BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 378|
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THIRD READING
Bill No: AB 378
Author: Solorio (D), et al.
Amended: 9/8/11 in Senate
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMM : 5-1, 07/06/11
AYES: Lieu, DeSaulnier, Leno, Padilla, Yee
NOES: Wyland
NO VOTE RECORDED: Runner
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 15-6, 9/7/11 (FAIL)
AYES: Alquist, Corbett, De Le�n, DeSaulnier, Evans,
Hancock, Kehoe, Lowenthal, Padilla, Pavley, Simitian,
Steinberg, Vargas, Wolk, Yee
NOES: Anderson, Calderon, Dutton, Negrete McLeod, Rubio,
Wyland
NO VOTE RECORDED: Berryhill, Blakeslee, Cannella, Correa,
Emmerson, Fuller, Gaines, Harman, Hernandez, Huff, La
Malfa, Leno, Lieu, Liu, Price, Runner, Strickland,
Walters, Wright
ASSEMBLY FLOOR : 72-2, 05/31/11 - See last page for vote
SUBJECT : Workers compensation: pharmacy products
SOURCE : Author
DIGEST : This bill (1) prohibits physicians from
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referring a patient for pharmacy goods if that physician
has a financial interest in the entity that receives the
referral, (2) prohibits the maximum reasonable fees paid
for pharmacy services and drugs from including specified
reductions in the relevant Medi-Cal payment system, (3)
requires any compounded drug product, as defined, to be
billed by the compounding pharmacy or dispensing physician
at the ingredient level, as prescribed, and in accordance
with regulations adopted by the California State Board of
Pharmacy, and sets specified maximum reimbursement for a
dangerous drug, dangerous device, or other pharmacy goods,
dispensed by a physician, and would define related terms,
(4) prohibits a provision concerning physician-dispensed
pharmacy goods from being superseded by any provision of
the official medical fee schedule adopted by the
administrative director unless the official medical fee
schedule provision is expressly applicable, and also
requires the provision adopted by the administrative
director to govern if a provision concerning
physician-dispensed pharmacy goods is inconsistent with the
prescribed official medical fee schedule, and (5) deletes
obsolete provisions relating to the adoption of a medical
fee schedule for patient facility fees for burn cases.
Senate Floor Amendments of 9/8/11 clarify the reimbursement
rates of physician dispensed compound drugs.
Senate Floor Amendments of 9/1/11 make technical changes to
clarify the operation of the bill, provide clarifying
language on the reasonable fees paid for pharmacy services
and drugs, and add double jointing language to SB 923 (De
Le�n) in order to avoid chaptering out issues.
ANALYSIS : Existing law establishes a workers'
compensation system, administered by the Administrative
Director of the Division of Workers' Compensation, to
compensate an employee for injuries sustained in the course
of employment.
Existing law provides that it is unlawful for a physician
to refer a person for specified medical goods or services,
whether for treatment or medical-legal purposes, if the
physician or his or her immediate family has a financial
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interest with the person or in the entity that receives the
referral. A violation of this provision is a misdemeanor.
Existing law requires the administrative director, after
public hearings, to adopt and revise periodically an
official medical fee schedule that establishes reasonable
maximum fees paid for medical services, other than
physician services, and for other prescribed goods and
services, in accordance with specified requirements. Under
existing law, prior to the adoption by the administrative
director of a medical fee schedule for any treatment,
facility use, product, or service not covered by a Medicare
payment system, the maximum reasonable fee paid cannot
exceed the fee specified in the official medical fee
schedule in effect on December 31, 2003.
This bill:
1.Prohibits physicians from referring a patient for
pharmacy goods if that physician has a financial interest
in the entity that receives the referral.
2.Prohibits the maximum reasonable fees paid for pharmacy
services and drugs from including specified reductions in
the relevant Medi-Cal payment system.
3.Requires any compounded drug product, as defined, to be
billed by the compounding pharmacy or dispensing
physician at the ingredient level, as prescribed, and in
accordance with regulations adopted by the California
State Board of Pharmacy, and sets specified maximum
reimbursement for a dangerous drug, dangerous device, or
other pharmacy goods, dispensed by a physician, and would
define related terms.
4.Prohibits a provision concerning physician-dispensed
pharmacy goods from being superseded by any provision of
the official medical fee schedule adopted by the
administrative director unless the official medical fee
schedule provision is expressly applicable, and also
requires the provision adopted by the administrative
director to govern if a provision concerning
physician-dispensed pharmacy goods is inconsistent with
the prescribed official medical fee schedule.
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5.Deletes obsolete provisions relating to the adoption of a
medical fee schedule for patient facility fees for burn
cases.
Comments
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.
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 states: "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.
Because compound medications, medical foods, and
convenience packs are specialty products designed
specifically for individual patients, they are not
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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 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.
This bill 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 Commission on Health, Safety, and Workers'
Compensation (CHSWC) study, which is discussed below.
A Brief Discussion on the Genesis of AB 378
Last year, the Senate Labor and Industrial Relations
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.
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After AB 2779 died on the Senate Floor Inactive File,
Assemblymember Solorio and then-Senate Labor Committee
Chair Sen. Mark DeSaulnier asked 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, 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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 9/8/11)
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Acclamation Insurance Management Services
Allied Managed Care
ALPHA Fund
American Insurance Association
Association of California Insurance Companies
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 : (Verified 9/8/11)
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)
ARGUMENTS IN SUPPORT : 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
this bill addresses rising costs in the workers
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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
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.
ARGUMENTS IN OPPOSITION : 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 as an example of how to appropriately
control compound drug costs.
ASSEMBLY FLOOR : 72-2, 05/31/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Campos, Carter, Cedillo,
Chesbro, Conway, Davis, Dickinson, Donnelly, Eng, Feuer,
Fletcher, Fong, Fuentes, Furutani, Galgiani, Garrick,
Gatto, Gordon, Grove, Hagman, Hall, Harkey, Hayashi,
Roger Hern�ndez, Hill, Huber, Hueso, Huffman, Jeffries,
Jones, Knight, Lara, Logue, Bonnie Lowenthal, Ma,
Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell,
Nestande, Nielsen, Norby, Perea, V. Manuel P�rez,
Portantino, Silva, Skinner, Smyth, Solorio, Swanson,
Valadao, Wagner, Wieckowski, Williams, Yamada, John A.
P�rez
NOES: Halderman, Pan
NO VOTE RECORDED: Charles Calderon, Cook, Beth Gaines,
Gorell, Olsen, Torres
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PQ:nl 9/8/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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