BILL ANALYSIS Ó
AB 339
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Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
339 (Gordon) - As Amended May 20, 2015
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill restricts cost-sharing, and specifies coverage
requirements for health plans and insurers that cover
prescription drugs, while exempting Medi-Cal managed care.
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Specifically, this bill:
1)Applies to covered outpatients prescription drugs by the
contract that constitute essential health benefits.
2)Restricts cost-sharing amounts to cost sharing to
one-twenty-fourth of the annual out-of-pocket limit applicable
to individual coverage (currently $6,600), for a supply of up
to 30 days.
3)Requires coverage for specified drugs under a variety of
specified circumstances.
4)Standardizes tiers for prescription drug formularies.
5)Restricts the ability of health plans and insurers to
institute cost-sharing and place drugs on certain cost-sharing
tiers, unless specified conditions are met, such as
demonstration that placement of drugs on certain tiers or
cost-sharing levels do not discourage the enrollment of
individuals with health conditions or reduce medication
adherence. Restricts the ability of plans to place drugs on
formulary tiers based solely on cost.
FISCAL EFFECT:
1)One-time costs to DMHC to issue regulations and review plan
compliance of $3.7 million over three fiscal years, and
$450,000 ongoing to ensure compliance (Managed Care Fund).
2)One-time costs to CDI to issue regulations and review
insurance policy compliance in the low hundreds of thousands,
and $80,000 ongoing (Insurance Fund).
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3)Since the California Health Benefits Review Program analyzed
this bill, it has been amended to restrict its application to
prescription drugs that constitute essential health benefits.
Therefore, the numbers cited here represent an upper bound on
potential costs associated with the provision to cap
cost-sharing amounts.
a) No impact on state-funded health care programs,
including CalPERS and Medi-Cal. The elimination of costs to
CalPERS is due to May 20, 2015 amendments that restricted
the applicability of the bill to drugs that are essential
health benefits. The costs for CalPERS reported in CHBRP's
analysis were due to the applicability of the bill to
infertility drugs covered by CalPERS, which are not
essential health benefits.
b) Increased employer-funded premium costs in the private
insurance market of $162 million.
c) Increased premium expenditures by employees and
individuals purchasing insurance of $216 million, offset by
reductions in out-of-pocket costs of $65 million for the
approximately 46,000 Californians with high-cost drugs,
working out to a savings of around $1,400 per individual
affected.
1)Unknown, potentially significant fiscal impact on the private
health insurance market for other provisions not
quantitatively analyzed by CHBRP. CHBRP notes:
a) By requiring coverage of single-tablet regimens and
extended release prescription drugs, carriers lose
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negotiating power, leading to unknown higher drug costs.
The bill requires the drugs to be covered but does not
explicitly restrict the use of prior authorization and
other utilization review techniques, so if plans are able
to still direct individuals to lower-cost options, the
impact may not be that large.
b) Some provisions have an unclear impact and the
effect would depend on interpretation and how plans
adjust their formularies to comply with new rules.
2)One provision of this bill requires health plans to
demonstrate that proposed cost-sharing for a medically
necessary drug will not discourage medication adherence. CHBRP
did not comment on the impact of this provision. However,
CHBRP reports, "there is a preponderance of evidence across
multiple health conditions that, as cost sharing increases,
adherence to drug regimens decreases?.[One study] found that
for every 10% increase in cost sharing, there was a 2% to 6%
decrease in utilization. The results are clear for those with
chronic conditions that increased cost sharing is associated
with decreased adherence." Given these findings, plans and
insurers would likely find it difficult to demonstrate that
they could impose any level of cost-sharing without
discouraging medication adherence, e.g., even a $5 or $20
copayment could have some impact on adherence as compared to a
zero share of cost. It appears as though it could be
interpreted to prohibit any cost-sharing unless it could be
proven there is no impact of the proposed cost-sharing on
adherence. If interpreted this way, this provision poses
significant fiscal risk, as it would call into question the
ability to impose any cost-sharing in most cases.
COMMENTS:
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1)Purpose. 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 Californians are better
able to afford their prescription drugs and that formularies
are not designed in a discriminatory way that discourages
enrollment of individuals with specific health care
conditions.
2)Patient cost-sharing. Payment for covered health benefits is
shared between the payer (e.g., health plan/insurer or
employer) and the enrollee. The patient cost-share is the
portion that must be paid out-of-pocket directly to the
provider, generally at the time of treatment. Common
cost-sharing mechanisms include copayments (a fixed dollar
amount), coinsurance (a percentage of actual cost), and/or
deductibles (an amount, generally $500 or more, which the
patient must pay for health care before the plan pays
anything, subject to certain exclusions). Health plans and
insurers use cost-sharing to direct patients toward high-value
services.
3)Drug Benefits Management. Pursuant to the federal Patient
Protection and Affordable Care Act and state law, health plans
in the individual and small-group market are required to cover
EHBs, which include prescription drugs. Plans generally use a
formulary, which includes "tiers" into which drug classes and
specific medications are assigned based on safety, efficacy,
and cost. Lower-tier drugs are generally cheaper for the
patient and for the plan, which helps keep costs down by
discouraging the use of higher-cost options. Higher tiers can
have significant cost-sharing, and may include drugs that are
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more costly and/or are subject to more concerns about
appropriate prescribing, safety, or efficacy.
4)"Specialty drugs" is a term of art used in the industry, which
used to simply connote drugs that needed special handling or
administration, but has come to also include drugs with
extremely high costs as well. Very high-cost Hepatitis C drugs
are often considered specialty drugs and placed on higher
tiers due to cost. Conditions targeted by 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,
HIV/AIDS, and lupus. This bill restricts the ability of plans
and insurers to place drugs on specific tiers that subject
them to higher cost-sharing based solely on the cost of the
drug, in absence of clinical reasons.
5)Recent state and federal action has been taken on the issue of
formulary design and cost-sharing. On May 21, 2015, the
Covered California board adopted guidelines for formulary
design in health plans sold through the Exchange. The
guidelines standardize formulary tiers, limit placement of
certain types of drugs on certain tiers, and implement drug
cost-sharing caps of $250 for most plans and $500 for
lower-priced bronze plans. A proposed federal rule released
on November 26, 2014, and the final rule, released on February
27, 2015, cautioned health plans and insurers that certain
examples cited appear discriminatory in their application when
looking at the totality of the circumstances, and may be
prohibited. Examples included placing most or all drugs that
treat a specific condition on the highest cost tiers, or
refusal to cover a single-tablet drug regimen or
extended-release product, absent an appropriate reason for
such refusal. Potential discrimination in plan design is of
heightened interest now. Since health insurers can no longer
deny coverage for a preexisting condition, discouraging less
healthy individuals by strategically charging high
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cost-sharing is seen as a way insurers can avoid enrolling
individuals with higher health care needs.
6)Alignment with Existing Policy: Same Same but Different. Many
of the bill's provisions are similar in concept to state
regulations, state policies, and federal law, but are
different enough to require significant analysis,
interpretation, and further guidance by regulators. In
addition, many provisions impose stringent requirements on the
ability of plans to manage formularies that appear to require
significant administrative effort to demonstrate compliance.
Current guidance includes similar concepts to those in the
bill, but this bill requires proactive demonstration that
certain conditions are met, as opposed to more permissive
language in the guidance. For example, federal guidance
states, "Issuers are expected to impose limitations and
exclusions based on clinical guidelines and medical evidence."
This bill imposes a requirement that "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."
7)Support. Health Access, the sponsor of this bill, states it
would protect Californians with chronic conditions by
implementing concepts from federal guidance and state policy,
and improving upon them.
8)Opposition. Health plans and insurers, and pharmaceutical
benefit managers (PBM's), oppose this bill. 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. Other opponents state
restrictions on formulary design are burdensome and
unnecessary, and will not be consistent with Covered
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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. The
Pharmaceutical Care Management Association points out, based
on the CHBRP analysis, for every dollar saved by someone with
a high-cost condition, everyone else in the system pays $6
based on increased overall spending.
9)Staff Comments.
a) Caps on Copays. At their May 21, 2015 board meeting
where they discussed capping cost-sharing for drugs, the
Covered California board staff noted "there is a high
degree of uncertainty with the new introduction and
pharmaceutical pricing of specialty drugs which makes
projecting future year premium impacts difficult."
Given this, and given that Covered California already has
an inclusive and transparent public decision-making process
that reflects the involvement of multiple stakeholders,
where many of these issues have been publicly vetted, staff
notes the following advantages to maximizing alignment with
Covered California decisions with respect to cost-sharing
and formulary design:
1) It establishes one standard for all plans to follow,
minimizing compliance work.
2) Covered California has the flexibility to evaluate
and recommend changes based on market conditions, to
ensure overall affordability is optimized on an ongoing
basis and the overall design of benefits best serves
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consumers.
b) Other provisions. Staff suggests the author align as
closely as possible to existing rules and practice to
minimize potential fiscal impact and administrative burdens
on health plans and regulator.
1) Prohibiting tier assignment based solely on cost. The bill's
prohibition on placing prescription drugs on different tiers
based solely on cost appears incongruent in some cases with
the allowance of different tiers with different levels of
cost-sharing. For example, there may be no clinical reason to
place similarly effective drugs on one tier or another-they
may be placed that way based on the availability of a lower
negotiated price. There does not appear to be a reason to
disallow this; indeed, this is what consumers want PBMs and
insurers to do on our behalf. In addition, insulating
consumers utterly and completely from the cost of drugs,
particularly in the current era of very high-cost drugs
coming to market, is not necessarily protective of consumer
interests overall, as everyone ends up paying higher prices
or bringing home less in wages when health care costs rise.
This provision does not appear necessary to deter
discriminatory plan design.
2) Medication adherence. The provision requiring health plans
to demonstrate that proposed cost-sharing for a medically
necessary drug will not discourage medication adherence poses
fiscal risk. The state regulation the author contends is
being replicated in statute by this provision simply includes
potential risk of adverse health outcomes and the projected
effect of cost-sharing on the affordability and accessibility
of coverage, as factors the Department of Managed Health Care
may consider when approving cost-sharing, limitations, or
exclusions in formulary design. These current regulations
provide the DMHC, which regulates the vast majority of health
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insurance enrollment, appear to provide authority to
disapprove discriminatory benefit designs that harm
consumers. The provision in the bill appears to require a
significantly higher standard of proof-indeed, a nearly
impossible standard-which could lead to an unnecessary
administrative burden on plans. In addition, there is
significant fiscal risk to all payers for health care,
including the state, if the ability to impose cost-sharing is
only allowed where no negative impact on adherence can be
proactively demonstrated. This might pose questions about
whether cost-sharing is allowed at all.
3) Generosity of benefits. One provision of this bill states,
notwithstanding existing laws and regulations, that a plan
must demonstrate their formularies do not reduce the
generosity of the benefit for enrollees with a particular
condition. This also poses a high standard of proof to
proactively demonstrate, whereas federal guidance only
indicates plans and insurers will be notified when an
indication of such as reduction of generosity in some manner
is noted.
4) Coverage of single-tablet and extended-release drugs.
Pharmaceutical benefit managers point out that mandating
coverage of extended-release drugs will enhance the ability
of pharmaceutical manufacturers to maintain monopoly prices
when drugs go off patent. Again, the burden of proof to
refuse coverage of these drugs according to the bill's
provisions appears very high, essentially meaning they would
have to be covered. With respect to the single-tablet
provision, Sovaldi (the infamous $1,000 Hepatitis C pill
manufactured by Gilead) is a single-tablet, whereas its
competitor, Viekera Pak is a twice-a-day pill. Surely it is
in the overall fiscal interest of consumers to preserve the
ability of plans to negotiate for substantial discounts for a
twice-a-day regimen that costs substantially less than a
single-tablet version. Given unknown future market dynamics,
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the author may wish to consider how well consumers are served
by the significant potential long-term fiscal consequences of
this bill's one-size-fits-all requirements.
Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081