BILL ANALYSIS �
SB 1195
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON HEALTH
William W. Monning, Chair
SB 1195 (Price) - As Amended: June 26, 2012
SENATE VOTE : 23-10
SUBJECT : Audits of pharmacy benefits.
SUMMARY : Requires 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 (PBM) to provide pharmacy
services to beneficiaries of a health benefit plan to comply
with standards and audit requirements as specified in this bill.
Includes provisions relating to the following: commissions or
financial incentives, recoupment of funds for clerical errors,
confidentiality of information, scheduling of audits,
permissible documents for purposes of audits, timeframes of
audits, standards for submission of preliminary and final
reports, validation of claims and orders, and, requirements for
audit appeals. Specifically, this bill :
1)Requires a contract that is issued, amended, or renewed on or
after January 1, 2013, between a pharmacy and a carrier or a
PBM to provide pharmacy services to beneficiaries of a health
benefit plan to comply with this bill.
2)Prohibits an entity conducting a pharmacy audit from receiving
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. Indicates that
this shall not be construed to prevent the pharmacy from
charging or assessing the plan sponsor directly or indirectly,
based on amounts recouped if both of the following conditions
are met:
a) The plan sponsor and the PBM or health benefit plan have
a contract that explicitly states the percentage charge or
assessment to the plan sponsor; and,
b) 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.
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3)Provides that a pharmacy shall not be subject to recoupment of
funds for a clerical or recordkeeping error, unless the error
resulted in actual financial harm to the PBM, the carrier, or
the beneficiary of a health benefit plan.
4)Requires, unless prohibited by state or federal law, an entity
conducting a pharmacy audit to keep confidential any
information collected during the course of the audit and not
share any information with any person other than the carrier,
PBM, or third-party payer for which the audit is being
performed. Requires that an entity conducting a pharmacy
audit to have access only to previous audit reports relating
to a particular pharmacy conducted by or on behalf of the same
entity. Provides that this shall not be construed to
authorize access to information that is otherwise prohibited
by law. Indicates that these provisions shall not 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.
5)Indicates that an entity that is not a carrier or PBM and that
is conducting a pharmacy audit on behalf of a carrier or PBM,
shall, prior to conducting the audit, notify the pharmacy in
writing that the entity and the carrier or PBM have executed a
business associate agreement or other agreement as required
under state and federal privacy laws.
6)Requires an entity conducting a pharmacy audit, prior to
leaving a pharmacy at the end of an onsite portion of the
audit, to 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.
7)Prohibits an entity conducting an onsite pharmacy audit from
initiating or scheduling a pharmacy audit during the first
five business days of any calendar month, unless it is
expressly agreed to by the pharmacy being audited.
8)Requires an entity conducting an onsite pharmacy audit to
provide the pharmacy at least two weeks prior written notice
before conducting an initial audit.
9)Requires a pharmacy audit that involves clinical judgment to
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be conducted by, or in consultation with, a licensed
pharmacist. Requires an entity conducting a pharmacy audit to
make all determinations regarding the legal validity of a
prescription or other record, as specified. Provides that
these provisions shall not be construed to prohibit a PBM from
denying a claim, either in whole or in part, for failure to
comply with the federal Food and 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.
10)Requires an entity conducting a pharmacy audit to accept
paper or electronic signature logs that document the delivery
of pharmacy services to a health plan beneficiary or his or
her agent.
11)States that the time period covered by a pharmacy audit shall
not exceed a 24-months from the date that the claim was
submitted to, or adjudicated by, the PBM, unless a longer
period is required under state or federal law or unless the
originating prescription is required.
12)Requires an entity conducting a pharmacy audit to deliver a
preliminary audit report to the pharmacy before issuing a
final audit report. Requires this report to be issued no
later than 60 days after conclusion of the audit. Requires
that a pharmacy be provided a time period of at least 30 days
following receipt of the preliminary audit report to respond
to the findings in the report, including addressing any
alleged mistakes or discrepancies and producing documentation
to that effect.
13)Authorizes a pharmacy, to validate the pharmacy record and
delivery, to 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.
14)Authorizes any legal prescription to 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,
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or documented telephone calls from the prescriber or the
prescriber's agent. Provides that 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 is
sufficient.
15)Allows a pharmacy, if an entity conducting a pharmacy audit
uses extrapolation to calculate penalties or amounts to be
recouped, to present evidence to validate orders for dangerous
drugs or devices that are subject to invalidation due to
extrapolation.
16)Provides that 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, as specified.
17)Requires an entity conducting a pharmacy audit to deliver a
final audit report to the pharmacy no later than 90 days after
the conclusion of the audit or 30 days after receipt of a
pharmacy's response to the preliminary audit report, as
applicable.
18)Requires an entity conducting a pharmacy audit to 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 at least
30 days following receipt of the final audit report to file
an appeal with the entity identified in the appeal process;
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; and,
c) If, following the appeal, either party is not satisfied
with the appeal, the party may seek relief under the terms
of the contract.
19)Provides that an entity conducting a pharmacy audit, a
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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. Specifies that should the
identified discrepancy for a single audit exceed $30,000,
future payments may be withheld pending adjudication of an
appeal.
20)Prohibits interest from accruing during the audit period for
either party, beginning with the notice of the audit and
ending with the conclusion of the appeal process.
21)Provides, if, following final disposition of a pharmacy audit
pursuant, 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
22)Provides that this bill does not apply to the following:
a) An audit conducted because a PBM, carrier, health
benefit plan sponsor, or other third-party payer has
indications that support a reasonable suspicion that
criminal wrongdoing, willful misrepresentation, fraud, or
abuse has occurred; or,
b) An audit conducted by the California State Board of
Pharmacy, the State Department of Health Care Services, or
the Department of Public Health or the Medicare Program.
23)Defines various terms including the following:
a) Carrier means a health care service plan, as defined or
a health insurer that issues policies of health insurance,
as specified.
b) Clerical or recordkeeping error includes, a
typographical error, scrivener's error, or computer error
in a required document or record.
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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, and a policy of health insurance,
as specified.
e) 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 PBM, 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. Excludes from this definition 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.
f) 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
EXISTING LAW :
1)Establishes the California State Board of Pharmacy to regulate
the pharmacists.
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2)Requires health care service plans to be regulated by the
Department of Managed Health Care and health insurers to be
regulated by the California Department of Insurance.
3)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.
FISCAL EFFECT : None
COMMENTS :
1)PURPOSE OF THIS BILL . The California Pharmacists Association
is the sponsor of this bill. According to the author, this
bill will reform the PBM industry by requiring uniform
auditing procedures and standards. Currently there are three
major PBMs that audit pharmacies throughout the country. These
three PBMs operate unchecked and unregulated, earning billions
of dollars each year while hurting local pharmacies.
Additionally, PBMs recoup a percentage based on the errors
they uncover. This practice has led to an incentive to
penalize pharmacies for minor infractions. Exacerbating the
bounty hunting problem caused by PBMs is the practice of
extrapolation by PBMs. Most audits are conducted using a
sample of all claims submitted by the pharmacy. Using the
practice of extrapolation, an auditor who finds a claim for a
particular prescription within that sample to be invalid will
extrapolate that all claims for that prescription or patient
are also invalid, even though the audit firm did not review
each claim to make an actual determination whether subsequent
or prior prescriptions did in fact contain errors at the level
of rendering it invalid. Utilizing the extrapolation
technique, PBMs incorrectly recoup funds from pharmacies that
did not commit an error in dispensing a prescription. The
author states that this bill will reform the environment in
which PBMs operate, will prohibit unreasonable audits, and
forbid the practice of extrapolation and bounty hunting.
2)BACKGROUND .
a) PBMs . According to the Federal Trade Commission, many
health plan sponsors offer their members prescription drug
insurance and hire PBMs to manage these pharmacy benefits
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on their behalf. As part of the management of these
benefits, PBMs assemble networks of retail and mail-order
pharmacies so that the plan's sponsor's members can fill
prescriptions easily and in multiple locations. PBMs
contract with employers, labor unions, insurance companies,
the state, Medicaid and Medicare managed care plans, and
managed care companies (collectively, "plan sponsors") to
manage pharmacy benefits. There are large PBMs (Express
Scripts/Medco, and Caremark), small and insurer-owned PBMs
(Aenta, Cigna Corporation, Wellpoint Health Networks),
retailer-owned (Eckerd Health Systems, PharmaCare
Management Services (subsidiary of CVS Corp), Walgreens
Health Initiative or stand-alone retail pharmacies (CVS
Corp, Rite Aid Corporation, Walgreen and Wal-Mart Stores,
Inc).
According to a September 2011 report commissioned by the
Pharmaceutical Care Management Association to estimate the
savings that these PBMs generate for plan sponsors and
consumers, PBMs implement prescription drug benefits for
more than 215 million Americans who have health insurance
from a variety of plan sponsors. Working under contract
with plan sponsors, PBMs manage drug benefit programs that
give consumers more efficient and affordable access to
medications. The report's major findings included:
i) From 2012 to 2021, PBMs will save plan sponsors and
consumers almost $2 trillion, or about 35%, compared with
drug expenditures made without pharmacy benefit
management;
ii) Available PBM savings for individual plan sponsors
can range from 20% for those that make limited use of PBM
tools to 50% for those that adopt best practices
recommended by PBMs.
iii) If all plan sponsors adopt PBM-recommended best
practices, projected prescription drug expenditures could
fall by an additional $550 billion over the next decade;
iv) Limiting the tools that PBMs use to manage costs
could increase projected prescription drug costs by more
than $550 billion over the next decade.
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b) Pharmacy audits . According to the Academy of Managed
Care Pharmacy (AMCP) "Model Audit Guidelines for Pharmacy
Claims," historically, health care services (including
prescription medications) were paid by the patient as an
out-of-pocket expense. These payments may then have been
reimbursed by a third party or self-funded insurance plan.
Over the course of the twentieth century, health care
insurance evolved from indemnity pre-paid insurance to
managed care as a major mechanism of coverage. The growth
of plan design, administration and payment by third-party
entities, coupled with increases in the total costs of
care, have led to more oversight of plans and their
financial services. Audits of claims made by pharmacies,
and payments made to pharmacies, are included in the
oversight process. The auditing of pharmacy claims serves
two main purposes: i) detecting fraud, waste and abuse,
and, ii) validating data entry and documentation to ensure
they meet regulatory and contractual requirements.
c) AMCP Model Audit Guidelines for Pharmacy Claims . The
AMCP established the Community Pharmacy Outreach Advisory
Council to address issues that managed care pharmacy and
community pharmacy share and that would lead to an enhanced
relationship. The Council identified auditing of pharmacy
claims as a high priority issue largely because of the
friction it causes for both community and managed care
pharmacy. In January 2012, AMCP released model audit
guidelines for pharmacy claims. According to the document,
the guidelines are the result of over a year-long effort by
a Task Force comprised of representatives of the
pharmacists (including those in managed care organizations
�MCOs], retailers, and PBMs). These guidelines were meant
to assist MCOs in developing a pharmacy claims audit
program and to help pharmacy providers to better understand
the audit requirements and process. The document states
that while the guidelines were developed as a way to
improve the relationship between the parties, the contract
between the MCO and the pharmacy should define the actual
audit process.
d) Other states . According to an April 2012 Pharmaceutical
Care Management Association summary of proposed and enacted
laws related to pharmacy audits, there are at least 12
states with legislation pending. Indiana, Kentucky, and
Utah have all enacted laws on the subject. In March 2012,
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Utah's Governor signed H.B. 76, which contains provisions
similar to those contained in this bill, such as
prohibitions on: initiating or scheduling an audit during
the first five business days of a month, including
dispensing fees in the calculation of overpayments in
certain circumstances, and recouping funds for prescription
clerical or recordkeeping errors. Also similar to this
bill, H.B. 76 contains provisions allowing pharmacies to
respond to a preliminary audit. With regard to an auditing
entity, the audit is required to disclose any money
recovered by the entity that conducted the audit.
3)SUPPORT . The California Pharmacists Association states that
this bill would put an end to abusive PBM audits by
establishing common sense, fair standards for all audits and
prohibiting a number of unjust practices while allowing PBMs
the continued appropriate role of finding and penalizing true
fraud, waste, and abuse against pharmacies. The California
Society of Health-System Pharmacists state that this bill
establishes fair standards for all audits conducted by a
health insurer, health care service plan, or PBM of contracted
pharmacies.
REGISTERED SUPPORT / OPPOSITION :
Support
California Pharmacists Association (sponsor)
California Society of Health-System Pharmacists
National Community Pharmacists Association
Raley's Family of Fine Stores
Safeway
Walgreens
Individual pharmacists
Opposition
None on file.
Analysis Prepared by : Rosielyn Pulmano / HEALTH / (916)
319-2097
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