BILL ANALYSIS Ó AB 627 Page 1 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 format. AB 627 Page 2 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 obsolete. 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 AB 627 Page 3 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 reimbursement. 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 AB 627 Page 4 COMMENTS: 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. AB 627 Page 5 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 AB 627 Page 6 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 requirements. 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. REGISTERED SUPPORT / OPPOSITION: Support California Pharmacists Association (sponsor) Opposition None on file. AB 627 Page 7 Analysis Prepared by:Dharia McGrew / HEALTH / (916) 319-2097