BILL ANALYSIS                                                                                                                                                                                                    

                                                                    AB 2400

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          Date of Hearing:   March 29, 2016

                            ASSEMBLY COMMITTEE ON HEALTH

                                   Jim Wood, Chair

          AB 2400  
          (Nazarian) - As Amended March 17, 2016

          SUBJECT:  Prescription drug coverage:  prior authorization and  
          external review.

          SUMMARY:  Requires health care service plans (health plans) and  
          health insurers to comply with a shortened internal grievance  
          review process for formulary drugs.  Specifically, this bill:  

          1)Requires a health plan or health insurer to resolve grievances  
            within 72 hours for non-urgent request and within 24 hours if  
            exigent circumstances exist, if the health plan or health  
            insurer disapproves a request for prior authorization of a  
            formulary drug.  

          2)Provides that an enrollee is not required to file a 30 day  
            grievance with the health plan if a health plan disapproves a  
            request for prior authorization of a non-formulary drug.   
            Requires the health plan to treat the enrollee's appeal as a  
            request to obtain an external request review.  

          3)Clarifies existing law to provide for the external exception  
            request for non-formulary drugs in the Department of Managed  
            Health Care's (DMHC) grievance and appeal process.


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          4)Requires an external exception review process for  
            non-formulary drugs and grievance process for formulary drugs  
            before an appeal can be brought to the DMHC's or Department of  
            Insurance's (CDI) Independent Medical Review (IMR). 

          5)Makes other technical and conforming changes.   

          EXISTING LAW:  

          1)Regulates health plans under the Knox-Keene Health Care  
            Service Plan Act of 1975 through the DMHC and regulates health  
            insurers under the Insurance Code through the CDI.

          2)Mandates the 10 federally required essential health benefits  
            (EHBs) in the individual and small group market and  
            establishes the Kaiser Small Group health plan as California's  
            EHB benchmark plan, including prescription drug benefits, as  
            specified, and incorporates by reference state law and  
            regulations related to outpatient prescription drug coverage.

          3)Requires health plans that provide prescription drug benefits  
            to provide coverage for all medically necessary outpatient  
            drugs, except as specified.  

          4)Requires health plans to maintain an expeditious process by  
            which prescribing providers may obtain authorization for a  
            medically necessary non-formulary prescription drug.  

          5)Requires health plans and health insurers that provide  
            prescription drug benefits and maintain drug formularies to  
            post the formulary or formularies for each product offered by  
            the health plan or health insurer on the health plan's or  
            insurer's website in a manner that is accessible and  
            searchable by potential enrollees and insureds, enrollees,  


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            insureds and providers.

          6)Requires DMHC and CDI to develop a standard formulary template  
            that contains specified information by January 1, 2017.   
            Requires health plans and health insurers to use the standard  
            formulary template within six months of the date the template  
            is developed by DMHC and CDI.

          7)Requires health plans and health insurers to update their  
            posted formularies with any change to those formularies on a  
            monthly basis.

          8)Requires health plans to maintain the following:  

             a)   Complete drug formulary or formularies, including a list  
               of prescription drugs on the formulary of the plan by major  
               therapeutic category with an indication of whether any  
               drugs are preferred over other drugs;

             b)   Records developed by the pharmacy and therapeutic  
               committee of the health plan that fully describe the  
               reasoning behind formulary decisions; and,

             c)   Health plan arrangements with entities that are  
               associated with activities of the health plan to encourage  
               formulary compliance or otherwise manage prescription drug  

          9)Requires DMHC and CDI to jointly develop a uniform prior  
            authorization form that health plans and health insurers must  
            accept when prescribing providers seek authorization for  
            prescription drug benefits.  Requires prescribers to use the  
            standardized prior authorization form.  Provides that if a  
            health plan or health insurer fails to utilize or accept the  
            prior authorization form, or fails to respond within 72 hours  
            for non-urgent requests and within 24 hours when exigent  
            circumstances exist, the prior authorization request is deemed  


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          10)Requires health plans and health insurers offering outpatient  
            prescription drugs in the individual, small group, or large  
            group markets to comply with the request for exception appeal  
            process for non-formulary drugs as described in the Federal  

          11)Establishes the IMR process as part of the DMHC or CDI appeal  
            process.  Makes IMR available to the enrollee or insured after  
            participation in a health plan or health insurer's grievance  

          FISCAL EFFECT:  This bill has not yet been analyzed by a fiscal  


          1)PURPOSE OF THIS BILL.  According to the author, federal law  
            leaves consumers at a disadvantage because consumers that  
            select a particular plan because their medication is on the  
            formulary face a longer appeal process compared to a plan that  
            did not have their medication on the formulary.  The author  
            states that this bill ensures consistency in the appeal  
            process for all prescription drugs, whether the drugs are on  
            the formulary or not, specifically with respect to the  
            timeframe for appeal.  The author contends that delays in  
            access to drugs can exacerbate a patient's condition and cause  
            irreversible deterioration or damage to patients, which can  
            limit their daily functions and ability to remain a productive  
            member of the workforce and society.  



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             a)   Federal Law and Regulations.   Federal regulations  
               provide for a request for exception process for  
               non-formulary drugs as follows:

                  i)        Request for exception.  A health plan  
                    providing EHBs  must have a process in place to allow  
                    an enrollee, the enrollee's designee, or the  
                    enrollee's prescribing physician to request and gain  
                    access to clinically appropriate drugs not covered by  
                    the health plan, i.e., non-formulary drugs;

                  ii)       Standard exception request.  A health plan  
                    must have a process for an enrollee to request a  
                    standard review of a decision that a drug is not  
                    covered by the health plan.  A health plan must make  
                    its determination on a standard exception no later  
                    than 72 hours following receipt of the request.  A  
                    health plan or health insurer will also have a process  
                    for expedited review, no less than 24 hours, based on  
                    exigent circumstances.  Exigent circumstances exist  
                    when an enrollee is suffering from a health condition  
                    that may seriously jeopardize the enrollee's life,  
                    health, or ability to regain maximum function or when  
                    an enrollee is undergoing a current course of  
                    treatment using non-formulary drugs; and,

                  iii)      External exception request review.  A health  
                    plan must also make available an external exception  
                    request process when a plan denies coverage during its  
                    standard review process.  The original standard  
                    request and subsequent denial must be reviewed by an  
                    independent medical organization.  A health plan must  
                    make a determination no later than 72 hours or 24  
                    hours if exigent circumstances exist.  


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             b)   Non-formulary drugs.  The enactment of SB 282  
               (Hernandez), Chapter 654, Statutes of 2015, adopted federal  
               regulations for requesting for an exception process for  
               non-formulary drugs (subdivision (c) of Section 156.122 of  
               Title 45 of the Code of Federal Regulations), as summarized  
               above, but applicable to only non-formulary drugs.

             c)   Grievance and Appeal process.  Generally, a health plan  
               or health insurer must make a determination regarding a  
               denial of health care services within 30 days (if  
               expedited, then 72 hours or less).  An enrollee or insured  
               may file a complaint with the DMHC or CDI to appeal a  
               denial.  Generally, if the denial is based upon medical  
               necessity, then the complaint may be eligible for an IMR in  
               which independent medical professionals will review the  
               medical decision made by a health plan or health insurer.   
               Absent expedited review, IMR review and determination can  
               take up to 30 days. 

          3)SUPPORT.  The Arthritis Foundation, the sponsor of this bill,  
            states that this bill will align the grievance timelines for  
            formulary drugs with what is already required for  
            non-formulary drugs.  The sponsor also states that this bill  
            clarifies that an enrollee seeking access to a non-formulary  
            drug is not required to exhaust the health plan's internal  
            grievance process before request their external exception  
            process.  The sponsor contends that this bill ensures  
            consistency in the grievance process for all prescription  
            drugs, regardless of the formulary design.  The sponsor  
            asserts that lengthy delays in appealing a health plan's  
            denial through their internal grievance process, which can  
            take up to 30 days, can lead to irreversible damage and joint  
            destruction as well as increased utilization of health care  


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            services.  Other supporters note that federal guidance has  
            created additional review processes and quicker timeframes for  
            non-formulary drugs, and therefore support the application of  
            72 or 24 hours to formulary drugs as well as non-formulary  

          4)OPPOSITION.  The Association of California Life & Health  
            Insurance Companies (ACLHIC) states that this bill would  
            diminish an insurer's ability to effectively and thoughtfully  
            review formulary drug exception requests since it can take  
            several days to collect all the information necessary to  
            complete a request.  Furthermore, ACLHIC argues that it is  
            unclear why prescription drug exception requests should be  
            given preferential treatment over all other medical service  
            reviews.  ACLHIC raises concerns regarding prescription drug  
            abuse and this bill limiting the plans' ability to thoroughly  
            review whether or not it is appropriate to prescribe a  
            particular drug.  ACLHIC contends that it is critical that  
            health insurers continue to be diligent in their efforts to  
            ensure that providers are adhering to evidence-based practices  
            and delivering quality healthcare to their members.  The  
            California Chamber of Commerce (Chamber) also opposes this  
            bill because it will drive up health care premiums without  
            providing a substantial benefit for enrollees.  The Chamber  
            notes that the federal Department of Health and Human Services  
            indicated that its decision not to apply the shortened  
            timeline to formulary drugs was one reason it did not believe  
            that the new requirements for non-formulary drugs would  
            significantly increase the administrative cost burden on  
            health care issuers, and therefore suggesting that shortening  
            the timeline for all prescription drugs, as proposed in this  
            bill, is unnecessary and likely to increase administrative  
            costs for plans.  The Chamber argues that health care costs  
            can increase if health plans hire more staff and/or if staff  
            makes more cursory decision about each request received.   
            Finally, the Chamber notes that many prior authorization  
            requirements related to formulary drugs are designed to  


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            protect enrollees, for example, opioid pain killers and drugs  
            with potentially dangerous side effects.  The Chamber contends  
            that if health plans or health insurers are rushed to approve  
            these requests, it could undermine quality of care.   

            The California Association of Health Plans (CAHP) and Blue  
            Shield of California raises concerns on the existing appeal  
            process indicating that the IMR process should be reserved for  
            more significant disagreements over the medical necessity of a  
            covered service and contends that this bill could clog the  
            process with prescription drug cases that could have been  
            resolved internally at the plan level if the appropriate  
            review time is given.  CAHP also notes that health plans and  
            regulators are currently interpreting how the new external  
            review process fits into existing exception processes and a  
            new law may complicate efforts to determine whether efficient  
            processes are still available.  


             a)   SB 866 (Hernandez), Chapter 648, Statutes of 2011,  
               requires DMHC and CDI to jointly develop a uniform prior  
               authorization form that health plans and insurers must  
               accept when prescribing providers seek authorization for  
               prescription drug benefits.

             b)   SB 282 (Hernandez), Chapter 654, Statutes of 2015,  
               authorizes a prescribing provider to use an electronic  
               prior authorization system that utilizes the standardized  


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               form or an electronic process developed specifically for  
               transmuting prior authorization information that is  
               consistent with the standardized form and that meets the  
               National Council for Prescription Drug Programs' SCRIPT  
               standard for electronic prior authorization transactions.   
               SB 282 also deemed a prior authorization request granted if  
               the health plan or insurer filed to respond within 72 hours  
               for a nonurgent request and within 24 hours for exigent  

          6)POLICY COMMENTS.  This bill addresses the internal appeal  
            process at the health plan or health insurer level by  
            identifying a 72 or 24 hour appeal timeframe for review,  
            however, does not address the external exception request  
            review process (i.e., denial reviewed by an independent review  
            organization) for formulary drugs.  While an external  
            exception request process may be costly, as this bill moves  
            forward, the author may wish to explore adding this  

          7)TECHNICAL AMENDMENT.  Legislative Counsel inadvertently  
            deleted the "or" in Health and Safety Code Section 1374.30(j)  
            but this language must be included so as to not change  
            existing law requirements, as follows:
            (j) An enrollee may apply to the department for an independent  
            medical review when all of the following conditions are met:

            (1) (A) The enrollee's provider has recommended a health care  
            service as medically  necessary, or  necessary  , or

             (B) The enrollee has received urgent care or emergency  
            services that a provider determined was medically  necessary,  


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            or   necessary, or

             (C) The enrollee, in the absence of a provider recommendation  
            under subparagraph (A) or the receipt of urgent care or  
            emergency services by a provider under subparagraph (B), has  
            been seen by an in-plan provider for the diagnosis or  
            treatment of the medical condition for which the enrollee  
            seeks independent review. The plan shall expedite access to an  
            in-plan provider upon request of an enrollee. The in-plan  
            provider need not recommend the disputed health care service  
            as a condition for the enrollee to be eligible for an  
            independent review.



          Arthritis Foundation (sponsor)

          California Life Sciences Association 

          Western Center on Law and Poverty



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          Association of California Life & Health Insurance Companies

          Blue Shield of California 

          California Association of Health Plans

          California Chamber of Commerce 

          Analysis Prepared by:Kristene Mapile / HEALTH / (916) 319-2097