BILL NUMBER: AB 1960 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 12, 2004
INTRODUCED BY Assembly Members Pavley and Frommer
(Coauthors: Assembly Members Chu, and Ridley-Thomas)
FEBRUARY 12, 2004
An act to add Article 8 (commencing with Section 4130) to Chapter
9 of Division 2 of the Business and Professions Code, relating to
pharmacy benefits management.
LEGISLATIVE COUNSEL'S DIGEST
AB 1960, as amended, Pavley. Pharmacy benefits management.
Existing law, the Pharmacy Law, creates the California State Board
of Pharmacy and makes it responsible for the regulation and
licensure of persons engaged in pharmacy practices relating to the
furnishing of dangerous drugs, as defined. Under existing law, a
violation of the provisions of the Pharmacy Law is a crime.
This bill would define the term "pharmacy benefits management" as
negotiating the purchase of dangerous drugs on behalf of
specified entities and administering or managing the prescription
drug benefit programs of those entities , among other
things, the procurement of prescription drugs at a negotiated rate
for dispensation within this state . The bill would also
define the term "pharmacy benefits manager" as an entity that
performs pharmacy benefits management. The bill would
impose on that entity a fiduciary duty to the person employing or
contracting with the entity require pharmacy benefits
managers to register with the California State Board of Pharmacy, and
would require that board to set specified standards for the
registration thereof . The bill would further require a
pharmacy benefits manager to make specified disclosures to its
purchasers and prospective purchasers with regard to revenues and its
drug formularies, upon request. The bill would also establish
certain standards and requirements with regard to pharmacy benefits
management contracts and the provision of certain drugs.
Because the bill would specify an additional requirement under the
Pharmacy Law, a violation of which would be a crime, it would impose
a state-mandated local program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Article 8 (commencing with Section 4130) is added to
Chapter 9 of Division 2 of the Business and Professions Code, to
read:
Article 8. Pharmacy Benefits Management
4130. "Pharmacy benefits management" means negotiating the
purchase of dangerous drugs on behalf of an entity that provides
health care services, including a health care service plan or a
health insurer, or an entity that purchases those services and
administering or managing the prescription drug benefit program
provided or purchased by those entities. The administration or
management of a prescription drug benefit program includes all of the
following:
(a) Providing mail pharmacy services.
(b) Claims processing, managing a retail network, and paying
claims to a pharmacy for dangerous drugs dispensed to an enrollee or
insured.
(c) Rebate contracting and administering the rebates.
(d) Therapeutic intervention and generic substitution programs.
(e) Disease management programs.
4131. A "pharmacy benefits manager" means an entity that performs
pharmacy benefits management and includes a person or entity acting
for a pharmacy benefits manager in a contractual or employment
relationship in the performance of pharmacy benefits management.
4132. A pharmacy benefits manager owes a fiduciary duty to the
person who contracts with, or employs, the pharmacy benefits manager.
4130. For purposes of this article, the following definitions
shall apply:
(a) "Labeler" means any person who receives prescription drugs
from a manufacturer or wholesaler and repackages those drugs for
later retail sale and who has a labeler code from the federal Food
and Drug Administration under Section 207.20 of Title 21 of the Code
of Federal Regulations.
(b) "Pharmacy benefits management" is the procurement of
prescription drugs at a negotiated rate for dispensation within this
state, the administration or management of prescription drug
benefits, or the provision of any of the following services with
regard to the administration of the following pharmacy benefits:
(1) Mail service pharmacy.
(2) Claims processing, retail network management, and payment of
claims to pharmacies for prescription drugs.
(3) Clinical formulary development and management services.
(4) Rebate contracting and administration.
(5) Certain patient compliance, therapeutic intervention, and
generic substitution programs.
(6) Disease management programs involving prescription drug
utilization.
(c) "Pharmacy benefits manager" is any person who performs
pharmacy benefits management. The term does not include a health
care service plan or health insurer if the health care service plan
or health insurer offers or provides pharmacy benefits management
services or administration through an affiliate, subsidiary, or other
related entity, and if those services or administration are offered
or provided only to enrollees, subscribers, or insureds who are also
covered by health benefits offered or provided by that health care
service plan or health insurer.
4131. (a) A person may not engage in pharmacy benefits management
in the state unless the person registers with the board.
(b) An applicant for registration shall do all of the following:
(1) Submit to the board an application on the form that the board
provides.
(2) Submit the documents that the board requires.
(3) Pay to the board a fee set by the board.
(c) The board shall register each applicant that meets the
standards of this section.
(d) The board shall set standards for the denial of registration.
4132. (a) A pharmacy benefits manager shall disclose to the
purchaser or prospective purchaser, on request, the amount of all
rebate revenues and the nature, type, and amounts of all other
revenues that the pharmacy benefits manager receives from each
pharmaceutical manufacturer or labeler with whom the pharmacy
benefits manager has a contract. The pharmacy benefits manager shall
disclose in writing all of the following:
(1) The aggregate amount, and for a specified list of drugs, the
specific amount, of all rebates and other retrospective utilization
discounts received by the pharmacy benefits manager directly or
indirectly from each pharmaceutical manufacturer or labeler that are
earned in connection with the dispensing of prescription drugs to
individuals benefiting from the pharmacy benefits manager services.
(2) The nature, type, and amount of all other revenue received by
the pharmacy benefits manager directly or indirectly from each
pharmaceutical manufacturer or labeler for any other products or
services provided to the pharmaceutical manufacturer or labeler by
the pharmacy benefits manager with respect to programs offered by the
purchaser to individuals receiving the benefits of the manager.
(3) Any prescription drug utilization information requested by the
purchaser.
(b) A pharmacy benefits manager shall provide the information
described in paragraphs (1), (2), and (3) of subdivision (a) within
30 days of receipt of the request. If requested, the information
shall be provided no less than once each year.
(c) Except for utilization information, a pharmacy benefits
manager need not make the disclosures required in subdivision (a)
unless and until the purchaser or prospective purchaser agrees in
writing to maintain as confidential any information that the pharmacy
benefits manager reasonably considers proprietary. That agreement
may provide for equitable and legal remedies in the event of a
violation of the agreement. Proprietary information includes trade
secrets, and information on pricing, costs, revenues, taxes, market
share, negotiating strategies, customers and personnel held by a
pharmacy benefits manager and used for its business purposes.
(d) Every pharmacy benefits manager that maintains one or more
drug formularies shall provide to members of the public, upon
request, a copy of the most current list of prescription drugs on the
formulary of the manager by major therapeutic category, with an
indication of whether any drugs on the list are preferred over other
listed drugs. If the pharmacy benefits manager maintains more than
one formulary, the manager shall notify the requester that a choice
of formulary lists is available.
(e) A pharmacy benefits manager shall disclose the membership of
any pharmacy and therapeutics committee, the credentials of committee
members, and any relationships between committee members and drug
manufacturers.
4133. A pharmacy benefits manager may not execute a contract for
the provision of pharmacy benefits management services that fails to
address the following items:
(a) The amount of the total revenues, rebates, and discounts
identified in paragraphs (1) and (2) of subdivision (a) of Section
4132 that shall be passed on to the purchaser.
(b) The disclosure or sale of enrollee utilization data by the
pharmacy benefits manager to any person or entity other than the
purchaser or prospective purchaser.
(c) Any administrative or other fees charged by the pharmacy
benefits manager to the purchaser or prospective purchaser.
(d) Factors that trigger an audit of the contract for pharmacy
benefits management services.
(e) Any revenues, rebates, or discounts received by the pharmacy
benefits manager directly or indirectly from entities other than
manufacturers and labelers.
(f) Bulk purchase arrangements between pharmacy benefits managers
with mail-order pharmacies and drug manufacturers.
(g) The process for development of formularies and notification of
changes to formularies, provided that the pharmacy benefits manager
meets the requirements of Sections 4134 and 4135.
4134. A pharmacy benefits manager may not limit or exclude
coverage for a drug for an enrollee if the drug previously had been
approved for coverage by the pharmacy benefits manager for a medical
condition of the individual consumer and the prescribing provider
continues to prescribe the drug for the medical condition, provided
that the drug is appropriately prescribed and is considered safe and
effective for treating the consumer's medical condition. Nothing in
this section shall preclude the prescribing provider from prescribing
another drug covered by the manager that is medically appropriate
for the consumer, nor shall this section be construed to prohibit
generic drug substitutions as authorized by Section 4073. For
purposes of this section, a prescribing provider shall include a
provider authorized to write a prescription to treat a medical
condition of a consumer pursuant to subdivision (a) of Section 4059.
4135. (a) A pharmacy benefits manager shall maintain an
expeditious process by which prescribing providers may obtain
authorization for a medically necessary nonformulary prescription
drug. On or before July 1, 2005, every pharmacy benefits manager
shall make public on request a description of its process, including
timelines, for responding to authorization requests for nonformulary
drugs. Each pharmacy benefits manager shall provide a written
description of its most current process, including timelines, to each
purchaser and, on request, to prescribing providers. For purposes
of this section, a prescribing provider shall include a provider
authorized to write a prescription to treat a medical condition of an
enrollee pursuant to subdivision (a) of Section 4040.
(b) Any pharmacy benefits manager that disapproves a request made
pursuant to subdivision (a) by a prescribing provider to obtain
authorization for a nonformulary drug shall provide the reasons for
the disapproval in a notice provided to the purchaser.
(c) The process described in subdivision (a) by which prescribing
providers may obtain authorization for medically necessary
nonformulary drugs does not apply to a nonformulary drug that has
been prescribed for an enrollee in conformity with Section 4134.
(d) Every pharmacy benefits manager shall maintain all of the
following information, which shall be made available to the purchaser
or the public upon request:
(1) The complete drug formulary or formularies of the plan, if the
plan maintains a formulary, including a list of the prescription
drugs on the formulary of the plan by major therapeutic category with
an indication of whether any drugs are preferred over other drugs.
(2) Records developed by the pharmacy and therapeutic committee of
the plan, or by others responsible for developing, modifying, and
overseeing formularies, including medical groups, individual practice
associations, and contracting pharmaceutical benefits management
companies, used to guide the drugs prescribed for the enrollees of
the plan, that fully describe the reasoning behind formulary
decisions.
(3) Any arrangements with prescribing providers, medical groups,
individual practice associations, pharmacists, or other entities that
are associated with activities of the pharmacy benefits manager to
encourage formulary compliance or otherwise manage prescription drug
benefits.
(e) Nonformulary prescription drugs shall include any drug for
which an individual's copayment or out-of-pocket costs are different
than the copayment for a formulary prescription drug, except as
otherwise provided by law or regulation.
SEC. 2. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.