BILL NUMBER: SB 1195 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 26, 2012
AMENDED IN SENATE MAY 1, 2012
AMENDED IN SENATE MARCH 26, 2012
INTRODUCED BY Senator Price
FEBRUARY 22, 2012
An act to add Part 6.01 (commencing with Section 12665) to
Division 2 of the Insurance Code, relating to health care coverage.
LEGISLATIVE COUNSEL'S DIGEST
SB 1195, as amended, Price. Audits of pharmacy benefits.
Existing law, the Pharmacy Law, provides for the licensure and
regulation of pharmacies by the California State Board of Pharmacy.
Existing law provides for the licensure and regulation of health care
service plans by the Department of Managed Health Care and for the
regulation of health insurers by the Department of Insurance.
Existing law requires health care service plan contracts and health
insurance policies to provide coverage for specified benefits and
requires contracts between plans or insurers and providers to contain
provisions requiring a fast, fair, and cost-effective dispute
resolution mechanism.
This bill would require a contract entered into between a
pharmacy and a health insurer, health care service plan, or pharmacy
benefit manager, as defined, for the provision of pharmacy services
to beneficiaries of a health benefit plan, to include policies and
procedures for any audits under the contract, and would impose
specified requirements on those audits. impose
specified requirements on an audit of pharmacy services provided to
beneficiaries of a health benefit plan. Among other things, the
bill would prohibit the entity conducting the audit from receiving
payment on any basis tied to the amount claimed or recovered from the
pharmacy and .
The bill would require the entity conducting a
pharm acy audit to deliver a preliminary audit
report to the pharmacy and to give the pharmacy an opportunity to
respond to the report. The bill would require the entity to deliver a
final audit report to the pharmacy and to establish , in its
contract with the pharmacy, a process for appealing the
findings of that report, as specified. The bill would allow
either party who, following the appeal, is not satisfied with the
appeal, to seek relief under the terms of the contract. The bill
would provide that if an identified discrepancy for a single audit
exceeds $30,000, future payments to the pharmacy in excess of $30,000
may be withheld pending adjudication of an appeal. The bill would
prohibit interest accruing for either party during pendency of the
audit, as specified. The bill would require that when the
entity is using extrapolation, as defined, in calculating penalties
or amounts to be recouped from a pharmacy, that the pharmacy be given
an opportunity to provide evidence validating certain orders. The
bill also would prohibit a pharmacy from being subject to recoupment
of funds for a clerical or recordkeeping error , as defined
. The bill would enact other related provisions.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Part 6.01 (commencing with Section 12665) is added to
Division 2 of the Insurance Code, to read:
PART 6.01. Audits of Pharmacy Benefits
12665. For purposes of this article, the following definitions
shall apply:
(a) "Carrier" means a health care service plan, as defined in
Section 1345 of the Health and Safety Code, or a health insurer that
issues policies of health insurance, as defined in Section 106.
(b) "Clerical or recordkeeping error" includes , but is
not limited to, a typographical error, scrivener's error,
or computer error in a required document or record.
(c) "Extrapolation" means the practice of inferring a frequency or
dollar amount of overpayments, underpayments, nonvalid claims, or
other errors on any portion of claims submitted, based on the
frequency or dollar amount of overpayments, underpayments, nonvalid
claims, or other errors actually measured in a sample of claims.
(d) "Health benefit plan" means any plan or program that provides,
arranges, pays for, or reimburses the cost of health benefits.
"Health benefit plan" includes, but is not limited to, a health care
service plan contract issued by a health care service plan, as
defined in Section 1345 of the Health and Safety Code, and a policy
of health insurance, as defined in Section 106, issued by a health
insurer.
(e) "Pharmacy" has the same meaning as provided in Section 4037 of
the Business and Professions Code.
(f) "Pharmacy audit" means an audit, either onsite or remotely, of
any records of a pharmacy conducted by or on behalf of a carrier or
a pharmacy benefits manager, or a representative thereof, for
prescription drugs that were dispensed by that pharmacy to
beneficiaries of a health benefit plan pursuant to a contract with
the health benefit plan or the issuer or administrator thereof.
"Pharmacy audit" does not include a concurrent review or desk audit
that occurs within three business days of transmission of a claim, or
a concurrent review or desk audit where no chargeback or recoupment
is demanded.
(g) "Pharmacy benefit manager" means a person, business, or other
entity that, pursuant to a contract or under an employment
relationship with a carrier, health benefit plan sponsor, or other
third-party payer, either directly or through an intermediary,
manages the prescription drug coverage provided by the carrier, plan
sponsor, or other third-party payer, including, but not limited to,
the processing and payment of claims for prescription drugs, the
performance of drug utilization review, the processing of drug prior
authorization requests, the adjudication of appeals or grievances
related to prescription drug coverage, contracting with network
pharmacies, and controlling the cost of covered prescription drugs.
12665.1. (a) Nothing in this article part
shall apply to an audit conducted because a pharmacy benefit
manager, carrier, health benefit plan sponsor, or other third-party
payer has evidence or a significant
indications that support a reasonable suspicion that criminal
wrongdoing, willful misrepresentation, or fraud
, or abuse has occurred.
(b) Nothing in this article part
shall apply to an audit conducted by the California State Board of
Pharmacy, the State Department of Health Care Services, or
the State Department of Public Health , or the
Medicare Program .
12665.2. Notwithstanding any other provision of law, a contract
that is issued, amended, or renewed on or after January 1, 2013,
between a pharmacy and a carrier or a pharmacy benefit manager to
provide pharmacy services to beneficiaries of a health benefit plan
shall include policies and procedures for any audits
performed under the contract. The policies and procedures shall be
consistent with generally accepted auditing practices and shall
comply with the provisions of this part.
12665.3. (a) An entity conducting a pharmacy audit shall not
receive payment or any other consideration on any basis that is tied
to the amount claimed or actual amount recovered from the pharmacy
that is the subject of the audit. Nothing in this subdivision
shall be construed to prevent the pharmacy benefit manager or health
benefit plan from charging or assessing the plan sponsor, directly or
indirectly, based on amounts recouped if both of the following
conditions are met:
(1) The plan sponsor and the pharmacy benefit manager or health
benefit plan have a contract that explicitly states the percentage
charge or assessment to the plan sponsor.
(2) No commission or financial incentive is paid to an agent or
employee of the entity conducting the pharmacy audit based, directly
or indirectly, on amounts recouped.
(b) A pharmacy shall not be subject to recoupment of funds for a
clerical or recordkeeping error, unless there is proof of
intent to commit fraud or that the error resulted in actual
financial harm to the pharmacy benefit manager, the carrier, or the
beneficiary of a health benefit plan.
12665.4. (a) Except as otherwise prohibited by state or federal
law, an entity conducting a pharmacy audit shall keep confidential
any information collected during the course of the audit and shall
not share any information with any person other than the carrier,
pharmacy benefit manager, or third-party payer for which the audit is
being performed. An entity conducting a pharmacy audit shall have
access only to previous audit reports relating to a particular
pharmacy conducted by or on behalf of the same entity. Nothing in
this subdivision shall be construed to authorize access to
information that is otherwise prohibited by law. Nothing in this
subdivision shall be construed to prohibit any employer,
trust fund, government agency, or any other entity for which the
audit is being performed from disclosing its general opinions or
conclusions regarding the business practices of the pharmacy based on
the audit.
(b) An entity that is not a carrier or pharmacy benefit manager
and that is conducting a pharmacy audit on behalf of a carrier or
pharmacy benefit manager shall, prior to conducting the audit,
provide notify the pharmacy
with an attestation in writing that the entity
and the carrier or pharmacy benefit manager have executed a business
associate agreement or other agreement as required under state and
federal privacy laws.
(c) An entity conducting a pharmacy audit shall, prior to leaving
a pharmacy at the end of an onsite portion of the audit, provide the
pharmacist in charge with a complete list of records reviewed to
allow the pharmacy to account for disclosures as required by state
and federal privacy laws.
12665.5. (a) An entity conducting a an
onsite pharmacy audit shall not initiate or schedule a pharmacy
audit during the first five business days of any calendar month,
unless it is expressly agreed to by the pharmacy being audited.
(b) An entity conducting an onsite pharmacy audit shall provide
the pharmacy at least one week's two weeks
' prior written notice before conducting an initial
audit.
12665.6. (a) A pharmacy audit that involves clinical judgment
shall be conducted by a , or in consultation
with, a licensed pharmacist licensed pursuant to
Chapter 9 (commencing with Section 4000) of Division 2 of the
Business and Professions Code .
(b) An entity conducting a pharmacy audit shall make all
determinations regarding the legal validity of a prescription or
other record consistent with determinations made pursuant to Article
4 (commencing with Section 4070) of Chapter 9 of Division 2 of the
Business and Professions Code. A pharmacy may submit to an
entity conducting a pharmacy audit electronically stored images of
prescriptions, electronically created annotations, and other related
supporting documentation as valid proof of the pharmacy record with
respect to orders or refills of a dangerous drug or device.
(c) Nothing in this section shall be construed to prohibit a
pharmacy benefits manager from denying a claim, either in whole or in
part, for failure to comply with federal Food Drug Administration or
manufacturer requirements, the prescription drug formulary, prior
authorization requirements, days' supply requirements, or other
coverage or plan design requirement, or for failure to include a
National Provider Identification number.
(c) A pharmacy may submit to an
(d) An entity conducting a
pharmacy audit shall accept paper or electronic signature
logs that indicate document the
delivery of pharmacy services as valid proof of receipt of
those services by to a health benefit
plan beneficiary or his or her agent .
12665.7. The time period covered by a pharmacy audit shall not
exceed a 24-month period beginning no more than 24
months prior to the initial date of the onsite portion of
the audit, and the audit shall encompass only claims that were
submitted to or adjudicated by the carrier or pharmacy benefit
manager during that 24-month period from the date that
the claim was submitted to, or adjudicated by, the pharmacy benefits
manager, unless a longer period is required under state or federal
law or unless the originating prescription is required
.
12665.8. (a) (1) An entity conducting a pharmacy audit shall
deliver a preliminary audit report to the pharmacy before issuing a
final audit report. This preliminary report shall be issued no later
than 60 days after conclusion of the audit.
(2) A pharmacy shall be provided a time period of no less
than at least 30 days following receipt of the
preliminary audit report under paragraph (1) to respond to the
findings in the report, including addressing any alleged mistakes or
discrepancies and producing documentation to that effect.
(3) A pharmacy may use the records of a health facility, physician
and surgeon, or other authorized practitioner of the healing arts
involving drugs, medicinal supplies, or medical devices written or
transmitted by any means of communication for purposes of validating
the pharmacy record with respect to orders or refills of a dangerous
drug or device.
(3) To validate the pharmacy record and delivery, the pharmacy may
use authentic and verifiable statements or records, including
medication administration records of a nursing home, assisted living
facility, hospital, physician and surgeon, or other authorized
prescriber, or additional documentation parameters located in the
provider manual.
(4) Any legal prescription may be used to validate claims in
connection with prescriptions, refills, or changes in prescriptions,
including medication administration records, facsimiles, electronic
prescriptions, electronically stored images of prescriptions,
electronically created annotations, or documented telephone calls
from the prescriber or the prescriber's agent. Unless specifically
addressed in the audit policies and procedures contained in the
contract or provider manual, documentation of an oral prescription
order that has been verified by the prescriber shall meet the
requirements of this subdivision.
(4)
(5) If an entity conducting a pharmacy audit uses
extrapolation to calculate penalties or amounts to be recouped, the
pharmacy may present evidence to validate orders for dangerous drugs
or devices that are subject to invalidation due to extrapolation.
(5)
(6) Prior to issuing a final audit report, an entity
conducting a pharmacy audit shall take into consideration any
response by the pharmacy to the preliminary audit report
provided within the timeframes allowed under this section, unless
otherwise agreed to by the entity conducting the audit .
(b) (1) An entity conducting a pharmacy audit shall deliver a
final audit report to the pharmacy no later than 90
120 days after the conclusion of the
audit or 30 days after receipt of a pharmacy's response to
the preliminary audit report , as applicable .
(2) An entity conducting a pharmacy audit shall establish ,
in the contract between the pharmacy and the contracting entity,
a process for appealing the findings in a final audit report
that complies with the following requirements:
(A) A pharmacy shall be provided a time period of no less
than 60 at least 30 days following receipt of
the final audit report to file an appeal with the entity identified
in the appeal process.
(B) A pharmacy may use the records of a hospital, physician and
surgeon, or other authorized practitioner of the healing arts
involving drugs, medicinal supplies, or medical devices written or
transmitted by any means of communication for purposes of validating
the pharmacy record with respect to orders or refills of a dangerous
drug or device.
(C)
(B) An entity conducting a pharmacy audit shall provide
the pharmacy with a written determination of appeal issued by the
entity identified in the appeal process, which shall be appended to
the final audit report, and a copy of the determination shall be sent
to the carrier, health benefit plan sponsor, or other third-party
payer.
(D) The appeals process may include a dispute resolution option as
long as the pharmacy retains the right to file a written appeal and
obtain a written determination pursuant to this subdivision.
(C) If, following the appeal, either party is not satisfied with
the appeal, the party may seek relief under the terms of the
contract.
(c) An entity conducting a pharmacy audit, a carrier, a health
benefit plan sponsor, or other third-party payer, or any person
acting on behalf of those entities, shall not attempt to make
chargebacks or seek recoupment from a pharmacy, or assess or collect
penalties from a pharmacy, until the time period for filing an appeal
to a final audit report has passed, or until the appeal process has
been exhausted, whichever is later. Should the identified
discrepancy for a single audit exceed thirty thousand dollars
($30,000), future payments to the pharmacy in excess of thirty
thousand dollars ($30,000) may be withheld pending
adjudication of an appeal.
(d) An entity conducting a pharmacy audit, a carrier, a health
benefit plan sponsor, or other third-party payer, or any person
acting on behalf of those entities, shall not charge interest during
the audit or appeal period.
(d) Interest shall not accrue during the audit period for either
party, beginning with the notice of the audit and ending with the
conclusion of the appeal process.
(e) If, following final disposition of a pharmacy audit pursuant
to this section, an entity conducting a pharmacy audit, a carrier, a
health benefit plan sponsor, or other third-party payer, or any
person acting on behalf of those entities, finds that an audit report
or any portion thereof is unsubstantiated, the entity shall dismiss
the audit report or the unsubstantiated portion thereof without the
necessity of any further proceedings.