BILL ANALYSIS Ó
AB 627
Page 1
ASSEMBLY THIRD READING
AB
627 (Gomez)
As Amended March 26, 2015
Majority vote
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|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 | |
| | | | |
| | | | |
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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
bill:
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.
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
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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
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 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
legislation.
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:
0000282
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