BILL ANALYSIS �
AB 310
Page 1
Date of Hearing: May 3, 2011
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
AB 310 (Ma) - As Amended: April 25, 2011
SUBJECT : Prescription drugs.
SUMMARY : Prohibits health plan contracts and health insurance
policies that cover outpatient prescription drugs from requiring
coinsurance, as defined, as a basis for cost sharing for
outpatient prescription drug benefits and imposes specified
limitations on copayments, as defined, and out-of-pocket
expenses for outpatient prescription drugs. Specifically, this
bill :
1)Prohibits health plan contracts and health insurance policies
that cover outpatient prescription drugs from requiring
coinsurance as a basis for cost sharing with the enrollee or
insured for outpatient prescription drug benefits.
2)Restricts the requirement for an enrollee or insured to pay a
copayment for outpatient prescription drugs to no more than
$150 for a one-month supply of a prescription, or its
equivalent for a prescription for a longer period, as adjusted
for inflation.
3)Requires, if a health plan contract or health insurance policy
provides for a limit on the annual out-of-pocket expenses for
an enrollee or insured, the enrollee's or insured's
out-of-pocket costs of covered prescription drugs to be
included in that limit.
4)Defines "coinsurance" to mean a cost-sharing payment by an
enrollee or insured that is based on a percentage of the cost
for a prescription, and "copayment" to mean a flat dollar
amount an enrollee or insured is required to pay in cost
sharing for covered health services, items, and supplies,
including prescription drugs, after any applicable deductible.
Prohibits the term
"copayment" from being construed to include any other forms of
cost sharing.
5)Prohibits this bill from being construed to require a health
plan contract or health insurance policy to provide coverage
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not otherwise required by law for any prescription drug.
6)Makes this bill inoperative upon a determination by the
Department of Managed Health Care (DMHC) or California
Department of Insurance (CDI) that its requirements exceed the
essential health benefits (EHBs) set forth in the federal
Patient Protection and Affordable Care Act (PPACA), as
specified.
EXISTING LAW :
1)Enacts, in federal law, the PPACA to, among other things, make
statutory changes affecting the regulation of, and payment
for, certain types of private health insurance. Includes the
definition of an EHBs package that all qualified health plans
must cover, at a minimum, with some exceptions.
2)Provides that the EHBs package in 1) above will be determined
by the federal Department of Health and Human Services (HHS)
Secretary and must include, at a minimum, ambulatory patient
services; emergency services; hospitalizations; and,
prescription drugs, among other things.
3)Provides for regulation of health plans by the DMHC under the
Knox-Keene Health Care Service Plan Act of 1975 and regulation
of health insurers by the CDI under the Insurance Code.
4)Prohibits changes in premium rates or coverage from becoming
effective without prior written notification of the change to
the enrollee or insured. Prohibits health plans and health
insurers, during the term of a group plan contract or policy,
from changing the rate of the premium, copayment, coinsurance,
or deductible during specified time periods.
5)Authorizes DMHC to regulate the provision of medically
necessary prescription drug benefits by a health plan to the
extent that the plan provides coverage for those benefits.
Existing regulation requires health plans providing outpatient
prescription drugs to provide all medically necessary
prescription drugs, as specified.
6)Requires health plans that provide prescription drug benefits
and maintain one or more drug formularies to provide to the
public, upon request, a copy of the most current list of
prescription drugs by major therapeutic category, with an
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indication of whether any drugs on the list are preferred over
other listed drugs. Requires plans that maintain more than
one formulary to notify the requester that a choice of
formulary lists is available.
7)Prohibits health plans from limiting coverage for a drug that
had previously been approved by the plan.
8)Requires health plans that provide prescription drug benefits
to maintain an expedited process by which prescribing
providers may obtain authorization for a medically necessary
non-formulary drug.
9)Requires any health plan disapproval pursuant to 8) above to
provide the enrollee with the reasons for the disapproval and
notify the enrollee of the right to file a grievance if the
enrollee objects to the disapproval; including any alternative
drug or treatment offered by the plan.
10)Requires the process for authorization of medically necessary
non-formulary drugs to be described in the health plan
disclosure form.
FISCAL EFFECT : This bill has not yet been analyzed by a fiscal
committee.
COMMENTS :
1)PURPOSE OF THIS BILL . According to the author, when patients
pay for drug medications, many health care plans include a
three-tiered pricing structure for generic, preferred, and
non-preferred drugs, each with a flat cost-sharing amount
(e.g., $10 for generic, $30 for preferred, and $60 for
non-preferred). The author notes that, in 2006, federal
Medicare Part D plans instituted a fourth tier of prescription
drugs, known as "specialty tiers," to provide plans with the
ability to use coinsurance to share the costs of the most
expensive medications with the patient. The author asserts
that many private health plans and health insurers have copied
this model for the most expensive medications and require
enrollees/insureds to pay a percentage of the cost through
coinsurance. The author contends these plans have been
charging patients on average 25% to 33% of the cost of the
drugs which can cost them thousands of dollars a month out of
pocket. This bill is intended to restrict this practice by
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prohibiting health plans and health insurers from using
coinsurance as a means of cost sharing and by imposing a $150
cap on patients' out of pocket costs for a one month supply of
medication.
2)PRESCRIPTION DRUG FORMULARIES . According to the California
HealthCare Foundation, a prescription drug formulary is a list
of prescription drugs recommended to patients and prescribers
that are covered by the health plan. While there are several
types of formularies, three-tier formulary plans are popular
among employer based coverage. In a three-tiered plan,
individuals pay the lowest co-pay for generic drugs, the next
highest co-pay for preferred drugs, and the highest co-pay for
non-preferred or non-formulary drugs. Typically, nearly all
brand-name drugs that come off patent and have approved
generic substitutes are subject to non-preferred co-pay as a
means to encourage patients to use less expensive generics.
According to a March 2009 AARP report entitled "The Tier 4
Phenomenon: Shifting the High Cost of Drugs to Consumers,"
tier four specialty drugs generally include prescription
medicines that are used to treat complex, chronic conditions
and require special administration, handling, and care
management. Biologically derived drugs, meaning those created
from living organisms, as opposed to traditional
chemically-derived drugs, comprise the bulk of those on
specialty tiers. Many of these drugs are used to treat such
conditions as anemia, cancer, rheumatoid arthritis (RA),
multiple sclerosis (MS), hemophilia, and hepatitis, and are
currently among the most expensive drugs on the market, with
prices that can range from $5,000 to more than $300,000 per
year. AARP's report found that the average annual price of
the most widely used biologic drugs on a fourth tier exceeds
$20,000.
AARP reports that patients prescribed fourth tier drugs are
often charged 25% - 35% of the drug price and notes in its
report that one of the largest Medicare Part D plans increased
coinsurance requirements from 25% to 43% for tier four drugs
in 2009. AARP writes that specialty drugs found on fourth
tiers are used to treat conditions that affect less than 5% of
the population but that number is expected to grow as new
drugs are approved and those that are already on the market
are used to treat an expanding array of conditions.
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3)EHBs . The PPACA requires, among other things, qualified health
plans to cover specified categories of EHBs, including
prescription drugs, by 2014. The HHS Secretary is tasked with
defining these benefit categories through regulation so that
they mirror those benefits offered by a "typical" employer
plan. Federal guidance with respect to EHBs is expected later
this year and in 2012.
In a January 2011 issue brief by the University of California's
Health Benefits Review Program (CHBRP) focusing on the federal
requirement to cover EHBs, CHBRP notes that
there is considerable legal ambiguity over how state mandates
requiring the coverage of the treatment for a specific
condition or disease will interact with federal law. CHBRP
states that these mandates often extend across multiple
benefit categories. CHBRP cites, as an example, California's
mandate to cover breast cancer treatment, which implicitly
requires coverage for screening and testing, medically
necessary physician services, ambulatory services,
prescription drugs, hospitalization, and surgery. CHBRP
writes that it is unclear how California benefit mandates that
overlap across several EHB categories would be evaluated in
relation to the EHB package.
4)CHBRP . CHBRP was created in response to AB 1996 (Thomson),
Chapter 795, Statutes of 2002, which requests the University
of California to assess legislation proposing a mandated
benefit or service, and prepare a written analysis with
relevant data on the public health, medical, and economic
impact of proposed health plan and health insurance benefit
mandate legislation. In its analysis of this bill, CHBRP
reports the following:
a) Medical Effectiveness . CHBRP's medical effectiveness
analysis focuses on the impact of cost sharing on use of
prescription drugs because this bill would not increase the
number of Californians who have coverage for prescription
drugs, but would instead affect the terms and conditions of
prescription drug coverage for enrollees who have such
coverage. CHBRP found that only a small number of studies
of the impact of cost sharing on use of specialty drugs
(e.g., new, high-cost biologics) have been published but
the preponderance of evidence from these studies suggests
that demand for specialty drugs is sensitive to price.
Demand for specialty drugs to treat MS and RA appears to be
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more sensitive to cost sharing than demand for specialty
drugs for cancer and kidney disease.
CHBRP identified no studies of the effects of cost sharing
for specialty drugs on use of other types of health care
services. However, CHBRP notes that no evidence of effect
is not evidence of no effect because it is possible that
some individuals who face higher cost sharing for specialty
drugs have more hospitalizations, emergency room visits,
and outpatient visits than those who face lower cost
sharing. Furthermore, CHBRP reports that the preponderance
of evidence from the large number of studies on the effects
of cost sharing on use of traditional drugs (e.g., generic
and brand-name medications produced using traditional
pharmaceutical manufacturing processes) suggests that
demand for traditional drugs is more sensitive to price
than demand for specialty drugs. According to CHBRP, each
10% increase in cost sharing for traditional drugs is
associated with a 2% to 6% reduction in their use whereas
each 10% increase in cost sharing for specialty drugs would
reduce spending for these drugs by 0.1% to 2.1% depending
on the disease that the drug is used to treat.
b) Utilization, Cost, and Coverage Impacts . This bill
would directly affect the health insurance of nearly 21
million Californians. Twelve percent of enrollees with
health insurance subject to this bill have coinsurance
requirements for outpatient prescription drug benefits; no
enrollees have copayments for outpatient prescription drugs
over $150 for a one month supply; and, nearly 67% of
enrollees have an annual out-of-pocket maximum for their
plan or policy but it excludes the outpatient prescription
drug benefit. CHBRP notes that CalPERS HMOs' out of pocket
maximum, currently set at $1,500 per enrollee and $3,000
per family, excludes the outpatient prescription drug
benefit and would have to be adjusted to comply with the
requirements of this bill.
Total net health expenditures are projected to increase by
approximately $32 million due to a $220 million increase in
health insurance premiums that is partially offset by
reductions in enrollee cost sharing of $187 million.
Increases as measured by per member, per month (PMPM)
premiums vary by market segment. In the privately funded
large-group market, the increase in premiums is estimated
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to range from an average $1.12 PMPM among DMHC-regulated
plans to $3.69 PMPM among CDI-regulated policies. In the
privately funded small-group market, health insurance
premiums are estimated to increase by an average of $0.74
PMPM for DMHC-regulated plans and $1.16 PMPM for
CDI-regulated policies. In the privately funded individual
market, health insurance premiums are estimated to increase
by an average of $0.36 PMPM and $0.53 PMPM in the DMHC- and
CDI-regulated markets, respectively. Premiums for CalPERS
HMOs are estimated to increase by $1.38 PMPM.
c) Public Health Impact . CHBRP reports no public health
impact of this bill's provision capping copayments at $150
per prescription per one-month supply since CHBRP estimates
that no enrollees are currently in plans and policies with
outpatient prescription drug copayments exceeding $150.
CHBRP indicates that the provision in this bill requiring
those plans or policies that have an annual out of pocket
maximum to include out-of-pocket cost for the prescription
drug benefit may have a public health impact but, given
lack of evidence and data, the potential public health
impact is unknown. CHBRP focused its discussion of
potential public health impacts on those drugs and
conditions for which there is existing evidence from the
literature of the association between cost sharing and
prescription drug utilization. As a result, CHBRP notes
that, to the extent that more people have access to these
drugs, there is the potential for beneficial long term
health impacts for people who have chronic conditions such
as MS and RA. However, CHBRP concludes the long-term
public health impacts due to this bill are unknown given
the uncertainty of how the market may respond to the lower
cost-sharing requirements of this bill.
5)RELATED LEGISLATION .
a) AB 369 (Huffman) prohibits health plans and health
insurers that restrict medications for the treatment of
pain from requiring a patient to try and fail on more than
two pain medications before allowing the patient access to
the pain medication, or its generic equivalent, prescribed
by his or her physician. AB 369 is pending in the Assembly
Appropriations Committee.
b) SB 866 (Ed Hern�ndez) directs DMHC and CDI to jointly
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develop a standardized prior authorization form for
prescription drug benefits by July 1, 2012, and requires
health plans and health insurers that provide prescription
drug benefits to accept the standardized form when
requiring prior authorization for prescription drug
benefits. SB 866 is pending in the Senate Appropriations
Committee.
6)PRIOR LEGISLATION .
a) AB 2170 (Bonnie Lowenthal) of 2010 would have prohibited
health plans and health insurers that cover prescription
drugs and use a formulary from increasing applicable
copayments or deductibles for prescription drugs for the
length of the contract, including, but not limited to,
during an open enrollment period. AB 2170 died on the
Assembly Appropriations Committee Suspense File.
b) AB 2052 (Goldberg), Chapter 336, Statutes of 2002,
prohibits health plans and health insurers from making any
change in premium rates or cost sharing after acceptance of
a contract or policy or after the annual open enrollment
period.
c) AB 974 (Gallegos), Chapter 68, Statutes of 1998,
prohibits health plans from limiting coverage for a drug
that had previously been approved by the plan and requires
specified disclosures regarding the use and contents of
drug formularies.
7)SUPPORT . Supporters, representing patient advocacy groups and
providers, state that this bill will help individuals living
with chronic illnesses like MS, Lou Gehrig's Disease, and
chronic pain that rely heavily on critical but expensive
medications to improve their quality of life and are
struggling with rising out of pocket drug costs. The sponsors
of this bill, the Alliance for BioTherapeutics and the
National MS Society, note that four of the disease modifying
therapies used to treat MS are routinely placed on specialty
tiers by insurance companies and health plans and require
patients to pay a percentage of the cost through coinsurance
that can cost patients hundreds, if not thousands of dollars
per month. The National Psoriasis Foundation writes in
support that this bill will allow people living with chronic
and life-threatening diseases affordable access to the vital
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drugs they need in order to live active and productive lives.
The Association of Northern California Oncologists adds that
coinsurance amounts of up to 33% of the cost of tier four
drugs restricts access to necessary medications to those who
can afford it, rations care, and violates the principle of
shared risk inherent in health insurance.
8)OPPOSITION . Health plans, health insurers, and pharmacy
benefit managers (PBMs) object to this bill. The California
Association of Health Plans (CAHP) objects to all benefit
mandate bills, stating that it is the wrong time for the
Legislature to consider enacting new benefit mandates since,
starting in 2014, many Californians can enroll in health
coverage through the newly created insurance Exchange
established under the PPACA and, in California, through AB
1602 (John A. P�rez), Chapter 655, Statutes of 2010. CAHP
asserts that this bill does nothing to control the high cost
of prescription drugs and, instead, would unravel reasonable
cost management of prescription drugs in a way that increases
overall costs. The Association of California Life & Health
Insurance Companies notes in opposition that some plan designs
use copays for formulary drugs, coinsurance for non-formulary
drugs, and coinsurance for some specialty drugs and contends
that this bill would eliminate the ability of employers to
choose coinsurance pharmacy options for all drugs, formulary
or not, unless they choose to self-fund their health benefit
plan to avoid the limitation in this bill. PBMs, such as
CVS/Caremark and Express Scripts, Inc., oppose this bill
because their clients, including employers, labor trusts,
health plans, and government entities, utilize copayments and
coinsurance as important tools to encourage enrollees to
select cost effective alternatives and to control the overall
cost of prescription coverage.
9)POLICY COMMENT . This bill is one of several health mandates
introduced for legislative consideration this year. The
author may wish to address the extent to which the need for
this bill and others similar to it is premature, given that
federal regulations to define the parameters of the EHB
package have yet to be promulgated.
REGISTERED SUPPORT / OPPOSITION :
Support
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Alliance for BioTherapeutics (sponsor)
National Multiple Sclerosis Society (sponsor)
Acid Maltase Deficiency Association, Inc.
American College of Rheumatology
Association of Northern California Oncologists
BIOCOM
California Academy of Physician Assistants
California ALS Advocacy Committee
California Communities United Institute
California Medical Association
California NeuroAlliance
California Rheumatology Alliance
California Senior Legislature
Congress of California Seniors
CSL Behring
Disability Rights California
For Grace
Hemophilia Council of California
Mental Health Association in California
National Psoriasis Foundation
Opposition
America's Health Insurance Plans
Association of California Life & Health Insurance Companies
California Association of Health Plans
California Association of Joint Powers Authorities
California Chamber of Commerce
CVS/Caremark
Express Scripts, Inc.
Health Net
Analysis Prepared by : Cassie Royce / HEALTH / (916) 319-2097