BILL ANALYSIS �
AB 378
Page 1
Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 378 (Solorio) - As Amended: April 4, 2011
SUBJECT : Workers' compensation: compounded medications
SUMMARY : Regulates the dispensing of compounded medications in
the workers' compensation system. Specifically, this bill :
1)Adds "pharmacy goods" to the listing of goods and services for
which a physician may not refer a patient if the physician or
his or her immediate family has a financial interest in the
provider of the goods or services.
2)Defines "pharmacy goods" as a dangerous drug or device, as
defined in the Business and Professions Code, medical food as
defined in the Health and Safety Code, and over-the-counter
drugs as classified by the federal Food and Drug
Administration (FDA).
3)Provides that for a pharmacy service, drug or other product
that is not covered by a Medi-Cal payment system, the maximum
reasonable fee shall be 83% of the average wholesale price
(AWP) of the lowest priced product of equivalent therapeutic
effect.
4)Provides that, until the Administrative Director (AD) of the
Division of Workers' Compensation (DWC) adopts a fee schedule
for compounded drug products, the maximum reasonable fee for a
compounded drug product shall be the sum of the appropriate
fees for services provided by the Medi-Cal payment system,
plus the sum of the amounts allowed for the ingredients, as
follows:
a) If an ingredient is available in bulk from three or
more suppliers listed in national pricing compendiums,
the unit price shall be the lesser of 150% of the unit
price of the lowest cost alternatives, or the unit price
listed in the Medi-Cal database.
b) If an ingredient is not available from three or more
suppliers, but is listed in the Medi-Cal database, the
unit price shall be the lesser of the Medi-Cal price or
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120% of the documented costs paid by the pharmacy that
compounds the drug product.
c) If an ingredient is not available from three or more
suppliers, and is not listed in the Medi-Cal database,
the unit price shall be the lesser of 83% of the AWP or
the documented costs paid by the pharmacy that compounds
the drug product.
5)Provides that no fee shall be allowed for any ingredient that
is not identified by a valid National Drug Code, number of
units, unit price, and, if applicable, documented paid cost.
6)Specifies that the fee for any product dispensed by a
physician shall not exceed the lesser of 120% of the
physician's documented costs or the physician's documented
cost plus $250.
7)Specifies that for a compounded drug product dispensed by a
physician, the maximum fee shall not exceed the lesser of the
amount calculated under item 4), above, or item 6), above.
8)Provides that the rules governing payment to physicians for
drugs that they dispense shall apply only until a fee schedule
for these medications has been adopted by the AD.
9)Contains definitions for the various terms used in the bill.
10)Contains Legislative findings and declarations chronicling
the recent significant rise in the dispensing of compounded
medications, co-packs and medical foods, and declaring the
need to end inappropriate financial incentives that lead to
the unnecessary and expensive prescribing and dispensing of
substances.
11)Repeals provisions of law in the Labor Code sections being
amended by the bill that expired on January 1, 2011.
EXISTING LAW :
1)Provides for a comprehensive system of workers' compensation
benefits for injuries to employees arising out of or in the
course of employment. Injured workers are entitled to
appropriate medical treatment, including necessary
medications, among other benefits.
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2)Provides for a fee schedule to govern the amount that a
provider may charge for medications, generally requiring
payment based on the Medi-Cal fee schedule.
3)Requires, by regulation, that physicians dispensing medication
directly to patients from bulk supplies bill at the amount
that the Medi-Cal schedule requires for the amount of
medication being dispensed.
FISCAL EFFECT : Undetermined but potentially significant
savings to the state's workers' compensation program.
COMMENTS :
1)Purpose . This bill was introduced to address an increasingly
expensive practice of physicians dispensing compounded
medications at arguably highly inflated prices, and in
arguably inappropriate circumstances. What began as anecdotal
reports of questionable practices has now been documented by a
2010 study by the California Workers' Compensation Institute
(CWCI), and a 2011 Report to the Commission on Health and
Safety and Workers' Compensation (CHSWC) by RAND. AB 378 is
designed to curb these inappropriate practices.
2)Prescribing vs. dispensing . Typically, when a patient needs
medication, the physician will write a prescription, and the
patient will take the prescription to a pharmacy that will
fill the prescription. However, physicians are also allowed
to "dispense" medications. In these circumstances, the
physician determines what medication he or she wants the
patient to take, and provides it directly to the patient.
When done in the workers' compensation system, the physician
then bills the employer or insurer directly for the "cost" of
the medication. This bill addresses circumstances where the
medications being dispensed, at least in the volumes being
dispensed, raise questions about whether medical needs or
financial incentives are driving the decision to provide these
medications.
3)Recent increases in dispensing of compounded medications and
related products . In the regular group and individual
healthcare systems, compounded medications are used only in
unusual circumstances, and generally only after more
conventional therapies have been shown to be ineffective.
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This infrequent incidence of prescription or dispensing of
compounded medications was also the norm in the workers'
compensation system until approximately 2007. Based on the
findings of RAND and CWCI, it is NOT coincidental that the
substantial increase in physician dispensing of compounded
medications coincides with the prohibition of physician
repackaging and dispensing of regular medications. According
to the CWCI study, compounds increased from 2.3% of drug
expenses prior to 2007 to over 12% in less than three years.
Anecdotally, insurers report that this trend is increasing.
Prior to the regulation controlling the repackaging problem,
physicians could skirt the Medi-Cal fee schedule by buying
"repackaged" drugs from distributors in packages labeled for
direct distribution to patients. These packages had National
Drug Code (NDC) numbers that were distinct from the NDC of the
bulk ingredients normally distributed to pharmacies. Because
the Medi-Cal fee schedule is based on the NDC of the product,
and the repackaged drugs did not appear in the Medi-Cal fee
schedule, the reimbursement to the physicians was not based on
the Medi-Cal fee schedule, but rather on an artificially high
"Average Wholesale Price" (AWP) assigned by the repackager.
The actual cost to the physician was a fraction of the
arbitrary AWP, yet this artificial AWP is how the drugs were
billed. This arrangement enabled the physicians who engaged
in this practice to obtain excess profits by dispensing drugs
at prices several times the price of the same drugs
distributed through pharmacies. The AD's regulation mandates
that repackaged medications be billed at the Medi-Cal schedule
equivalent, even though there is not a Medi-Cal code for the
individual packages.
It is difficult to dismiss the spiking of the incidence of
dispensing compounded medications in workers' compensation
with the loophole-closing repackaging regulation as mere
coincidence. Coupled with the infrequent use of these
medications in the regular healthcare system, it is difficult
to avoid the conclusion that compounded medications are the
new profit-center that has replaced the abusive repackaging
practices.
4)There is a broad consensus that abuses are occurring . It is
not merely the bill's supporters - the California Labor
Federation, numerous employer groups, both major insurer
associations - who believe that there are abuses in the
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system. Physician groups agree that abuses are occurring.
The California Society of Industrial Medicine and Surgery
(Support, if amended) and the California Medical Association
(oppose unless amended) expressly acknowledge in their
communications to the Committee that there are substantial
abuses in the marketplace. Others, such as the California
Pharmacists Association (opposed due to some of the statements
in the findings and declarations), have been working since
last year to find a solution to this problem.
5)Physician concerns . Physicians, in recognition that the bill
is addressing a complex problem, have not yet proposed
specific language to address areas where they seek amendments.
The concerns relate to whether the bill's formulas for
calculating fees need amending, whether the restriction on
self-referral is necessary in light of existing law, and
whether the inclusion of over-the-counter (OTC) medications in
the definition of "pharmacy goods" is appropriate. The author
and supporters have engaged with physicians' representatives
in an ongoing dialogue over these issues.
It is clear that a fee calculation methodology is needed, and it
appears that all parties are committed to working on drafting
an appropriate formula. It is also clear that limits on
self-referral are appropriate, and it is clear that a
discussion about whether existing laws suffice is appropriate.
With respect to OTC drugs inclusion, RAND and the CHSWC staff
have documented ways that OTC substances specifically labeled
for the workers' compensation market are used in lieu of
readily available less expensive medications, in ways to
obtain excessive billings. It remains a challenge to craft
the precise language that curbs the abuses without impeding
proper uses. The author is committed to working on these
issues as the bill moves through the process.
6)Medical foods . Physician Therapeutics, a specialty company
that produces medical foods, has an opposed unless amended
position, and objects to language in the findings and
declarations that include its FDA-approved products with other
products that are not FDA-approved. In addition, it argues
there is a technical inconsistency in the bill's restrictions
on physician dispensing. However, the company "is NOT opposed
to the bill's current method of bringing medical foods under
the regulatory and pricing program for workers' compensation."
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7)Prior legislation . Last year, AB 2779 (Solorio) was amended
in the Senate to address the compounding issue. That bill
took a different approach by requiring a pre-authorization
before a physician could dispense a compounded medication, and
requiring the physician to employ more conventional therapies
before resorting to the use of compounded medication. These
elements are required in the Medi-Cal Program, and in general
are the rules in the group and individual healthcare system.
However, it was argued that these requirements do not work in
the workers' compensation system. AB 2779 passed the Senate
Committee on Labor and Industrial Relations, but was not taken
up in the Appropriations Committee.
8)RAND report to CHSWC . In light of the issues raised with
respect to AB 2779, Senator DeSaulnier and Assemblyman Solorio
requested CHSWC to commission a study of the issue, and
develop policy recommendations. CHSWC contracted with RAND to
perform the study, and AB 378 represents the proponents' best
efforts to draft language to implement the recommendations of
the RAND Report to CHSWC.
REGISTERED SUPPORT / OPPOSITION :
Support
Acclamation Insurance Management Services (AIMS)
Allied Managed Care (AMC)
California Association of Joint Powers Authorities
California Chamber of Commerce (CalChamber)
California Coalition on Workers Compensation
California Labor Federation
California Manufacturers & Technology Association
California Professional Association of Specialty Contractors
California Restaurant Association
California Society of Industrial Medicine and Surgery (CSIMS)
(if amended)
California Society of Physical Medicine and Rehabilitation
(CSPMR) (if amended)
CompPharma
CSAC-EIA
Pacific Compensation Insurance Company
Small Business California
Western Propane Gas Association
Opposition
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California Medical Association (unless amended)
California Pharmacists Association (CPhA)
Physician Therapeutics (unless amended)
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086