BILL ANALYSIS                                                                                                                                                                                                    

                                                                     AB 627

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          Date of Hearing:  April 14, 2015

                            ASSEMBLY COMMITTEE ON HEALTH

                                  Rob Bonta, Chair

          AB 627  
          (Gomez) - As Amended March 26, 2015

          SUBJECT:  Pharmacy benefit managers:  contracting pharmacies

          SUMMARY:  Requires a pharmacy benefit manager (PBM) that  
          reimburses a contracting pharmacy for a drug on a maximum  
          allowable costs (MAC) basis to update the MAC list every seven  
          days, make the MAC list available upon request by the pharmacy,  
          and to have a standardized appeals process for a pharmacy to  
          appeal disputes on MAC pricing.  Specifically, this bill:  

          1)Requires a PBM that reimburses a contracting pharmacy for a  
            drug on a MAC basis to: 

             a)   Include in a contract started or renewed January 1,  
               2016, information identifying any national drug pricing  
               compendia or other data sources used to determine the MAC  
               for the drugs on a maximum allowable cost list; and,

             b)   Make available to a contracting pharmacy, upon request,  
               the most up-to-date MAC list or lists used by the PBM for  
               patients served by that pharmacy in a readily accessible,  
               secure, and usable Web-based format or other comparable  


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          2)Prohibits a drug from being reimbursed on a MAC basis unless  
            the drug is a multi-source drug (generic), is available for  
            sale from a national or regional wholesaler, and is not  

          3)Requires a PBM, for contracts starting or renewed January 1,  
            2016, to update the MAC list at least every seven days. 

          4)Requires a PBM, for contracts starting or renewed January 1,  
            2016, to create a clearly defined appeals process that  
            includes the following provisions: 

             a)   The pharmacy may appeal if the MAC 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 or the drug should not be allowed on  
               a MAC list based on 2) above;

             b)   The pharmacy must appeal within 14 business days of the  
               payment being contested; the PBM must make a final  
               determination regarding the appeal within seven business  
               days of receipt of the appeal;

             c)   If an appeal is denied, the PBM is required to provide  
               to the pharmacy the reason for the denial and the national  
               drug code of an equivalent drug that may be purchased by a  
               similarly situated pharmacy at the price that is equal to  
               or less than the MAC of the appealed drug; and,

             d)   If an appeal is upheld, the PBM is required to adjust  


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               the MAC 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 PBM is required to permit the appealing  
               pharmacy to reverse and resubmit the claim upon which the  
               appeal was based in order to receive the corrected  

          5)Prohibits a contracting pharmacy from disclosing to any third  
            party the MAC list and related information it receives either  
            directly from a PBM or through a pharmacy services  
            administrative organization or similar entity. 

          EXISTING LAW:  

          1)Establishes the California State Board of Pharmacy to regulate  
            the pharmacists.

          2)Requires health care service plans to be regulated by the  
            Department of Managed Health Care and health insurers to be  
            regulated by the California Department of Insurance.

          3)Requires health care service plan contracts and health  
            insurance policies to provide coverage for specified benefits  
            and requires contracts between plans or insurers and providers  
            to contain provisions requiring a fast, fair, and  
            cost-effective dispute resolution mechanism.

          FISCAL EFFECT:  None


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          1)PURPOSE OF THIS BILL.  According to the author, this bill is  
            necessary to bring fair standards and transparency to  
            MAC-based pharmacy reimbursements.  Under MAC-based  
            reimbursement, pharmacies buy generic drugs up front, and then  
            receive reimbursement for medications they dispense to  
            patients based on proprietary price lists managed by pharmacy  
            benefit managers.  The market prices of drugs fluctuate  
            frequently; therefore these price lists need frequent updates  
            to ensure they reflect the accurate prices that pharmacies pay  
            to acquire medications.  When the price lists are not  
            appropriately updated, pharmacies lose money by dispensing  
            medications to patients.  Pharmacies are then forced to spend  
            time filing and tracking appeals, thereby limiting the time  
            they have to care for patients.  The author states that this  
            would be addressed by requiring MAC lists to be transparent,  
            accessible, and updated weekly to the current market price for  
            pharmacies.  It also establishes standards for appeals of MAC  
            prices below the current market price, ensuring that these  
            appeals are resolved quickly and transparently.

            According to the California Pharmacists Association, sponsors  
            of the bill, this language was developed through negotiations  
            with stakeholders.  The sponsors worked with multiple PBMs and  
            health plans to arrive at mutually agreed upon standards to  
            address pharmacists' concerns in a way that is acceptable to  
            the legitimate needs of the PBMs and health plans.  The  
            provisions in this bill closely mirror those of bills in other  
            states that PBMs have also agreed to. 


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          2)BACKGROUND.  In general, pharmacies purchase prescription  
            drugs and pay for them up front.  When a patient with health  
            coverage is prescribed a covered drug that is dispensed by a  
            contracted pharmacy, the health plan or insurer (or a  
            contracted PBM) reimburses the pharmacy for:  a) the cost of  
            the drug dispensed; and, b) a pre-set professional dispensing  
            fee.  Most health plans and PBMs reimburse pharmacies for name  
            brand drugs based on national, publicly available pricing  
            lists (such as Average Wholesale Price) and for generic drugs  
            based on proprietary MAC lists.  PBMs establish the MAC lists  
            based on national and regional drug pricing data in an attempt  
            to standardize reimbursement as close to possible to the  
            current market rate for the drug. 

          3)PBMs.  According to the Federal Trade Commission, many health  
            plan sponsors offer their members prescription drug insurance  
            and hire PBMs to manage these pharmacy benefits on their  
            behalf.  As part of the management of these benefits, PBMs  
            assemble networks of retail and mail-order pharmacies so that  
            the plan's sponsor's members can fill prescriptions easily and  
            in multiple locations.  PBMs contract with employers, labor  
            unions, insurance companies, states, Medicaid and Medicare  
            managed care plans, and managed care companies (collectively,  
            "plan sponsors") to manage pharmacy benefits.  There are large  
            PBMs (Express Scripts/Medco, CVS Caremark), small and  
            insurer-owned PBMs (Aetna, Cigna Corporation, Wellpoint Health  
            Networks), retailer-owned (Eckerd Health Systems, PharmaCare  
            Management Services, Walgreens Health Initiative), or  
            stand-alone retail pharmacies (Rite Aid Corporation, Walgreen,  
            Wal-Mart Stores, Inc.).

          4)Other states.  Recent legislation in a number of other states  
            has addressed appeals and transparency in MAC-based pharmacy  
            reimbursement.  According to the California Pharmacy  
            Association, seventeen states have passed similar legislation  
            since 2013, and fifteen states have pending legislation. 

          5)SUPPORT.  The California Pharmacists Association (CPhA),  
            sponsor of the bill, asserts that like all healthcare  


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            providers, pharmacies cannot care for patients when they are  
            forced to continually do so at a loss.  This bill sets fair  
            standards that ensure pharmacies can continue serving patients  
            while also allowing health plans and PBMs to control costs  
            through the use of fair MAC-based reimbursement.  CPhA  
            supports this bill to enact important transparency and  
            accuracy requirements that will help independent community  
            pharmacies continue to provide care to California patients.

          6)PREVIOUS LEGISLATION.  SB 1195 (Price), Chapter 706, Statutes  
            of 2012, requires a contract between a pharmacy and a carrier  
            or a PBM to provide pharmacy services to beneficiaries of a  
            health benefit plan to comply with standards and audit  

          7)DOUBLE REFERRED.  This bill is double referred, upon passage  
            of this Committee it will be referred to the Assembly  
            Committee on Business and Professions.



          California Pharmacists Association (sponsor)


          None on file.


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          Analysis Prepared by:Dharia McGrew / HEALTH / (916) 319-2097