BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Mark DeSaulnier, Chair
Date of Hearing: August 10, 2010 2009-2010 Regular
Session
Consultant: Gideon L. Baum Fiscal:No
Urgency: Yes
Bill No: AB 2779
Author: Solorio
Version: As Proposed to be Amended
SUBJECT
Workers' compensation: compound medication.
KEY ISSUE
Should the Legislature require compounded medications can only
be reimbursed through the workers' compensation system if they
are medically necessary and that the cost of the ingredient does
not exceed the Medi-Cal fee schedule?
PURPOSE
To encourage the use of compound medication only when medically
necessary and to ensure that the cost of compound medication is
contained by a fee schedule.
ANALYSIS
Existing law:
Establishes a workers' compensation system that provides
benefits to an employee injured at work, irrespective of
fault. This system requires all employers to secure
payment of benefits by either securing the consent of the
Department of Industrial Relations to self insure or by
securing insurance against liability from an insurance
company duly authorized by the state.
Requires the administrative director of the Division of
Workers' Compensation (DWC) to review the official medical
fee schedules to establish reasonable maximum medical fees
for medical services, but excludes, among other things,
drugs and pharmacy services, which are set in the relevant
Medi-Cal payment system, unless the pharmacy services and
drugs are covered by a Medicare fee schedule for
facilities.
Requires every employer, either directly or through the
employer's insurer, to establish a utilization review
process, which would review and approve, modify, delay, or
deny treatment recommendations by physicians and the
provision of medical treatment services for injured
workers. The utilization review process must be governed
by written policies and procedures to ensure that decisions
based on the medical necessity of the proposed medical
treatment services are consistent with regulations and
statute.
This bill would require that, until the administrative director
of the DWC creates a fee schedule for compound medicines, a
compound medication may only be reimbursed through the workers'
compensation system if:
1) The compound medication was found to be medically
necessary through the utilization review process;
2) All active ingredients in the compound medication are
medication ingredients in drug products that have been
approved by the federal Food and Drug Administration (FDA)
or listed by the United States Pharmacopeia (USP);
3) The compound medication is not a copy or substitute for
an available FDA-approved product; and
4) FDA-approved alternatives to the compound medication
have been tried with therapeutic failure or patient
intolerance.
This bill would also require that the maximum reimbursement can
not exceed the sum of the reimbursements allowed under the
Hearing Date: August 10, 2010 AB 2779
Consultant: Gideon L. Baum Page 2
Senate Committee on Labor and Industrial Relations
existing Medi-Cal fee schedule, and that fees cannot be allowed
unless the billing includes the above-listed information.
This bill would also prohibit a non-physician from denying an
otherwise valid compound medication prescription, and requires
that, to the extent applicable, compound medication requests go
through the utilization review process.
This bill would also empower the DWC to adopt regulations
convenient or necessary to implement these requirements, and
that any fee schedule developed for compound medicines must be
consistent with these requirements.
COMMENTS
1. Need for this bill?
Compound medication, as generally defined in medical
literature, is medication created when a pharmacist or
physician combines two or more components to create a
medication specific to the needs of the patient. Compound
medicines usually have the same ingredients as generic or name
brand medicines, but vary in strength, inactive ingredients,
and form. For example, compound medicines may come in a syrup
or lozenge, rather than in a pill that may be difficult for
some individuals to swallow.
Because compound medications are specialty products designed
specifically for individual patients, they are not currently
covered under the Medi-Cal fee schedule, even if most or
nearly all of the active components of the compound are on the
fee schedule. For the workers' compensation system, the end
result is that it creates a loophole for pharmacists and
physicians to charge fees and costs beyond what would be
allowed for pharmaceutical treatments in the fee schedule.
This creates cost-pressures on the workers' compensation
system, which in turn leads to higher costs for insurers and
higher premiums for employers. In 2007, the Division of
Workers Compensation (DWC) dealt with a similar loophole with
Hearing Date: August 10, 2010 AB 2779
Consultant: Gideon L. Baum Page 3
Senate Committee on Labor and Industrial Relations
the creation of a fee schedule for drug repackaging, which
formally had not been cost-contained by a fee schedule. Prior
to the regulations, both employers and labor representatives
worked together on legislation to establish a reimbursement
schedule for medicines not included on Medi-Cal fee schedule,
but the legislation was held in Assembly Appropriations.
Proponents believe that, while certain injured workers do need
compounds, this type of medication is being abused to generate
larger fees. For example, proponents cite one insurance
company that in 2008, it paid $128,000 for all compounded
medications. By 2009, the last year for which data are
available, the same company paid over $2,000,000 on a smaller
book of business. Proponents believe that this rapid growth
of a rare type of medication suggests manipulation for the
purposes of profit.
AB 2779 would require that the use of compound medicines be
medically necessary, approved through the utilization review
process, made up of compounds approved by the Food and Drug
Administration (FDA), and that any fee schedule later
developed by the DWC is consistent with these requirements.
2. Proponent Arguments :
Proponents argue that while compound medicines are a necessity
for certain injured workers, there has been a sharp increase
in the usage and costs of compound drugs. Proponents believe
that AB 2779 is a good start at establishing guidelines for
the compounding of drugs and under what circumstances the cost
of those drugs would be reimbursed. Proponents note in
particular that the cap on the maximum allowance on the sum of
the amounts allowed for the ingredient and dispensing fee, and
believe that these guidelines will rein in the abuse of
medical treatment and billing practices specific to the
compounding of drugs.
3. Opponent Arguments :
CompPharma, which represents pharmacy benefit management
(PBMs) firms, has taken an 'oppose unless amended' position.
CompPharma believes that the issues surrounding the cost of
Hearing Date: August 10, 2010 AB 2779
Consultant: Gideon L. Baum Page 4
Senate Committee on Labor and Industrial Relations
pharmaceuticals in the workers' compensation system are larger
than compounding, and suggests that AB 2779 takes on a more
global perspective, similar to AB 2593 (Bradford), which was
sponsored by CompPharma, but was held in Assembly Insurance.
CompPharma suggests amendments that would delink reimbursement
rates for pharmacy products from the Medi-Cal system due to
the adverse impact of budget cuts and reimbursement rates by a
market-based formula, as well as language clarifying the role
of pharmacy benefit manager contracts, the fee schedule, and
reimbursements. CompPharma believes that these amendments
would result in additional cost-savings within the workers'
compensation system.
The California Society of Industrial Medicine and Surgery
(CSIMS) and the California Society of Physical Medicine and
Rehabilitation (CSPMR) have also taken an 'oppose unless
amended' position. CSIMS and CSPMR are concerned that
requiring compound medication to go through the utilization
review process could create unnecessary delays or denial of
treatment if the claims adjuster refuses or neglects to
respond to the doctor's request for approval of compound
medicine. CSIMS and CSPMR report working with the author's
office on a possible amendment, and are optimistic on hitting
upon a solution to this issue.
4. Prior Legislation :
SB 292 (Speier) of 2005 would have, among other things,
prescribed a formula for reimbursing drugs not by the Medi-Cal
payment system. This bill was held under suspense by the
Assembly Appropriations Committee.
SUPPORT
Association of California Insurance Companies
California Association of Joint Powers Authorities
California Chamber of Commerce
California Coalition on Workers' Compensation
California Labor Federation, AFL-CIO
California Manufacturers and Technology Association (CMTA)
California Professional Firefighters
Hearing Date: August 10, 2010 AB 2779
Consultant: Gideon L. Baum Page 5
Senate Committee on Labor and Industrial Relations
California Special Districts Association
Employers Compensation Insurance Company
League of California Cities
Regional Council of Rural Counties
OPPOSITION
California Society of Industrial Medicine and Surgery (CSIMS)
(Unless Amended)
California Society of Physical Medicine and Rehabilitation
(CSPMR) (Unless Amended)
CompPharma (Unless Amended)
* * *
Hearing Date: August 10, 2010 AB 2779
Consultant: Gideon L. Baum Page 6
Senate Committee on Labor and Industrial Relations