BILL ANALYSIS Ó
AB 2400
Page 1
Date of Hearing: May 4, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2400 (Nazarian) - As Amended April 6, 2016
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
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.
AB 2400
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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.
AB 2400
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COMMENTS:
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
AB 2400
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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
AB 2400
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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)
319-2081