BILL ANALYSIS Ó
AB 627
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Date of Hearing: May 5, 2015
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Susan Bonilla, 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 cost basis to: (1) include in a contract, renewed on
or after January 1, 2016, information identifying the data
sources used to determine the maximum allowable cost (MAC) for
the drugs on a MAC list, and (2) provide for an appeal process
for the contracting pharmacy, make available to a contracting
pharmacy, upon request, the most up-to-date MAC lists used by
the PBM for patients served by the pharmacy. This bill also
prohibits a drug from being included on a MAC list or from being
reimbursed on a MAC basis unless certain requirements are met.
EXISTING LAW:
1)Establishes requirements for audits of pharmacy benefits.
(Business and Professions Code (BPC) §§ 4430 - 4439)
2)Defines "Pharmacy audit" as an audit, either onsite or
remotely, of any records of a pharmacy conducted by or on
behalf of a carrier or a PBM, or a representative thereof, for
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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. (BPC §
4430(f))
3)Defines "pharmacy benefit manager" as 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 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. (BPC § 4430(g))
4)Defines "carrier" as 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. (BPC § 4430(a))
5)Defines "health benefit plan" as 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. (BPC § 4430(d))
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THIS BILL:
6)Defines "maximum allowable cost" as the maximum amount that a
pharmacy benefit manager will reimburse a pharmacy for the
cost of a drug.
7)Defines "maximum allowable cost list" as a list of drugs for
which a MAC has been established by a PBM.
8)Defines "obsolete" as 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.
9)Applies to a PBM that reimburses a contracting pharmacy for a
drug on a maximum allowable cost basis.
10)Requires that a PBM shall include in a contract, entered into
or renewed 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 MAC for
the drugs on a maximum allowable cost list.
11)Requires a PBM to 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.
12)States that a drug shall not be included on a MAC list or
reimbursed on a MAC basis unless all of the following apply:
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a) The drug is listed as "A" or "B" rated in the most
recent version of the federal Food and Drug
Administration's (FDA) approved drug products with
therapeutic equivalent evaluations, also known as the
Orange Book or has an "NA" or "NR" rating or a similar
rating by a nationally recognized pricing reference, such
as Medi-Span or First DataBank;
b) The drug is generally available for purchase in the
state from a national or regional wholesaler; and,
c) The drug is not obsolete.
13)Requires contracts entered into or renewed on or after
January 1, 2016, to state that a PBM shall review and shall
make necessary adjustments to the maximum allowable cost of
each drug on a MAC list using the most recent data sources
available at least once every seven days.
14)Requires contracts entered into or renewed on or after
January 1, 2016, to state that a PBM shall have a clearly
defined process for a contracting pharmacy to appeal the MAC
for a drug on a MAC list that includes all of the following:
a) A contracting pharmacy may base its appeal on either of
the following:
i) 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,
ii)The drug does not meet the requirements of subdivision
(d).
b) 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
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pharmacy benefit manager. The PBM shall make a final
determination regarding a contracting pharmacy's appeal
within seven business days of PBM's receipt of the appeal;
c) If an appeal is denied by a PBM, the PBM 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 MAC of the appealed drug;
d) If an appeal is upheld by a PBM, the PBM shall adjust
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 shall permit the appealing pharmacy
to reverse and resubmit the claim upon which the appeal was
based in order to receive the corrected reimbursement; and,
e) A contracting pharmacy shall not disclose to any third
party the MAC list and any related information it receives
either directly from a PBM 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.
FISCAL EFFECT: None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS:
Purpose. This bill is sponsored by the California Pharmacists
Association . According to the author, "[This bill] will bring
fair standards and transparency to [MAC] pharmacy
reimbursements. The bill requires MAC lists to be transparent,
accessible, and updated weekly to the current market price for
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pharmacies. It also establishes standards for appeals of MAC
prices, ensuring that these appeals are resolved quickly. This
will both enable pharmacists to spend more time helping their
patients and help thousands of independent pharmacies across
California."
Background. According to a 2005 Federal Trade Commission (FTC)
report on PBMs, private sector entities that offer medical
insurance (plan sponsors), such as employers, labor unions, and
managed care companies, also offer prescription drug insurance
coverage. Plan sponsors often hire PBMs to manage the
prescription drug insurance benefits.
PBMs engage in many activities to manage their clients'
prescription drug insurance coverage. PBMs assemble networks of
retail pharmacies so that a plan sponsor's members can fill
prescriptions easily and in multiple locations by just paying a
copayment amount. PBMs consult with plan sponsors to decide for
which drugs a plan sponsor will provide insurance coverage to
treat each medical condition (e.g., hypertension, high
cholesterol, etc.). The PBM manages this list of preferred drug
products (the "formulary") for each of its plan sponsor clients.
Consumers with insurance coverage are then provided incentives,
such as low copayments, to use formulary drugs. Because
formulary listing will affect a drug's sales, pharmaceutical
manufacturers compete to ensure that their products are included
on these formularies. They do so by paying PBMs "formulary
payments" to obtain formulary status and "market-share payments"
to encourage PBMs to dispense their drugs. The payments are
based on the quantity of drugs dispensed under the plans
administered by the PBM.
Drug Pricing and Mac Lists. According to the author,
"Pharmacies generally purchase prescription drugs and pay for
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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 (1) the cost of the drug dispensed and (2) a preset
professional dispensing fee. Most health plans and PBMs
reimburse pharmacies for name brand drugs based on national
pricing lists (i.e., Average Wholesale Price) and for generic
drugs based on proprietary MAC lists. PBMs establish these MAC
lists based on national and regional drug pricing data in an
attempt to reimburse pharmacies as close as possible to the
current market rate for drugs."
The author also notes, "Drug prices fluctuate frequently; if the
price of a drug increases, the pharmacy pays that higher price.
However, if a PBM does not update its MAC list regularly, the
pharmacy may be reimbursed far less for a drug than they paid to
acquire it, incurring a financial loss. The percentage of
generic drugs dispensed at a loss to pharmacies has increased
significantly in recent years due to frequent price increases in
generic drug prices. Pharmacies that appeal these rates to a
health plan, insurer, or PBM frequently receive no response for
several months all the while receiving negative reimbursement
for subsequent dispensing of the drug in question."
"When the discrepancy between the acquisition cost of a drug and
the MAC list rate is significant enough, pharmacies have in some
instances stopped purchasing the drug altogether. This protects
the pharmacy from suffering financial losses but makes it
difficult for patients to obtain certain prescription drugs."
PBM Retail Networks. According to a 2005 FTC letter to North
Dakota Senator Richard L. Brown, regarding HB 1332, which would
have regulated the contractual relationships between PBMs and
covered entities, such as health plans and pharmacies, "PBMs
also enter into contracts with retail pharmacies to create a
retail network. The contract generally specifies the amount the
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PBM will reimburse the pharmacy for dispensing a prescribed
pharmaceutical, expressed as a discount from a reference price
plus a dispensing fee. By forming an exclusive network, a PBM
is able to guide a covered entity's participants to certain
pharmacies. The promise of increased customer volume creates an
incentive for pharmacies to bid aggressively with lower drug
prices in exchange for membership in a network. Pharmacies will
be willing to compete more vigorously for inclusion in a network
as the exclusivity of the network and the number of pharmacies
in the relevant market increases." At this time, it is unclear
what effect, if any, a transparent MAC list will have on market
competition and bidding for inclusion in PBM retail networks.
The sponsors note that the definitions in this bill exclude any
proprietary information.
Pricing Transparency. At the federal level, Medicare Part D has
a similar requirement for Part D plans (42 Code of Federal
Regulations (CFR) § 423.505(21)). In explaining the issue of
price transparency at the pharmacy level, the Centers for
Medicare and Medicare Services (CMS) noted, "When the source of
a prescription drug pricing standard is published publicly, such
as with [average wholesale price] or [wholesale acquisition
price], pharmacies can determine their reimbursement for all
drugs at any given time and can monitor these sources to ensure
they are being reimbursed correctly. However, when a
prescription drug pricing standard is not published publicly,
network pharmacies are unable to promptly determine whether
their reimbursement is consistent with their contractual
arrangements. This, in turn, presents risks to the Medicare Part
D program in a number of ways. For example, disclosure of the
source used to determine drug prices is necessary for pharmacies
to ensure accurate payment of their claims, which is necessary
for accuracy in the costs submitted to CMS by Part D sponsors on
[prescription drug event records] without unnecessary later
adjustments that are disruptive to the operation of the Part D
program."
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Other States. At this time, 17 other states have passed similar
legislation. There are also 15 other states with pending
legislation.
Prior Related Legislation. SB 1195 (Price), Chapter 706,
Statutes of 2012, imposed specified requirements on an audit of
pharmacy services provided to beneficiaries of a health benefit
plan. Among other things, it also prohibited the entity
conducting the audit from receiving payment on any basis tied to
the amount claimed or recovered from the pharmacy.
AB 1960 (Pavley, Chu, Frommer, Ridley-Thomas, Cha, Koretz,
Kuehl), of 2004, would have required a PBM to make specified
disclosures to its purchasers and prospective purchasers,
including information about the pharmacy benefit manager's
revenues and its drug formularies, and to make disclosures to
the public upon request. The bill would have also established
standards and requirements with regard to pharmacy benefits
management contracts. NOTE: This bill was vetoed by Governor
Schwarzenegger for being anti-competitive and possibly
increasing health care costs.
ARGUMENTS IN SUPPORT:
The California Pharmacist Association (sponsor) writes in
support, "AB 627 brings reasonable standards to the pharmacy
reimbursement model known as Maximum Allowable Cost (MAC). Under
MAC-based reimbursement, pharmacies receive payment for generic
medications they dispense to patients based on proprietary price
lists managed by health plans and pharmacy benefit managers.
These price lists need frequent updates to ensure they reflect
the current market prices that pharmacies pay to acquire
medications. When the price lists are not appropriately updated,
pharmacies lose money by dispensing medications to patients.
Pharmacies also need a defined process for appealing MAC list
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prices that are below the current market price.
Like all healthcare 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."
ARGUMENTS IN OPPOSITION:
None on file.
REGISTERED SUPPORT:
California Pharmacist Association (sponsor)
REGISTERED OPPOSITION:
None on file.
Analysis Prepared by:Vincent Chee / B. & P. / (916) 319-3301
AB 627
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