BILL ANALYSIS
AB 1960
Page 1
Date of Hearing: April 13, 2004
ASSEMBLY COMMITTEE ON HEALTH
Rebecca Cohn, Chair
AB 1960 (Pavley) - As Amended: April 12, 2004
SUBJECT : Pharmacy benefits management.
SUMMARY : Requires pharmacy benefit managers (PBMs) to make
various disclosures to purchasers and the public. Requires PBM
contracts to include specified provisions. Prohibits PBMs from
limiting or excluding specified drug coverage. Specifically,
this bill :
1)Requires PBMs to register with the Board of Pharmacy.
2)Requires a PBM to disclose to the purchaser or prospective
purchaser the amount of all rebate revenues and the nature,
type and amounts of all other revenues that the PBM receives
from each pharmaceutical manufacturer or labeler with whom the
PBM has a contract. Requires a PBM to disclose to the
purchaser at specific time intervals any prescription drug
utilization information requested by the purchaser. Permits a
PBM to withhold these disclosures if the purchaser does not
agree to maintain the confidentiality of the disclosed
information.
3)Requires every PBM that maintains drug formularies to provide
to members of the public, on request, a copy of the most
current list of drugs on the formulary, noting whether any
drugs on the list are preferred over other listed drugs.
Requires the PBM to state that a choice of formulary lists is
available if the PBM maintains more than one formulary.
4)Requires a PBM to disclose the membership of any pharmacy and
therapeutics (P&T) committee, the credentials of committee
members, and any relationships between committee members and
drug manufacturers.
5)Prohibits a PBM from executing a contract that fails to
address specific items.
6)Prohibits a PBM from limiting or excluding coverage for a drug
for an enrollee if the drug previously had been approved for
coverage by the PBM for a medical condition of the individual
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consumer and the 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, except that this prohibition
does not prohibit generic drug substitutions.
7)Requires a PBM to maintain an expeditious process for
providers to obtain authorization for medically necessary
nonformulary prescription drugs and, on request, to publicly
disclose that process.
8)Requires every PBM to maintain and make available on request
all of the following:
a) Records developed by any P&T committees, or by others
responsible for developing formularies that fully describe
the reasoning behind formulary decisions.
b) Any arrangements with providers, medical groups,
individual practice associations, pharmacists, or other
entities that are associated with activities of the PBM to
encourage formulary compliance or otherwise manage
prescription drug benefits.
9)States that nonformulary prescription drugs 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.
10) Defines for purposes of this bill the following terms:
"labeler," "pharmacy benefits management," and "pharmacy
benefit manager."
EXISTING LAW :
1)Requires every health plan that provides prescription drug
benefits and maintains one or more drug formularies to provide
to members of the public, on request, a copy of the most
current list of prescription drugs on the formulary, noting
whether any drugs on the list are preferred over other listed
drugs. Requires the health plan to state that a choice of
formulary lists is available if the health plan maintains more
than one formulary.
2)Prohibits a health plan that provide prescription drug
AB 1960
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coverage from limiting or excluding coverage for a drug for an
enrollee if the drug previously had been approved for coverage
by the health plan for a medical condition of the individual
consumer and the 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, except that this prohibition
does not prohibit generic drug substitutions.
3)Requires health plans that provide prescription drug coverage
to maintain an expeditious process by which providers may
obtain authorization for a medically necessary nonformulary
prescription drug.
FISCAL EFFECT : Unknown
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, this bill is
needed to create consumer protection guidelines that PBMs must
meet when doing business with California clients such as
CalPERS, large employers, health plans, and union trust funds.
The author notes that under this bill PBMs will have to
provide the kind of information that health plans have been
disclosing for years about such matters as formulary
development and name brand and generic drug switching. The
author believes that creating a more transparent market will
shine a light on an industry that discloses an inadequate
amount of pricing and conflict of interest information and
will enable clients to make informed decisions about the type
of prescriptions and benefits they select on behalf of their
enrollees. According to the author, this will allow clients
to take full advantage of the free market by incentivizing
PBMs to compete in a fair, transparent environment for
California business.
2)BACKGROUND . PBMs are independent specialty administrators;
they focus on administering pharmacy benefits, and managing
the purchasing, dispensing, and reimbursing of prescription
drugs. According to the California Healthcare Foundation,
about 45% of the U.S. population has pharmacy coverage
provided directly by a PBM. PBMs offer health plans a variety
of services including negotiating price discounts with retail
pharmacies, negotiating rebates with manufacturers, and
operating mail-order prescription services and administrative
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claims processing systems. PBMs also provide health plans
with clinical services such as formulary development and
management, prior authorization and drug utilization reviews
to screen prescriptions for such issues as adverse
interactions or therapy duplication, and substitution of
generic drugs for therapeutically equivalent brand-name drugs.
In order to provide these services, PBMs operate with
multiple stakeholders in a complex set of relationships
involving health plans, enrollees, pharmacies, and
pharmaceutical manufacturers.
3)GAO REPORT ON PBMs . In January 2003, the federal General
Accounting Office examined how PBMs participating in the
federal employees health program affect health plans,
enrollees, and pharmacies. GAO's findings were generally
positive. The PBMs produced savings for health plans by
obtaining drug price discounts from retail pharmacies and
dispensing drugs at lower costs through mail-order pharmacies,
passing on certain manufacturer rebates to the plans, and
operating drug utilization control programs. GAO found the
average price PBMs obtained from retail pharmacies for 14
brand name drugs was about 18 percent below the average price
paid by customers without third-party coverage. Enrollees had
wide access to retail pharmacies, coverage of most drugs, and
benefited from cost savings generated by the PBMs. Pharmacy
associations reported that PBMs' large market share leave some
retail pharmacies with little leverage in negotiating with
PBMs. In written responses to the report, one pharmacy
association complained that the report did not address more
broadly the economic relationships that exist in the PBM
industry.
4)COMPETITIVE CONCERNS AND PRICE TRANSPARENCY IN THE PBM MARKET .
In a September 2003 Food and Drug Law Institute Update, David
Balto, formerly Director of Policy with the Bureau of
Competition at the Federal Trade Commission, discussed
concerns about the lack of transparency in the PBM industry.
Balto stated that secret rebates can lead to discrimination
that ultimately may harm purchasers and the ultimate consumer.
Secret rebates may encourage a PBM to choose a higher priced
drug with a higher rebate, instead of a lower priced drug,
resulting in higher costs to consumers. Balto noted that the
PBM market is highly concentrated with the four largest firms
holding a combined 80% market share. Substantial costs have
prevented any successful entry into the PBM market for some
AB 1960
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time and the cost to plan sponsors of switching PBMs deters
such switching. Balto reports that a group of 21 state
attorneys general is investigating anticompetitive conduct by
the major PBMs. In California, the American Federation of
State, County and Municipal Employees sued the nation's four
largest PBMs alleging they violated California's unfair
competition law.
5)OTHER STATES . According to the author, a number of other
state Legislatures are considering bills that would require
disclosures of conflicts of interest and financial
relationships between PBMs and drug manufacturers. In June
2003, Maine enacted the Unfair Prescription Drug Practices Act
(UPDPA) which requires PBMs to provide to plan sponsors all
requested financial and utilization information related to
providing benefits and services to the covered entity and its
enrollees. In September 2003, the Pharmaceutical Care
Management Association (PCMA), a PBM trade association, sought
injunctive relief in the federal district court. On March 4,
2004, the court issued a preliminary injunction prohibiting
Maine, at least temporarily, from enforcing UPDPA, The
court's holding was based on the likelihood that PCMA would
succeed in showing that UPDPA violated the takings clause and
was preempted by ERISA.
6)CALIFORNIA BOARD OF PHARMACY PBM TASK FORCE . In 2003 the
Board of Pharmacy established a task force to determine if
there was a need for the Board to license PBMs. The task
force and Board determined that there was no identifiable harm
to consumers that licensure by the Board of Pharmacy would
remedy.
7)SUPPORT . Supporters argue that in the absence of regulation,
it is unclear whose interest PBMs represent. PBMs have been
accused of failing to pass on to clients the savings or
rebates the PBM may negotiate with drug companies or
pharmacies. Supporters argue that much of the problem is
caused by PBMs' refusal to disclose financial arrangements
that impact contracts with purchasers of their services. By
providing greater sunshine on PBMs, this bill would help
ensure that PBMs accomplish what they promise for their
clients.
8)OPPOSITION . Opponents argue that there is no need for this
bill and that it will significantly harm the ability of PBMs
AB 1960
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to seek the lowest price for drugs. Opponents believe that
providing information to negotiators and competitors impairs
the natural forces of competition that protect consumers.
Opponents claim that drug manufacturers almost surely will not
agree to substantial discounts from "list" prices if they know
that information may be publicly available to other purchasers
and their competitors.
9)QUESTIONS AND COMMENTS .
a) Is there a benefit of having PBMs register with the
Board of Pharmacy? If there is, the author may wish to have
the bill specify the frequency of registration, and any
fees and applicant information that the Board should
require.
b) The term "purchaser" is used frequently in this bill.
It appears to mean an entity that contracts for pharmacy
benefit management services with a PBM. However, it is not
defined in this bill.
c) This bill frequently requires that confidential
information be disclosed to prospective purchasers as well
as purchasers. Is it necessary to provide the same high
level of disclosure to prospective purchasers?
d) Should the disclosure requirement on page 4, lines 13-17
and line 18 up to the period, be deleted as it appears to
be overly broad and otherwise duplicative of provisions
which follow on page 4, lines 20-33.
e) On page 4, lines 34-35, this bill requires a PBM to
disclose "any prescription drug utilization information
requested by the purchaser." Should this requirement be
limited to information collected by the PBM that is related
to utilization by the purchaser and the purchaser's
enrollees?
f) On page 5, lines 15 and 18, and page 6, line 15, the
word manager should be replaced by "pharmacy benefit
manager."
g) On page 5, line 20-23, this bill requires a PBM to
disclose the membership of any P&T committee, the
credentials of committee members, and any relationships
AB 1960
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between committee members and drug manufacturers. Is this
disclosure to purchasers, prospective purchasers, or the
public? Opponents believe that disclosing membership on
P&T committees will discourage physician participation and
cause unwanted lobbying of committee members. If the
author wishes to retain this provision, the author may wish
to specify that it is financial relationships that are to
be disclosed.
h) It appears that the provision regarding formularies on
page 7, lines 7-11, is duplicative of a provision on page
5, lines 12-19, and should be deleted.
i) The author may wish to consider whether the disclosures
regarding P&T committee records on page 7, lines 12-18 are
excessive and should be deleted.
j) Is it necessary for the information on page 7, lines
19-23 regarding arrangements with providers be disclosed to
the public?
aa) Is the description of nonformulary drugs on page 7,
lines 24-27 necessary or accurate?
DOUBLE REFERRAL . This bill has been double-referred. Should
this bill pass out of this committee, it will be referred to the
Assembly Business and Professions Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation (sponsor)
California Alliance for Retired Americans (sponsor)
AARP
AIDS Healthcare Foundation
American Federation of State, County and Municipal Employees
(AFSCME) (prior version)
Butcher's Union Local 120 (prior version)
California Public Employees Retirement System (prior version)
California Public Interest Research Group
California School Employees Association (prior version)
California Seniors Coalition (prior version)
Communications Workers of America (prior version)
Congress of California Seniors (prior version)
AB 1960
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Consumer Federation of California
Consumers Union
Graphic Communications Union Local No. 583 (prior version)
Health Access California
Health Care for All - California
Hotel Employees and Restaurant Employees Local No. 49 (prior
version)
Older Women's League of California
Riverside Sheriff's Association (prior version)
San Mateo County Central Labor Council (prior version)
Service Employees International Union
Southern California Pipe Trades District Council 16 (prior
version)
Sprinkler Fitters and Apprentices Union (prior version)
Teamsters Local 481 (prior version)
UFCW Butchers Union Local 120
United Teachers Los Angeles (prior version)
Western Center on Law and Poverty
Opposition
Blue Cross of California (prior version)
California Association of Health Plans
Health Net, Inc.
Medco Health Solutions, Inc.
PacifiCare Health Systems
Analysis Prepared by : John Gilman / HEALTH / (916) 319-2097