BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 1195|
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UNFINISHED BUSINESS
Bill No: SB 1195
Author: Price (D)
Amended: 8/13/12
Vote: 21
SENATE HEALTH COMMITTEE : 5-2, 4/25/12
AYES: Hernandez, Alquist, De Le�n, Rubio, Wolk
NOES: Harman, Blakeslee
NO VOTE RECORDED: Anderson, DeSaulnier
SENATE FLOOR : 23-10, 5/31/12
AYES: Alquist, Anderson, Calderon, Correa, De Le�n,
DeSaulnier, Hancock, Hernandez, Kehoe, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Price, Rubio,
Simitian, Steinberg, Vargas, Wolk, Wright, Wyland, Yee
NOES: Berryhill, Blakeslee, Dutton, Emmerson, Fuller,
Gaines, Huff, La Malfa, Leno, Walters
NO VOTE RECORDED: Cannella, Corbett, Evans, Harman,
Pavley, Runner, Strickland
ASSEMBLY FLOOR : 76-1, 8/20/12 - See last page for vote
SUBJECT : Audits of pharmacy benefits
SOURCE : California Pharmacists Association
DIGEST : This bill 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
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benefit plan to comply with standards and audit
requirements as specified in this bill. 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.
Assembly Amendments clarify that the Department of Public
Health (DPH) is exempted by the provisions of the bill when
a pharmacy audit is performed at the direction of DPH.
ANALYSIS :
Existing law:
1. Requires, under the Pharmacy Law, the licensure and
regulation of pharmacies by the California State Board
of Pharmacy.
2. Requires health care service plans to be regulated by
the Department of Managed Health Care and health
insurers to be regulated by the 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.
This bill:
1. 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.
2. 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.
3. 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.
4. 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.
5. Requires an entity conducting a pharmacy audit, prior to
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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.
6. 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.
7. Requires an entity conducting an onsite pharmacy audit
to provide the pharmacy at least two weeks prior written
notice before conducting an initial audit.
8. 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.
9. 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.
10.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.
11.Requires an entity conducting a pharmacy audit to
deliver a preliminary audit report to the pharmacy
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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.
12.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.
13.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.
14.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.
15.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.
16.Requires an entity conducting a pharmacy audit to
deliver a final audit report to the pharmacy no later
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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.
17.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.
18.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.
19.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.
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20.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.
21.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 DPH 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.
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
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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. PBM 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.
24.States that DPH is exempted by the provisions of the
bill when a pharmacy audit is performed at the direction
of DPH.
Background
Employers, labor unions, the state, and managed care
companies (collectively, "plan sponsors") that offer
prescription drug insurance coverage are increasingly
hiring PBMs to manage these benefits. According to a
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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 sponsors: commercial health plans, self-insured employer
plans, union plans, Medicare Part D plans, the Federal
Employees Health Benefits Program, state government
employee plans, and others. 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:
1.From 2012 to 2021, PBMs will save plan sponsors and
consumers almost $2 trillion, or about 35 percent,
compared with drug expenditures made without pharmacy
benefit management.
2.Available PBM savings for individual plan sponsors can
range from 20 percent for those that make limited use of
PBM tools to 50 percent for those that adopt best
practices recommended by PBMs.
3.If all plan sponsors adopt PBM-recommended best
practices, projected prescription drug expenditures could
fall by an additional $550 billion over the next decade.
4.Limiting the tools that PBMs use to manage costs could
increase projected prescription drug costs by more than
$550 billion over the next decade.
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,
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and payments made to pharmacies, are included in the
oversight process. The auditing of pharmacy claims serves
two main purposes: a) detecting fraud, waste and abuse, and
b) validating data entry and documentation to ensure they
meet regulatory and contractual requirements.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/20/12)
California Pharmacists Association (source)
National Community Pharmacists Association
Raley's Family of Fine Stores
Walgreens
ARGUMENTS IN SUPPORT : The California Pharmacists
Association (CPA), the sponsor of this bill, states that
they do not dispute that, as claims adjudicators, PBMs have
a necessary role in auditing pharmacy claims, and they
support responsible auditing and a strict adherence to
legal and ethical standards for everyone who provides
medications to California consumers. CPA asserts that PBM
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pharmacy audits have in many instances evolved away from
their legitimate purpose and embraced a profit-seeking game
of "gotcha" against pharmacies. CPA writes that
pharmacists are being driven from the workplace or placed
unnecessarily in precarious financial corners due to
aggressive PBM audits that retroactively deny pharmacy
claims based on trivial issues and non-substantive
technicalities where no fraud exists, there are no
questions that the right drug was provided to the right
patient, and the plan was billed the correct amount. PBMs
often contract with auditing firms on a contingency fee
basis for the amount the audit firm recoups, thereby
creating an enormous incentive for auditors to aggressively
err on the side of the PBM and harshly punish minor
clerical issues that no objective individual would consider
"fraud." The National Community Pharmacists Association
states that rather than legitimately using the audit
process to guard and protect against fraud, many PBMs now
view the pharmacy audit process as a profitable revenue
stream and that audits can claim hundreds of thousands of
dollars for nothing more than basic administrative or
typographical mistakes, many not even being the fault of
the pharmacist or staff.
ASSEMBLY FLOOR : 76-1, 8/20/12
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Bill
Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Eng, Feuer, Fletcher, Fong, Fuentes, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, Hagman,
Hall, Harkey, Hayashi, Hill, Huber, Hueso, Huffman,
Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal,
Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell,
Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel
P�rez, Portantino, Silva, Skinner, Smyth, Solorio,
Swanson, Torres, Valadao, Wagner, Wieckowski, Williams,
Yamada, John A. P�rez
NOES: Halderman
NO VOTE RECORDED: Donnelly, Furutani, Roger Hern�ndez
CTW:d 8/21/12 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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