BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: SB 1454 Hearing Date: April 18,
2016
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|Author: |Stone |
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|Version: |March 31, 2016 |
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|Urgency: |No |Fiscal: |No |
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|Consultant|Sarah Huchel |
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Subject: Pharmacy
SUMMARY: Prohibits a pharmacy benefits manager (PBM) from requiring
reimbursement from pharmacists or pharmacies for certain
payments, as specified; authorizes reimbursement to a pharmacy
or pharmacist for prior year payments; and prohibits any future
contract provisions that conflict with this bill.
Existing law:
1) Defines a "pharmacy audit" as an audit, either onsite or
remotely, of any records of a pharmacy conducted by or on
behalf of a carrier or a BPM, or a representative thereof,
for prescription drugs that were dispensed by that pharmacy
to beneficiaries of a health benefit plan pursuant to a
contract with the health benefit plan or the issuer or
administrator thereof. "Pharmacy audit" does not include a
concurrent review or desk audit that occurs within three
business days of transmission of a claim, or a concurrent
review or desk audit where no chargeback or recoupment is
demanded. (Business and Professions Code (BPC) § 4430)
2) Defines a "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,
SB 1454 (Stone) Page 2
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including, but not limited to, 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)
3) Specifies terms under which an entity may be compensated for
an audit.
(BPC § 4433)
4) Establishes requirements for an audit, including prior
notification, delegation of clinical judgment, appropriate
evidence, appeals procedures, and reimbursement parameters.
(BPC §§ 4434 - 4440)
This bill:
1) Defines "improper reimbursement" to means a PBM has requested
and received reimbursement from a pharmacist or pharmacy in
its network for the cost of a drug dispensed to a patient
that was previously authorized and properly adjudicated, as
specified.
2) Defines a "PBM" as an entity that performs pharmacy benefits
management.
3) Defines "pharmacy benefits management" to mean the
administration or management of prescription drug benefits,
including, but not limited to, the procurement of
prescription drugs at a negotiated rate for dispensation
within this state, the processing of prescription drug
claims, and the administration of payments related to
prescription drug claims.
4) Defines "properly adjudicated" to mean that the pharmacist or
pharmacy was explicitly authorized by the PBM to dispense a
drug to a patient through its network, and the pharmacist or
pharmacy was entitled to the payment that was provided, at
that point in time, by the PBM, pursuant to that
authorization.
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5) Prohibits, regardless of existing law, a PBM from requiring
that a pharmacist or pharmacy provide reimbursement to the
PBM for the cost of any drug dispensed to a patient that was
properly adjudicated, except upon a showing of fraud or
malfeasance.
6) Prohibits a contract entered into on or after January 1,
2017, between a PBM and a pharmacist or pharmacy, from
including a provision that conflicts with the prohibition set
forth in Item # 5), above.
7) Requires, regardless of existing law, a PBM to refund any
improper reimbursements received between January 1, 2012 and
January 1, 2017.
FISCAL
EFFECT: This bill is keyed "nonfiscal" by the Legislative
Counsel.
COMMENTS:
1.Purpose. This bill is sponsored by the Author. According to
the Author's office, "Currently, there is an audit system in
place between pharmacists and PBMs for certain types of
issues, ranging from clerical oversight to fraud and abuse.
Senator Stone does not believe that the audit system takes
into account situations where a pharmacist has dispensed a
drug that has been properly adjudicated through an online
process with a PBM. SB 1454 would give pharmacists a far more
fair playing field with PBMs by stating that it would prohibit
a PBM from requiring that a pharmacist provide reimbursement
to the PBM for the cost of any drug dispensed to a patient
that was properly adjudicated, except upon a showing of fraud
or malfeasance."
2.Regulation of PBMs. PBMs are third-party administrators of
prescription drug programs. PBMs work on behalf of payors to
control prescription drug costs by various means, including
managing formularies, processing authorizations and payments,
negotiating prices with drug manufacturers, and contracting
with pharmacies and pharmacists.
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While various federal laws govern PBM actions generally, such
as Medicare and Medicaid fraud and abuse statutes and
anti-kickback rules, there is no single federal entity
responsible for regulating the business as a whole. State
regulation varies; some states do not regulate PBMs at all,
others broadly (Iowa requires that PBMs "shall perform the
pharmacy benefits manager's duties exercising good faith and
fair dealing in the performance of its contractual
obligations," Iowa Code Ann. § 510B.4), and others, such as
California, specify terms only for certain business
practices.
3.PBM audits. Payments from PBMs to pharmacies are determined
by contract, and audits are standard industry practice to
validate data entry and documentation to ensure pharmacies are
meeting regulatory and contractual requirements. While a
pharmacist may get immediate authority from a PBM at the point
of sale for dispensing a drug (the term for this first
approval is "adjudication"), the typical process for
finalizing payments includes an audit and an appeals process.
One major PBM states in its standard contract that, "All
claims are subject to audit regardless of whether or not a
claim successfully adjudicates, and PBM reserves the right to
review (i.e., audit) any claim."
PBMs perform automated concurrent reviews of drugs furnished,
less formal "desk audits," and the more formal audits covered
by California law. California law requires that pharmacies
get prior written notice, establishes time periods for the
audit, sets reporting requirements, provides for an appeals
process, and states that reimbursements may not be compelled
until after the appeals process is completed.
4.Prior Legislation. SB 1195 (Price, Chapter 705, Statutes of
2012) required a contract that is issued, amended, or renewed
on or after January 1, 2013, between a pharmacy and a carrier
or a PBM to provide pharmacy services to beneficiaries of a
health benefit plan to comply with standards and audit
requirements as specified in this bill. Includes provisions
relating to the following: commissions or financial
incentives, recoupment of funds for clerical errors,
confidentiality of information, scheduling of audits,
permissible documents for purposes of audits, timeframes of
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audits, standards for submission of preliminary and final
reports, validation of claims and orders, and requirements for
audit appeals.
5.Arguments in Opposition. CVS Health , Express Scripts , and the
Pharmaceutical Care Management Association write, "The
auditing of payments to pharmacies is common both in public
and private pharmaceutical benefit programs to combat fraud,
waste and abuse. These audits have uncovered tens of millions
of dollars in waste, fraud and abuse. SB 1454 will
effectively destroy the value of audits. More troubling, it
will require PBM clients to repay tens of millions back to
pharmacists for valid recoupments since 2012.
"As a practical matter, this bill will prevent PBM's from
recouping incorrect, but not fraudulent payments- a process
that in 2015 resulted in $98 million in savings in drug costs
for the clients of one PBM alone.
"As the result of annual audits of all Medi-Cal providers,
the California Department of Health Care Services estimates
that there are payment errors 6.05% of the time at a cost of
$1.25 billion a year. Non-fraud payments account for over
half of those errors -- 3.77% of the payments for an
estimated cost of $780 million a year. For the same reason,
clients demand that PBMs audit their payments to pharmacies
and seek recoupment of payment errors.
"Each year PBMs combined, process billions of pharmacy
claims. Government and Commercial payors require, by
contract, that their PBM will have oversight and quality
assurance checks of claims adjudicating in the pharmacy
network. Not surprisingly, some errors are missed.
After-the-fact audits are used to uncover those errors. Here
are just two examples of non-fraud errors:
A pharmacy dispenses and is paid, the patient
fails to pick up the prescription and then the pharmacy
fails to reverse the billing. The rate of primary
non-adherence, that is, the percentage of first-time
prescriptions abandoned by patients (and thus not picked
up at pharmacies), can range as high as 30 percent among
some classes of medication, according to recent
research.
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A pharmacy dispenses a drug that is available
over-the-counter at a cost much higher than available on
the shelves.
"The author's office argues that it is simply not fair to
pharmacists to force them to pay back to the PBM for drugs
that they have already provided to a patient. But this is
not a new issue. Under legislation, sponsored by the
California Pharmacists Association, passed just four years
ago ( SB 1195 , Price), the auditing of payments to pharmacists
is strictly regulated. Among other things, the bill creates
an appeals process to allow pharmacists to make the case that
the recoupment is unfair. In fact, the law specifically
deals with the issue by not allowing a recoupment until the
appeal process had been completed:
B&P Sec 4438 (c) An entity conducting a pharmacy
audit, a carrier, a health benefit plan sponsor, or
other third-party payer, or any person acting on
behalf of those entities, shall not attempt to make
chargebacks or seek recoupment from a pharmacy, or
assess or collect penalties from a pharmacy, until
the time period for filing an appeal to a final
audit report has passed, or until the appeal
process has been exhausted, whichever is later.
"For these reasons, the above referenced entities respectfully
urge a NO vote on SB 1454."
1.Policy Issues . This bill invalidates the audit process by
stating that payments are final at the point in which a claim
is initially approved, except in the case of fraud or
malfeasance. "Malfeasance" is not defined and other
definitions in this bill conflict with existing definitions of
the same terms.
Although the Author states that this bill will present
pharmacists with "a far more fair playing field," there is no
indication of how the current audit process fails
pharmacists. This bill could potentially impede countless
contracts with PBMs and nullify existing law absent evidence
of any specific harm caused by the current statutory scheme.
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SUPPORT AND OPPOSITION:
Support: None on file as of April 12, 2016.
Opposition:
CVS Health
Express Scripts
Pharmaceutical Care Management Association
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