BILL ANALYSIS                                                                                                                                                                                                    Ó

                                                                       AB 627

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          627 (Gomez)

          As Amended  March 26, 2015

          Majority vote

          |Committee       |Votes |Ayes                   |Noes                |
          |Health          |16-0  |Bonta, Maienschein,    |                    |
          |                |      |Burke, Chávez, Chiu,   |                    |
          |                |      |Gomez, Gonzalez,       |                    |
          |                |      |Lackey, Nazarian,      |                    |
          |                |      |Patterson,             |                    |
          |                |      |Ridley-Thomas,         |                    |
          |                |      |Rodriguez, Santiago,   |                    |
          |                |      |Thurmond, Waldron,     |                    |
          |                |      |Wood                   |                    |
          |                |      |                       |                    |
          |Business &      |14-0  |Bonilla, Jones, Baker, |                    |
          |Professions     |      |Bloom, Burke, Chang,   |                    |
          |                |      |Dodd, Eggman, Gatto,   |                    |
          |                |      |Holden, Mullin, Ting,  |                    |
          |                |      |Wilk, Wood             |                    |
          |                |      |                       |                    |
          |                |      |                       |                    |

          SUMMARY:  Requires a pharmacy benefit manager (PBM) that  
          reimburses a contracting pharmacy for a drug on a maximum  


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          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.  Specifically, this  
          1)Defines "maximum allowable cost" as the maximum amount that a  
            pharmacy benefit manager will reimburse a pharmacy for the cost  
            of a drug.
          2)Defines "maximum allowable cost list" as a list of drugs for  
            which a MAC has been established by a PBM.

          3)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.

          4)Applies to a PBM that reimburses a contracting pharmacy for a  
            drug on a maximum allowable cost basis.

          5)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.

          6)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.


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          7)States that a drug shall not be included on a MAC list or  
            reimbursed on a MAC basis unless the following apply:

             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.

          8)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.
          9)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.

          FISCAL EFFECT:  None.  This bill is keyed non-fiscal by the  
            Legislative Counsel.  


          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  


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          updated weekly to the current market price for 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 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  

          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  

          Drug Pricing and Mac Lists.  According to the author, "Pharmacies  
          generally purchase prescription drugs and pay for them up front.   


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          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."

          Other States.  At this time, 17 other states have passed similar  
          legislation.  There are also 15 other states with pending  

          Arguments in Support:


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          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 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.

          Analysis Prepared by:                                               
                          Vincent Chee / B. & P. / (916) 319-3301  FN:  


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