BILL ANALYSIS                                                                                                                                                                                                    Ó






           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                        AB 627|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                                   THIRD READING 


          Bill No:  AB 627
          Author:   Gomez (D), et al.
          Amended:  6/16/15 in Senate
          Vote:     21  

           SENATE BUS, PROF. & ECON. DEV. COMMITTEE:  9-0, 6/15/15
           AYES:  Hill, Bates, Berryhill, Block, Galgiani, Hernandez,  
            Jackson, Mendoza, Wieckowski

           ASSEMBLY FLOOR:  77-0, 5/7/15 - See last page for vote

           SUBJECT:   Pharmacy benefit managers: contracting pharmacies


          SOURCE:    Author


          DIGEST:  This bill updates the Pharmacy Law related to  
          reimbursement to pharmacies by pharmacy benefit managers for  
          prescription medication dispensed to patients.


          ANALYSIS:   


          Existing law:

          1)Provides, under the Pharmacy Law, for the licensure and  
            regulation of pharmacies, pharmacists and wholesalers of  
            dangerous drugs or devices by the Board of Pharmacy within the  
            Department of Consumer Affairs.  (Business and Professions  
            Code (BPC) § 4000 et seq.)  









                                                                     AB 627  
                                                                    Page  2


          2)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))

          This bill:

          1)Requires a PBM to include information identifying any national  
            drug pricing compendia or other data sources used to determine  
            the maximum allowable cost (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.  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.

          2)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 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.

          3)Requires a PBM, for contracts entered into or renewed on or  
            after January 1, 2016, to review and make necessary  







                                                                     AB 627  
                                                                    Page  3


            adjustments to the MAC of each drug on a MAC List using the  
            most recent data sources available at least once every seven  
            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.   

          4)Provides that if a PBM denies an appeal, the PBM must provide  
            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 to the contracting pharmacy.  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.

          5)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.

          6)Clarifies that the bill does not apply to PBM contract  
            standards for pharmacy networks set by the Division of  
            Workers' Compensation.

          Background
          
          Pharmacies generally 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 the cost of the drug dispensed as  
          well as a pre-set professional dispensing fee.  Most health  
          plans and PBMs reimburse pharmacies for name brand drugs based  
          on national pricing lists and for generic drugs based on  
          proprietary 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  







                                                                     AB 627  
                                                                    Page  4


          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.   
          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.

          Pharmacy benefit managers.  According to a 2005 Federal Trade  
          Commission report on 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  
          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.

          Legislation similar to this bill has passed in 17 states since  
          2013 and 15 states currently have pending legislation to address  
          appeals and transparency in MAC-based pharmacy reimbursement.  

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:NoLocal:    No


          SUPPORT:   (Verified6/17/15)


          California Pharmacists Association









                                                                     AB 627  
                                                                    Page  5


          OPPOSITION:   (Verified6/17/15)


          None received


          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."


           
          ASSEMBLY FLOOR:  77-0, 5/7/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau,  
            Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,  
            Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark  
            Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,  
            Wood, Atkins
          NO VOTE RECORDED:  Campos, Roger Hernández, Steinorth

          Prepared by:Sarah Mason / B., P. & E.D. / (916) 651-4104
          6/17/15 13:57:35


                                   ****  END  ****


          








                                                                     AB 627  
                                                                    Page  6