or repeals a mandated benefit or service for public health, medical, and financial impact. Committee rules provide that the Committee may not hear such bills until CHBRP's assessment is received and has been reviewed by committee staff. Since this bill does not propose a new mandated AB 339 Page Q benefit, but rather would require plans and insurers to limit out-of-pocket expenses and cover different formulations of already covered medication, this bill may be heard by the Committee without the CHBRP analysis. CHBRP provided background information for this analysis, and will provide a full analysis on May 19, 2015. The CHBRP analysis will provide valuable information on the fiscal impacts of tier design, tier restrictions, and capping monthly out-of-pocket prescription expenditures. b) Covered California decision is pending. Covered California is considering action on the issue of benefit design as it relates to drug formulary tiers and cost-sharing. Covered California is expected to make a final decision for the 2016 plan year at the May 2015 board meeting. As such, the provisions of this bill that put a cap on cost-sharing may be preliminary. c) Tiering based on cost. In Medicare, any drug that costs more than $600 is placed on the specialty tier. Clarifications in the recent final CMS ruling seems to indicate that placing expensive drugs in a high tier is not itself a discriminatory practice if no other discriminatory factors are present, but that plans should be careful to ensure that the overall result for patients is not discriminatory. Covered California recently adopted guidelines for formulary design in health plans sold through the exchange and decided that drugs placed on the fourth/specialty tier can be based solely on cost. Consumer advocates opposed Covered California's definition and requested that the definition of specialty drug be based both on the need for special handling, monitoring or administration as well as the cost to the health plan and that it not be based solely on cost to the plan. The committee may wish to consider whether the statutory requirements of the fourth tier should be consistent with, or different from, the Covered California definition. AB 339 Page R 13)SUGGESTED AMENDMENTS. a) In the provisions of this bill relating to multi-tablet vs single tablet regimens, there is inconsistency in whether a covered drug may be "as effective" or should be "more effective" than another. Proving that a multi-tablet formula is more effective may be an unreasonable standard. The author may wish to clarify this language. b) Depending on the size of the plan, insurer, or Pharmacy Benefit Manager, P&T committees sometimes serve purely in a clinical role to provide drug recommendations while in other entities they also consider cost as part of recommendations. The author may wish to amend the bill to clarify that the P&T committee is not required to consider cost as a factor. c) The bill requires that plans or insurers demonstrate to the satisfaction of the regulator that they meet specific requirements. Plans and insurers regularly demonstrate to the regulator, but the phrase "to the satisfaction of the director / commissioner" seems to be redundant and should be removed to avoid confusion. d) Recent Covered California guidelines require plans to place one drug in a lower cost tier if three or more treatment options are available to treat the same condition. This bill makes the same requirement when there are two or more treatment options for the same condition. The author may wish to amend this bill to three or more, consistent with the Covered California guidelines. REGISTERED SUPPORT / OPPOSITION: AB 339 Page S Support Health Access (sponsor) AIDS Project Los Angeles American Federation of State, County, and Municipal Employees, AFL-CIO Association of Northern California Oncologists Berkeley Free Clinic Biocom California Academy of Physician Assistants California Black Health Network California Chronic Care Coalition California Communities United Institute California Healthcare Institute AB 339 Page T California LGBT Health and Human Services Network California Nurses Association California Pan-Ethnic Health Network California Teachers Association CALPIRG Community Clinic Association Comprehensive Opiate Recovery Experience Medical Clinic Consumers Union Epilepsy California Hemophilia Council of California Los Angeles LGBT Center National Association of Social Workers, California Chapter National Multiple Sclerosis Society - CA AB 339 Page U National Psoriasis Foundation National Stroke Association Project Inform San Francisco AIDS Foundation San Luis Obispo County AIDS Support Network SLO Hep C Project Stroke Advocacy Network Western Center on Law and Poverty Opposition America's Health Insurance Plans Blue Shield of California CalChamber AB 339 Page V California Association of Health Plans California Association of Health Underwriters California Association Joint Powers Authorities CSAC Excess Insurance Authority CVS Health Express Scripts Health Net Kaiser Permanente (unless amended) Pharmaceutical Care Management Association Simi Valley Chamber of Commerce Analysis Prepared by:Dharia McGrew / HEALTH / (916) 319-2097 AB 339 Page W