BILL ANALYSIS                                                                                                                                                                                                    

                                                                     AB 627

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          627 (Gomez)

          As Amended  June 16, 2015

          Majority vote

          |ASSEMBLY:  | 77-0 | (May 7, 2015) |SENATE: | 37-0 | (June 22, 2015) |
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          Original Committee Reference:  HEALTH

          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.   
          Specifically, this bill:
          1)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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          2)States that a drug shall not be included on a MAC list or  
            reimbursed on a MAC basis unless the drug meets specified  

          3)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.

          4)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.

          The Senate amendments state that the provisions of this bill do  
          not apply to certain contracts governing the medicines and  
          medical supplies that are required to be provided to injured  
          employees in workers' compensation cases.  Make other technical  

          FISCAL EFFECT:  None

          COMMENTS:  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  
          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  

          Background.  PBMs engage in many activities to manage their  
          clients' prescription drug insurance coverage.  PBMs assemble  


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          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  

          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.  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. "

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

          Support.  The California Pharmacist Association (sponsor) writes  


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          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  

          Opposition.  None on file.

          Analysis Prepared by:                                             
                          Dharia McGrew / HEALTH / (916) 319-2097  FN: