BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1960|
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THIRD READING
Bill No: AB 1960
Author: Pavley (D), et al
Amended: 8/19/04 in Senate
Vote: 21
SENATE HEALTH & HUMAN SERV. COMMITTEE : 9-2, 6/16/04
AYES: Ortiz, Alarcon, Chesbro, Escutia, Figueroa, Florez,
Kuehl, Romero, Vasconcellos
NOES: Aanestad, Ashburn
NO VOTE RECORDED: Battin, Vincent
ASSEMBLY FLOOR : 50-26, 5/26/04 - See last page for vote
SUBJECT : Pharmacy benefits management
SOURCE : California Labor Federation, AFL-CIO
California Alliance for Retired Americans
DIGEST : This bill (1) requires Pharmacy Benefits
Managers (PBMs) to disclose to purchasers or prospective
purchasers information pertaining to rebates, discounts and
other financial information, (2) requires certain
provisions to be included in contracts between a PBM and a
purchaser, (3) prohibits pharmacy and therapeutics
committee members, working for a PBM, from working for a
pharmaceutical company or having more than a nominal
financial interest in a pharmaceutical company, and (4)
requires PBMs to meet certain conditions prior to switching
a patient from one drug to another.
Senate Floor Amendments of 8/19/04:
CONTINUED
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1. Amend the definition of "Pharmacy Benefits Manager" to
clarify that an entity must do "all of the following?"
in order to be considered a PBM.
2. Amend Section 150001(c) to clarify that we are not
requiring a PBM to disclose what they are actually
paying for the drug.
3. Amend Section 150002 to clarify that a prospective
purchaser shall only receive estimates of what the PBM
would be able to provide for them to ensures that PBM
only has to provide them with hypothetical information,
not information that could be considered proprietary to
a non-client.
4. Amend Section 150003(a) to clarify that the PBM is only
required to make disclosures to their client on a
quarterly basis.
5. Amend Section 150004(e) to clarify that revenue and
rebate disclosure is specific to the purchaser and not
other PBM clients.
6. Amend Section 150005 (a) to clarify that a PBM's
pharmacy and therapeutics (P&T) committee members can be
from a variety of backgrounds as long as they are not
financially connected to the PBM or pharmaceutical
companies.
7. Amend Section 150006 to clarify that the PBM is to keep
records of complaints and inquiries form patients and
physicians in regards to drug substitutions initiated by
the PBM and report that information to the P&T
committee.
8. Amend Section 150007 to make the bill consist with the
Medco settlement, clarifying:
A. The disclosures a PBM must make to a prescriber
when PBM is making a medication substitution.
B. The instances in which a PBM does not have to make
disclosures to prescriber when PBM is making a
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medication substitution.
C. That if a medication substitution is given
verbally by a PBM that the PBM must keep a record of
it.
D. The disclosures a PBM must make to the patient
prior to making a medication substitution.
E. The instances where the PBM has to cancel the
medication substitution.
ANALYSIS :
Existing law provides for the regulation of health care
benefits.
This bill:
1. Requires a PBM to disclose, in writing, to the purchaser
or prospective purchaser of its services, the following:
A. The amount of rebates and other retrospective
utilization discounts that the PBM would receive from
pharmaceutical manufacturers or labelers specific to
the purchaser's prescription drug benefits, in
aggregate and for specific therapeutic classes of
drugs, if that prospective purchaser were to contract
with the PBM.
B. The nature, type and amount of all other revenue
that the PBM would receive from pharmaceutical
manufacturers or labelers specific to the purchaser's
prescription drug benefits.
C. Prescription drug utilization information, as
specified.
D. Any fees charged by a PBM to the purchaser.
E. Any arrangements with providers, medical groups,
individual practice associations, pharmacists, or
other entities that are associated with activities of
a PBM to encourage formulary compliance or otherwise
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manage prescription drug benefits.
2. Provides that the PBM shall provide specified
disclosures no less frequently than on a quarterly
basis.
3. Permits a PBM to withhold the disclosures required by
the above if the purchaser or prospective purchaser does
not agree to maintain the confidentiality of the
disclosed information.
4. Prohibits a PBM from executing a contract that fails to
address the following items:
A. The amount of revenues, rebates and discounts
passed on to the purchaser.
B. The disclosure or sale of enrollee utilization
data to any person or entity other than the
purchaser.
C. Fees charged by the PBM to the purchaser.
D. Conditions under which an audit will be conducted.
E. Any revenue, rebates or discounts received by the
PBM directly or indirectly from entities other than
manufacturers or labelers that are related to the
services to be provided to the purchaser.
F. The process for the development of formularies and
the approval process for any changes to that
formulary provided to the purchaser by the PBM.
G. Whether there is a difference between the price
paid to a retail pharmacy and the amount that will be
billed to the purchaser for prescription drugs.
5. Requires all members of a PBM P&T committee to be
physicians, pharmacists, academics, or other health care
professionals, and a majority of committee members to be
actively practicing and not employed by PBM and have no
more than a nominal interest in an pharmaceutical
company.
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6. Requires, except as specified below, any request from a
PBM to a prescriber for authorization to substitute a
medication shall include all of the following
disclosures:
A. The cost savings for the purchaser, if any, that
are a result of the medication substitution.
B. The difference, if any, in copayments or other
out-of-pocket costs paid by the patient in order to
obtain the medication.
C. The existence of additional payments received by
the PBM that are not reflected in the cost savings to
the purchaser.
D. The circumstances, if any, under which the
currently prescribed medication will be covered.
E. The circumstances and extent to which, if any,
related health care costs arising from the medication
substitution will be compensated.
F. Any known differences in potential effects on a
patient's health and safety, including side effects.
7. Prohibits a PBM from being required to make the
disclosures under any of the following instances:
A. The substitution is from a brand drug to a generic
or chemical equivalent in accordance with applicable
state law.
B. The medication substitution is initiated for
patient safety reasons.
C. The currently prescribed medication is no longer
available in the market.
D. The substitution is required for coverage reasons
where the prescribed drug is not covered by the
patient's formulary or plan.
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E. The substitution is required for coverage reasons
where the prescribed drug is not covered by the
patient's formulary or plan.
8. Prohibits the PBM from substituting a medication for a
currently prescribed medication unless the PBM
communicates with the patient to provide that patient or
their representative the following information:
A. The proposed medication and the currently
prescribed medication.
B. The difference in copayments or other
out-of-pocket costs paid by the patient, if any.
C. Potential side effects of the medication
substitution.
D. The circumstances, if any, under which the
currently prescribed medication will be covered.
E. The circumstances and the extent to which, if any,
health care costs related to the medication
substitution will be compensated.
F. Notification that the patient may decline the
medication substitution if the currently prescribed
drug remains on the patient's formulary, and the
patient is willing to pay any difference in the
copayment amount.
G. A toll-free telephone number to communicate with
the PBM.
9. Requires the PBM to cancel and reverse the medication
substitution upon written or verbal instructions from a
prescriber or the patient.
10.Requires a PBM to monitor the health effects on patients
of medication substitutions requested by the PBM and, on
a quarterly basis, report to his/her P&T Committee the
results of the monitoring.
11.Requires a PBM to maintain a toll-free telephone number
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that is known to prescribers and patients.
12.Defines for purposes of this bill the following terms:
"labeler," "pharmacy benefits management," "pharmacy
benefit manager," "prospective purchaser," and
"purchaser."
13.Prohibits a PBM from charging an individual any
additional copay or fee related to a replacement
medication.
Comments
Purpose of the bill . According to the author's office,
this bill is needed to create consumer protection
guidelines that PBMs must meet when doing business with
California clients such as the State Public Employees'
Retirement System (PERS), large employers, health plans,
and union trust funds. The author's office 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's office 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's office, 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.
Background
PBMs are independent specialty administrators. They focus
on administering pharmacy benefits, and managing the
purchasing, dispensing, and reimbursing of prescription
drugs. About 200 million American consumers have pharmacy
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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 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.
Three PBMs, Medco, Caremark and Express Script, currently
control approximately 80 percent of the national market.
PERS currently contracts with a PBM to manage its
prescription drug benefit to enrollees in its self-funded
plans (PERSCare and PERS Choice) and the State Department
of Health Services contracts with Ramsell Corporation to
administer the drug benefit provided in the AIDS Drug
Assistance Program.
NOTE: See Senate Health and Human Services Committee
analysis for further comments.
Related Legislation
SB 1765 (Sher), on Assembly Third Reading File, requires
pharmaceutical companies to adopt and update a
Comprehensive Compliance Program (CCP) for interactions
with health care professionals. This bill requires
pharmaceutical companies to establish explicitly in its CCP
an annual dollar limit on gifts, promotional materials or
other items or activities, with exceptions, in accordance
with existing guidelines, as specified. Requires such
companies to annually declare in writing that they are in
compliance with their CCPs and with the limits on gifts
established by the bill.
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AB 262 (Chan), in Senate Judiciary Committee, regulates the
sale, release to a third-party, or exchange for
remuneration by a pharmacist or by a third-party recipient,
of physician prescribing data regarding a prescription
written by a physician combined with personal information
about the physician or his/her prescribing practices. The
bill also requires the Medical Board of California (MBC) to
maintain a Do Not Use list in which physicians licensed in
this state may register, as specified, and requires data
vendors, as defined, to register with the State Attorney
General and the MBC in order to lawfully receive
prescribing physician data.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/19/04)
California Labor Federation, AFL-CIO (co-source)
California Alliance for Retired Americans (co-source)
American Association of Retired Persons
AIDS Healthcare Foundation
American Federation of State, County and Municipal
Employees
Automotive and Allied Industries Employees of San Diego
County,
Teamsters Local No. 481
California Conference Board of Amalgamated Transit Union
California Conference of Machinists
California Commission on Aging
California Faculty Association
California Health Advocates
California Nurses Association
California Pharmacists Association
California Professional Firefighters
California Public Interest Research Group
California School Employees Association
California Seniors Coalition
California State Employees Association
California Teamsters Public Affairs Council
Communications Workers of America, Local 9423, District 1 &
2,
Santa Clara, San Mateo, Santa Cruz, San Benito,
Monterey,
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San Luis Obispo
Communications Workers of America, Local 9575, Camarillo
Communications Workers of America, Local 9586, Norwalk
Congress of California Seniors
Consumer Federation of California
Consumers Union
Engineers and Scientists of California, IFPTE Local 20
Foundation for Taxpayer and Consumer Rights
Graphic Communications Union Local No. 583, San Francisco
Gray Panthers California
Health Access California
Health Care for All - California
Hotel Employees and Restaurant Employees Local No. 49,
Sacramento
International Association of Bridge, Structural, Ornamental
and Reinforcing
Iron Workers, Local 155
International Brotherhood of Electrical Workers, Local 340
International Brotherhood of Electrical Workers, Local 551
Laborers' International Union of North America
Motion Picture Costumers, Local 705
Office and Professional Employees International Union,
Local 29
Older Women's League of California
Plumbers and Steamfitters, Local 484
Professional & Technical Engineers, IFPTE Local 21
Riverside Sheriff's Association
Sacramento-Sierra Building and Construction Trades Council
San Mateo County Central Labor Council
Santa Clara and San Benito Counties Building and
Construction Trades
Council
Senior Action Network
Service Employees International Union
Service Employees International Union, Local 660
Southern California District Council of Laborers
Southern California Pipe Trades, District Council 16, Los
Angeles
Sprinkler Fitters and Apprentices, Local 483
State Attorney General Bill Lockyer
State Public Employees' Retirement System
Teamsters, Local 481
Teamsters, Local 853
Teamsters Warehouse Union, Local 853, San Francisco, San
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Mateo,
Alameda, Marin, and Contra Costa Counties
United Association of Plumbers, Pipe Fitters and Sprinkler
Fitters of the
U.S. Sprinkler Fitters and Apprentices Local 483,
Hayward
United Food and Commercial Workers International Union,
Butchers' Union
Local 120, Oakland
United Food and Commercial Workers International, Local
1179, Martinez
United Food and Commercial Workers Union, Local 839,
Salinas
United Steelworkers of America, District 12, Covina
United Steelworkers of America, Local 7600, Fontana,
Riverside
United Teachers of Los Angeles
Warehouse, Processing & Distribution Workers' Union, Local
26
Western Center on Law and Poverty
OPPOSITION : (Verified 8/19/04)
Academy of Managed Care Pharmacy
Aetna, Inc.
America's Health Insurance Plans
Blue Cross of California
California Association of Health Plans
Caremark Rx, Inc.
California Chamber of Commerce
Express Scripts, Inc.
HealthNet
PacifiCare
Pharmaceutical Care Management Association
ARGUMENTS IN SUPPORT : 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.
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According to the supporters, in recent years, allegations
haven arisen that PBMs have not acted in the best interests
of their clients. For example, PBMs have been accused of
failing to pass on to clients the savings or rebates they
negotiate from drug companies and pharmacies. Much of the
problem is caused because PBMs are not required, and
routinely do not, disclose to clients their financial
arrangements with drug companies, claiming that such
information is confidential.
This bill provides a simple remedy to address this problem.
It allows PBM clients to get better information from PBMs
about their financial dealings. By providing greater
sunshine on PBMs, this bill helps ensure PBMs accomplish
what they promise to accomplish for their clients. This is
a consumer issue as well as one for PBM clients because
ultimately the cost of prescription drugs is paid by
consumers. By ensuring greater accountability by PBMs,
this bill helps in the fight to contain rising prescription
drug prices.
ARGUMENTS IN OPPOSITION : According to America's Health
Insurance Plans and Express Scripts, Inc.:
1. This bill will raise prescription drug costs for
California employers and consumers because it forces
disclosure of drug pricing information. If a drug
company knows the price offered by a competitor, there
is no incentive to offer a lower price. In effect, that
price becomes a floor.
2. According to a July 2004 analysis conducted by
PricewaterhouseCoopers, this bill will likely increase
prescription drug costs in California by seven
percent-this is $17 billion over the next ten years.
3. The disclosures required in the bill are burdensome,
impractical and in many instances, impossible.
4. This bill dictates "one-size-fits-all" provisions that
must be in private PBM contracts.
5. This bill is an invitation for lawsuits under the Unfair
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Competition Law (Section 17200 of the Business and
Professions Code).
ASSEMBLY FLOOR :
AYES: Berg, Bermudez, Calderon, Canciamilla, Chan, Chavez,
Chu, Cohn, Corbett, Correa, Diaz, Dutra, Dymally,
Firebaugh, Frommer, Goldberg, Hancock, Jerome Horton,
Jackson, Kehoe, Koretz, Laird, Leno, Levine, Lieber, Liu,
Longville, Lowenthal, Maldonado, Matthews, Montanez,
Mullin, Nakano, Nation, Negrete McLeod, Oropeza, Parra,
Pavley, Reyes, Richman, Ridley-Thomas, Salinas, Simitian,
Steinberg, Vargas, Wesson, Wiggins, Wolk, Yee, Nunez
NOES: Aghazarian, Bates, Benoit, Bogh, Campbell, Cogdill,
Cox, Daucher, Dutton, Garcia, Harman, Haynes, Shirley
Horton, Houston, Keene, La Suer, Leslie, Maddox, Maze,
McCarthy, Nakanishi, Pacheco, Plescia, Samuelian,
Strickland, Wyland
NO VOTE RECORDED: La Malfa, Mountjoy, Runner, Spitzer
CP:mel 8/21/04 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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