BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 339 (Gordon) - Health care coverage:  outpatient prescription  
          drugs
          
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          |Version: July 16, 2015          |Policy Vote: HEALTH 7 - 2       |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: August 17, 2015   |Consultant: Brendan McCarthy    |
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          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  







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            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  








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          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  








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            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  








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          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.




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