Amended in Senate June 16, 2015

Amended in Senate May 27, 2015

Amended in Assembly March 26, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 627

Introduced by Assembly Member Gomez

(Principal coauthor: Senator Stone)

February 24, 2015

An act to amend begin delete Section end delete begin insert Sections end insert 4430 begin insert and 4432 end insert of, and to add Section 4440 to, the Business and Professions Code, relating to pharmacy benefit managers.

LEGISLATIVE COUNSEL’S DIGEST

AB 627, as amended, Gomez. Pharmacy benefit managers: contracting pharmacies.

Existing law imposes specified requirements on an audit of pharmacy services provided to beneficiaries of a health benefit plan, and defines certain terms for its purposes, including, among others, pharmacy benefit manager.

begin delete

The

end delete

begin insert This bill would exempt certain contracts governing the medicines and medical supplies that are required to be provided to injured employees in workers’ compensation cases from these requirements. The end insert bill would begin insert also end insert require a pharmacy benefit manager that reimburses a contracting pharmacy for a drug on a maximum allowable cost basis to include in a contract, initially entered into, or renewed on its scheduled renewal date, on or after January 1, 2016, information identifying any national drug pricing compendia or other data sources used to determine the maximum allowable cost for the drugs on a maximum allowable cost list and to provide for an appeal process for the contracting pharmacy, as specified. The bill would also require a pharmacy benefit manager to make available to a contracting pharmacy, upon request, the most up-to-date maximum allowable cost list or lists used by the pharmacy benefit manager for patients served by the pharmacy in a readily accessible, secure, and usable Web-based format or other comparable format. The bill would prohibit a drug from being included on a maximum allowable cost list or from being reimbursed on a maximum allowable cost basis unless certain requirements are met, including, but not limited to, that the drug is not obsolete.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 4430 of the Business and Professions
Code is amended to read:

4430.  

For purposes of this chapter, the following definitions
shall apply:

(a) “Carrier” means a health care service plan, as defined in
Section 1345 of the Health and Safety Code, or a health insurer
that issues policies of health insurance, as defined in Section 106
of the Insurance Code.

(b) “Clerical or recordkeeping error” includes a typographical
error, scrivener’s error, or computer error in a required document
or record.

(c) “Extrapolation” means the practice of inferring a frequency
or dollar amount of overpayments, underpayments, nonvalid
claims, or other errors on any portion of claims submitted, based
on the frequency or dollar amount of overpayments,
underpayments, nonvalid claims, or other errors actually measured
in a sample of claims.

(d) “Health benefit plan” means any plan or program that
provides, arranges, pays for, or reimburses the cost of health
benefits. “Health benefit plan” includes, but is not limited to, a
health care service plan contract issued by a health care service
plan, as defined in Section 1345 of the Health and Safety Code,
and a policy of health insurance, as defined in Section 106 of the
Insurance Code, issued by a health insurer.

(e) “Maximum allowable cost” means the maximum amount
that a pharmacy benefit manager will reimburse a pharmacy for
the cost of a drug.

(f) “Maximum allowable cost list” means a list of drugs for
which a maximum allowable cost has been established by a
pharmacy benefit manager.

(g) “Obsolete” means a drug that may be listed in national drug
pricing compendia but is no longer available to be dispensed based
on the expiration date of the last lot manufactured.

(h) “Pharmacy” has the same meaning as provided in Section
4037.

(i) “Pharmacy audit” means an audit, either onsite or remotely,
of any records of a pharmacy conducted by or on behalf of a carrier
or a pharmacy benefits manager, or a representative thereof, for
prescription drugs that were dispensed by that pharmacy to
beneficiaries of a health benefit plan pursuant to a contract with
the health benefit plan or the issuer or administrator thereof.
“Pharmacy audit” does not include a concurrent review or desk
audit that occurs within three business days of transmission of a
claim, or a concurrent review or desk audit where no chargeback
or recoupment is demanded.

(j) “Pharmacy benefit manager” means a person, business, or
other entity that, pursuant to a contract or under an employment
relationship with a carrier, health benefit plan sponsor, or other
third-party payer, either directly or through an intermediary,
manages the prescription drug coverage provided by the carrier,
plan sponsor, or other third-party payer, including, but not limited
to, the processing and payment of claims for prescription drugs,
the performance of drug utilization review, the processing of drug
prior authorization requests, the adjudication of appeals or
grievances related to prescription drug coverage, contracting with
network pharmacies, and controlling the cost of covered
prescription drugs.

begin insert

begin insert SEC. end insert begin insert 2. end insert   

end insert

begin insert Section 4432 of the end insert begin insert Business and Professions Code end insert begin insert is
amended to read: end insert

4432.  

Notwithstanding any other law, a contract that is issued,
amended, or renewed on or after January 1, 2013, between a
pharmacy and a carrier or a pharmacy benefit manager to provide
pharmacy services to beneficiaries of a health benefit plan shall
comply with the provisions of this chapter. begin insert This chapter shall not
apply to contracts authorized by Section 4600.2 of the Labor Code. end insert

begin delete SEC. 2. end delete
begin insert SEC. 3. end insert   

Section 4440 is added to the Business and Professions
Code, immediately following Section 4439, to read:

4440.  

(a) A pharmacy benefit manager that reimburses a
contracting pharmacy for a drug on a maximum allowable cost
basis shall comply with this section.

(b) A pharmacy benefit manager shall include in a contract,
initially entered into, or renewed on its scheduled renewal date,
on or after January 1, 2016, with the contracting pharmacy
information identifying any national drug pricing compendia or
other data sources used to determine the maximum allowable cost
for the drugs on a maximum allowable cost list.

(c) A pharmacy benefit manager shall make available to a
contracting pharmacy, upon request, the most up-to-date maximum
allowable cost list or lists used by the pharmacy benefit manager
for patients served by that pharmacy in a readily accessible, secure,
and usable Web-based format or other comparable format.

(d) A drug shall not be included on a maximum allowable cost
list or reimbursed on a maximum allowable cost basis unless all
of the following apply:

(1) The drug is listed as “A” or “B” rated in the most recent
version of the federal Food and Drug Administration’s begin delete (FDA) end delete
approved drug products with therapeutic equivalent evaluations,
also known as the Orange Book, or has an “NA,” “NR,” or “Z”
rating or a similar rating by a nationally recognized pricing
reference, such as Medi-Span or First DataBank.

(2) The drug is generally available for purchase in the state from
a national or regional wholesaler.

(3) The drug is not obsolete.

(e) For contracts initially entered into, or renewed on the
scheduled renewal date, on or after January 1, 2016, a pharmacy
benefit manager shall review and shall make necessary adjustments
to the maximum allowable cost of each drug on a maximum
allowable cost list using the most recent data sources available at
least once every seven days.

(f) For contracts initially entered into, or renewed on the
scheduled renewal date, on or after January 1, 2016, a pharmacy
benefit manager shall have a clearly defined process for a
contracting pharmacy to appeal the maximum allowable cost for
a drug on a maximum allowable cost list that includes all of the
following:

(1) A contracting pharmacy may base its appeal on either of the
following:

(A) The maximum allowable cost for a drug is below the cost
at which the drug is available for purchase by similarly situated
pharmacies in the state from a national or regional wholesaler.

(B) The drug does not meet the requirements of subdivision (d).

(2) A contracting pharmacy shall be provided no less than 14
business days following receipt of payment for the claim upon
which the appeal is based to file an appeal with a pharmacy benefit
manager. The pharmacy benefit manager shall make a final
determination regarding a contracting pharmacy’s appeal within
seven business days of the pharmacy benefit manager’s receipt of
the appeal.

(3) If an appeal is denied by a pharmacy benefit manager, the
pharmacy benefit manager shall provide to the contracting
pharmacy the reason for the denial and the national drug code
(NDC) of an equivalent drug that may be purchased by a similarly
situated pharmacy at the price that is equal to or less than the
maximum allowable cost of the appealed drug.

(4) If an appeal is upheld by a pharmacy benefit manager, the
pharmacy benefit manager shall adjust the maximum allowable
cost of the appealed drug for the appealing contracting pharmacy
and all similarly situated contracting pharmacies in the state within
one calendar day of the date of determination. The pharmacy
benefit manager shall permit the appealing pharmacy to reverse
and resubmit the claim upon which the appeal was based in order
to receive the corrected reimbursement.

(g) A contracting pharmacy shall not disclose to any third party
the maximum allowable cost list and any related information it
receives either directly from a pharmacy benefit manager or
through a pharmacy services administrative organization or similar
entity with which the contracting pharmacy has a contract to
provide administrative services for that pharmacy.