BILL ANALYSIS                                                                                                                                                                                                    

                                                                    AB 2400

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          Date of Hearing:  May 4, 2016


                               Lorena Gonzalez, Chair

          2400 (Nazarian) - As Amended April 6, 2016

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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   


          This bill requires health care service plans (health plans) and  
          health insurers to comply with a shortened internal appeals  
          process for coverage decisions on formulary drugs.


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          FISCAL EFFECT:

          1)Costs to the Department of Managed Health Care (DMHC) for  
            legal, licensing, and plan surveys, as well as enforcement in  
            the range of $200,000 in 2016-17, $550,000 in 2017-18, and  
            approximately $500,000 in 2018-19 and ongoing (Managed Care  
            Fund).  The bulk of the costs are for an increase in referrals  
            to enforcement.

          2)Costs of $35,000 over two years, and $5,000 ongoing of the  
            California Department of Insurance to verify and ensure  
            compliance (Insurance Fund).

          3)One-time costs to the Department of Health Care Services of  
            $110,000 to provide guidance and update contracts, and ongoing  
            costs of $100,000 to monitor compliance of managed care plans  
            with the new requirements (GF/federal).

          4)Health plans believe this bill will significantly increase  
            administrative resources and staff costs to provide more rapid  
            responses.  Additionally, if there were more denials due to  
            insufficient time, plans expect more independent medical  
            reviews of the denials. Increased health plan administrative  
            costs can be passed on to consumers, employers, and government  
            payers through higher premiums. However, the extent of  
            potential increased health plan administrative costs is  
            unknown.  If the volume of formulary versus non-formulary  
            appeals was known, the implementation costs plans are  
            experiencing to comply with new federal rules requiring a  
            24/72 hour time frame for non-formulary drugs would serve as a  
            useful guidepost for estimating plan administrative costs for  
            applying the same time frame to formulary drugs.  


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          1)Purpose. 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. 

          2)Formulary versus non-formulary drugs. Pursuant to federal law,  
            most plans must cover essential health benefits, including  
            pharmacy benefits.  Current federal rules establish minimum  
            requirements for formularies, or a list of drugs that are  
            covered by the plan, to ensure it is comprehensive. However,  
            even with a comprehensive formulary, an individual may need to  
            request a drug that is not on the formulary.  Beginning this  
            year, a federal rule requires plans to have a "standard  
            exceptions process," whereby an enrollee or physician can  
            request coverage of a clinically appropriate non-formulary  
            drug.  The rule specifies a coverage decision must be rendered  
            by the plan in non-exigent circumstances within 72 hours of a  
            request, and within 24 hours for exigent circumstances, as  
            defined.  The purpose of the federal regulations was to ensure  
            plans have a process was in place to allow coverage of  
            medically necessary drugs that are otherwise not covered by  
            the plan.  Federal regulators at the Centers for Medicare and  
            Medicaid Services (CMS) considered applying the same timeline  
            to requests for drugs that are on a plan's formulary, but  
            declined to do so.  This bill would do so in state law. 

            Absent this bill, requests for coverage of formulary drugs  
            that may have prior authorization requirements, as well as  
            requests for all other health care products and services, are  
            governed by existing statutory timelines. Current law requires  
            coverage decisions within 30 days for routine requests, and  


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            within 72 hours for urgent (expedited) requests.   

          3)Support. This bill is supported by the Arthritis Foundation  
            and the California Life Sciences Association, who cite a  
            higher level of service to the patient and equity between  
            formulary and non-formulary drugs.  They also cite anecdotal  
            evidence related to persons requesting arthritis drugs, and  
            explain that though it is difficult to prove that issues are  
            urgent in order to provide an expedited review, issues may  
            become clinically urgent when there are significant delays in  
            receiving drugs.  

          4)Opposition. Health plans and insurers, the California Chamber  
            of Commerce, and health insurance agents oppose this bill,  
            citing increased costs and administrative burden of more rapid  
            reviews, as well as potential increases in unnecessary health  
            spending.  According to plans, this bill could potentially  
            lead to a higher number of either approvals that would  
            otherwise be denied upon careful review, which could increase  
            unnecessary drug spending, or denials that would either be  
            uncontested (meaning the consumer would not receive coverage  
            for the drug) or require an entirely new appeal, namely  
            independent medical review, in order to receive coverage.  

          5)Staff Comments. Current state law requirements were put in  
            place to align with federal regulatory requirements related to  
            non-formulary drugs. This bill aligns timelines for formulary  
            drugs with that of non-formulary drugs, but maintains an  
            inequity in state law between drugs and all other health care  
            products and services.  Putting much shorter time frames into  
            law changes the economics of health plan reviews by increasing  


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            their cost, potentially reducing a plans' and insurers'  
            incentive or ability to provide a thorough review of  
            appropriateness and cost-effectiveness. Although shortening  
            time frames appears consumer-friendly, plans raise some  
            noteworthy concerns about potential unintended consequences  
            that may increase costs without a commensurate benefit to  
            consumers, as noted above.  More rapid timelines also will  
            increase the likelihood of health plans not meeting the  
            timelines, leading to more enforcement actions and increasing  
            state costs. Although it is clear that up to 30 days for a  
            coverage decision as allowed under current law is longer than  
            most consumers would want to wait, it is unclear whether the  
            proposed timeline appropriately balances state costs and  
            health plan administrative costs with an overall benefit to  
            consumers.  Finally, the number of requests for formulary  
            drugs subject to the shorter timelines in this bill is  
            unknown, as well as the current average review time, making it  
            difficult to know how large the potential impact is, nor how  
            significantly this would shorten the average time to review.

          Analysis Prepared by:Lisa Murawski / APPR. / (916)