BILL ANALYSIS                                                                                                                                                                                                    



            SENATE COMMITTEE ON HEALTH
                          Senator Ed Hernandez, O.D., Chair

          BILL NO:                    AB 339    
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          |AUTHOR:        |Gordon                                         |
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          |VERSION:       |July 7, 2015                                   |
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          |HEARING DATE:  |July 15, 2015  |               |               |
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          |CONSULTANT:    |Teri Boughton                                  |
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           SUBJECT  :  Health care coverage:  outpatient prescription drugs

           SUMMARY  :  Requires health plans and health insurers that provide  
          coverage for outpatient prescription drugs to demonstrate that  
          their formularies do not discourage the enrollment of  
          individuals with health conditions.  Requires for combination  
          drug treatments that include antiretrovirals, coverage of a  
          single-tablet that is as effective as a multitablet regimen  
          unless a plan or insurer can demonstrate that the multitablet  
          regimen is clinically equally or more effective and more likely  
          to result in adherence to a drug regimen.  Requires individual  
          market formulary coverage to be the same or comparable to  
          formularies maintained in the group market.  Places in state  
          law, federal requirements related to prior authorization  
          response times, pharmacy and therapeutics committees, access to  
          in-network retail pharmacies, standardized formulary  
          requirements.  Applies step therapy requirements that are  
          currently applicable to health plans through state regulations  
          to health insurers.  Places in state law formulary tier  
          requirements similar but slightly different than those required  
          of health plans and insurers participating in Covered California  
          and copayment caps of $250 for a supply of up to 30 days for an  
          individual prescription, as specified, consistent with those  
          adopted by Covered California.  
          
                                                  
          Existing law:
          1)Regulates health plans through the Department of Managed  
            Health Care (DMHC) under the Knox-Keene Act and health  
            insurance policies through the California Department of  
            Insurance (CDI) under the Insurance Code.  

          2)Mandates the 10 federally required essential health benefits  







          AB 339 (Gordon)                                    Page 2 of ?
          
          
            (EHBs) and establishes Kaiser Small Group health plan as  
            California's EHB benchmark plan, including prescription drug  
            benefits, as specified, and incorporates by reference state  
            law and regulations related to outpatient prescription drug  
            coverage.
           
          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, limits 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 the large group market, 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.

          4)Limits, for an individual or group health 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.

          5)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 (QHPs) based on bronze, silver, gold  
            and platinum actuarial level categories.  

          6)Requires every health 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 the  
            process, and timelines for responding to authorization  
            requests, including changes to this process to be filed with  
            DMHC.  Requires a written description of this process to be  
            given to prescribing providers of the plan.  Requires any  
            disapproval from the plan to indicate the reason in a notice  
            provided to the enrollee, which includes how to file a  








          AB 339 (Gordon)                                    Page 3 of ?
          
          
            grievance with the plan.

          7)Requires health plans and insurers that provide prescription  
            drug benefits and maintain drug formularies to post the  
            formulary or formularies for each product offered by the plan  
            or insurer on the plan's or insurer's website in a manner that  
            is accessible and searchable by potential enrollees and  
            insureds, enrollees, insureds and providers.

          8)Requires DMHC and CDI to develop a standard formulary template  
            that contains specified information by January 1, 2017.   
            Requires health plans and insurers to use the standard  
            formulary template within six months of the date the template  
            is developed by DMHC and CDI.

          9)Requires health plans and insurers to update their posted  
            formularies with any change to those formularies on a monthly  
            basis.

          10)Deems prior authorization granted if a health plan or health  
            insurer fails to utilize or accept a standardized prior  
            authorization form, as specified, or fails to respond within  
            two business days upon receipt of a request from a prescribing  
            provider.
            
          11)Requires, pursuant to regulation, a plan that requires step  
            therapy, to have an expedited process in place to authorize  
            exceptions to step therapy when medically necessary and to  
            conform effectively and efficiently to continuity of care  
            requirements, as specified.  Prohibits when an enrollee  
            changes plans, the new plan from requiring the enrollee to  
            repeat step therapy when that enrollee is already being  
            treated for a medical condition by prescription drug that is  
            appropriately prescribed and that is safe and effective for  
            the enrollee's condition.  This does not prevent the new plan  
            from imposing a prior authorization requirement.  Defines  
            "step therapy" as 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.
                                                  cc - Covered California  
                                                  regulations
                                                    f - Federal  
            regulations
                                                    s - State  








          AB 339 (Gordon)                                    Page 4 of ?
          
          
            regulations/law
                                          
          This bill:
          1)States legislative intent to build on existing state and  
            federal law to ensure that health coverage benefit designs do  
            not have an unreasonable discriminatory impact on chronically  
            ill individuals, to ensure affordability of outpatient  
            prescription drugs, and that assignment of all or most  
            prescription medications that treat a specific medical  
            condition to the highest cost tiers of a formulary may  
            effectively discourage enrollment by chronically ill  
            individuals.

          2)Requires a non-grandfathered group health plan or policy of  
            health insurance offered, amended, or renewed on or after July  
            1, 2016, and a non-grandfathered individual health plan or  
            policy of health insurance offered, amended or renewed on or  
            after January 1, 2017 to comply with the following, with  
            respect to plans and policies that cover outpatient  
            prescription drugs:

                  a)        Demonstrate that the formulary or formularies  
                    do not discourage the enrollment of individuals with  
                    health conditions and do not reduce the generosity of  
                    the benefit for enrollees or insureds with a  
                    particular condition, consistent with federal law and  
                    notwithstanding state law, as specified; 
                  b)        Cover for combination drug treatments that  
                    include antiretrovirals, a single-tablet drug regimen  
                    that is as effective as a multitablet regimen unless  
                    the health plan is able to demonstrate to the DMHC  
                    director, or insurer is able to demonstrate to the CDI  
                    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; 
                  c)        Permit no more than 50% of drugs approved by  
                    the United States Food and Drug Administration (FDA)  
                    that are in the same drug class to be assigned to the  
                    two highest cost tiers of a drug formulary;
                  d)        Cover at least one drug in the lower cost  
                    tiers if all FDA-approved drugs in the same drug class  
                    would otherwise qualify for the highest cost tiers and  
                    at least three drugs in that class are available as  








          AB 339 (Gordon)                                    Page 5 of ?
          
          
                    FDA-approved drugs.  (cc) Requires the drug or drugs  
                    assigned to the lower cost tiers to be those that were  
                    most often prescribed during the immediately preceding  
                    plan year, based on the health plan's experience;
                  e)        Demonstrate that individual market coverage  
                    formularies are the same or comparable to those in the  
                    group market;
                  f)        Limit the copayment, coinsurance, or any other  
                    form of cost sharing for a covered outpatient  
                    prescription drug for an individual prescription for  
                    up to a 30 day supply to not more than $250, as  
                    specified, except for a product with actuarial value  
                    to bronze coverage, cost sharing for a covered  
                    outpatient prescription drug for an individual  
                    prescription for a supply of up to 30 days to not more  
                    than $500.  (cc) Requires for a federally defined high  
                    deductible health plan the limit to apply only after  
                    the enrollee's deductible has been satisfied for the  
                    year; 
                  g)        Use defined formulary tier groupings if a plan  
                    contract or insurance policy maintains a drug  
                    formulary grouped into tiers, including a fourth tier  
                    and specialty tier, but does not require the use of a  
                    fourth tier; and,
                  h)        Ensure placement of prescription drugs on  
                    formulary tiers is clinically indicated, reasonable  
                    medical management practices.

          3)States that this bill does not require a health plan or health  
            insurance policy to impose cost sharing for prescription drugs  
            that state and federal law requires to be provided without  
            cost sharing and does not require the plan's or insurer's  
            pharmacy and therapeutics (P&T) committee to consider the cost  
            of the prescription drug to the health plan or insurer.

          4)States that this bill does not require or authorize a Medi-Cal  
            managed care plan to provide coverage for prescription drugs  
            that are not required pursuant to program contracts, or to  
            limit or exclude any prescription drugs that are required by  
            those programs or contracts.

          5)Makes the cost-sharing limits established in 1-3) above  
            applicable only to outpatient prescription drugs covered by  
            the contract or policy that constitute EHBs.









          AB 339 (Gordon)                                    Page 6 of ?
          
          
          6)Requires a plan or insurer to provide that the enrollee or  
            insured, the enrollee's or insured's designee or the  
            enrollee's or insured's prescribing provider may seek an  
            authorization for a nonformulary prescription drug for the  
            duration of a prescription, including refills.

          7)Requires each plan or insurer to respond to an authorization  
            request within 72 hours following receipt of the request for a  
            nonurgent authorization.  Requires, if approved by the plan or  
            insurer, coverage of the nonformulary drug for the duration of  
            the prescription, including refills. (f)

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

          9)Requires a plan or insurer to maintain a P&T committee  
            responsible for developing, maintaining, and overseeing any  
            drug formulary list, and establishes requirements associated  
            with the P&T committee that are substantially similar to  
            federal regulations. (f)

          10)Permits a health insurer to impose prior authorization  
            requirements on prescription drug benefits, consistent with  
            this bill, and permits step therapy.  Prohibits, in  
            circumstances where an enrollee or insured changes plans or  
            policies, the new plan or policy from requiring the enrollee  
            or insured to repeat step therapy where the drug is  
            appropriately prescribed and safe and effective for the  
            enrollee's condition. (s)

          11)Requires a plan or insurer to provide coverage for the  
            medically necessary dosage and quantity of the drug prescribed  
            for the treatment of a medical condition consistent with  
            professional recognized standards of practice. 

          12)Requires a plan or insurer that provides EHBs to allow an  
            enrollee or insured to access prescription drug benefits at an  








          AB 339 (Gordon)                                    Page 7 of ?
          
          
            in-network retail pharmacy unless the prescription drug is  
            subject to restricted distribution by the FDA, or requires  
            special handling, as specified, or patient education, as  
            specified.  Permits the plan or insurer to charge an enrollee  
            or insured different cost sharing but requires all cost  
            sharing to count toward the plan's or policies' annual  
            limitation on cost sharing. (f)

          13)Requires if a nonformulary drug is authorized consistent with  
            this bill, the cost sharing to be the same as for a formulary  
            drug, as specified.

          14)Adds DMHC, CDI, the general public and federal agencies to  
            those entities permitted to access and search for plan  
            formularies on the plan's Internet website. (f)

          15)Requires plans or insurers to include on the standard  
            formulary template information on which medications are  
            covered, including both generic and brand name, and what tier  
            of the plan's or policies' drug formulary each medication is  
            in. (f)

          16)Requires a health insurance policy that provides coverage for  
            outpatient prescription drugs to cover medically necessary  
            prescription drugs, and a medically necessary prescription  
            drug for which there is not a therapeutic equivalent.  (s)

          17)Requires copayments, coinsurance and other cost sharing for  
            prescription drugs to be reasonable so as to allow access to  
            medically necessary outpatient prescription drugs. (s)

          18)Requires every health insurer 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 on or before  
            July 1, 2016 file with the commissioner a description of its  
            process for responding to these requests. (s)

          19)Requires the expeditious process pursuant to 18) above,  
            including timelines for responding to prescribing provider  
            authorization requests, to be described in evidence of  
            coverage and disclosure forms, as specified, issued on or  
            after January 1, 2016.  Specifies information to be maintained  
            and made available to the commissioner upon request. (s)









          AB 339 (Gordon)                                    Page 8 of ?
          
          
          20)Requires, if an insurer imposes step therapy, the insurer to  
            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 in law and regulations.  Requires this process to  
            be consistent with this bill. (s)

          21)Defines "step therapy" to mean 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.(s)

          22)Requires the step therapy authorization process to be  
            provided to its prescribing providers, and provide the reasons  
            for any request that is not approved. (s)

          23)Authorizes a health insurer to impose prior authorization  
            requirements consistent with this bill.  Prohibits an insurer  
            from requiring an insured to repeat step therapy when changing  
            policies. (s)

          24)Requires an insurer to provide coverage for the medically  
            necessary dosage and quantity of the drug prescribed  
            consistent with professionally recognized standards of  
            practice. (s)

          25)Requires the commissioner as part of its market conduct  
            examination to review the performance of an insurer that  
            provides prescription drug benefits, in providing those  
            benefits, as described.  Prohibits the commissioner from  
            publicly disclosing any information reviewed. (s)

          26)Defines, for the purposes of the Insurance Code, nonformulary  
            prescription drugs to include any drugs for which the  
            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.  (s)


           FISCAL  
          EFFECT  :  According to the Assembly Appropriations Committee, as  
          amended June 1, 2015:
          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).








          AB 339 (Gordon)                                    Page 9 of ?
          
          


          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).


          3)Since the California Health Benefits Review Program (CHBRP)  
            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 The California Public Employees' Retirement  
                 System (CalPERS) and Medi-Cal.Increased employer-funded  
                 premium costs in the private insurance market of $162  
                 million.
               b)     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.


          4)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  
                 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.









          AB 339 (Gordon)                                    Page 10 of ?
          
          

           PRIOR  
          VOTES  :  
          
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          |Assembly Floor:                     |48 - 30                     |
          |------------------------------------+----------------------------|
          |Assembly Appropriations Committee:  |12 - 5                      |
          |------------------------------------+----------------------------|
          |Assembly Health Committee:          |12 - 5                      |
          |                                    |                            |
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          COMMENTS  :
          1)Author's statement.  According to the author, Californians with  
            cancer, HIV/AIDS, hepatitis, multiple sclerosis, epilepsy, lupus,  
            and other serious and chronic conditions need high cost specialty  
            drugs, which can cost thousands of dollars.  These Californians  
            can often reach their out-of-pocket limit in the first month of  
            the plan year with only one prescription drug. Many Californians  
            would find it difficult to pay over $6,000 out-of-pocket for a  
            single prescription drug, let alone in one month. Too many  
            patients are forced to choose between paying for their life-saving  
            drugs and paying for housing, child care, or food. In turn,  
                                             failure to access prescription drugs leads to suffering, and even  
            death, from illnesses that are treatable. AB 339 is designed to  
            ensure consumer access to vital medications and builds on existing  
            California law and recent federal guidance to provide basic  
            consumer protections that take the patient out of the middle of  
            the negotiations between health plans 
            and pharmaceutical manufacturers.  This bill benefits patients by  
            reducing cost barriers to those who depend on life-saving  
            prescription drugs and implements and improves upon concepts from  
            federal guidance in order to ensure that the anti-discrimination  
            provisions of the Affordable Care Act (ACA) remain intact.

          2)Drug Discrimination.  Jacobs and Summer describe in a 2015 New  
            England Journal of Medicine perspectives piece that there is  
            evidence that insurers are resorting to tactics to dissuade  
            high-cost patients from enrolling. A formal complaint on this  
            point was submitted to the Department of Health and Human  
            Services (HHS) in May 2014 that insurers in the federal exchange  
            had structured their drug formularies to discourage people with  
            human immunodeficiency virus (HIV) infection from selecting their  
            plans. These insurers categorized all HIV drugs, including  








          AB 339 (Gordon)                                    Page 11 of ?
          
          
            generics, in the tier with the highest cost sharing. Insurers  
            have historically used tiered formularies to encourage enrollees  
            to select generic or preferred brand-name drugs instead of  
            higher-cost alternatives. Jacobs and Summer write that "adverse  
            tiering" is not to influence enrollees' drug utilization but  
            rather to deter certain people from enrolling in the first place.  
            Findings of a recently published California HealthCare Foundation  
            study indicate Products used to treat complex chronic conditions,  
            especially those for autoimmune disorders like rheumatoid  
            arthritis, were disproportionately placed on the specialty tier  
            in Covered California plans compared to the selected employer  
            plans. Comprehensive information on drug coverage and  
            out-of-pocket costs was difficult to find. This lack of access  
            could be a barrier to consumers who wish to make informed  
            purchasing decisions. Additionally, the study found that Covered  
            California plans were more aggressive than selected employer  
            plans in managing drug use through administrative controls, such  
            as prior authorization and step therapy.

          3)Knox-Keene Act Regulations on Outpatient Drugs.  Standards for  
            outpatient prescription drug benefit plans are contained under  
            Title 28 Code of California Regulations section 1300.67.25.  The  
            regulation requires for plans that cover outpatient prescription  
            drug benefits coverage for all medically necessary outpatient  
            prescription drugs, except as described in the regulation.  The  
            clinical aspects of a plan's prescription drug benefit must be  
            developed by qualified medical and pharmacy professionals and  
            include documentation of the internal process for ongoing  
            review.  Plans seeking to establish limitations or exclusions  
            must do so consistent with up to date evidence based outcomes  
            and current published peer-reviewed medical and pharmaceutical  
            literature.  DMHC's approval or disapproval of copayments,  
            coinsurance, deductibles, limitations, or exclusions may be  
            based upon a number of factors including the availability of  
            therapeutic equivalents or other drugs medically necessary for  
            treatment of health conditions.  Copayments must be reasonable  
            so as to allow access to medically necessary outpatient  
            prescription drugs.  The regulation allows plans to apply  
            limitations such as prior authorization requirements and step  
            therapy.  Medically necessary dosage and quantity of the drug  
            prescribed must be consistent with professionally recognized  
            standards of practice.  A plan is not required to provide  
            coverage for outpatient prescription drugs prescribed for  
            cosmetic purposes, hair loss, sexual dysfunction, athletic  
            performance, losing weight (except when medically necessary for  








          AB 339 (Gordon)                                    Page 12 of ?
          
          
            the treatment of morbid obesity), and other purposes, as  
            described.

          4)Federal Regulations.  Final federal rules and regulations  
            issued on February 27, 2015 among other provisions update  
            regulations on the prescription drug benefit associated with  
            EHBs.  The new regulations require health plans and insurers  
            that offer EHBs to cover at least the greater of one drug in  
            every United States Pharmacopeia category and class, or the  
            same number of prescription drugs in each category and class  
            as the EHB-benchmark plan.  For plan years beginning on or  
            after January 1, 2017, the regulations require plans to use a  
            P&T committee that meets specified standards related to  
            conflicts of interest, membership, 
            meeting frequency and documentation.  The regulations require  
            clinical decisions to be based on the strength of scientific  
            evidence and standards of practice, including assessing  
            peer-reviewed medical literature, pharmacoeconomic studies,  
            outcomes research data, and other such information as  
            determined appropriate.  The regulations also require a health  
            plan or insurer have the following processes in place that  
            allow an enrollee, the enrollee's designee, 
            or the enrollee's prescribing physician (or other prescriber,  
            as appropriate) to request and gain access to clinically  
            appropriate drugs not otherwise covered by the health plan or  
            insurer 
            (a request for exception). In the event that an exception  
            request is granted, the plan or insurer must treat the  
            excepted drug(s) as an EHB, including by counting any  
            cost-sharing towards the plan's or policies' annual limitation  
            on cost-sharing and when calculating the plan's and policies'  
            actuarial value.  The regulations require the plan to notify  
            the enrollee no later 72 hours following receipt of a request.  
             An expedited review can be requested when exigent  
            circumstances exist (such as an enrollee is suffering from a  
            health condition that may seriously jeopardize the enrollee's  
            life, health, or ability to regain maximum function or when an  
            enrollee is undergoing a course of treatment using a  
            non-formulary drug).  In exigent circumstances an enrollee  
            must be notified of the coverage determination no later 24  
            hours following receipt of the request. The regulations also  
            require a health plan or insurer to allow enrollees or  
            insureds to access prescription drug benefits at in-network  
            retail pharmacies, unless the drug is subject to restricted  
            distribution by the FDA; or the drug requires special  








          AB 339 (Gordon)                                    Page 13 of ?
          
          
            handling, provider coordination, or patient education that  
            cannot be provided by a retail pharmacy.  A health plan or  
            insurer may charge enrollees or insureds a different  
            cost-sharing amount for obtaining a covered drug at a retail  
            pharmacy, but all cost sharing will count towards the plan's  
            or policies' annual limitation on cost sharing and must be  
            accounted for in the plan's policies' actuarial value.

          5)Covered California.  Covered California recently announced  
            several changes to their 2016 Standard Plan Benefit Designs.   
            Plan formularies must include at least one drug in Tiers 1, 2  
            or 3 if all FDA-approved drugs in the same drug class would  
            otherwise qualify for Tier 4 and at least three drugs in that  
            class are available as FDA-approved drugs. Plans can have an  
            opt out retail option for mail order (allowing consumers that  
            want/need in person assistance to get such service at no  
            additional cost). Plans must provide enrolled consumers an  
            estimate of the out-of-pocket cost for specific drugs and  
            include a statement on the availability of drugs not listed on  
            the formulary. An exception process must be written clearly on  
            the formulary and a dedicated pharmacy customer service line  
            must be available for advocates and prospective consumers to  
            call for clarification.  Covered California indicates that  
            many factors influence medication adherence including income,  
            consumer's share of cost, disease being treated, complexity of  
            medication regimen, and side effect.  There is a high degree  
            of uncertainty with the new introduction and pharmaceutical  
            pricing of specialty drugs.  Ultimately Covered California  
            determined it was in the best interest of the consumer to set  
            a lower maximum cap on specialty drugs for the 2016 plan year.  
             Covered California also adopted caps on pharmacy deductible  
            for Tier 4 drugs of $250 for a 30 day supply and $500 for a 30  
            day supply for a bronze plan.  The estimated range of premium  
            impact in the first year is generally less than one percent  
            and the projected three year premium impact varied widely  
            between zero and three percent.  Covered California also  
            adopted the following definitions for drug tiers:

          
                      ------------------------------------------------------ 
                     |Tier    |Definition             |AB 339               |
                     |--------+-----------------------+---------------------|
                     |1       |Most generic drugs and |Most generic drugs   |
                     |        |low cost preferred     |and low cost         |
                     |        |brands                 |preferred brand      |








          AB 339 (Gordon)                                    Page 14 of ?
          
          
                     |        |                       |drugs                |
                     |--------+-----------------------+---------------------|
                     |2       |Non-preferred generic  |Non-preferred        |
                     |        |drugs; or preferred    |generic drugs,       |
                     |        |brand name drugs or    |preferred brand name |
                     |        |recommended by the     |drugs, and any other |
                     |        |plan's P&T committee   |drugs recommended by |
                     |        |based on drug safety,  |the plan's/insurer's |
                     |        |efficacy and cost.     |P&T committee based  |
                     |        |                       |on safety and        |
                     |        |                       |efficacy and not     |
                     |        |                       |solely based on the  |
                     |        |                       |cost of the          |
                     |        |                       |prescription drug,   |
                     |        |                       |and which generally  |
                     |        |                       |have a preferred and |
                     |        |                       |often less costly    |
                     |        |                       |therapeutic          |
                     |        |                       |alternative at a     |
                     |        |                       |lower cost tier.     |
                     |--------+-----------------------+---------------------|
                     |3       |Non-preferred brand    |Non-preferred brand  |
                     |        |name drugs; or         |name drugs that are  |
                     |        |recommended by the     |recommended by the   |
                     |        |plan's P&T committee   |health               |
                     |        |based on drug safety,  |plan's/insurer's P&T |
                     |        |efficacy and cost; or  |committee based on   |
                     |        |generally have a       |safety and efficacy  |
                     |        |preferred and often    |and not solely based |
                     |        |less costly            |on the cost of the   |
                     |        |therapeutic            |prescription drug.   |
                     |        |alternative at a lower |                     |
                     |        |tier.                  |                     |
                     |--------+-----------------------+---------------------|
                     |4       |FDA or drug            |Biologics, drugs     |
                     |        |manufacturer limits    |that FDA or          |
                     |        |distribution to        |manufacture requires |
                     |        |specialty pharmacies;  |to be distributed    |
                     |        |or self-               |through a specialty  |
                     |        |administration         |pharmacy, drugs that |
                     |        |requires training,     |require the enrollee |
                     |        |clinical monitoring;   |to have special      |
                     |        |or drug was            |training or clinical |
                     |        |manufactured using     |monitoring for       |
                     |        |biotechnology or plan  |self-administration, |








          AB 339 (Gordon)                                    Page 15 of ?
          
          
                     |        |cost (net of rebates)  |or drugs that cost   |
                     |        |is > $600.             |the health           |
                     |        |                       |plan/insurer more    |
                     |        |                       |than $600 net of     |
                     |        |                       |rebates.             |
                     |        |                       |                     |
                      ------------------------------------------------------ 
                       
          
          6)Complaints. According to DMHC, for calendar years 2013 and  
            2014, the department received a total of 52 grievances and 27  
            IMRs related to health plan strategies to reduce prescription  
            drug costs. The majority of these complaints and IMRs  
            concerned increased prescription drug copayments due to health  
            plan formulary and tier status changes, with a smaller number  
            related to step therapy or fail first protocols.

          7)CHBRP analysis.  AB 1996 (Thomson, Chapter 795, Statutes of  
            2002), requests the University of California to assess  
            legislation proposing a mandated benefit or service and  
            prepare a written analysis with relevant data on the medical,  
            economic, and public health impacts of proposed health plan  
            and health insurance benefit mandate legislation. The  
            assessments were expanded to include legislation impacting  
            essential health benefits and health insurance benefit design,  
            cost sharing, premiums, and other health insurance topics.  
            CHBRP was created in response to AB 1996.  A report was issued  
            by CHBRP on this bill on May 19, 2015, which focused on  
            provisions of this bill that would have imposed limits on  
            outpatient drug cost sharing of no more than 1/24 of the total  
            annual out-of-pocket maximum or the equivalent of $260 per 30  
            day prescription.   CHBRP indicates that the prescription  
            drugs most likely to be affected are the most expensive  
            prescriptions in several classes of specialty and biologic  
            drugs used to treat conditions such as cancer, multiple  
            sclerosis, rheumatoid arthritis, immune disorders, anemia, HIV  
            and infertility. 

               a)     Medical effectiveness.  There is a preponderance of  
                 evidence that people who face higher cost sharing for a  
                 prescription drug are less likely to maintain meaningful  
                 levels of adherence than persons who face lower cost  
                 sharing.  Poorer adherence to prescription drug therapy  
                 for chronic conditions is associated with higher rates of  
                 hospitalization and emergency department visits and  








          AB 339 (Gordon)                                    Page 16 of ?
          
          
                 poorer health outcomes.  In general, as cost sharing  
                 increases usage decreases.  However, there is some  
                 evidence that the effect of cost sharing may differ  
                 depending on the specific disease and specific specialty  
                 drug.  There is a preponderance of evidence that cost  
                 sharing has stronger effects on use of health care  
                 services by low-income persons compared to high-income  
                 persons.  However, this was not observed in a recent  
                 well-done observational study from Massachusetts.
               b)     Capacity and access.  CHBRP estimates that 46,357  
                 enrollees, including 947 new users, would fill an  
                 additional 13,184 high-cost prescription drugs.
               c)     Utilization and cost.  Forty-two percent reduction  
                 in the average cost sharing for an enrollee's high cost  
                 prescription drug.  
               d)     Impact on expenditures.  Private employer premium  
                 increases are expected to increase by .29% and .35% for  
                 enrollees with group insurance.  Enrollees for  
                 individually purchased insurance have the highest  
                 increases of .71%.
               e)     Public health impacts.  No measurable public health  
                 outcomes impact due to the small number of enrollees with  
                 a reduction in cost sharing for prescriptions that would  
                 have exceeded the limit.  However, on a case by case  
                 basis, this bill may yield important health and quality  
                 of life improvements for some.
               f)     Interaction with EHB.  This bill appears not to  
                 exceed EHBs, and therefore would not trigger the ACA  
                 requirement that the state defray the cost of additional  
                 benefit coverage for enrollees in Covered California  
                 participating plans.



          8)Related legislation.  AB 374 (Nazarian) prohibits a health  
            plan or insurer from applying a step therapy protocol when a  
            patient has made a "step therapy override determination  
            request," if the patient's physician determines that step  
            therapy would not be medically appropriate.  Requires a  
            carrier to expeditiously review a request made by a patient,  
            if specific criteria are met and adequate supporting rationale  
            and documentation is provided by the prescribing physician.   
            AB 374 is also set for hearing in this committee on July 15,  
            2015.









          AB 339 (Gordon)                                    Page 17 of ?
          
          

            SB 282 (Hernandez) permits the use of alternative methods of  
            electronic prior authorization of prescription drugs other  
            than the required standardized form, and exempts physician  
            groups with delegated financial risk from the standardized  
            prior authorization process.  SB 282 is set for hearing in the  
            Assembly Health Committee on July 14, 2015.

            SB 43 (Hernandez) updates California's EHB statute to reflect  
            recent federal regulations.  SB 43 is set for hearing in the  
            Assembly Health Committee on July 14, 2015.

          9)Prior legislation.  AB 1917 (Gordon, 2014), would have limited  
            cost sharing for a 30-day supply of a prescription drug to  
            1/12 of the annual out-of-pocket maximum for a prescription  
            that has a course of treatment more than three months or 1/2  
            of the annual out-of-pocket limit for a prescription with a  
            course of treatment of less than three months.  AB 1917 was  
            held on the Senate Floor at the request of the author.

            SB 1052 (Torres, Chapter 575, Statutes of 2014) requires  
            health plans and insurers to use a standard drug formulary  
            template to display their drug formularies and to post their  
            formularies on their Web sites and requires Covered California  
            to provide links to the formularies.

            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, adjust the cap annually not to exceed the  
            percentage increase in the Consumer Price Index for that year,  
            and sunsets on January 1, 2019.  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.

            SB 639 (Hernandez, 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  








          AB 339 (Gordon)                                    Page 18 of ?
          
          
            insurers with regard to coverage for out-of-network emergency  
            services. Applies health plan enrollee and insured  
            out-of-pocket limits to specialized products that offer EHBs.   
            Allows carriers in the small group market to establish an  
            index rate no more frequently than each calendar quarter.  

            SB 866 (Hernandez, Chapter 648, Statutes of 2011), requires  
            DMHC and CDI to jointly develop a uniform prior authorization  
            form that health plans and insurers must accept when  
            prescribing providers seek authorization for prescription drug  
            benefits. 

          10)Support.  According to Biocom, this bill sets realistic  
            limits on the out-of-pocket expenses that can be assessed to  
            patients while maintaining the plans ability to direct  
            patients to therapeutically equivalent lower cost drugs.  The  
            Orange County HIV/AIDS Advocacy Team writes this bill  
            implements concepts from federal guidance and improves upon  
            the antidiscrimination provisions of the ACA.  Health Access  
            California writes that when people can't afford their  
            prescription drugs they skip doses, split pills in half and  
            some just don't pick up their prescriptions.  Health Access  
            indicates that this bill implements and improves upon concepts  
            from the federal rule and regulations and California law and  
            regulations 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.   
            Health Access points out that this bill improves federal law  
            by applying the nondiscrimination provisions to large  
            purchasers, includes prior authorization and step therapy  
            requirements in the Insurance Code, imposes a per-30 day  
            prescription limit on cost sharing so it cannot exceed $250  
            for most coverage and $500 for bronze, and finally aligns  
            patient protections with Covered California.  The National  
            Multiple Sclerosis Society - CA Action Network writes that  
            people living with MS make frequent health care visits and  
            rely on expensive medications to help manage their disease.   
            There are 10 injectibles and three oral medications used to  
            help manage MS.  There are no generic equivalents and these  
            treatments are typically placed on specialty tiers.  Those  
            with MS also take four to six other drugs to ease symptoms,  
                                              monthly out-of-pocket medication costs can become exorbitant.   
            The Hemophilia Council of CA writes that this bill would allow  
            their patients to receive an exemption from "step therapy" to  
            be able to use the clotting factor that works best for them as  








          AB 339 (Gordon)                                    Page 19 of ?
          
          
            prescribed by their hematologist.
          
          11)Opposition.  Aetna writes that while Covered California has  
            enacted a cost-sharing limitation for individuals utilizing  
            the health insurance exchange, the legislature is encouraged  
            to study the impact of those regulations before expanding  
            these coverage requirements to all insurance policies.  Blue  
            Shield of California has a number of concerns with the  
            provisions of this bill that exacerbate the drug pricing  
            challenge by giving drug companies seeking to exploit patent  
            protections, preferential placement of expensive single dose  
            drugs over lower cost multitablet regimes that have the exact  
            same effectiveness.  The bill handcuffs negotiations with  
            manufacturers which limit the discount drug companies will be  
            willing to grant.  By arbitrarily stipulating half of the  
            drugs for a condition to be on a lower tier, you are removing  
            any market leverage a plan has to obtain pricing concessions  
            from manufacturers.  Pharmaceutical Care Management  
            Association believes this bill will raise costs for all, is  
            premature, will be complicated to implement, eliminate  
            competition of high priced drugs, and differs from the federal  
            regulations in that this bill takes effect sooner than the  
            federal regulations.  PCMA also points out that federal  
            regulation can change and putting them in California statute  
            complicates matters.
          
          12)Opposition Unless Amended. Kaiser Permanente to remove  
            language of this bill about cost-sharing that is vague,  
            unnecessary and sets up an impossible bar for prescribers and  
            health plans to meet.  Kaiser also requests provisions be  
            removed that require plans to demonstrate to the regulator  
            that they are in compliance.  Kaiser requested other changes  
            which may have been addressed by the July 7th amendments.  The  
            Northern California Carpenters requests grandfathered plans to  
            be exempt from the bill.  It appears the bill has been amended  
            to address these concerns.
          
          13)Controlling Costs vs. Discouraging Enrollment.  When third  
            party payors negotiate prescription drug coverage, they use  
            prior authorization, utilization controls, and formulary  
            design as mechanisms to obtain price discounts from drug  
            manufacturers and to ensure appropriate use of the medication.  
            By mandating coverage of types of drugs and design elements of  
            drug formularies the policy impact will likely create more  
            uniformity of plan designs, less opportunity for  








          AB 339 (Gordon)                                    Page 20 of ?
          
          
            discrimination based on treatment of chronic conditions with  
            high cost medications, and a spreading of the costs associated  
            with high cost medical treatments more broadly among the  
            insured population.  However, these policies will also impact  
            a plan's ability to obtain price concessions from drug  
            manufacturers and possibly ensure appropriate utilization. 
          
          14)Multiple Significant Policy Changes Converge.  There are four  
            broad categories of policy pursuits in this bill:  1)  
            Codifying Covered California policies in some cases with  
            slight revisions and broad applicability in the commercial  
            market; 2) Codifying DMHC regulations in the Insurance Code;  
            3) Codifying federal regulations with broader applicability in  
            the commercial market; and 4) Additional policy mandates not  
            required under existing federal or state law, or Covered  
            California regulation.  In some cases this latter category is  
            inspired by the narrative associated with the federal  
            regulations.  With regard to Covered California policies,  
            those policies have been established for a limited period of  
            time.  This bill would extend the policy indefinitely and  
            slightly revises the tier definitions.  Codification of DMHC  
            requirements on CDI plans may reduce the regulatory  
            disparities in health insurance in California but could also  
            exacerbate them should DMHC revise its regulations prompting  
            the need for statutory changes for CDI regulated plans.   
            California has endeavored to maintain consistency in the  
            application of health insurance market reforms under the ACA  
            so that plans not participating in Covered California have to  
            comply with the same rules as plans participating in Covered  
            California.  Adoption of these federal rules in California law  
            is consistent with this policy objective.   

          This bill also establishes new requirements such as requiring  
            the coverage of single-tablet antiretrovirals that are as  
            effective as multitablet regimens.  This provision has been  
            amended in an effort to target it's applicability to HIV  
            treatments.  However, more tightening of this provision is  
            necessary.  The bill also requires plans to demonstrate that  
            formularies do not discriminate and that individual market  
            coverage formularies are the same or comparable to those in  
            the group market.  This bill requires the cost sharing of  
            authorized non-formulary drugs to be the same as for formulary  
            drugs.  
          
            It's unclear what impact all of these provisions will have  








          AB 339 (Gordon)                                    Page 21 of ?
          
          
            taken together.  As indicated above, there will be some  
            uniformity in the market and some spreading out of costs  
            across the insured population but substantial cost increases  
            may also be realized as health plans, insurers and their  
            pharmacy benefit managers find it more difficult to manage  
            care and negotiate price discounts with drug manufacturers.
                 
          15)Drafting Issues. 
               a)     Health and Safety Code section1342.71 Subdivision  
                 (e) and Insurance Code 10123.193 (g) establish formulary  
                 tier groups.  It's not clear if the bill is requiring  
                 these groupings of all plans with outpatient prescription  
                 drug benefits or only on plans with fourth or specialty  
                 tiers.   The author may wish to clarify these provisions.
               b)     Health and Safety Code section 1367.41 (c) and  
                 Insurance Code section 10123.201 (c)(3) the term issuer  
                 should be replaced with plan in the Health and Safety  
                 Code and insurer in the Insurance Code.

          
           SUPPORT AND OPPOSITION  :
          Support:  
          Health Access California (sponsor)
          AIDS Project Los Angeles
          American Federation of State, County and Municipal Employees,  
          AFL-CIO
          Arthritis Foundation
          Association of Northern California Oncologists
          Berkeley Free Clinic
          Biocom
          California Academy of Physician Assistants
          California Black Health Network
          California Chapter of the National Association of Social Workers  

          California Chronic Care Coalition
          California Communities United Institute
          California Healthcare Institute
          California Labor Federation
          California Lesbian, Gay, Bisexual, and Transgender Health and  
          Human Services Network
          California Life Sciences Association
          California Nurses Association
          California Pan-Ethnic Health Network
          California Teachers Association
          CALPIRG








          AB 339 (Gordon)                                    Page 22 of ?
          
          
          Community Clinic Association of Los Angeles
          Consumers Union
          CORE Medical Clinic, Inc.
          Epilepsy California
          Hemophilia Council of California
          Los Angeles LGBT Center
          Mental Health America of California
          National Multiple Sclerosis Society - CA Action Network
          National Psoriasis Foundation
          National Stroke Association 
          Orange County HIV/AIDS Advocacy Team
          Project Inform 
          San Francisco AIDS Foundation
          San Luis Obispo County AIDS Support Network 
          SLO Hep C Project
          Western Center on Law and Poverty

          Oppose:   
          Aetna
          America's Health Insurance Plans
          Association of California Life and Health Insurance Companies
          Blue Shield of California
          California Association of Health Plans
          California Association of Health Underwriters
          California Chamber of Commerce
          California Farm Bureau Federation
          CSAC Excess Insurance Authority
          CVS Health
          Express Scripts
          Health Net
          Kaiser Permanente (unless amended)
          Molina Healthcare of California
          Northern California Carpenters Regional Council (unless amended)
          Pharmaceutical Care Management Association
          Simi Valley Chamber of Commerce
          Southwest California Legislative Council

                                      -- END --