BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: July 6, 2011 2011-2012 Regular
Session
Consultant: Gideon L. Baum Fiscal:Yes
Urgency: No
Bill No: AB 378
Author: Solorio
Version: May 9, 2011
SUBJECT
Workers' compensation: pharmacy products.
KEY ISSUE
Should the Legislature prohibit physicians from referring a
patient for pharmacy goods if that physician has a financial
interest in the entity that receives the referral?
Should the Legislature require the creation of a fee schedule
for compound drugs and physician dispensed products?
PURPOSE
To contain the costs associated with the use of compound drugs
and physician dispensed products.
ANALYSIS
Existing law establishes a workers' compensation system that
provides benefits to an employee who suffers from an injury or
illness that arises out of and in the course of employment,
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.
Existing law prohibits a physician from referring a person for a
variety of treatment services if the physician or his or her
immediate family has a financial interest with the person or in
the entity that receives the referral. These services include
clinical laboratory, diagnostic nuclear medicine, physical
therapy, physical rehabilitation, outpatient surgery, or
diagnostic imaging goods or services. (Labor Code � 139.3)
Existing law defines a "Dangerous drug" or "dangerous device" as
any drug or device unsafe for self-use in humans or animals, and
includes the following:
a) Any drug that bears the legend: "Caution: federal law
prohibits dispensing without prescription," "Rx only," or
words of similar import.
b) Any device that bears the statement: "Caution: federal
law restricts this device to sale by or on the order of a
____," "Rx only," or words of similar import, the blank to
be filled in with the designation of the practitioner
licensed to use or order use of the device.
c) Any other drug or device that by federal or state law
can be lawfully dispensed only on prescription.
(Business and Professions Code � 4022)
Existing law prohibits any prescriber from dispensing drugs or
dangerous devices to patients in his or her office or place of
practice unless all of the following conditions are met:
a) The dangerous drugs or dangerous devices are dispensed
to the prescriber's own patient, and the drugs or dangerous
devices are not furnished by a nurse or physician
attendant, with certain exceptions;
b) The dangerous drugs or dangerous devices are necessary
in the treatment of the condition for which the prescriber
is attending the patient;
c) The prescriber does not keep a pharmacy, open shop, or
drugstore, advertised or otherwise, for the retailing of
dangerous drugs, dangerous devices, or poisons;
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Senate Committee on Labor and Industrial Relations
d) The prescriber fulfills all of the labeling requirements
imposed upon pharmacists, all of the recordkeeping
requirements found in existing law, and all of the
packaging requirements of good pharmaceutical practice,
including the use of childproof containers;
e) The prescriber does not use a dispensing device unless
he or she personally owns the device and the contents of
the device, and personally dispenses the dangerous drugs or
dangerous devices to the patient packaged, labeled, and
recorded.
(Business and Professions Code � 4170)
Existing law requires the administrative director of the
Division of Workers' Compensation (DWC) to adopt and
periodically revise an Official Medical Fee Schedule (OMFS) to
establish reasonable maximum medical fees for medical services.
For pharmacy services and drugs, the OMFS utilizes the Medi-Cal
payment system. (Labor Code � 5307.1)
This bill would :
i. Add pharmacy goods , which includes compound drugs,
medical foods, and co-packs, to the list prohibited goods
and services a physician may refer a person to if the
physician or his or her immediate family has a financial
interest with the person or in the entity that receives the
referral;
ii. Defines "pharmacy good" as a dangerous drug or dangerous
device, or as a medical food, as defined by state and
federal law;
iii. Provide that, for a pharmacy service, drug, or other
pharmacy product that is not covered by a Medi-Cal payment
system, the maximum fee shall be 83 percent of the average
wholesale price of the lowest priced product of equivalent
therapeutic effect;
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Senate Committee on Labor and Industrial Relations
This bill would also:
i. Provide that, until the date that the administrative
director adopts an official medical fee schedule for
compounded drug products, the maximum reasonable fee for a
compounded drug product shall be the sum of:
a) The compounding fee for route of administration and
quantity;
b) The dosage compounding fee, the sterility fee, if
applicable, and the dispensing fee, all as provided by
the Medi-Cal payment system; and
c) The sum of the amounts allowed for the ingredients
of the compounded drug product.
i. Provide that if an ingredient for a compound drug is
available in bulk form from three or more suppliers listed
in the current version of a national pricing compendium for
the same chemical ingredient and dosage form, the unit
price shall be the lesser of:
a) 150 percent of the unit price of the lowest cost
alternative for purchases made in quantities of the
largest packaging size available from each supplier; or
b) The unit price listed in the Medi-Cal database.
i. Provide that if an ingredient for a compound drug not
does not meet the above requirements but is listed in the
Medi-Cal database , the unit price shall be the lesser of
the price listed in the Medi-Cal database or 120 percent of
the documented paid cost incurred by the pharmacy that
compounds the drug product.
ii. Provide that if an ingredient does not meet the above
requirements and is not listed in the Medi-Cal database ,
the unit price shall be the lesser of 83 percent of the
average wholesale price for the manufacturer as published
in the current version of a national compendium of drug
pricing or the documented paid cost incurred by the
pharmacy that compounds the drug product.
iii. Provide that a fee shall not be allowed for any
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ingredient that is not identified by a valid National Drug
Code, number of units, unit price, and where applicable,
the documented paid cost per unit.
iv. Also provides that for a pharmacy-compounded product,
the amount allowed must be determined without regard to the
compounding pharmacist's documented paid cost.
This bill would also:
i. Provide that the fee for any product dispensed by a
physician shall not exceed the lesser of 120 percent of the
physician's documented paid cost or the physician's
documented paid cost plus two hundred fifty dollars ($250);
ii. Provide that, for a compounded drug product dispensed by
a physician, the fee shall not exceed the lesser of the
amount allowed discussed above or exceed the lesser of the
amount allowed for the compounded drug product.
iii. Provides that the above-mentioned fees must apply until
the date that the administrative director adopts an
official medical fee schedule specifically applicable to
physician-dispensed products.
COMMENTS
1. What is a Compound Medication?
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.
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Senate Committee on Labor and Industrial Relations
2. What is a Medical Food?
A medical food is defined by the Food and Drug Administration
as "a food which is formulated to be consumed or administered
enterally under the supervision of a physician and which is
intended for the specific dietary management of a disease or
condition for which distinctive nutritional requirements,
based on recognized scientific principles, are established by
medical evaluation."
The FDA goes on to say: "In general, to be considered a
medical food, a product must, at a minimum, meet the following
criteria: the product must be a food for oral or tube feeding;
the product must be labeled for the dietary management of a
specific medical disorder, disease, or condition for which
there are distinctive nutritional requirements; and the
product must be intended to be used under medical
supervision."
An example of a medical food is a food for use by persons with
fibromyalgia, sleep disorders, sleep fatigue, and pain
management issues.
A convenience pack , or co-pack, is when a medical food is
combined with a generic drug to produce a capsule.
3. Need for the bill?
Because compound medications, medical foods, and convenience
packs 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
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Senate Committee on Labor and Industrial Relations
Workers Compensation (DWC) dealt with a similar loophole with
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.
AB 378 seeks to address the issue of the use of compound
drugs, medical foods, and co-packs through the creation of fee
schedules, but also through the alteration of the financial
incentives which may be driving the use of these products.
The need for this legislative action comes from a recent CHSWC
study, which is discussed below.
4. A Brief Discussion on the Genesis of AB 378:
Last year, this Committee heard AB 2779 (Solorio), which dealt
with compound drugs in the workers' compensation system. That
bill was introduced after a 2010 study by the California
Workers' Compensation Institute (CWCI) found that the total
amount charged for compound medications, medical foods, and
convenience packs had grown from 2.2 percent to 11.8 percent
of the total dollars billed as "medications" in the California
workers' compensation system. Similarly, the percentage of
California workers' compensation medication dollars that paid
for compound drugs, medical foods and co-packs increased more
than five-fold from 2.3 percent of all drug payments in the
first quarter of 2006 to 12.0 percent in the first quarter of
2009.
After AB 2779 died on the Senate Floor Inactive File,
Assemblymember Solorio and then-Senate Labor Committee Chair
Sen. Mark DeSaulnier asked the Commission on Health, Safety,
and Workers' Compensation (CHSWC) to produce a study on the
use of compound drugs, medical foods, and co-packs in the
workers' compensation system.
That study, titled "Use of Compound Drugs, Medical Foods, and
Co-Packs in California's
Workers' Compensation Program" was released at the beginning
of 2011. The report concurred with the previous CWCI study,
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Senate Committee on Labor and Industrial Relations
but also brought to the fore several additional conclusions.
For one, the CHSWC study found "indications that products are
pre-compounded and mass-marketed in California" , suggesting
that a significant number of these compounded products are not
for the specific needs of individuals, but rather part of a
scheme to evade the cost-containing aspects of the Official
Medical Fee Schedule (OMFS).
In light of this finding, the study concluded with finding
that while fee schedules for compound drugs, medical foods,
and co-packs would be helpful in containing costs, only
through the adjustment of the underlying financial incentives
around pharmacy goods and physician dispensing will these cost
drivers be brought permanently under control.
5. Average Acquisition Cost (AAC) versus Average Wholesale Price
(AWP):
Recently, due to federal law changes and state budget trailer
bill language, the Medi-Cal payment system is in the process
of shifting from the use of Average Wholesale Price (AWP) to
Average Acquisition Cost (AAC) as a method for reimbursing
doctors for pharmaceuticals. This bill, however, references
AWP as a method of reimbursement and cites drug compendiums
which may not continue to exist under the new Medi-Cal payment
system. The Committee may wish to ask the author whether he
plans to take amendments to rectify this and when those
amendments may occur.
6. Proponent Arguments :
Proponents cite the recent CHSWC study on compound drugs and
medical foods as evidence for a need for statutory changes on
how the workers' compensation system pays for compound drugs
and medical foods. Proponents argue that this bill will
address the immediate need for compound drugs by providing
cost containment until the administrative director forms a
medical fee schedule for compound drugs. However, proponents
further argue that AB 378 addresses rising costs in the
workers compensation system by including pharmacy goods as a
referral where the physician must not have a financial
incentive, thereby ensuring that the referral for pharmacy
Hearing Date: July 6, 2011 AB 378
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Senate Committee on Labor and Industrial Relations
goods is based on medical need. Finally, proponents note that
the controls and requirement of a fee schedule for physician
dispensed products will further root out the bad actors in the
workers' compensation system.
7. Opponent Arguments :
Opponents argue that compound drugs are an important tool in
the treatment of injured workers, as these are products that
are individually-tailored to the needs of the patient and
deliver medicine only to the areas where needed. Opponents
also argue that these products are particularly helpful to
injured workers because they focus on pain management and
musculoskeletal injuries, which are common among injured
workers. Opponents believe that the payment provisions will
create a system where physicians and pharmacists will be paid
less for workers' compensation compound drugs than the same
compounds done in the Medi-Cal system. Opponents look to
recent legislation from Oklahoma, where they prohibited
payment when a product or ingredient lacks a National Drug
Code (NDC) as an example of how to appropriately control
compound drug costs.
8. Prior Legislation :
AB 2779 (Solorio) of 2010 would have required
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. That bill died on the Senate Inactive
File.
AB 228 (Alarcon), Chapter 639, Statutes of 2003, establishes
the existing fee schedule structure for medical services.
SUPPORT
Acclamation Insurance Management Services
Allied Managed Care
ALPHA Fund
American Insurance Association
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Senate Committee on Labor and Industrial Relations
Association of California Insurance Companies (ACIC)
California Association of Joint Powers Authorities
California Chamber of Commerce
California Coalition on Workers' Compensation
California Labor Federation
California Manufacturers & Technology Association
California Professional Association of Specialty Contractors
California Professional Firefighters, AFL-CIO
California Restaurant Association
California School Employees Association, AFL-CIO
California State Association of Counties
CompPharma
CSAC Excess Insurance Authority
League of California Cities
Oxnard Chamber of Commerce
Pacific Insurance Compensation Company
Small Business California
Western Occupational & Environmental Medical Association (If
Amended)
Western Propane Gas Association
OPPOSITION
California Medical Association (Unless Amended)
California Pharmacists Association
California Society of Industrial Medicine and Surgery (Unless
Amended)
Pharmacy Access Coalition (Unless Amended)
Pharmco Inc. (Unless Amended)
Physician Therapeutics (Unless Amended)
237 Individuals
Hearing Date: July 6, 2011 AB 378
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Senate Committee on Labor and Industrial Relations