BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: AB 627 Hearing Date: June 15,
2015
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|Author: |Gomez |
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|Version: |May 27, 2015 |
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|Urgency: |No |Fiscal: |No |
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|Consultant|Sarah Mason |
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Subject: Pharmacy benefit managers: contracting pharmacies.
SUMMARY: Updates Pharmacy Law related to reimbursement to pharmacies by
pharmacy benefit managers for prescription medication dispensed
to patients.
Existing law:
1)Under the Pharmacy Law, provides for the licensure and
regulation of pharmacies, pharmacists and wholesalers of
dangerous drugs or devices by the Board within the Department
of Consumer Affairs (DCA). (Business and Professions Code
(BPC) § 4000 et seq.)
2)Establishes requirements for audits of pharmacy benefits.
(BPC §§ 4430 - 4439)
3)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 pharmacy benefit manager (PBM), or a
representative thereof, for 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))
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4)Defines "pharmacy benefit manager" (PBM) 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))
5)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))
6)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))
7)Provides that notwithstanding any other law, a contract that
is issued, amended or renewed on or after January 1, 2013
between a pharmacy and a carrier or a PBM to provide pharmacy
services to beneficiaries of a health benefit plan shall
comply with the provisions of this chapter. (BPC § 4432)
This bill:
1) Adds the following definitions to Pharmacy Law related to
audits of pharmacy benefits:
a) "Maximum allowable cost" (MAC) means the maximum amount
that a PBM will reimburse a pharmacy for the cost of a
drug.
AB 627 (Gomez) Page 3
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b) "Maximum allowable cost list" (MAC List) means a list of
drugs for which a maximum allowable cost has been
established by a PBM.
c) "Obsolete" means 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.
2)Requires a PBM that reimburses a contracting pharmacy for a
drug on a MAC basis to comply with this section.
3)Requires a PBM to include information identifying any national
drug pricing compendia or other data sources used to determine
the MAC for the drugs on a MAC List in a contract entered into
or renewed on or after January 1, 2016 with a contracting
pharmacy.
4)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.
5)Prohibits a drug from being included on a MAC list or
reimbursed on a MAC basis unless all of 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.
c) The drug is not obsolete.
6)Requires a PBM, for contracts entered into or renewed on or
after January 1, 2016, to review and make necessary
adjustments to the MAC of each drug on a MAC List using the
most recent data sources available at least once every seven
AB 627 (Gomez) Page 4
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days and requires a PBM to have a clearly defined process for
a contracting pharmacy to appeal the MAC for a drug on a MAC
List. Requires the appeal to be based on either the fact that
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 did
not meet the requirements to be included on a MAC list.
Provides a contracting pharmacy 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 PBM. Requires a PBM
to make a final determination regarding a contracting
pharmacy's appeal within seven business days of the PBM
receiving the appeal.
7)Provides that if a PBM denies an appeal, the PBM must provide
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 to the contracting pharmacy.
8)Provides that if an appeal is upheld by a PBM, the PBM must
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. Requires the PBM to allow the appealing
pharmacy to reverse and resubmit the claim upon which the
appeal was based in order to receive the corrected
reimbursement.
9)Prohibits a contracting pharmacy from disclosing the MAC list
and any information it receives from a PBM or through a
pharmacy services administrative organization to a third
party.
FISCAL EFFECT: None. This bill has been keyed "nonfiscal" by
Legislative Counsel.
COMMENTS:
1. Purpose. The California Pharmacists Association is the
Sponsor of this measure. According to the Author, pharmacies
generally purchase prescription drugs and pay for them up
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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 pharmacy benefit
manager (PBM)) reimburses the pharmacy for the cost of the
drug dispensed as well as a pre-set professional dispensing
fee. According to the Author, most health plans and PBMs
reimburse pharmacies for name brand drugs based on national
pricing lists and for generic drugs based on proprietary
maximum allowable cost (MAC) lists which PBMs establish 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.
According to the Author, drug prices fluctuate frequently and
if the price of a drug increases, the pharmacy pays that
higher price. The Author adds that 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 Author states that 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. While pharmacies can appeal these
rates to a health plan, insurer, or PBM, the Author notes
that they frequently receive no response for several months,
all the while receiving negative reimbursement for subsequent
dispensing of the drug in question. Through this bill, the
Author wishes to prevent pharmacies from potentially stopping
purchasing a drug altogether in instances where the
acquisition cost of the drug and the MAC list rate is
significantly different, thus ensuring that patients can
obtain prescription drugs and pharmacies do not suffer
unnecessary financial losses.
2. Pharmacy Benefit Managers (PBMs). According to a 2005
Federal Trade Commission report on Pharmacy Benefit Managers
(PBMs) and mail-order pharmacies, 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 sponsor's
members can fill prescriptions easily and in multiple
locations. When a consumer fills a prescription at a local
pharmacy, the pharmacist usually asks whether the consumer
has insurance to cover the prescription's cost. If there is
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coverage, the consumer provides the insurance card to the
pharmacist. While the pharmacist fills the prescription,
sophisticated computer interactions between the pharmacy and
the PBM ensure that the prescription is filled according to
the insurance coverage provided by the plan sponsor.
According to the report, the consumer usually is unaware of
these processing interactions, and the consumer's only
additional responsibility is to pick up the filled
prescription and pay the retail pharmacy the copayment that
is due.
According to the Sponsor, legislation similar to this bill
has passed in seventeen states since 2013 and fifteen states
currently have pending legislation to address appeals and
transparency in MAC-based pharmacy reimbursement.
3. Arguments in Support. The California Pharmacists Association
(CPhA) notes that it will establish fair standards for
reimbursement to pharmacies and enacts important transparency
and accuracy requirements that will help independent
community pharmacies continue to provide care to California
patients. CPhA writes that "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.
4. Suggested Author's Amendment. The provisions of this bill
and chapter in Pharmacy Law for audits of pharmacy benefits
apply to PBMs offering services as part of a Department of
Managed Health Care licensed health plan or Department of
Insurance licensed health insurer. However, CompPharma (PBMs
who operate in the workers' compensation market) is concerned
that this bill lacks clarity about whether the provisions
would in fact apply to contract standards for pharmacy
networks set by the Division of Workers' Compensation (DWC),
and thus subject PBMs like CompPharma members to the
requirements set forth in the bill. Under the Labor Code,
DWC has the authority to set contract standards for pharmacy
networks. The Labor Code also establishes maximum
reimbursement fees for pharmacy services provided to injured
workers, and DWC has established an independent bill review
process for claim disputes.
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In order to remove any possible confusion about whether
workers' compensation PBMs would be subject to the
requirements of this bill, given the fact that DWC has
authority over their contracts, the Committee suggests that
the Author amend BPC Section 4432 to ensure contracts are not
those for workers' compensation PBMs.
On page 3, between lines 27 and 28, insert:
SEC. 2. Section 4432 of the Business and Professions Code
is amended to read:
4432. Notwithstanding any other law, a contract that is
issued, amended, or renewed on or after January 1, 2013,
between a pharmacy and a carrier or a pharmacy benefit
manager to provide pharmacy services to beneficiaries of a
health benefit plan shall comply with the provisions of
this chapter. This chapter shall not apply to contracts
authorized by Section 4600.2 of the Labor Code.
On page 3, in line 28, strike "SEC. 2." and replace with
"SEC.3."
SUPPORT AND OPPOSITION:
Support:
California Pharmacists Association (Sponsor)
Opposition:
None on file as of June 9, 2015.
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