BILL ANALYSIS �
SB 1195
Page 1
SENATE THIRD READING
SB 1195 (Price)
As Amended August 13, 2012
Majority vote
SENATE VOTE :23-10
HEALTH 13-0
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|Ayes:|Monning, Logue, Atkins, |
| |Eng, Garrick, Gordon, |
| |Hayashi, |
| |Roger Hern�ndez, Mansoor, |
| |Mitchell, Nestande, Pan, |
| |Williams |
| | |
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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:
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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.
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 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
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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
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 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
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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,
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
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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
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, 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 or at the direction of the
California State Board of Pharmacy, the State Department of
Health Care Services, or the Department of Public Health or
the Medicare Program.
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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.
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
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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
FISCAL EFFECT : None
COMMENTS : 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.
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.
Analysis Prepared by : Rosielyn Pulmano / HEALTH / (916)
319-2097
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FN: 0004762