BILL ANALYSIS
AB 1960
Page 1
Date of Hearing: May 5, 2204
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
AB 1960 (Pavley) - As Amended: April 22, 2004
Policy Committee: HealthVote:13-5
Business and Professions 8-3
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill requires pharmacy benefits managers (PBMs) to register
with the Board of Pharmacy (Board), requires the Board to set
specified standards for registration, and requires PBMs to make
specified disclosures to purchasers and prospective purchasers
with regard to drug rebates, revenues and its drug formularies,
and to make specified disclosures to the public upon request.
Additionally, this bill would establish requirements regarding
PBM contracts and the provision of certain drugs. Specifically,
this bill:
1)Prohibits a person from engaging in pharmacy benefits
management unless the person registers with the Board, and
broadly defines the phrase "pharmaceutical benefit
management."
2)Requires contracts entered into by PBMs to disclose various
things, including the amount of total revenues, rebates, and
discounts passed on to the purchaser, the disclosure or sale
of enrollee utilization data, any administrative or other fees
charged, bulk purchase arrangements, the process for
development of formularies and notification of changes to
formularies.
FISCAL EFFECT
1)Costs to the Board of Pharmacy of approximately $240,000
annually. These costs would ultimately be borne by licensing
fees paid by PBMs following the adoption of regulations by the
Board establishing the amount of the licensing fee.
AB 1960
Page 2
2)Unknown state GF costs or savings, depending upon whether
disclosure requirements lead to higher or lower prescription
drug prices. The state currently contracts with two PBMs (for
the AIDS Drug Assistance Program and for CalPERS enrollees in
two self-funded plans).
3)Indeterminate costs to state-contracting PBMs by prohibiting a
PMB 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 a patient.
SUMMARY CONTINUED
1)Requires a PBM to disclose to members of the public upon
request the most current list of prescription drugs on the
formulary by major therapeutic category, with an indication of
whether any drugs on the list are preferred over other listed
drugs, the membership of any pharmaceutical and therapeutic
committee members' (P&TC) credentials, and any financial
relationships between committee members and drug
manufacturers.
2)Requires a PBM to disclose to the purchaser or prospective
purchaser in writing all of the following:
a) The aggregate amount, and for a specified list of drugs,
the specific amount, of all rebates and other retrospective
utilization discounts received by the PBM from each
pharmaceutical manufacturer earned in connection with
prescription drug benefits managed by the PBM related to
the purchaser or prospective purchaser;
b) The nature, type, and amount of all other revenue
received by the PBM from each pharmaceutical manufacturer
related to the purchaser or prospective purchaser;
c) Any prescription drug utilization information related to
utilization by the purchaser's enrollees or aggregate
utilization data that is not specific to an individual
consumer, prescriber, or purchaser;
d) Records developed by the P&TC of the plan, or by others
responsible for developing, modifying, and overseeing
formularies, including medical groups and contracting PBM
companies, used to guide the drugs prescribed for the
enrollees of the plan, that fully describe the reasoning
behind formulary decisions;
e) Any arrangements with prescribing providers, medical
AB 1960
Page 3
groups, pharmacists, or other entities associated with
activities of the PBM to encourage formulary compliance.
3)Requires PBMs to provide for continuity of prescription drug
coverage and an expeditious process for prescribing providers
to obtain authorization for medically necessary nonformulary
prescription drugs.
COMMENTS
1)Purpose . This bill is jointly sponsored by the California
Labor Federation and the California Alliance for Retired
Americans. Supporters argue that in the absence of
regulation, it is unclear whose interest PBMs represent.
Additionally, supporters point out that some PBMs already
provide full disclosure to clients and are able to maintain
competitive prices without drastic increases in drug prices
and while securing rebates from manufacturers.
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 states that
there are two main deficiencies in current law, the first
being a drug industry with a lack of objective prescription
drug pricing information that creates an incentive system that
can cause PBMs to favor the interests of pharmaceutical
companies over clients. The second deficiency identified is
the lack of consumer/client protection regarding disclosure
related to PBMs.
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, which
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.
Finally, the author's office and sponsors believe this bill will
help address the issue of rising prescription drug prices.
2)Background . PBMs are independent specialty administrators
AB 1960
Page 4
that administer pharmacy benefits for health plans, unions and
employers, which can include the managing, purchasing,
dispensing, and reimbursing of prescription drugs. PBMs offer
a variety of services including negotiating price discounts
with retail pharmacies, negotiating rebates with
manufacturers, and operating mail-order prescription services
and administrative claims processing systems. PBMs also offer
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.
CalPERS currently contracts with a PBM to manage its
prescription drug benefit to enrollees in its self-funded
plans (PERSCare and PERS Choice) and DHS contracts with
Ramsell Corporation to administer the drug benefit provided in
the AIDS Drug Assistance Program.
3)Opposition . This bill is opposed by health plans and PBMs,
which argue there is no need for this bill, and that it will
significantly harm the ability of PBMs to seek the lowest
price for drugs. Opponents believe that providing information
to negotiators and competitors impairs competition and results
in higher prices for consumers. Opponents claim that drug
manufacturers will not agree to substantial price discounts if
they know that information may be publicly available to other
purchasers and their competitors, and cite a Congressional
Budget Office analysis of federal legislation which stated
that disclosure requirements will lead to higher prices on
prescription drugs. Additionally, opponents are opposed to
this bill's provision requiring disclosure of the names of the
P&T committees, arguing that disclosing the names of these
members to the public would open them up to intense lobbying
by drug manufacturers and others seeking to add or replace
drugs on the formulary.
The Board of Pharmacy also writes in opposition that it convened
a task force on the need to license and regulate PBMs, and
that it could not identify specific consumer harm that
resulted from PBM activities. The Board requests amendments
to instead establish a fiduciary relationship between a PBM
and its client, which would not be enforced by the Board.
AB 1960
Page 5
Analysis Prepared by : Scott Bain / APPR. / (916) 319-2081