BILL ANALYSIS
SENATE HEALTH
COMMITTEE ANALYSIS
Senator Elaine K. Alquist, Chair
BILL NO: SB 1071
S
AUTHOR: DeSaulnier
B
AMENDED: April 28, 2010
HEARING DATE: May 5, 2010
1
REFERRAL: Revenue and Taxation Committee
0
CONSULTANT:
7
Tadeo
1
SUBJECT
Personal income tax: credit: prescription drugs: controlled
substances tax: CURES
SUMMARY
Imposes a tax on every manufacturer and importer, or other
person that makes the first sale in the state, of a
Schedule II, III or IV controlled substance, at the rate of
$0.0025 per pill. Creates a fund to support the Controlled
Substance Utilization Review and Evaluation System (CURES).
Authorizes a tax credit for medications for persons 55
years of age or older, as specified.
CHANGES TO EXISTING LAW
Existing federal law:
Regulates the manufacture, importation, possession, use,
and distribution of certain substances, including
controlled substances, and classifies these substances by
Schedules based on a criteria which includes potential for
abuse, currently accepted medical use for treatment in the
U.S., and international treaties.
Existing state law
Imposes various taxes, including taxes on the privilege of
engaging in certain activities; authorizes various credits
Continued---
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against personal income tax; and provides procedures for
the collection of certain fees and surcharges.
Requires the Department of Justice (DOJ) to maintain CURES
for electronic monitoring of the prescribing and dispensing
of Schedule II, III and IV controlled substances by all
practitioners authorized to prescribe or dispense these
controlled substances.
Requires all practitioners authorized to prescribe or
dispense these controlled substances to report specified
information every time these controlled substances are
prescribed or dispensed.
This bill:
Imposes a tax at the rate of $0.0025 per pill included in
Schedule II, III, or IV upon every manufacturer and
importer of controlled substances classified as Schedule
II, III, or IV, or other person that makes the first sale
in this state of a Schedule II, III, or IV controlled
substance.
Requires the State Board of Equalization to administer and
collect the tax pursuant to the procedures set forth in the
Fee Collection Procedures Law. Requires the board to
deposit all taxes, penalties, and interest collected, less
refunds and administrative costs, in the CURES Fund, which
this bill would create.
Requires moneys in the fund, upon appropriation by the
Legislature, to be allocated to DOJ for the cost of the
CURES program, as specified.
Requires a person that manufactures controlled substances
classified in Schedule II, III, or IV in this state, or
that imports controlled substances classified in Schedule
II, III, or
IV in to this state, to register with DOJ to enable the
department to report specified information to the board for
purposes of collecting a tax on those persons.
Authorizes a credit for a person, 55 years of age or older
in an amount equal to the amount paid or incurred for that
taxpayer's own medicines or drugs, as described, that is
not reimbursable or payable by public or private health
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insurance plans or by any third party. Requires the
Franchise Tax Board to develop rules to administer the tax
credit.
Provides that the total amount of tax credit that may be
allowed shall not exceed the amount of taxes collected from
the tax on Schedule II, III, or IV controlled substances
pursuant to this bill.
Sunsets on January 1, 2016.
FISCAL IMPACT
This bill has not been analyzed by a fiscal committee.
DOJ estimates that thirty-five million prescriptions are
written annually, and two billion pills are related to
those prescriptions. The $0.0025 tax per pill included in
Schedule II, III, or IV proposed by SB 1071 is estimated by
DOJ to raise approximately $5 million in special fund
revenues. Because the tax credit proposed is intended to
offset the tax on controlled substances it would result in
annual General Fund loss of approximately $5 million.
BACKGROUND AND DISCUSSION
According to the author, SB 1071 is a response to the
steadily worsening prescription drug abuse crisis. The
author states that prescription drug abuse has serious
consequences for both abusers and the public. Each year,
hundreds of people die from prescription drug overdose and
dozens more are injured or killed by prescription drug
abusers driving under the influence of medication. The
author contends that SB 1071 will help to curb prescription
drug abuse by providing revenues to sustain the Controlled
Substance Utilization Review and Evaluation System (CURES),
which is designed to control the misuse, abuse, and
trafficking of dangerous prescription narcotics.
It is the author's intent to impose a tax on Schedule II,
III and IV drugs that are in the form of pills, that will
produce roughly $5 million per year to support the CURES
program.
A priority for the use of the funds would be increasing the
rate at which authorized persons access information from
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the CURES Internet database pertaining to prescribing
controlled substances, related to patient histories on
being prescribed controlled substances.
Controlled substances
Controlled substances are drugs that have a high potential
for abuse, and are regulated by both state and federal
government. The federal government regulates the
manufacture, distribution, and dispensing of controlled
substances through the Controlled Substances Act of 1970
(Act). The Act ranks into five schedules those drugs known
to have potential for physical or psychological harm, based
on three considerations: 1) their potential for abuse; 2)
their accepted medical use; and, 3) their accepted safety
under medical supervision.
Schedule I controlled substances have a high potential for
abuse and no generally accepted medical use such as heroin,
LSD and marijuana. Schedule II controlled substances have
a currently accepted medical use in treatment, or a
currently accepted medical use with severe restrictions,
and have a high potential for abuse and psychological or
physical dependence. Schedule II drugs can be narcotics or
non-narcotic. Examples of Schedule II controlled
substances include morphine, methadone, Ritalin, Demerol,
Dilaudid, Percocet, Percodan, and Oxycontin. Schedule III
and IV drugs include Vicodin, Zanex, Ambien and other
anti-anxiety drugs that generally have less potential for
abuse than Schedule II drugs, but are known to be mixed in
specific ways to achieve a narcotic-like end product.
Schedule V drugs are available over the counter.
Prescription drug abuse and drug monitoring programs
Excluding alcohol, prescription drugs are the second most
commonly abused substance, after marijuana, according to a
2007 study by the Substance Abuse and Mental Health
Services Administration. The National Survey on Drug Use
and Health estimates that 20 to 30 percent of California's
drug abusers primarily use prescription drugs, and a 2005
survey by the Drug Abuse Warning Network estimates that
non-medical use of pharmaceuticals accounted for more than
half a million emergency room visits in the state. The DOJ
reports that Valium, Vicodin, and Oxycontin are the most
prevalent pharmaceutical drugs obtained fraudulently, and
Vicodin and Oxycontin are the two most abused
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pharmaceutical drugs in the United States.
Most states use Prescription Drug Monitoring Programs to
help regulatory and law enforcement agencies and public
health officials collect and analyze controlled substance
prescription data. Statewide databases contain information
from pharmacists and other prescribers on drugs dispensed
in the state.
According to the National Conference of State Legislatures,
as of late 2009, 40 states had laws establishing the
monitoring programs, and 33 states were operating such
programs. The programs vary in how they identify and
investigate potential abuse. Some are reactive,
health-oriented monitoring programs that generate reports
only in response to specific inquiries. Other states
identify and investigate cases, as well as generate
unsolicited reports when suspicious behavior is detected.
Controlled Substance Utilization Review and Evaluation
System (CURES)
Since 1940, DOJ has maintained a state database of
dispensed prescription drugs with a high potential for
misuse. This information is currently stored in the CURES
program, which contains over 100 million entries of
controlled substance drugs that have been dispensed in
California. Each year the CURES program responds to more
that 60,000 requests from authorized practitioners and
pharmacists for patient prescription history information.
In September of 2009, the Attorney General launched the
Prescription Drug Monitoring Program (PDMP) system allowing
pre-registered users, including licensed health care
prescribers eligible to prescribe controlled substances,
pharmacists authorized to dispense controlled substances,
law enforcement, and regulatory boards, to access real-time
patient controlled substance history information through a
secure website. Prior to adoption of PDMP, doctors and
pharmacists had to request information by fax, mail or
phone, and wait days for a response. A $1.1 million
federal grant and additional state resources were used to
develop the new system. Under the system, a registered
person authorized to prescribe or dispense a controlled
substance is able to instantly look up a new patient's
controlled substance history to determine whether the
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patient legitimately needs medication or is doctor
shopping, the act of visiting several doctors to obtain
multiple prescriptions for drugs. The system also assists
persons authorized to prescribe or dispense controlled
substances to assure patient safety.
In order to obtain access to the system, authorized persons
must first register with CURES by submitting an application
and notarized documentation including: Drug Enforcement
Administration Registration, State Medical License or State
Pharmacy License, and a government issued identification.
While all persons authorized to prescribe or dispense
controlled substances must submit information to be entered
into the system, a very small percentage of these persons
are availing themselves of the database when it comes to
checking patient history before a prescription is written
or dispensed. According to DOJ, out of the 185,000 persons
authorized to write or dispense controlled substances, a
total of 5,434 have registered to access the database and
to date, 2,458 have been approved, others may be pending
additional information, notary, documentation, or
confirmation.
Dissemination or distribution of PDMP information to anyone
other than the registered user is strictly prohibited.
Disciplinary, civil or criminal actions are taken by the
DOJ and/or appropriate Regulatory Board for any misuse or
inappropriate accessing of patient data. HIPAA and all
confidentiality and disclosure provisions of California law
cover the information contained in this database, which
includes the patient's dispensed drug record, including
drug name; date filled; quantity, strength and number of
refills; pharmacy name and license number; doctor's name
and DEA number; and, prescription number.
In 2008, the Attorney General and the CURES team targeted
the top 50 doctor shoppers in the state, who averaged more
than 100 doctor and pharmacy visits to collect massive
quantities of addictive drugs like Valium, Vicodin, and
Oxycontin. The crackdown led to the arrest of dozens of
suspects.
CURES also alerts law enforcement and licensed medical
professionals to signs of illegal drug diversions. In
2008, the Attorney General and the Simi Valley Police
Department conducted a drug-trafficking investigation
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which revealed a conspiracy in which stolen identities of
eight doctors were used to illegally write prescriptions.
The drug ring also stole the identities of dozens of
citizens in order to fill the fraudulent prescriptions, and
were able to obtain more than 11,000 pills for drugs like
Oxycontin and Vicodin. In May 2009, the CURES team worked
with the Ventura County Sheriff's Office to provide
detectives with the prescribing history of a Burbank doctor
accused of writing hundreds of fraudulent prescriptions.
Seven of his patients died from prescription-drug
overdoses. Following an investigation, that included the
CURES report of the prescriptions he had written, the
doctor faced criminal charges, lost his medical license and
surrendered his license to prescribe controlled substances.
Current funding for CURES
According to documentation provided by DOJ, costs of the
CURES program in the current year are funded from the
following sources:
$379, 432.17 from the General Fund for personnel
salary and benefits; and
$296,000 from the Department of Consumer Affairs
Boards for data collection, software licenses, and
department IT functions, ($10,000 - Nursing Board,
$92,000 - Pharmacy Board, $150,000 - Medical Board,
$4,000 - Osteopathic Medical Board, and $40,000 -
Dental Board).
Additionally, a total of $9,102,323 in grant monies have
been awarded to the CURES program since 2003, as follows:
Bureau of U. S. Justice Administration:
$297,7452003 (2003), $350,000 (2004), 4000,000 (2006)
and $4000,000 (2007), primarily for staff and
consultant time.
The Substance Abuse and Mental Health Services
Administration: $454,578 (2009).
CURES has also submitted an application for Bureau of
Justice Funds for 2010.
Prior legislation
SB 734 (Torlakson), Chapter 487, Statutes of 2005,
authorized new tamper-resistant prescription pads and
permitted online access to CURES, pending the acquisition
of private funding.
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SB 151 (Burton), Chapter 406, Statutes of 2003, eliminates
the sunset on the CURES program, eliminates the requirement
that Schedule II controlled substances prescriptions be
written on triplicate forms, adds a requirement that
Schedule III controlled substances be included in CURES.
AB 2655 (Matthews), Chapter 345, Statutes of 2002, extended
the sunset date of the CURES program by five years.
Permits a licensed health care practitioner to make
a written request of the DOJ for the history of controlled
substances dispensed to an individual, and permits DOJ to
provide the history of controlled substances dispensed to
an individual to licensed health care practitioners and
pharmacists.
SB 1000 (Johannessen) 2001 would have allowed a
practitioner eligible to obtain triplicate prescription
forms for Schedule II controlled substances or a pharmacist
to request the history of controlled substances dispensed
to an individual under his or her care based on data
contained in CURES. This bill was vetoed by the Governor.
AB 2018 (Thompson), Chapter 1092, Statutes of 2000, revised
prescription requirements for Schedule II controlled
substances by permitting practitioners to receive more than
100 triplicate prescription blanks in a 30-day period as
well as other changes.
SB 1308 (Committee on Business and Professions), Chapter
655, Statutes of 1999, extended the CURES pilot project by
three years and requires DOJ to submit annual status
reports on the program to the Legislature.
AB 2693 (Migden), Chapter 789, Statutes of 1998, exempts
prescriptions for Schedule II controlled substances for
patients with a terminal illness from triplicate
prescription form requirements in existing law.
AB 3042 (Takasugi), Chapter 738, Statutes of 1996, required
DOJ, contingent on the availability of funds, to establish
CURES for electronic monitoring of the prescribing and
dispensing of Schedule II controlled substances by all
practitioners authorized to prescribe or dispense these
controlled substances as a three-year pilot program.
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Arguments in support
The Troy and Alana Pack Foundation and the California State
Sheriffs' Association argue that, SB 1071 will provide the
necessary revenue needed to make the CURES program
sustainable and develop it into the most comprehensive
system in the nation.
Consumer Attorneys of California, in support for a previous
version of SB 1071 which would have applied a fee instead
of a tax, states that SB 1071 will help maintain the CURES
program while reducing direct financial losses to health
care providers, hospitals and pharmacies that waste time
and productivity when patients doctor shop.
The California Statewide Law Enforcement Association, in
support for a previous version of SB 1071 which would have
applied a fee instead of a tax, adds that, while the CURES
program has been improved and enhanced over the years to
provide real-time Internet access for medical personnel and
law enforcement, the new system is currently dependent on
unsustainable private funding.
Arguments in opposition
The California Retailers Association (CRA) argues that SB
1071 places the burden for dealing with the problem of
prescription drug abuse and addiction on the pharmaceutical
supply chain at the end of the distribution system by
imposing taxes on entities who do not have control over the
actions of those who prescribe controlled substances or
those who abuse them. CRA adds that this bill does not
require a review of a patient's CURES history before
prescribing a drug, but continues existing law, which
requires the reporting of prescribed and dispensed drugs
afterward. CRA suggests that the bill be amended to add
this requirement which would do more to limit drug-seeking
individuals' access to controlled substances than imposing
a tax on entities that do not have the authority to
prescribe in the first place. CRA is also concerned about
the definition of "importer" in the bill, as it would
capture retail stores that receive controlled substances
from out-of-state distributors and the bill does not
specify that the per-pill tax should only be applied once.
The Pharmaceutical Research and Manufacturers of America
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(PhRMA) adds that the tracking of controlled substances for
criminal investigations and other purposes is a law
enforcement and regulatory function that is not within the
purview of the pharmaceutical industry. PhRMA asserts that
there will be a significant cost to the state to collect
the revenues envisioned in SB 1071 and that if such a tax
were to be instituted, those costs may ultimately be
incorporated into the price of medicines and add further
costs to the health care system.
The California Healthcare Institute (CHI) argues that the
CURES program is currently funded by prescribers and the
pharmacists who dispense Schedule II, III, and IV products
that are monitored by the CURES program. The prescribers
and pharmacists directly impact the availability of these
products and must ensure that they are being appropriately
utilized by patients with valid medical conditions. As
such, CHI contends that the fee in the first iteration of
this bill had no nexus to the program it sought to fund and
that recent amendments changing the fee to a tax levy do
nothing to resolve this problem.
COMMENTS
1) Double referral. This bill has been double referred to
Senate Revenue and Taxation Committee.
2) Should the tax be limited or be applied differentially?
DOJ reports that Valium, Vicodin, and Oxycontin are the
most prevalent pharmaceutical drugs obtained fraudulently,
and Vicodin and Oxycontin are the two most abused
pharmaceutical drugs in the United States. Because some
Schedule II, III, and IV substances are less prone to
diversion or abuse, should the tax be limited to substances
that are highly abused or imposed at a different level,
depending on the potential for abuse?
3) Use of funds. As drafted, the monies from the tax on
manufacturers and importers of controlled substances would
be allocated to the CURES program for administration,
maintenance and improvements, education and outreach, and
investigation of abuses. A suggested amendment would be to
provide that the priority for the monies in the CURES fund
will be to promote the online use of the database.
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4) Current funding. With the creation of a CURES fund,
should current funding streams from the General Fund and
Department of Consumer Affairs Boards be eliminated as
sources of funding the CURES program?
5) Impact of the bill on patients who are prescribed
controlled substances. Will SB 1071 result in higher
health care costs if the tax on controlled substance pills
is passed on to the patient, directly or indirectly?
6) Definitions in bill not consistent with existing law. As
drafted, SB 1071 provides definitions for "manufacturer"
and "importer" which are not consistent with existing
statutes in the Business and Professions Code (Code). The
Code defines a manufacturer to mean and include every
person who prepares, derives, produces, compounds, or
repackages any drug or device except a pharmacy that
manufactures on the immediate premises where the drug or
device is sold to the ultimate consumer, and clarifies what
"manufacturer" does not include. The Code also provides
definitions for wholesaler and nonresident wholesaler,
but makes no mention of "importer," which is not a term
used to define anyone connected to the movement of
controlled substances in the Code. A suggested amendment
would be to refer to current law for the definitions of
these entities.
7) Suggested technical amendment.
On Page 8, lines 19 - 24, amend as follows:
70003. On and after January 1, 2011, a tax is hereby
imposed at the rate of $0.0025 per pill included in
Schedule II, III, or IV upon : (a) every manufacturer and
importer of controlled substances classified as Schedule
II, III, or IV, only upon the first sale to any person or
entity in California, or (b) any other person that makes
the first sale in this state of a Schedule II, III, or IV
controlled substance.
8) Role of electronic health records. Will the requirements
of the CURES program become duplicative for authorized
medical persons in the future, when electronic medical
records are implemented?
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POSITIONS
Support: California Narcotic Officers Association
California Peace Officers' Association
California Police Chiefs Association
California Society of Interventional Pain
Physicians
California State Sheriff's Association
California Statewide Law Enforcement
Association
Consumer Attorneys of California (previous
version of bill)
Peace Officers Research Association of
California (previous version of bill)
Troy and Alana Pack Foundation
Six individuals (previous version of bill)
Oppose: BIOCOM (previous version of bill)
California Healthcare Institute
California Retailers Association
California Taxpayers' Association
(previous version of bill)
Genentech (previous version of bill)
Healthcare Distribution Management Association
(previous version of bill)
Pharmaceutical Research and Manufacturers
of America