BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 339 (Gordon) - Health care coverage: outpatient prescription drugs ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: July 16, 2015 |Policy Vote: HEALTH 7 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 17, 2015 |Consultant: Brendan McCarthy | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 339 would make several changes to existing law regarding prescription drug coverage and cost sharing for patients. Fiscal Impact: One-time costs of about $750,000 and ongoing costs of about $400,000 per year for the Department of Insurance to adopt policies and regulations, review plan filings, and enforce the requirements of the bill (Insurance Fund). One-time costs in the low millions and ongoing costs of about $500,000 per year for the Department of Managed Health Care to adopt policies and regulations, review plan filings, and enforce the requirements of the bill (Managed Care Fund). No significant impact to the Medi-Cal program is anticipated. The provisions of the bill dealing with cost sharing and the AB 339 (Gordon) Page 1 of ? assignment of drugs to formulary tiers do not apply to Medi-Cal managed care plans. The other provisions of the bill are not expected to significantly increase costs to Medi-Cal managed care plans. Unknown impacts on health care spending by CalPERS. The California Health Benefits Review Program has reviewed this bill. According to the Program, the bill in its current form would not increase costs for CalPERS contracted health plans and insurance policies due to the limits on prescription drug cost sharing by enrollees. (A prior version of the bill would have impacted CalPERS' coverage of infertility drugs; however the current version of the bill is limited to essential health benefits, which does not cover infertility treatments). However, there was not sufficient information available to conduct a quantitative analysis of the provisions of the bill that would place requirements on carriers when developing drug formularies. Health plans and insurers (and their contracted pharmacy benefits managers) use drug formulary tiers to both encourage enrollees to make greater use of low-cost drugs and to incentivize drug manufacturers to lower their prices in order to have their drugs placed on the lower tiers. By limiting the ability of health plans and insurers to place drugs (particularly high cost drugs) on the higher tiers, the bill is likely to limit the bargaining power of health plans and insurers. This is likely to increase overall prescription drug costs to health plans and insurers, and ultimately to increase the cost of health care to consumers and employers. The size of this impact is unknown. Background: Under current law, health insurance is regulated by the Department of Insurance and health care service plans are regulated by the Department of Managed Health Care. In general, health insurers and health plans are required to provide coverage for medically necessary prescription drugs. Current law required most health insurers and health plans to limit enrollee out-of-pocket expenses for essential health benefits, including prescription drugs. Health insurers and health plans often use prescription drug formularies with tiers. Drug formularies typically have one to four tiers, with the first tier including generic and low cost drugs and the fourth tier including specialty and high-cost AB 339 (Gordon) Page 2 of ? drugs. Typically, enrollee cost sharing increases for drugs in the upper tiers. Covered California, the state's health benefit exchange, recently adopted regulations that require qualifying health plans sold through Covered California to meet certain requirements relating to prescription drug coverage. Beginning in 2016, Covered California plans will be required to limit enrollee deductibles for prescription drugs to $250 for a 30 day supply of drugs in tier 4 ($500 for enrollees in a bronze plan). Covered California will also require formularies to include at least one drug in tiers 1, 2, or 3 if all FDA-approved drugs in the same class would otherwise be included in the plan's tier 4 and at least three drugs in that class are available. Proposed Law: AB 339 would make several changes to existing law regarding prescription drug coverage and cost sharing for patients. Specific provisions of the bill would: Prohibit the drug formularies used by health insurers and health plans from discouraging the enrollment of individuals with health conditions and from reducing the generosity of the benefit for enrollees with a particular condition; For combination antiretroviral drugs for the treatment of AIDS/HIV, health insurers and health plans would be required to cover a single-tablet regimen unless the multi-tablet regimen is shown to be equally effective and more likely to result in adherence to a drug regimen; Prohibit more than 50% of approved drugs in the same drug class from being assigned to the two highest tiers of a drug formulary; Require all drug formularies to include at least one drug in the lower cost tiers if all approved drugs would otherwise be in the highest cost tiers and at least three drugs are available in the drug class; Require that the drug or drugs assigned to the lower tiers be those drugs that were most often prescribed in the preceding year; Limit cost sharing for a 30-day supply of a prescription drug to $250 (or $500 for a bronze level plan and only once the AB 339 (Gordon) Page 3 of ? deductible has been satisfied for a high deductible health plan). These provisions would sunset on January 1, 2021; Specify the criteria for formulary tiers that must be used by health insurers and health plans that include a fourth or specialty tier; The above requirements would go into effect on July 1, 2016 for group health plans or insurance policies and on January 1, 2017 for individual market health plans and health insurance policies; The above requirements would not apply to Medi-Cal managed care plans; Specify the timelines and procedures for requesting coverage of a non-formulary drug by a prescriber (this modifies an existing requirement on health plans and creates a new requirement on health insurers); Require carriers to have a pharmacy and therapeutics committee responsible for developing a health insurer's or health plan's drug formulary, with specified requirements; Require health insurers and health plans to allow enrollees to access prescription drugs at an in-network retail pharmacy unless the drug is subject to federal restrictions on distribution; Require health insurers and health plans to provide access to drug formularies to the general public and state regulators and require carriers to include information on cost sharing and what tier of a formulary each medication is on. Related Legislation: AB 374 (Nazarian) would require prescribers to use a step therapy override request developed by the Department of Insurance and the Department of Managed Health Care and would specify the timelines for carriers to respond to the request. That bill will be heard in this committee. AB 1917 (Gordon, 2014) would have limited cost sharing for a 30-day supply of prescription drugs to 1/12 of the annual out-of-pocket maximum limit. That bill was held on the Senate Floor. Staff Comments: The changes to current law reflected in this bill are based on regulations adopted by Covered California for its AB 339 (Gordon) Page 4 of ? qualifying health plans, federal regulations, and provisions of the Knox-Keene act that apply to health plans, but not health insurers. Rather than reference the existing Covered California or federal regulations, this bill incorporates language that is based on, but not exactly the same as, those regulations. As is discussed above, the provisions of the bill that limit the ability of health insurers and health plans to place high-cost drugs on the higher drug formulary tiers will reduce the bargaining power of health insurers and health plans. Overall, this is likely to increase the cost of prescription drugs. The size of this impact is unknown and was not quantifiable by the California Health Benefits Review Program. For example, one provision of the bill requires that the drugs assigned to the lower tiers of a drug formulary (when there are multiple drugs in the same class) be the drugs in that class that were most prescribed in the preceding year. This provision could have the impact of "locking in" high utilization of a very high cost drug. For example, if several drugs come on to the market in a short time period (as has happed with Hepatitis C treatments) the first drug on the market is likely to be very highly priced at first when there is no new competition. Because the first drug on the market would have not competition at first, it would by default be the most widely prescribed drug in its class. Under this provision of the bill, a health insurers or health plans could be required to place the first drug on the market into the lower tiers of the formulary in subsequent years, even if later entrants into the market are less expensive. -- END --