Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime.

This bill would require a pharmacy to inform a customer at the point of sale for a covered prescription drug whether the retail price is lower than the applicable cost-sharing amount for the prescription drug, unless the pharmacy automatically charges the customer the lower price. If the customer pays the retail price, the bill would require the pharmacy to submit the claim to the plan or insurer in the same manner as if the customer had purchased the prescription drug by paying the cost-sharing amount when submitted by the network pharmacy. The bill would provide that the payment rendered by an enrollee would constitute the applicable cost sharing, as specified. The bill would provide that a violation of those provisions would not be grounds for disciplinary or criminal action.

Existing law imposes specified requirements on an audit of pharmacy services provided to beneficiaries of a health benefit plan and defines a pharmacy benefit manager for those purposes as 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 3rd-party payer, either directly or through an intermediary, manages the prescription drug coverage provided by the carrier, plan sponsor, or other 3rd-party payer.

The bill would require pharmacy benefit managers to exercise good faith and fair dealing. Among other things, the bill would require a pharmacy benefit manager to notify a purchaser, as defined, in writing of any activity, policy, or practice of the pharmacy benefit manager that directly or indirectly presents a conflict of interest that interferes with the discharge of the pharmacy benefit managers duty to the purchaser to exercise good faith and fair dealing. The bill would require a pharmacy benefit manager to disclose, on a quarterly basis, and upon the request of the purchaser, certain information with respect to prescription product benefits specific to the purchaser, including, but not limited to, the aggregate wholesale acquisition costs from a pharmaceutical manufacturer or labeler for certain therapeutic drugs and any administrative fees received from a pharmaceutical manufacturer or labeler. The bill would exempt from those requirements proprietary information, as defined, if the purchaser fails to agree, in writing, to maintain that information as confidential. The bill would impose additional requirements on pharmacy benefit managers to disclose to pharmacy network providers or their contracting agents of any material change to a contract provision that affects, among other things, the terms of reimbursement. The bill would prohibit a pharmacy benefit manager from including in a contract with a pharmacy network provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. The bill would exempt from the above provisions a health care service plan or health insurer, or its affiliate, subsidiary, related entity, or contracted medical group, if it offers, provides, or administers pharmacy benefit management services only to enrollees, subscribers, policyholders, or insureds, as specified, and certain contracts under the Labor Code.

On and after January 1, 2020, and until January 1, 2023, the bill would also establish a pilot project in the Counties of Riverside and Sonoma to assess the impact of health care service plan and pharmacy benefit manager prohibitions on the dispensing of certain amounts of prescription drugs by network retail pharmacies. In those counties, the bill would prohibit a health care service plan from prohibiting, or permitting any delegated pharmacy benefit manager to prohibit, a pharmacy provider from dispensing a particular amount of a prescribed medication if the plan or pharmacy benefit manager allows that amount to be dispensed through a pharmacy owned or controlled by the plan or pharmacy benefit manager, except as specified. The bill would require plans in those counties to report annually to the Department of Managed Health Care information and data relating to the pilot project. The bill would require the department to provide a summary of that data to the Governor and health policy committees of the Legislature.

This bill would make legislative findings and declarations as to the necessity of a special statute for the Counties of Riverside and Sonoma.

Existing law provides for the regulation of health care service plans by the Department of Managed Health Care. A willful violation of those provisions is a crime. Existing law requires health care service plans that cover prescription drug benefits and that issue cards to enrollees to issue to each of its enrollees a uniform prescription drug information card that, at a minimum, contains specified information, including information required by the benefit administrator or health care service plan that is necessary to commence processing a pharmacy claim and a telephone number that pharmacy providers may call for assistance.

On and after January 1, 2020, the bill would impose additional requirements on health care service plans with regard to contracted pharmacy providers and pharmacy benefit managers. Among other things, the bill would prohibit a health care service plan from including in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. The bill would require a health care service plan that contracts with a pharmacy benefit manager for management of any or all of its prescription drug coverage to require the pharmacy benefit manager to comply with specified provisions, register with the department pursuant to these provisions, and exercise good faith and fair dealing in the performance of its contractual duties to a health care service plan. The bill would require the registration of those pharmacy benefit managers with the department, as specified, and would authorize the department to set a fee for registration, as specified. The bill would establish enforcement provisions. The bill would also establish a Task Force on Pharmacy Benefit Management Reporting, until February 1, 2020, to determine what information related to pharmaceutical costs, if any, the department should require to be reported by health care service plans or their contracted pharmacy benefit managers. The bill would require the department to submit a report of the task force to specified persons and entities within the Legislature.

Because a willful violation of these provisions by health care service plans would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime.

This bill would require a pharmacy to inform a customer at the point of sale for a covered prescription drug whether the retail price is lower than the applicable cost-sharing amount for the prescription drug, unless the pharmacy automatically charges the customer the lower price. If the customer pays the retail price, the bill would require the pharmacy to submit the claim to the plan or insurer in the same manner as if the customer had purchased the prescription drug by paying the cost-sharing amount when submitted by the network pharmacy. The bill would provide that the payment rendered by an enrollee would constitute the applicable cost sharing, as specified. The bill would provide that a violation of those provisions would not be grounds for disciplinary or criminal action.

Existing law imposes specified requirements on an audit of pharmacy services provided to beneficiaries of a health benefit plan and defines a pharmacy benefit manager for those purposes as 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 3rd-party payer, either directly or through an intermediary, manages the prescription drug coverage provided by the carrier, plan sponsor, or other 3rd-party payer.

The bill would require pharmacy benefit managers to exercise good faith and fair dealing. Among other things, the bill would require a pharmacy benefit manager to notify a purchaser, as defined, in writing of any activity, policy, or practice of the pharmacy benefit manager that directly or indirectly presents a conflict of interest that interferes with the discharge of the pharmacy benefit managers duty to the purchaser to exercise good faith and fair dealing. The bill would require a pharmacy benefit manager to disclose, on a quarterly basis, and upon the request of the purchaser, certain information with respect to prescription product benefits specific to the purchaser, including, but not limited to, the aggregate wholesale acquisition costs from a pharmaceutical manufacturer or labeler for certain therapeutic drugs and any administrative fees received from a pharmaceutical manufacturer or labeler. The bill would exempt from those requirements proprietary information, as defined, if the purchaser fails to agree, in writing, to maintain that information as confidential. The bill would impose additional requirements on pharmacy benefit managers to disclose to pharmacy network providers or their contracting agents of any material change to a contract provision that affects, among other things, the terms of reimbursement. The bill would prohibit a pharmacy benefit manager from including in a contract with a pharmacy network provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. The bill would exempt from the above provisions a health care service plan or health insurer, or its affiliate, subsidiary, related entity, or contracted medical group, if it offers, provides, or administers pharmacy benefit management services only to enrollees, subscribers, policyholders, or insureds, as specified, and certain contracts under the Labor Code.

On and after January 1, 2020, and until January 1, 2023, the bill would also establish a pilot project in the Counties of Riverside and Sonoma to assess the impact of health care service plan and pharmacy benefit manager prohibitions on the dispensing of certain amounts of prescription drugs by network retail pharmacies. In those counties, the bill would prohibit a health care service plan from prohibiting, or permitting any delegated pharmacy benefit manager to prohibit, a pharmacy provider from dispensing a particular amount of a prescribed medication if the plan or pharmacy benefit manager allows that amount to be dispensed through a pharmacy owned or controlled by the plan or pharmacy benefit manager, except as specified. The bill would require plans in those counties to report annually to the Department of Managed Health Care information and data relating to the pilot project. The bill would require the department to provide a summary of that data to the Governor and health policy committees of the Legislature.

This bill would make legislative findings and declarations as to the necessity of a special statute for the Counties of Riverside and Sonoma.

Existing law provides for the regulation of health care service plans by the Department of Managed Health Care. A willful violation of those provisions is a crime. Existing law requires health care service plans that cover prescription drug benefits and that issue cards to enrollees to issue to each of its enrollees a uniform prescription drug information card that, at a minimum, contains specified information, including information required by the benefit administrator or health care service plan that is necessary to commence processing a pharmacy claim and a telephone number that pharmacy providers may call for assistance.

On and after January 1, 2020, the bill would impose additional requirements on health care service plans with regard to contracted pharmacy providers and pharmacy benefit managers. Among other things, the bill would prohibit a health care service plan from including in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. The bill would require a health care service plan that contracts with a pharmacy benefit manager for management of any or all of its prescription drug coverage to require the pharmacy benefit manager to comply with specified provisions, register with the department pursuant to these provisions, and exercise good faith and fair dealing in the performance of its contractual duties to a health care service plan. The bill would require the registration of those pharmacy benefit managers with the department, as specified, and would authorize the department to set a fee for registration, as specified. The bill would establish enforcement provisions. The bill would also establish a Task Force on Pharmacy Benefit Management Reporting, until February 1, 2020, to determine what information related to pharmaceutical costs, if any, the department should require to be reported by health care service plans or their contracted pharmacy benefit managers. The bill would require the department to submit a report of the task force to specified persons and entities within the Legislature.

Because a willful violation of these provisions by health care service plans would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime.

This bill would require a pharmacy to inform a customer at the point of sale for a covered prescription drug whether the retail price is lower than the applicable cost-sharing amount for the prescription drug, unless the pharmacy automatically charges the customer the lower price. If the customer pays the retail price, the bill would require the pharmacy to submit the claim to the plan or insurer in the same manner as if the customer had purchased the prescription drug by paying the cost-sharing amount when submitted by the network pharmacy. The bill would provide that the payment rendered by an enrollee would constitute the applicable cost sharing, as specified. The bill would provide that a violation of those provisions would not be grounds for disciplinary or criminal action.

Existing law imposes specified requirements on an audit of pharmacy services provided to beneficiaries of a health benefit plan and defines a pharmacy benefit manager for those purposes as 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 3rd-party payer, either directly or through an intermediary, manages the prescription drug coverage provided by the carrier, plan sponsor, or other 3rd-party payer.

The bill would require pharmacy benefit managers to exercise good faith and fair dealing. Among other things, the bill would require a pharmacy benefit manager to notify a purchaser, as defined, in writing of any activity, policy, or practice of the pharmacy benefit manager that directly or indirectly presents a conflict of interest that interferes with the discharge of the pharmacy benefit managers duty to the purchaser to exercise good faith and fair dealing. The bill would require a pharmacy benefit manager to disclose, on a quarterly basis, and upon the request of the purchaser, certain information with respect to prescription product benefits specific to the purchaser, including, but not limited to, the aggregate wholesale acquisition costs from a pharmaceutical manufacturer or labeler for certain therapeutic drugs and any administrative fees received from a pharmaceutical manufacturer or labeler. The bill would exempt from those requirements proprietary information, as defined, if the purchaser fails to agree, in writing, to maintain that information as confidential. The bill would impose additional requirements on pharmacy benefit managers to disclose to pharmacy network providers or their contracting agents of any material change to a contract provision that affects, among other things, the terms of reimbursement. The bill would prohibit a pharmacy benefit manager from including in a contract with a pharmacy network provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. The bill would exempt from the above provisions a health care service plan or health insurer, or its affiliate, subsidiary, related entity, or contracted medical group, if it offers, provides, or administers pharmacy benefit management services only to enrollees, subscribers, policyholders, or insureds, as specified, and certain contracts under the Labor Code.

On and after January 1, 2020, and until January 1, 2023, the bill would also establish a pilot project in the Counties of Riverside and Sonoma to assess the impact of contract provisions that prohibit health care service plan and pharmacy benefit manager prohibitions on the dispensing of certain amounts of prescription drugs by network retail pharmacies. In those counties, the bill would prohibit a health care service plan from prohibiting, or permitting any delegated pharmacy benefit manager to prohibit, a pharmacy provider from dispensing a particular amount of a prescribed medication if the plan or pharmacy benefit manager allows that amount to be dispensed through a pharmacy owned or controlled by the plan or pharmacy benefit manager, except as specified. The bill would require plans in those counties to report annually to the Department of Managed Health Care information and data relating to the pilot project. The bill would require the department to provide a summary of that data to the Governor and health policy committees of the Legislature.

This bill would make legislative findings and declarations as to the necessity of a special statute for the Counties of Riverside and Sonoma.

Existing law provides for the regulation of health care service plans by the Department of Managed Health Care. A willful violation of those provisions is a crime. Existing law requires health care service plans that cover prescription drug benefits and that issue cards to enrollees to issue to each of its enrollees a uniform prescription drug information card that, at a minimum, contains specified information, including information required by the benefit administrator or health care service plan that is necessary to commence processing a pharmacy claim and a telephone number that pharmacy providers may call for assistance.

On and after January 1, 2020, the bill would impose additional requirements on health care service plans with regard to contracted pharmacy providers and pharmacy benefit managers. Among other things, the bill would prohibit a health care service plan from including in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. The bill would require a health care service plan that contracts with a pharmacy benefit manager for management of any or all of its prescription drug coverage to require the pharmacy benefit manager to comply with specified provisions, register with the department pursuant to these provisions, and exercise good faith and fair dealing in the performance of its contractual duties to a health care service plan. The bill would require the registration of those pharmacy benefit managers with the department, as specified, and would authorize the department to set a fee for registration, as specified. The bill would establish enforcement provisions. The bill would also establish a Task Force on Pharmacy Benefit Management Reporting, until February 1, 2020, to determine what information related to pharmaceutical costs, if any, the department should require to be reported by health care service plans or their contracted pharmacy benefit managers. The bill would require the department to submit a report of the task force to specified persons and entities within the Legislature.

Because a willful violation of these provisions by health care service plans would be a crime, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime. Existing law also imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan, as specified.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime. Existing law also imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan, as specified.

This bill would require pharmacy benefit managers, as defined, to be licensed by registered with the Department of Managed Health Care, as prescribed. The bill would require the department to develop an application for new and renewed licenses, applications for the registration, and would specify certain information to be provided in those applications. The bill would authorize the department to charge a license fee for a new or renewed license, fee for registration, as specified. The bill would authorize the director of the department to assess a civil penalty against a pharmacy benefit manager that conducts business in the state without a current license, and would authorize the director to revoke, suspend, or place on probational status the license suspend the registration of a pharmacy benefit manager under specified circumstances.

This bill would also require a pharmacy benefit manager to exercise a duty of good faith and fair dealing in the performance of its contractual duties to a purchaser, and would require a pharmacy benefit manager to disclose to a purchaser any conflict of interest that would interfere with the discharge of that duty. The bill would require a pharmacy benefit manager to periodically disclose to a purchaser, at the purchasers request, certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies. The bill would require a pharmacy benefit manager to notify a pharmacy network provider of certain material contract changes at least 30 days before those changes take effect. effect, and would prohibit a pharmacy benefit manager from notifying an individual receiving benefits through that pharmacy benefit manager that a pharmacy has been terminated from its network until the required notice has been provided to the pharmacy. The bill would prohibit a pharmacy benefit manager from including in a contract with a pharmacy network provider provisions that prohibit the provider from informing consumers of alternative medication options or from dispensing a certain amount of prescribed medication, as specified. The bill would apply these provisions to a contract or contractual relationship between a pharmacy benefit manager and a purchaser or between a pharmacy benefit manager and a pharmacy network provider that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018. The bill would provide that these provisions and those relating to licensing registration described above do not apply to a health care service plan, health insurer, or related entities that perform pharmacy benefit management services only for enrollees of the plan or insureds of the insurer.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime. Existing law also imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan, as specified.

This bill would require pharmacy benefit managers, as defined, to be licensed by the Department of Managed Health Care, as prescribed. The bill would require the department to develop an application for new and renewed licenses, and would specify certain information to be provided in those applications. The bill would authorize the department to charge a license fee for a new or renewed license, as specified. The bill would authorize the director of the department to assess a civil penalty against a pharmacy benefit manager that conducts business in the state without a current license, and would authorize the director to revoke, suspend, or place on probational status the license of a pharmacy benefit manager under specified circumstances.

This bill would also require a pharmacy benefit manager to exercise a duty of good faith and fair dealing in the performance of its contractual duties to a purchaser, and would require a pharmacy benefit manager to disclose to a purchaser any conflict of interest that would interfere with the discharge of that duty. The bill would require a pharmacy benefit manager to periodically disclose to a purchaser, at the purchasers request, certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies. The bill would require a pharmacy benefit manager to notify a pharmacy network provider of certain material contract changes at least 30 days before those changes take effect. The bill would prohibit a pharmacy benefit manager from including in a contract with a pharmacy network provider provisions that prohibit the provider from informing consumers of alternative medication options or from dispensing a certain amount of prescribed medication, as specified. The bill would apply these provisions to a contract or contractual relationship between a pharmacy benefit manager and a purchaser or between a pharmacy benefit manager and a pharmacy network provider that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018. The bill would provide that these provisions and those relating to licensing described above do not apply to a health care service plan, health insurer, or related entities that perform pharmacy benefit management services only for enrollees of the plan or insureds of the insurer.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime. Existing law also imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan, as specified.

This bill would require pharmacy benefit managers, as defined, to be licensed by the California State Board of Pharmacy, Department of Managed Health Care, as prescribed. The bill would make conforming changes to related provisions. Because a violation of these provisions under the Pharmacy Law would be a crime, the bill would impose a state-mandated local program. The bill would require the department to develop an application for new and renewed licenses, and would specify certain information to be provided in those applications. The bill would authorize the department to charge a license fee for a new or renewed license, as specified. The bill would authorize the director of the department to assess a civil penalty against a pharmacy benefit manager that conducts business in the state without a current license, and would authorize the director to revoke, suspend, or place on probational status the license of a pharmacy benefit manager under specified circumstances.

This bill would also provide that a pharmacy benefit manager, except as specified, has a fiduciary duty to a purchaser, as defined, require a pharmacy benefit manager to exercise a duty of good faith and fair dealing in the performance of its contractual duties to a purchaser, and would require a pharmacy benefit manager to disclose to a purchaser any conflict of interest that would interfere with the discharge of that duty. The bill would require a pharmacy benefit manager to periodically disclose to a purchaser purchaser, at the purchasers request, certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies. The bill would require a pharmacy benefit manager to notify a pharmacy network provider of certain material contract changes at least 30 days before those changes take effect. The bill would prohibit a pharmacy benefit manager from including in a contract with a pharmacy network provider provisions that prohibit the provider from informing consumers of alternative medication options or from dispensing a certain amount of prescribed medication, as specified. The bill would apply these provisions to a contract or contractual relationship between a pharmacy benefit manager and a purchaser or between a pharmacy benefit manager and a pharmacy network provider that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018. The bill would provide that these provisions and those relating to licensing described above do not apply to a health care service plan, health insurer, or related entities that perform pharmacy benefit management services only for enrollees of the plan or insureds of the insurer.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime. Existing law also imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan, as specified.

This bill would require pharmacy benefit managers, as defined, and designated pharmacy benefits manager representatives to be licensed by the California State Board of Pharmacy, as prescribed, and would establish qualifications for the designated pharmacy benefits manager representative license. The bill would prescribe the duties of the designated pharmacy benefits manager representative, as specified. The bill would also require pharmacy benefit managers to make specified disclosures to the board on an annual basis, as specified. prescribed. The bill would make conforming changes to related provisions. Because a violation of these provisions under the Pharmacy Law would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacists and pharmacies by the California State Board of Pharmacy. A violation of the Pharmacy Law is a crime. Existing law also imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan, as specified.

This bill would require pharmacy benefit managers, as defined, and designated pharmacy benefits manager representatives to be licensed by the California State Board of Pharmacy, as prescribed, and would establish qualifications for the designated pharmacy benefits manager representative license. The bill would prescribe the duties of the designated pharmacy benefits manager representative, as specified. The bill would also require pharmacy benefit managers to make specified disclosures to the board on an annual basis, as specified. The bill would make conforming changes to related provisions. Because a violation of these provisions under the Pharmacy Law would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 315

Author:(Wood, et al.)

As Amended Ver:August 24, 2018

Majority vote

Original Committee Reference: HEALTH

SUMMARY: Requires pharmacy benefit managers (PBMs) to register with the Department of Managed Health Care (DMHC), to exercise good faith and fair dealing, and to disclose, upon a purchaser's request, information with respect to prescription product benefits, as specified. Requires DMHC to convene a Task Force on PBM Reporting to determine what information related to pharmaceutical costs, if any, it should require to be reported by health care service plans (health plan) or their contracted PBMs. Establishes a pilot project in Riverside and Sonoma Counties to assess the impact of health plan and PBM prohibitions that prohibit the dispensing of certain amounts of prescription drugs by network retail pharmacies.

The Senate amendments:

Pharmacy point-of-sale notification

1. Require a pharmacy to inform a customer at the point of sale for a covered prescription drug whether the retail price is lower than the applicable cost-sharing amount for the prescription drug, unless the pharmacy automatically charges the customer the lower price.
2. Require the pharmacy, if the customer pays the retail price, to submit the claim to the health plan or health insurer in the same manner as if the customer had purchased the prescription drug by paying the cost-sharing amount when submitted by the network pharmacy.
3. Require the payment rendered to constitute the applicable cost sharing and to apply to the deductible, if any, and also to the maximum out-of-pocket limit in the same manner as if the enrollee had purchased the prescription drug by paying the cost-sharing amount.
4. State a contract provision that is entered into on or after January 1, 2019 and is inconsistent with 1) through 3) above, is void and unenforceable.
5. Make 1) through 4) above severable from the other provisions contained in this bill. Prohibit a violation of these provisions from being grounds for disciplinary action or a criminal action.

Duties of PBMs

1. Define labeler, proprietary information, and purchaser, as specified.
2. Require PBMs to exercise good faith and fair dealing. Require PBMs to notify a purchaser in writing of any activity, policy, or practice of the PBM that directly or indirectly presents a conflict of interest that interferes with the discharge of the PBM's duty to the purchaser to exercise good faith and fair dealing.
3. Require PBMs, on a quarterly basis, to disclose, upon the request of the purchaser, the following information with respect to prescription product benefits specific to the purchaser:
4. The aggregate wholesale acquisition costs from a PBM or labeler for each therapeutic category of drugs containing three or more drugs, as outlined in the state's essential health benefits (EHB) benchmark plan;
5. The aggregate amount of rebates received by the PBM by therapeutic category of drugs containing three or more drugs, as outlined in the EHB benchmark plan. Requires the amount of rebates to include any utilization discounts the PBM receives from a pharmaceutical manufacturer or labeler;
   • 1. Any administrative fees received from a pharmaceutical manufacturer or labeler;
     2. Whether the PBM has a contract, agreement, or other arrangement with a pharmaceutical manufacturer to exclusively dispense or provide a drug to a purchaser's employees, insureds, or enrollees, and the application of all consideration or economic benefits collected or received pursuant to that arrangement;
6. Prescription drug utilization information for the purchaser's enrollees or insureds that is not specific to any individual enrollee or insured;
7. The aggregate of payments, or the equivalent economic benefit, made by the PBM to pharmacies it owns or controls and the aggregate of payments made to pharmacies that it does not own or control; and,
8. The aggregate amount of the fees imposed on, or collected from, network pharmacies or other assessments against network pharmacies, and the application of those amounts collected pursuant to the contract with the purchaser.
9. Require information in 8) above to include all retail, mail order, specialty, and compounded prescription products. Specify that, except for utilization information, PBMs are not required to make the disclosures in 8) above unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information.
10. Prohibit PBMs from imposing a penalty or offering an inducement to a purchaser for the purpose of deterring the purchaser from requesting the information in 8) above.
11. Require PBMs to disclose to a pharmacy network provider or its contracting agent any material change to a contract provision that affects the terms of reimbursement, the process for verifying benefits and eligibility, dispute resolution, procedures for verifying drugs included on the formulary, and contract termination at least 30 days before the date of the change to the provision. Prohibit a PBM from notifying an individual receiving benefits through it that a pharmacy has been terminated from the PBM's network until the notification of termination has been provided to that pharmacy.
12. Prohibit PBMs from including in a contract with a pharmacy network provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication.
13. Prohibit 6) through 12) above from applying to:
14. A health plan or health insurer, if it offers, provides, or administers PBM services that are offered, provided, or administered only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by that health plan or health insurer;
15. An affiliate, subsidiary, related entity, or contracted medical group of a health plan or health insurer that would otherwise qualify as a PBM, but offers, provides, or administers services only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by the health plan or health insurer; and,
16. A contract between a self-insured employer, group of self-insured employers, insurer of an employer, or group of insurers and a pharmacy, group of pharmacies, or pharmacy benefit network to provide medicines and medical supplies required to be provided to injured employees.
17. Make 6) through 12) above severable from the other provisions contained in this bill.
18. Apply 6) through 12) above to PBM contracts that are entered into, amended, or renewed on or after January 1, 2019.

Pilot Project

Establish a pilot project in Riverside and Sonoma Counties, effective January 1, 2020, to assess the impact of health plan and PBM prohibitions on the dispensing of certain amounts of prescription drugs by network retail pharmacies.

Prohibit a health plan, pursuant to the pilot project, from prohibiting, or permitting any delegated PBM to prohibit, a pharmacy provider from dispensing a particular amount of a prescribed medication if the plan or PBM allows that amount to be dispensed through a pharmacy owned or controlled by the plan or PBM, unless the prescription drug is subject to restricted distribution by the federal Food and Drug Administration or requires special handling, provider coordination, or patient education that cannot be provided by a retail pharmacy.

Specify that the pilot project cannot be construed to prohibit:

A health plan or PBM from requiring the same reimbursement and terms and conditions for a pharmacy network provider as for a pharmacy that it owns or controls; or,

Differential cost sharing designed to encourage or discourage the use of mail-order pharmacy services or preferred pharmacies.

Require health plans subject to the pilot project, on or before July 1, 2020, to report annually to DMHC information and data relating to changes, if any, to costs and utilization of prescription drugs attributable to the prohibition of contract terms in 17) above. Require DMHC to solicit and receive any additional information relevant to changes in costs or utilization attributable to the pilot project from other interested stakeholders. Require DMHC to summarize data received and provide the summary to the Governor and health policy committees of the Legislature on or before December 31, 2022.

Sunset the pilot project on January 1, 2023.

PBM services

1. Define PBM as a person, business, or other entity that, pursuant to a contract with a health plan, manages the prescription drug coverage provided by the health plan, 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. Provides that this definition does not include a health plan or its contracting provider, as specified.

Permit DMHC to implement, interpret, or make specific the provisions in 21) through 36) by means of all-plan letters or similar instructions to health plans and PBMs, without taking regulatory action, until such time as regulations are adopted. Permit DMHC to contract with a consultant or consultants with expertise in this subject area to assist in developing guidance or instructions or the report required pursuant to 35) below. Require such a contract to include conflict-of-interest provisions to prohibit a person from participating in any report in which the person knows or has reason to know he or she has a material financial interest, including, but not limited to, a person who has a consulting or other agreement with a person or organization that would be affected by the results of the report.

1. Require health plans to disclose to a contracted pharmacy provider or its contracting agent contact information required to be disclosed pursuant to existing law, including, but not limited to, the telephone number pharmacy providers may call for assistance and information necessary to process a pharmacy claim.

Prohibit health plans from including in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication.

Require health plans that contract with a PBM for management of any or all of its prescription drug coverage to require the PBM to:

Comply with 23) and 24) above;

Register with DMHC;

Exercise good faith and fair dealing in the performance of its contractual duties to a health plan;

Comply with existing law governing PBMs; and,

Inform all pharmacists under contract with or subject to contracts with the PBM of the pharmacist's rights to submit complaints to DMHC and of the pharmacist's rights as a provider under existing law.

Require PBMs to notify a health plan in writing of any activity, policy, or practice that directly or indirectly presents a conflict of interest that interferes with the discharge of its duty to the health plan to exercise good faith and fair dealing in the performance of its contractual duties.

PBM registration

Require the application to state if the applicant is a partnership or other unincorporated association, a limited liability company, or a corporation, and the number of partners, members, or stockholders, as the case may be, exceeds five, the application will state. Require the application to further state the name, address, usual occupation, and professional qualifications of each of the five partners, members, or stockholders who own the five largest interests in the applicant entity. Require the applicant, upon request by DMHC, to furnish the name, address, usual occupation, and professional qualifications of partners, members, or stockholders not named in the application, or to refer the DMHC to an appropriate source for that information.

Require the application to contain a statement to the effect that the applicant has not been convicted of a felony and has not violated any of the provisions contained in 21) through 25) above. Requires the application, if the applicant cannot make this statement, to contain a statement of the violation, if any, or describe the reasons that prevent the applicant from being able to comply with the requirements with respect to the statement.

Permit DMHC to set an application fee, which does not exceed the reasonable costs of carrying out the duties required by this bill.

Require PBMs, within 30 days of a change in any of the information disclosed to DMHC on an application, to notify DMHC of that change in writing.

Make the provisions in 21) through 36) operative on January 1, 2020, except the requirements under 34) below. Give DMHC the authority to enforce these provisions, including the authority to adopt, amend, or repeal any rules and regulations, not inconsistent with the laws of this state, as may be necessary for the protection of the public and to implement these provisions, including, but not limited to, enforcement authority.

1. Define a person beneficially interested with respect to a PBM means and includes the following:

If the applicant is a partnership or other unincorporated association, each partner or member;

If the applicant is a corporation, each of its officers, directors, and stockholders, provided that a natural person shall not be deemed to be beneficially interested in a nonprofit corporation; and,

If the applicant is a limited liability company, each officer, manager, or member.

Require the failure by a health plan to comply with the contractual requirements of this bill to constitute grounds for disciplinary action. Requires the DMHC Director to, as appropriate, investigate and take enforcement action against a health plan that fails to comply with these requirements and to periodically evaluate contracts between health plans and PBMs to determine if any audit, evaluation, or enforcement actions should be undertaken.

Task Force on PBM Reporting

Require DMHC, by July 1, 2019, and in collaboration with other agencies, departments, advocates, experts, health plan representatives, and other entities and stakeholders that it deems appropriate, to convene a Task Force on Pharmacy Benefit Management Reporting to determine what information related to pharmaceutical costs, if any, it should require to be reported by health plans or their contracted PBMs, in addition to reporting required in existing law. Require the Task Force to consider inclusion of information including, but not limited to: wholesale acquisition costs of pharmaceuticals; rebates; payments to network pharmacies; and, exclusivity arrangements between health plans or contracted PBMs with manufacturers.

Require DMHC to submit a report of the Task Force on PBM Reporting to the President pro Tempore of the Senate, the Speaker of the Assembly, and the Senate and Assembly Committees on Health, with its recommendations no later than February 1, 2020, on which date the Task Force shall cease to exist.

Sunset the Task Force provisions on February 1, 2020.

EXISTING LAW:

1. Establishes the federal Patient Protection and Affordable Care Act, which enacts various health care coverage market reforms including the availability of health insurance exchanges.
2. Mandates the 10 federally required essential health benefits (EHBs) in the individual and small group market and establishes the Kaiser Small Group health plan as California's EHB benchmark plan, including prescription drug benefits, as specified.
3. Establishes the Department of Managed Health Care (DMHC) to regulate health plans and to ensure that health plans provide enrollees with access to quality health care services and protect and promote the interests of enrollees and sets forth application requirements for licensure as a health plan under the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act).  
4. Defines health care service plans, in part, as any person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees.
5. Requires, consistent with federal law, a sponsor of a prescription drug plan authorized by the federal Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173) to hold a valid license as a health plan issued by DMHC or as a life and disability insurer by California Department of Insurance and requires an entity that is licensed as a health plan and that operates a prescription drug plan to be subject to the provisions of the Knox-Keene Act, unless preempted by federal law.
6. Requires each health plan applying for licensure to reimburse the director for the actual cost of processing the application, including overhead, up to an amount not to exceed $25,000.
7. Permits the DMHC Director, after appropriate notice and opportunity for a hearing, to suspend or revoke any license issued under the Knox-Keene Act to a health plan or assess administrative penalties if the director determines that the licensee has committed any of the acts or omissions constituting grounds for disciplinary action.
8. Makes any person who violates any provision of the Knox-Keene Act, or who violates any rule or order adopted or issued pursuant to the Knox-Keene Act, to be liable for a civil penalty not to exceed $2,500 for each violation, which shall be assessed and recovered in a civil action brought by the DMHC Director in any court of competent jurisdiction.
9. Requires a health plan contract or health insurance policy that provides coverage for outpatient prescription drugs to provide coverage for medically necessary prescription drugs, including non-formulary drugs determined to be medically necessary, and, for an insurer, requires copayments, coinsurance, and other cost sharing for outpatient prescription drugs to be reasonable.
10. Prohibits, under existing DMHC regulation, a health plan enrollee from being required to pay any more than the retail price under the health plan's prescription drug benefit if the pharmacy's retail price for a prescription drug is less than the applicable copayment amount. Allows, under regulation, a plan to establish a mandatory mail order process for maintenance drugs when dispensed in a three months supply or greater quantities, as specified.
11. Imposes various requirements on contracts and policies that cover prescription drug benefits, including that a copayment or percentage coinsurance, not to exceed 50% of the cost to the health plan. Defines "cost to the plan" as the actual cost incurred by the health plan or its contracting provider to acquire and dispense a covered outpatient prescription drugs, without subtracting or otherwise considering any copayment or coinsurance amount to be paid by enrollees.
12. Establishes, until January 1, 2020, definitions for each tier if a health plan contract or health insurance policy for a nongrandfathered individual or small group product maintains a drug formulary grouped into tiers that includes a fourth tier. Permits health plans and health insurers to maintain a drug formulary with fewer than four tiers. Prevents the law from being construed to require a health plan or health insurer to impose cost sharing, or to require cost sharing for prescription drugs that state or federal law otherwise requires to be provided without cost sharing.
13. Requires any pharmacy located outside this state that ships, mails, or delivers, in any manner, controlled substances, dangerous drugs, or dangerous devices into this state to be considered a nonresident pharmacy. Prohibits a person from acting as a nonresident pharmacy unless he or she has obtained a license from Board of Pharmacy (board). Permits the board to register a nonresident pharmacy that is organized as a limited liability company in the state in which it is licensed.
14. Requires a nonresident pharmacy to disclose to the board the location, names, and titles of its agent for service of process in this state, all principal corporate officers, if any, all general partners, if any, and all pharmacists who are dispensing controlled substances, dangerous drugs, or dangerous devices to residents of this state.
15. Requires all nonresident pharmacies to comply with all lawful directions and requests for information from the regulatory or licensing agency of the state in which it is licensed as well as with all requests for information made by the board. Requires the nonresident pharmacy to maintain, at all times, a valid unexpired license, permit, or registration to conduct the pharmacy in compliance with the laws of the state in which it is a resident. Requires as a prerequisite to registering with the board, the nonresident pharmacy to submit a copy of the most recent inspection report resulting from an inspection conducted by the regulatory or licensing agency of the state in which it is located.
16. Prohibits a nonresident pharmacy from selling or distributing dangerous drugs or dangerous devices in this state through any person or media, other than a wholesaler or third-party logistics provider who has obtained a license from the board or through a selling or distribution outlet that is licensed as a wholesaler or third-party logistics provider without registering as a nonresident pharmacy.
17. Permits the board to report any violation by a nonresident pharmacy of the laws and regulations of this state, any other state, or of the United States, including, but not limited to, any violation of Pharmacy law or of the regulations established by the board, to any appropriate state or federal regulatory or licensing agency, including, but not limited to, the regulatory or licensing agency of the state in which the nonresident pharmacy is a resident or in which the pharmacist is licensed.
18. Permits the board to cancel, deny, revoke, or suspend a nonresident pharmacy registration, issue a citation or letter of admonishment to a nonresident pharmacy, or take any other action against a nonresident pharmacy that the board may take against a resident pharmacy license, on any of the same grounds upon which such action might be taken against a resident pharmacy, provided that the grounds for the action are also grounds for action in the state in which the nonresident pharmacy is permanently located.
19. Requires, if the home state pharmacy license of a nonresident pharmacy is canceled, revoked, or suspended for any reason, any license issued by the board to be immediately canceled, revoked, or suspended by operation of law.
20. 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. States that nothing in this subdivision shall be construed to prevent the PBM 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; and,
    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.
21. Prohibits a pharmacy from being subject to recoupment of funds for a clerical or recordkeeping error, unless the error resulted in actual financial harm to the pharmacy benefit manager, the carrier, or the beneficiary of a health benefit plan.
22. Requires a PBM that reimburses a contracting pharmacy for a drug on a maximum allowable cost basis to do the following, among other provisions related to maximum allowable cost:
    1. Include in a contract, initially entered into, or renewed on its scheduled renewal date, on or after January 1, 2016, with the contracting pharmacy information identifying any national drug pricing compendia or other data sources used to determine the maximum allowable cost for the drugs on a maximum allowable cost list; and,
    2. Make available to a contracting pharmacy, upon request, the most up-to-date maximum allowable cost list or lists used by the PBM for patients served by that pharmacy in a readily accessible, secure, and usable Web-based format or other comparable format.

FISCAL EFFECT: According to Senate Appropriations Committee, one-time costs of $330, 000 in 2017-18, $940,000 in 2018-19, $920,000 in 2019-20, and ongoing costs of $840,000 per year thereafter, for the DMHC to register PBMs (Managed Care Fund). DMHC would be required to develop regulations, perform annual reviews of registration applications, review complaints from payers and pharmacies, and take enforcement actions. The costs incurred by the DMHC would be paid for by registration fees paid by PBMs.

COMMENTS: According to the author, PBMs play a major role in negotiating the prices of prescription drugs, creating and managing formularies, and several other functions key to the management of pharmacy benefits for millions of Californians. However, despite a PBM's interaction with most major players, including drug manufacturers, health plans and insurers, and pharmacies, very little is known about those relationships. The author states that this bill will ensure that purchasers will receive standard information from the PBM. This bill also establishes a regulatory structure for a currently unregulated, but critical entity in the health care arena, the PBMs. In the complex world of health care, PBMs have, for the most part, escaped the scrutiny of regulation and licensure.

PBMs. In recent years, there has been much attention focused on the role that PBMs play. A report prepared by the Minority Staff of the U.S. Senate, Committee on Finance, in June 2018, writes that PBMs initially operated almost exclusively as pharmacy claims processors. In the 1980s, however, these companies began to transition to entities that leveraged the number of lives they covered through their clients' networks to negotiate discounts and rebates with manufacturers and pharmacies. Today, these middlemen have one of the most prominent roles in determining coverage and payment for drug products, despite never taking physical possession of the drug. Moreover, they have financial relationships with—or are owned by—other key entities in the drug supply chain. For these reasons, PBMs are essential in the national conversation surrounding lowering prescription drug prices.

According to the National Conference of State Legislatures, pharmacy-based and mail-order consumer purchases of prescription drugs were a $235 billion market annually in the United States in 2015. Commercial contracts between a pharmacy and a PBM are a widespread feature in the distribution and sales chain between original manufacturer and the end consumer. However, the terms of these arrangements and binding contracts usually are invisible to individual consumers and some purchasers such as employers. In some cases, these arrangements include restrictions that mean a pharmacist is prohibited by a contract with a PBM from informing consumers that the drug they want to buy has options, and could be purchased at a lower cost if the consumers paid out of pocket rather than purchasing through their insurance plan. In financial terms, prescription drug overpayments (also known as "co-pay clawbacks") occur when commercially insured patients' copayments exceed the total cost of the drug to their insurer or pharmacy benefit manager. These so-called "gag clauses" have come to the attention of state policymakers seeking to lower drug costs by requiring more extensive transparency at the retail pharmacy level. A growing number of legislative proposals in 2018 seek to block such commercial PBM or health insurer contracts that may prohibit pharmacies from informing customers about available alternative pricing for medications, including paying out-of-pocket, or including generics or brand products that may be less costly, or comparatively more suitable for a patient.

DMHC Regulatory Jurisdiction. In California, the health plans, which PBMs contract with, are regulated by the DMHC. Health plans regulated by the DMHC have mechanisms by which patients can contact the health plan if the patient has a problem with the PBM. The DMHC also has a "help line" that patients can utilize to report complaints, and there is a process in place for DMHC to review patient appeals to the Independent Medical Review panel if, for example, coverage is denied for specific drugs. The DMHC receives some indirect information about PBMs. For example, whenever a health plan contracts with a PBM, the DMHC reviews the contract to ensure there is compliance with the Knox-Keene Act. The DMHC also examines how health plans delegate functions to PBMs.

The California Pharmacists Association writes that this bill will better protect purchasers, primarily employers and health plans. Both the task force and the pilot program created in this bill will allow for collection of information which is currently unavailable to purchasers. Health Access California states that it is unclear how much savings PBMs negotiate are actually passed through to the purchasers of coverage.

America's Health Insurance Plans, Association of California Life and Health Insurers, California Association of Health Plans, and Local Health Plans of California write that this bill establishes burdensome and unworkable requirements on health plans and the PBMs with which they contract to lower drug costs.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0005109

 THIRD READING 

Bill No: AB 315

Author: Wood (D), Dahle (R), and Nazarian (D)

Amended: 8/24/18 in Senate

Vote: 21

SENATE HEALTH COMMITTEE: 9-0, 7/5/17

AYES: Hernandez, Nguyen, Atkins, Leyva, Mitchell, Monning, Newman, Nielsen, Roth

SENATE APPROPRIATIONS COMMITTEE: 6-0, 9/1/17

AYES: Lara, Beall, Bradford, Hill, Nielsen, Wiener

NO VOTE RECORDED: Bates

ASSEMBLY FLOOR: 58-7, 6/1/17 - See last page for vote

SUBJECT: Pharmacy benefit management

SOURCE: Author

DIGEST:

1. This bill (1) places various requirements on pharmacy benefit managers (PBMs), including to register with the Department of Managed Health Care, exercise good faith and fair dealing, and disclose, upon a purchaser’s request, information with respect to prescription product benefits specific to the purchaser for all retail, mail order, specialty, and compounded prescription products, as specified; (2) requires the Department of Managed Health Care (DMHC) to convene a Task Force on Pharmacy Benefit Management Reporting to determine what information related to pharmaceutical costs, if any, it should require to be reported by health plans or their contracted PBMs; and (3) establishes a pilot project in Riverside and Sonoma Counties to assess the impact of contract provisions that prohibit the dispensing of certain amounts of prescription drugs by network retail pharmacies.

Senate Floor Amendments of 8/24/18 make technical, clarifying changes.

Senate Floor Amendments of 8/20/18 (1) recast the PBM registration and discloser provisions; (2) delete language that prohibits PBM and health plan contracts in the state from including a provision prohibiting a provider from dispensing a particular amount of a prescribed medication and instead require a pilot program in two counties (Riverside and Sonoma) banning this sort of prohibition; (3) sunset the pilot program on January 1, 2020; and (4) require pharmacies to inform customers whether the retail price is lower than the applicable cost-sharing amount for a prescription drug.

ANALYSIS:

Existing law:

1. Establishes the DMHC to regulate health plans under the Knox-Keene Act and makes it unlawful for any person to engage in business as a health plan in California or to receive advance or periodic consideration in connection with a plan from or on behalf of persons in California unless such person has first secured from the director a license, then in effect, as a plan or unless such person is exempted, as specified.
2. Requires any pharmacy located outside this state that ships, mails, or delivers, in any manner, controlled substances, dangerous drugs, or dangerous devices into this state to be considered a nonresident pharmacy. Prohibits a person from acting as a nonresident pharmacy unless he or she has obtained a license from the Board of Pharmacy (board). Permits the board to register a nonresident pharmacy that is organized as a limited liability company in the state in which it is licensed.
3. Prohibits a nonresident pharmacy from selling or distributing dangerous drugs or dangerous devices in this state through any person or media, other than a wholesaler or third-party logistics provider who has obtained a license from the board or through a selling or distribution outlet that is licensed as a wholesaler or third-party logistics provider, without registering as a nonresident pharmacy.
4. 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. Prohibits this prohibition from being construed to prevent the PBM 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:
5. 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,
6. 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.
7. Requires a PBM that reimburses a contracting pharmacy for a drug on a maximum allowable cost basis to do the following, among other provisions related to maximum allowable cost:
8. Include in a contract, initially entered into, or renewed on its scheduled renewal date, on or after January 1, 2016, with the contracting pharmacy information identifying any national drug pricing compendia or other data sources used to determine the maximum allowable cost for the drugs on a maximum allowable cost list; and,
9. Make available to a contracting pharmacy, upon request, the most up-to-date maximum allowable cost list or lists used by the PBM for patients served by that pharmacy in a readily accessible, secure, and usable Web-based format or other comparable format.

This bill:

Duties of PBMs

1. Requires PBMs to exercise good faith and fair dealing. Requires PBMs to notify a purchaser in writing of any activity, policy, or practice of the PBM that directly or indirectly presents a conflict of interest that interferes with the discharge of the PBM’s duty to the purchaser to exercise good faith and fair dealing.
2. Requires PBMs, on a quarterly basis, to disclose, upon the request of the purchaser, the following information with respect to prescription product benefits specific to the purchaser:
3. The aggregate wholesale acquisition costs from a PBM or labeler for each therapeutic category of drugs containing three or more drugs, as outlined in the state’s essential health benefits (EHB) benchmark plan;
4. The aggregate amount of rebates received by the PBM by therapeutic category of drugs containing three or more drugs, as outlined in the EHB benchmark plan. Requires the amount of rebates to include any utilization discounts the PBM receives from a pharmaceutical manufacturer or labeler;
   • 1. Any administrative fees received from a pharmaceutical manufacturer or labeler;
     2. Whether the PBM has a contract, agreement, or other arrangement with a pharmaceutical manufacturer to exclusively dispense or provide a drug to a purchaser’s employees, insureds, or enrollees, and the application of all consideration or economic benefits collected or received pursuant to that arrangement;
5. Prescription drug utilization information for the purchaser’s enrollees or insureds that is not specific to any individual enrollee or insured;
6. The aggregate of payments, or the equivalent economic benefit, made by the PBM to pharmacies it owns or controls and the aggregate of payments made to pharmacies that it does not own or control; and,
7. The aggregate amount of the fees imposed on, or collected from, network pharmacies or other assessments against network pharmacies, and the application of those amounts collected pursuant to the contract with the purchaser.
8. Requires the above information to include all retail, mail order, specialty, and compounded prescription products. Specifies that, except for utilization information, PBMs are not required to make the above disclosures unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information. Defines “proprietary information” as information on pricing, costs, revenue, taxes, market share, negotiating strategies, customers, and personnel that is held by a PBM and used for its business purposes.
9. Prohibits PBMs from imposing a penalty or offering an inducement to a purchaser for the purpose of deterring the purchaser from requesting the information in 3) above.
10. Requires PBMs to disclose to a pharmacy network provider or its contracting agent any material change to a contract provision that affects the terms of reimbursement, the process for verifying benefits and eligibility, dispute resolution, procedures for verifying drugs included on the formulary, and contract termination at least 30 days before the date of the change to the provision. Prohibits a PBM from notifying an individual receiving benefits through it that a pharmacy has been terminated from the PBM’s network until the notification of termination has been provided to that pharmacy.
11. Prohibits PBMs from including in a contract with a pharmacy network provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication.
12. Prohibits 1) through 6) above from applying to:
13. A health plan or health insurer, if it offers, provides, or administers PBM services that are offered, provided, or administered only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by that health plan or health insurer;
14. An affiliate, subsidiary, related entity, or contracted medical group of a health plan or health insurer that would otherwise qualify as a PBM, but offers, provides, or administers services only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by the health plan or health insurer; and,
15. A contract between a self-insured employer, group of self-insured employers, insurer of an employer, or group of insurers and a pharmacy, group of pharmacies, or pharmacy benefit network to provide medicines and medical supplies.
16. Makes 1) through 7) above severable from the other provisions contained in this bill.

PBM services

1. Requires health plans to disclose to a contracted pharmacy provider or its contracting agent contact information required to be disclosed pursuant to existing law, including, but not limited to, the telephone number pharmacy providers may call for assistance and information necessary to process a pharmacy claim.

Prohibits health plans from including in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication.

Requires health plans that contract with a PBM for management of any or all of its prescription drug coverage to require the PBM to:

Comply with 9) and 10) above;

Register with DMHC;

Exercise good faith and fair dealing in the performance of its contractual duties to a health plan;

Comply existing law governing PBMs; and,

Inform all pharmacists under contract with or subject to contracts with the PBM of the pharmacist’s rights to submit complaints to DMHC and of the pharmacist’s rights as a provider under existing law.

Requires PBMs to notify a health plan in writing of any activity, policy, or practice that directly or indirectly presents a conflict of interest that interferes with the discharge of its duty to the health plan to exercise good faith and fair dealing in the performance of its contractual duties.

Requires the failure by a health plan to comply with the contractual requirements of this bill to constitute grounds for disciplinary action. Requires the DMHC director to, as appropriate, investigate and take enforcement action against a health plan that fails to comply with these requirements and to periodically evaluate contracts between health plans and PBMs to determine if any audit, evaluation, or enforcement actions should be undertaken.

PBM registration

Requires PBMs registering with DMHC to complete an application. Requires DMHC to develop an application form for PBM registration which requires the PBM to submit its name, address and contact telephone number, the name and address of its agent for service of process in the state, the name and address of each person beneficially interested in the PBM, and the name and address of each person with management or control over the PBM. Specifies that a “person beneficially interested” with respect to a PBM means and includes:

If the applicant is a partnership or other unincorporated association, each partner or member;

If the applicant is a corporation, each of its officers, directors, and stockholders, provided that a natural person shall not be deemed to be beneficially interested in a nonprofit corporation; and,

If the applicant is a limited liability company, each officer, manager, or member.

Requires the application to state if the applicant is a partnership or other unincorporated association, a limited liability company, or a corporation, and the number of partners, members, or stockholders, as the case may be, exceeds five, the application shall so state. Requires the application to further state the name, address, usual occupation, and professional qualifications of each of the five partners, members, or stockholders who own the five largest interests in the applicant entity. Requires the applicant, upon request by DMHC, to furnish the name, address, usual occupation, and professional qualifications of partners, members, or stockholders not named in the application, or to refer the DMHC to an appropriate source for that information.

Requires the application to contain a statement to the effect that the applicant has not been convicted of a felony and has not violated any of the provisions contained in 11) through 15) above. Requires the application, if the applicant cannot make this statement, to contain a statement of the violation, if any, or describe the reasons that prevent the applicant from being able to comply with the requirements with respect to the statement.

Permits DMHC to set an application fee, which does not exceed the reasonable costs of carrying out the duties required by this bill.

Requires PBMs, within 30 days of a change in any of the information disclosed to DMHC on an application, to notify DMHC of that change in writing.

Makes the provisions in 9) through 18) above operative on January 1, 2020. Gives DMHC the authority to enforce these provisions, including the authority to adopt, amend, or repeal any rules and regulations, not inconsistent with the laws of this state, as may be necessary for the protection of the public and to implement these provisions, including, but not limited to, enforcement authority.

Permits DMHC to implement, interpret, or make specific the provisions in 9) through 19) above by means of all-plan letters or similar instructions to health plans and PBMs, without taking regulatory action, until such time as regulations are adopted. Permits DMHC to contract with a consultant or consultants with expertise in this subject area to assist in developing guidance or instructions or the report required pursuant to 23) below. Requires such a contract to include conflict-of-interest provisions to prohibit a person from participating in any report in which the person knows or has reason to know he or she has a material financial interest, including, but not limited to, a person who has a consulting or other agreement with a person or organization that would be affected by the results of the report.

Task Force on PBM Reporting

Requires DMHC, by July 1, 2019 and in collaboration with other agencies, departments, advocates, experts, health plan representatives, and other entities and stakeholders that it deems appropriate, to convene a Task Force on Pharmacy Benefit Management Reporting to determine what information related to pharmaceutical costs, if any, it should require to be reported by health plans or their contracted PBMs, in addition to existing law that requires health plans to report on pharmaceutical costs. Requires the Task Force to consider inclusion of information including, but not limited to: wholesale acquisition costs of pharmaceuticals; rebates; payments to network pharmacies; and exclusivity arrangements between health plans or contracted PBMs with manufacturers.

Requires the Task Force to consider the results of information reporting pursuant to existing law which requires health plans to report on the 25 most frequently prescribed drugs, the 25 most costly drugs by total annual plan spending, and the 25 drugs with the highest year-over-year increase in total annual plan spending.

Requires DMHC to submit a report of the Task Force on PBM Reporting to the President pro Tempore of the Senate, the Speaker of the Assembly, and the Senate and Assembly Committees on Health, with its recommendations no later than February 1, 2020, on which date the Task Force shall cease to exist.

Sunsets the Task Force provisions on February 1, 2020.

Pilot project

Establishes a pilot project in Riverside and Sonoma Counties, effective January 1, 2020, to assess the impact of health plan and PBM prohibitions on the dispensing of certain amounts of prescription drugs by network retail pharmacies.

Prohibits a health plan, pursuant to the pilot project, from prohibiting, or permitting any delegated PBM to prohibit, a pharmacy provider from dispensing a particular amount of a prescribed medication if the plan or PBM allows that amount to be dispensed through a pharmacy owned or controlled by the plan or PBM, unless the prescription drug is subject to restricted distribution by the federal Food and Drug Administration or requires special handling, provider coordination, or patient education that cannot be provided by a retail pharmacy.

Specifies that the pilot project cannot be construed to prohibit:

A health plan or PBM from requiring the same reimbursement and terms and conditions for a pharmacy network provider as for a pharmacy that it owns or controls; or,

Differential cost sharing designed to encourage or discourage the use of mail-order pharmacy services or preferred pharmacies.

Requires health plans subject to the pilot project, on or before July 1, 2020, to report annually to DMHC information and data relating to changes, if any, to costs and utilization of prescription drugs attributable to the prohibition of contract terms in 10) above. Requires DMHC to solicit and receive any additional information relevant to changes in costs or utilization attributable to the pilot project from other interested stakeholders. Requires DMHC to summarize data received and provide the summary to the Governor and health policy committees of the Legislature on or before December 31, 2022.

Sunsets the pilot project on January 1, 2023.

Pharmacy point-of-sale notification

1. Requires a pharmacy to inform a customer at the point of sale for a covered prescription drug whether the retail price is lower than the applicable cost-sharing amount for the prescription drug, unless the pharmacy automatically charges the customer the lower price.
2. Requires the pharmacy, if the customer pays the retail price, to submit the claim to the health plan or health insurer in the same manner as if the customer had purchased the prescription drug by paying the cost-sharing amount when submitted by the network pharmacy.
3. Requires the payment rendered to constitute the applicable cost sharing and to apply to the deductible, if any, and also to the maximum out-of-pocket limit in the same manner as if the enrollee had purchased the prescription drug by paying the cost-sharing amount.
4. Makes a contract provision that is inconsistent with this section void and unenforceable.
5. Makes 30) through 33) severable from the other provisions contained in this bill. Prohibits a violation of these provisions from being grounds for disciplinary action or a criminal action.

Comments

1. Author’s statement. According to the author, PBMs play a major role in negotiating the prices of prescription drugs, creating and managing formularies, and several other functions key to the management of pharmacy benefits for millions of Californians. However, despite a PBM’s interaction with most major players, including drug manufacturers, health plans and insurers, and pharmacies, very little is known about those relationships. The author states that this bill will ensure that all purchasers, regardless of their size, will receive standard information from the PBM that is specific to the purchaser. With this bill, purchasers will know information such as the amount of rebates and discounts, as well as the nature and type of all other revenue the PBM receives in connection with prescription drug benefits related to the purchaser. According to the author, with this information, purchasers will be provided tools to enhance their negotiating ability and assist them in properly evaluating whether the PBM’s services are delivering the anticipated savings promised.

NOTE: Please see the Senate Health Committee policy analysis for detailed background.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee, one-time costs of $330, 000 in 2017-18, $940,000 in 2018-19, $920,000 in 2019-20, and ongoing costs of $840,000 per year thereafter, for the DMHC to register PBMs (Managed Care Fund). DMHC would be required to develop regulations, perform annual reviews of registration applications, review complaints from payers and pharmacies, and take enforcement actions. The costs incurred by the DMHC would be paid for by registration fees paid by PBMs.

SUPPORT: (Verified 8/24/18)

AARP California

Chronic Care Coalition

California Labor Federation

California Medical Association

California Pharmacists Association

California Professional Firefighters

California Rheumatology Alliance

Health Access

United Food and Commercial Workers

OPPOSITION: (Verified 8/24/18)

America’s Health Insurance Plans

Association of California Life & Health Insurance Companies

California Association of Health Plans

Local Health Plans of California

ASSEMBLY FLOOR: 58-7, 6/1/17

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Brough, Caballero, Calderon, Cervantes, Chau, Chávez, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Fong, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Levine, Limón, Low, Mathis, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Waldron, Weber, Wood, Rendon

NOES: Baker, Chen, Lackey, Obernolte, Ridley-Thomas, Steinorth, Voepel

NO VOTE RECORDED: Acosta, Travis Allen, Bigelow, Bocanegra, Burke, Chiu, Choi, Flora, Frazier, Grayson, Harper, Maienschein, Mayes, Melendez, Patterson

Prepared by: Melanie Moreno / HEALTH / (916) 651-4111

8/27/18 18:53:32

**** END ****

 THIRD READING 

Bill No: AB 315

Author: Wood (D), Dahle (R), and Nazarian (D)

Amended: 8/20/18 in Senate

Vote: 21

SENATE HEALTH COMMITTEE: 9-0, 7/5/17

AYES: Hernandez, Nguyen, Atkins, Leyva, Mitchell, Monning, Newman, Nielsen, Roth

SENATE APPROPRIATIONS COMMITTEE: 6-0, 9/1/17

AYES: Lara, Beall, Bradford, Hill, Nielsen, Wiener

NO VOTE RECORDED: Bates

ASSEMBLY FLOOR: 58-7, 6/1/17 - See last page for vote

SUBJECT: Pharmacy benefit management

SOURCE: Author

DIGEST:

1. This bill places various requirements on pharmacy benefit managers (PBMs), including to register with the Department of Managed Health Care, exercise good faith and fair dealing, and disclose, upon a purchaser’s request, information with respect to prescription product benefits specific to the purchaser for all retail, mail order, specialty, and compounded prescription products, as specified. Requires the Department of Managed Health Care (DMHC) to convene a Task Force on Pharmacy Benefit Management Reporting to determine what information related to pharmaceutical costs, if any, it should require to be reported by health plans or their contracted PBMs. Establishes a pilot project in Riverside and Sonoma Counties to assess the impact of contract provisions that prohibit the dispensing of certain amounts of prescription drugs by network retail pharmacies.

Senate Floor Amendments of 8/20/18 (1) recast the PBM registration and discloser provisions; (2) delete language that prohibits PBM and health plan contracts in the state from including a provision prohibiting a provider from dispensing a particular amount of a prescribed medication and instead require a pilot program in two counties (Riverside and Sonoma) banning this sort of prohibition; (3) sunset the pilot program on January 1, 2020; and (4) require pharmacies to inform customers whether the retail price is lower than the applicable cost-sharing amount for a prescription drug.

ANALYSIS:

Existing law:

1. Establishes the DMHC to regulate health plans under the Knox-Keene Act and makes it unlawful for any person to engage in business as a health plan in California or to receive advance or periodic consideration in connection with a plan from or on behalf of persons in California unless such person has first secured from the director a license, then in effect, as a plan or unless such person is exempted, as specified.
2. Requires any pharmacy located outside this state that ships, mails, or delivers, in any manner, controlled substances, dangerous drugs, or dangerous devices into this state to be considered a nonresident pharmacy. Prohibits a person from acting as a nonresident pharmacy unless he or she has obtained a license from the Board of Pharmacy (board). Permits the board to register a nonresident pharmacy that is organized as a limited liability company in the state in which it is licensed.
3. Prohibits a nonresident pharmacy from selling or distributing dangerous drugs or dangerous devices in this state through any person or media, other than a wholesaler or third-party logistics provider who has obtained a license from the board or through a selling or distribution outlet that is licensed as a wholesaler or third-party logistics provider, without registering as a nonresident pharmacy.
4. 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. Prohibits this prohibition from being construed to prevent the PBM 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:
5. 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,
6. 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.
7. Requires a PBM that reimburses a contracting pharmacy for a drug on a maximum allowable cost basis to do the following, among other provisions related to maximum allowable cost:
8. Include in a contract, initially entered into, or renewed on its scheduled renewal date, on or after January 1, 2016, with the contracting pharmacy information identifying any national drug pricing compendia or other data sources used to determine the maximum allowable cost for the drugs on a maximum allowable cost list; and,
9. Make available to a contracting pharmacy, upon request, the most up-to-date maximum allowable cost list or lists used by the PBM for patients served by that pharmacy in a readily accessible, secure, and usable Web-based format or other comparable format.

This bill:

Duties of PBMs

1. Requires PBMs to exercise good faith and fair dealing. Requires PBMs to notify a purchaser in writing of any activity, policy, or practice of the PBM that directly or indirectly presents a conflict of interest that interferes with the discharge of the PBM’s duty to the purchaser to exercise good faith and fair dealing.
2. Requires PBMs, on a quarterly basis, to disclose, upon the request of the purchaser, the following information with respect to prescription product benefits specific to the purchaser:
3. The aggregate wholesale acquisition costs from a PBM or labeler for each therapeutic category of drugs containing three or more drugs, as outlined in the state’s essential health benefits (EHB) benchmark plan;
4. The aggregate amount of rebates received by the PBM by therapeutic category of drugs containing three or more drugs, as outlined in the EHB benchmark plan. Requires the amount of rebates to include any utilization discounts the PBM receives from a pharmaceutical manufacturer or labeler;
   • 1. Any administrative fees received from a pharmaceutical manufacturer or labeler;
     2. Whether the PBM has a contract, agreement, or other arrangement with a pharmaceutical manufacturer to exclusively dispense or provide a drug to a purchaser’s employees, insureds, or enrollees, and the application of all consideration or economic benefits collected or received pursuant to that arrangement;
5. Prescription drug utilization information for the purchaser’s enrollees or insureds that is not specific to any individual enrollee or insured;
6. The aggregate of payments, or the equivalent economic benefit, made by the PBM to pharmacies it owns or controls and the aggregate of payments made to pharmacies that it does not own or control; and,
7. The aggregate amount of the fees imposed on, or collected from, network pharmacies or other assessments against network pharmacies, and the application of those amounts collected pursuant to the contract with the purchaser.
8. Requires the above information to include all retail, mail order, specialty, and compounded prescription products. Specifies that, except for utilization information, PBMs do not need to make the above disclosures unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information. Defines “proprietary information” as information on pricing, costs, revenue, taxes, market share, negotiating strategies, customers, and personnel that is held by a PBM and used for its business purposes.
9. Prohibits PBMs from imposing a penalty or offering an inducement to a purchaser for the purpose of deterring the purchaser from requesting the information in 3) above.
10. Requires PBMs to disclose to a pharmacy network provider or its contracting agent any material change to a contract provision that affects the terms of reimbursement, the process for verifying benefits and eligibility, dispute resolution, procedures for verifying drugs included on the formulary, and contract termination at least 30 days before the date of the change to the provision. Prohibits a PBM from notifying an individual receiving benefits through it that a pharmacy has been terminated from the PBM’s network until the notification of termination has been provided to that pharmacy.
11. Prohibits PBMs from including in a contract with a pharmacy network provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication.
12. Prohibits 1) through 6) above from applying to:
13. A health plan or health insurer, if it offers, provides, or administers PBM services that are offered, provided, or administered only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by that health plan or health insurer;
14. An affiliate, subsidiary, related entity, or contracted medical group of a health plan or health insurer that would otherwise qualify as a PBM, but offers, provides, or administers services only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered, provided, or administered by the health plan or health insurer; and,
15. A contract between a self-insured employer, group of self-insured employers, insurer of an employer, or group of insurers and a pharmacy, group of pharmacies, or pharmacy benefit network to provide medicines and medical supplies.
16. Makes 1) through 7) above severable from the other provisions contained in this bill.

PBM services

1. Requires health plans to disclose to a contracted pharmacy provider or its contracting agent contact information required to be disclosed pursuant to existing law, including, but not limited to, the telephone number pharmacy providers may call for assistance and information necessary to process a pharmacy claim.

Prohibits health plans from including in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication.

Requires health plans that contract with a PBM for management of any or all of its prescription drug coverage to require the PBM to:

Comply with 9) and 10) above;

Register with DMHC;

Exercise good faith and fair dealing in the performance of its contractual duties to a health plan;

Comply existing law governing PBMs; and,

Inform all pharmacists under contract with or subject to contracts with the PBM of the pharmacist’s rights to submit complaints to DMHC and of the pharmacist’s rights as a provider under existing law.

Requires PBMs to notify a health plan in writing of any activity, policy, or practice that directly or indirectly presents a conflict of interest that interferes with the discharge of its duty to the health plan to exercise good faith and fair dealing in the performance of its contractual duties.

Requires the failure by a health plan to comply with the contractual requirements of this bill to constitute grounds for disciplinary action. Requires the DMHC director to, as appropriate, investigate and take enforcement action against a health plan that fails to comply with these requirements and to periodically evaluate contracts between health plans and PBMs to determine if any audit, evaluation, or enforcement actions should be undertaken.

PBM registration

Requires PBMs registering with DMHC to complete an application. Requires DMHC to develop an application form for PBM registration which requires the PBM to submit its name, address and contact telephone number, the name and address of its agent for service of process in the state, the name and address of each person beneficially interested in the PBM, and the name and address of each person with management or control over the PBM. Specifies that a “person beneficially interested” with respect to a PBM means and includes:

If the applicant is a partnership or other unincorporated association, each partner or member;

If the applicant is a corporation, each of its officers, directors, and stockholders, provided that a natural person shall not be deemed to be beneficially interested in a nonprofit corporation; and,

If the applicant is a limited liability company, each officer, manager, or member.

Requires the application to state if the applicant is a partnership or other unincorporated association, a limited liability company, or a corporation, and the number of partners, members, or stockholders, as the case may be, exceeds five, the application shall so state. Requires the application to further state the name, address, usual occupation, and professional qualifications of each of the five partners, members, or stockholders who own the five largest interests in the applicant entity. Requires the applicant, upon request by DMHC, to furnish the name, address, usual occupation, and professional qualifications of partners, members, or stockholders not named in the application, or to refer the DMHC to an appropriate source for that information.

Requires the application to contain a statement to the effect that the applicant has not been convicted of a felony and has not violated any of the provisions contained in 11) through 16) above. Requires the application, if the applicant cannot make this statement, to contain a statement of the violation, if any, or describe the reasons that prevent the applicant from being able to comply with the requirements with respect to the statement.

Permits DMHC to set an application fee, which does not exceed the reasonable costs of carrying out the duties required by this bill.

Requires PBMs, within 30 days of a change in any of the information disclosed to DMHC on an application, to notify DMHC of that change in writing.

Makes the provisions in 11) through 20) above operative on January 1, 2020. Gives DMHC the authority to enforce these provisions, including the authority to adopt, amend, or repeal any rules and regulations, not inconsistent with the laws of this state, as may be necessary for the protection of the public and to implement these provisions, including, but not limited to, enforcement authority.

Permits DMHC to implement, interpret, or make specific the provisions in 11) through 20) above by means of all-plan letters or similar instructions to health plans and PBMs, without taking regulatory action, until such time as regulations are adopted. Permits DMHC to contract with a consultant or consultants with expertise in this subject area to assist in developing guidance or instructions or the report required pursuant to 25) below. Requires such a contract to include conflict-of-interest provisions to prohibit a person from participating in any report in which the person knows or has reason to know he or she has a material financial interest, including, but not limited to, a person who has a consulting or other agreement with a person or organization that would be affected by the results of the report.

Task Force on PBM Reporting

Requires DMHC, by July 1, 2019 and in collaboration with other agencies, departments, advocates, experts, health plan representatives, and other entities and stakeholders that it deems appropriate, to convene a Task Force on Pharmacy Benefit Management Reporting to determine what information related to pharmaceutical costs, if any, it should require to be reported by health plans or their contracted PBMs. Requires the Task Force to consider inclusion of information including, but not limited to: wholesale acquisition costs of pharmaceuticals; rebates; payments to network pharmacies; and exclusivity arrangements between health plans or contracted PBMs with manufacturers.

Requires the Task Force to consider the results of information reporting pursuant to existing law which requires health plans to report on the 25 most frequently prescribed drugs, the 25 most costly drugs by total annual plan spending, and the 25 drugs with the highest year-over-year increase in total annual plan spending.

Requires DMHC to submit a report of the Task Force on PBM Reporting to the President pro Tempore of the Senate, the Speaker of the Assembly, and the Senate and Assembly Committees on Health, with its recommendations no later than February 1, 2020, on which date the Task Force shall cease to exist.

Sunsets the Task Force provisions on February 1, 2020.

Pilot project

Establishes a pilot project in Riverside and Sonoma Counties, effective January 1, 2020, to assess the impact of contract provisions that prohibit the dispensing of certain amounts of prescription drugs by network retail pharmacies.

Prohibits a health plan, pursuant to the pilot project, from prohibiting, or permitting any delegated PBM to prohibit, a pharmacy provider from dispensing a particular amount of a prescribed medication if the plan or PBM allows that amount to be dispensed through a pharmacy owned or controlled by the plan or PBM, unless the prescription drug is subject to restricted distribution by the federal Food and Drug Administration or requires special handling, provider coordination, or patient education that cannot be provided by a retail pharmacy.

Specifies that the pilot project cannot be construed to prohibit:

A health plan or PBM from requiring the same reimbursement and terms and conditions for a pharmacy network provider as for a pharmacy that it owns or controls; or,

Differential cost sharing designed to encourage or discourage the use of mail-order pharmacy services or preferred pharmacies.

Requires health plans subject to the pilot project, on or before July 1, 2020, to report annually to DMHC information and data relating to changes, if any, to costs and utilization of prescription drugs attributable to the prohibition of contract terms in 10) above. Requires DMHC to solicit and receive any additional information relevant to changes in costs or utilization attributable to the pilot project from other interested stakeholders. Requires DMHC to summarize data received and provide the summary to the Governor and health policy committees of the Legislature on or before December 31, 2022.

Sunsets the pilot project on January 1, 2023.

Pharmacy point-of-sale notification

1. Requires a pharmacy to inform a customer at the point of sale for a covered prescription drug whether the retail price is lower than the applicable cost-sharing amount for the prescription drug, unless the pharmacy automatically charges the customer the lower price.
2. Requires the pharmacy, if the customer pays the retail price, to submit the claim to the health plan or health insurer in the same manner as if the customer had purchased the prescription drug by paying the cost-sharing amount when submitted by the network pharmacy.
3. Requires the payment rendered to constitute the applicable cost sharing and to apply to the deductible, if any, and also to the maximum out-of-pocket limit in the same manner as if the enrollee had purchased the prescription drug by paying the cost-sharing amount.
4. Makes a contract provision that is inconsistent with this section void and unenforceable.
5. Makes 30) through 33) severable from the other provisions contained in this bill. Prohibits a violation of these provisions from being grounds for disciplinary action or a criminal action.

Comments

1. Author’s statement. According to the author, PBMs play a major role in negotiating the prices of prescription drugs, creating and managing formularies, and several other functions key to the management of pharmacy benefits for millions of Californians. However, despite a PBM’s interaction with most major players, including drug manufacturers, health plans and insurers, and pharmacies, very little is known about those relationships. The author states that this bill will ensure that all purchasers, regardless of their size, will receive standard information from the PBM that is specific to the purchaser. With this bill, purchasers will know information such as the amount of rebates and discounts, as well as the nature and type of all other revenue the PBM receives in connection with prescription drug benefits related to the purchaser. According to the author, with this information, purchasers will be provided tools to enhance their negotiating ability and assist them in properly evaluating whether the PBM’s services are delivering the anticipated savings promised.

NOTE: Please see the Senate Health Committee policy analysis for detailed background.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee, one-time costs of $330, 000 in 2017-18, $940,000 in 2018-19, $920,000 in 2019-20, and ongoing costs of $840,000 per year thereafter, for the DMHC to register PBMs (Managed Care Fund). DMHC would be required to develop regulations, perform annual reviews of registration applications, review complaints from payers and pharmacies, and take enforcement actions. The costs incurred by the DMHC would be paid for by registration fees paid by PBMs.

SUPPORT: (Verified 8/21/18)

AARP California

OPPOSITION: (Verified 8/21/18)

America’s Health Insurance Plans

Association of California Life & Health Insurance Companies

California Association of Health Plans

Local Health Plans of California

ASSEMBLY FLOOR: 58-7, 6/1/17

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Brough, Caballero, Calderon, Cervantes, Chau, Chávez, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Fong, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Levine, Limón, Low, Mathis, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Waldron, Weber, Wood, Rendon

NOES: Baker, Chen, Lackey, Obernolte, Ridley-Thomas, Steinorth, Voepel

NO VOTE RECORDED: Acosta, Travis Allen, Bigelow, Bocanegra, Burke, Chiu, Choi, Flora, Frazier, Grayson, Harper, Maienschein, Mayes, Melendez, Patterson

Prepared by: Melanie Moreno / HEALTH / (916) 651-4111

8/21/18 18:49:52

**** END ****

 THIRD READING 

Bill No: AB 315

Author: Wood (D), Dahle (R), and Nazarian (D)

Amended: 7/11/17 in Senate

Vote: 21

SENATE HEALTH COMMITTEE: 9-0, 7/5/17

AYES: Hernandez, Nguyen, Atkins, Leyva, Mitchell, Monning, Newman, Nielsen, Roth

SENATE APPROPRIATIONS COMMITTEE: 6-0, 9/1/17

AYES: Lara, Beall, Bradford, Hill, Nielsen, Wiener

NO VOTE RECORDED: Bates

ASSEMBLY FLOOR: 58-7, 6/1/17 - See last page for vote

SUBJECT: Pharmacy benefit management

SOURCE: Author

DIGEST:

1. This bill requires pharmacy benefit managers (PBMs) to obtain register with the Department of Managed Health Care before conducting business in California, as specified. Requires PBMs, on a quarterly basis, to disclose, upon a purchaser’s request, information with respect to prescription product benefits specific to the purchaser for all retail, mail order, specialty, and compounded prescription products, as specified.

ANALYSIS:

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health plans under the Knox-Keene Act and makes it unlawful for any person to engage in business as a health plan in California or to receive advance or periodic consideration in connection with a plan from or on behalf of persons in California unless such person has first secured from the director a license, then in effect, as a plan or unless such person is exempted, as specified.
2. Requires any pharmacy located outside this state that ships, mails, or delivers, in any manner, controlled substances, dangerous drugs, or dangerous devices into this state to be considered a nonresident pharmacy. Prohibits a person from acting as a nonresident pharmacy unless he or she has obtained a license from Board of Pharmacy (board). Permits the board to register a nonresident pharmacy that is organized as a limited liability company in the state in which it is licensed.
3. Prohibits a nonresident pharmacy from selling or distributing dangerous drugs or dangerous devices in this state through any person or media, other than a wholesaler or third-party logistics provider who has obtained a license from the board or through a selling or distribution outlet that is licensed as a wholesaler or third-party logistics provider without registering as a nonresident pharmacy.
4. 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. Prohibits this prohibition from being construed to prevent the PBM 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 PBM or health benefit plan have a contract that explicitly states the percentage charge or assessment to the plan sponsor; and,
   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.
5. Requires a PBM that reimburses a contracting pharmacy for a drug on a maximum allowable cost basis to do the following, among other provisions related to maximum allowable cost:
   1. Include in a contract, initially entered into, or renewed on its scheduled renewal date, on or after January 1, 2016, with the contracting pharmacy information identifying any national drug pricing compendia or other data sources used to determine the maximum allowable cost for the drugs on a maximum allowable cost list; and,
   2. Make available to a contracting pharmacy, upon request, the most up-to-date maximum allowable cost list or lists used by the PBM for patients served by that pharmacy in a readily accessible, secure, and usable Web-based format or other comparable format.

This bill:

PBM Registration

1. Requires PBMs to register with DMHC before conducting business in this state. Requires PBMs to complete an application for registration includes, but is not limited to, all of the information required by this bill. Prohibits this PBM registration from being transferable.
2. Requires DPH to develop application forms for PBM registration, and requires the forms to require a PBM to submit the following information:
   1. The name of the PBM;
   2. The address and contact telephone number for the PBM;
   3. The name and address of the PBM’s agent for service of process in the state;
   4. The name and address of each person beneficially interested in the PBM; and,
   5. The name and address of each person with management or control over the PBM.
3. Requires the application, if the applicant is a partnership or other unincorporated association, a limited liability company, or a corporation, and the number of partners, members, or stockholders, as the case may be, exceeds five, to so state, and further state the name, address, usual occupation, and professional qualifications of each of the five partners, members, or stockholders who own the five largest interests in the applicant entity. Requires the applicant, upon request by DMHC, to furnish the name, address, usual occupation, and professional qualifications of partners, members, or stockholders not named in the application, or to refer DMHC to an appropriate source of that information.
4. Requires the application to contain a statement to the effect that the applicant has not been convicted of a felony and has not violated any of the provisions of this division. Requires the application, if the applicant cannot make this statement, to contain a statement of the violation, if any, or reasons that will prevent the applicant from being able to comply with the requirements with respect to the statement.
5. Permits DMHC to set a fee for the registration. Prohibits the fee from exceeding the actual costs incurred by DMHC in carrying out its duties under this bill.
6. Requires PBMs, within 30 days of a change in any of the information disclosed on an application for registration, to notify DMHC of that change in writing.
7. Permits DMHC to suspend a PBM’s registration under the following circumstances:
   1. The PBM has engaged in fraudulent activity that constitutes a violation of state or federal law;
   2. DMHC has received consumer complaints that justify an action under this subdivision in order to protect the safety and interests of consumers;
   3. The PBM fails to pay an application fee for registration; or,
   4. The PBM fails to comply with a requirement contained in the “Duties of PBMs” portion of this bill.
8. Requires DMHC to develop procedures that provide a PBM with reasonable notice of, and an opportunity to respond, prior to DMHC taking an action pursuant to 7) above.

Duties of PBMs

1. Requires PBMs to notify a purchaser in writing of any activity, policy, or practice that directly or indirectly presents a conflict of interest that interferes with the discharge of the PBM’s duty to the purchaser to exercise good faith and fair dealing in the performance of its contractual duties, as specified. Makes a provision in a contract that attempts to affect a waiver or limitation of this obligation void.
2. Requires PBMs, on a quarterly basis beginning in the second fiscal quarter after the effective date of a contract between a PBM and a purchaser, to disclose, upon the purchaser’s request, the following information with respect to prescription product benefits specific to the purchaser for all retail, mail order, specialty, and compounded prescription products:
   1. The aggregate wholesale acquisition cost (WAC) from a pharmaceutical manufacturer or labeler for each therapeutic category of drugs, as outlined in the state’s essential health benefits (EHB) benchmark plan;
   2. The aggregate amount of rebates received by the PBM for each therapeutic category of drugs, as outlined in the state’s EHB plan. Requires the the aggregate amount of rebates to include any utilization discounts the PBM receives from a pharmaceutical manufacturer or labeler;
   3. Any administrative fees received from a pharmaceutical manufacturer or labeler.
   4. Whether the PBM has a contract, agreement, or other arrangement with a pharmaceutical manufacturer to exclusively dispense or provide a drug to a purchaser’s employees, insureds, or enrollees, and the application of all consideration or economic benefits collected or received pursuant to that arrangement.
   5. Prescription drug utilization information for the purchaser’s enrollees or insureds that is not specific to any individual enrollee or insured;
   6. The aggregate of payments made by the PBM to pharmacies it owns or controls.
   7. The aggregate of payments made by the PBM to pharmacies it does not own or control.
   8. The aggregate amount of the fees imposed on, or collected from, network pharmacies or other assessments against network pharmacies, and the application of those amounts collected pursuant to the contract with the purchaser.
3. Prohibits PBMs from imposing a penalty or offering an inducement to a purchaser for the purpose of deterring the purchaser from requesting the information in 10) above. Specifies that PBMs do not need to make the disclosures unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information, as defined.

Pharmacy Network Provider Contracts

1. Requires a PBM to disclose to a pharmacy network provider contracting with the PBM of any material change to a contract provision that affects the terms of reimbursement, the process for verifying benefits and eligibility, dispute resolution, procedures for verifying drugs included on the formulary, and contract termination at least 30 days before the date of the change to the provision. Prohibits a PBM from notifying an individual receiving benefits through the PBM that a pharmacy has been terminated from the PBM’s network until the notification of termination has been provided to that pharmacy.
2. Prohibits PBMs from including in a contract with a pharmacy network provider either of the following:
   1. A provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication; and,
   2. A provision that prohibits the provider from dispensing a particular amount of a prescribed medication, if the PBM allows that amount to be dispensed through a pharmacy owned or controlled by the PBM, unless the prescription drug is subject to restricted distribution by the FDA or requires special handling, provider coordination, or patient education that cannot be provided by a retail pharmacy.
3. Prohibits this bill from being construed to prohibit a PBM from requiring the same reimbursement and terms and conditions for a pharmacy network provider as for a pharmacy owned or controlled by the pharmacy benefit manage or to prohibit differential cost sharing designed to encourage or discourage the use of mail-order pharmacy services or preferred pharmacies.
4. Permits PBMs to report to DMHC, through a toll-free provider line or by submitting a complaint to DMHC’s provider complaint unit, instances in which the pharmacy network provider believes a PBM is engaging in a violation 12) or 13) above.
5. Applies the provisions of this bill related to PBM duties to contracts or contractual relationships between a PBM and a purchaser or a PBM and a pharmacy network provider that are entered into, issued, amended, renewed, or delivered on or after January 1, 2018.
6. Requires PBMs to exercise good faith and fair dealing in the performance of its contractual duties to a purchaser.

Comments

1. Author’s statement. According to the author, PBMs play a major role in negotiating the prices of prescription drugs, creating and managing formularies, and several other functions key to the management of pharmacy benefits for millions of Californians. However, despite a PBM’s interaction with most major players, including drug manufacturers, health plans and insurers, and pharmacies, very little is known about those relationships. The author states that this bill will ensure that all purchasers, regardless of their size, will receive standard information from the PBM that is specific to the purchaser. With this bill, purchasers will know information such as the amount of rebates and discounts, as well as the nature and type of all other revenue the PBM receives in connection with prescription drug benefits related to the purchaser. According to the author, with this information, purchasers will be provided tools to enhance their negotiating ability and assist them in properly evaluating whether the PBM’s services are delivering the anticipated savings promised.

Please see Senate Health Committee analysis for more detailed background.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, one-time costs of $330, 000 in 2017-18, $940,000 in 2018-19, $920,000 in 2019-20, and ongoing costs of $840,000 per year thereafter, for the DMHC to register pharmacy benefit managers (Managed Care Fund). DMHC would be required to develop regulations, perform annual reviews of registration applications, review complaints from payers and pharmacies, and take enforcement actions. The costs incurred by the DMHC would be paid for by registration fees paid by pharmacy benefit managers.

SUPPORT: (Verified 8/30/17)

Association of Northern California Oncologists

California Academy of Family Physicians

California Alliance for Retired Americans

California Labor Federation

California Pharmacists Association

California Professional Firefighters

California Rheumatology Alliance

California Society of Health System Pharmacists

Community Oncology Alliance

Consumers Union

Health Access California

Medical Oncology Association of Southern California

North Bay Leadership Council

Pharmacy Alternatives

Project Inform

Retired Public Employees Association

United Food and Commercial Workers

OPPOSITION: (Verified 8/30/17)

America’s Health Insurance Plans

Anthem Blue Cross

Association of California Life & Health Insurance Companies

California Association of Health Plans

Pharmaceutical Care Management Association

ASSEMBLY FLOOR: 58-7, 6/1/17

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Brough, Caballero, Calderon, Cervantes, Chau, Chávez, Chu, Cooley, Cooper, Cunningham, Dababneh, Dahle, Daly, Eggman, Fong, Friedman, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gomez, Gonzalez Fletcher, Gray, Holden, Irwin, Jones-Sawyer, Kalra, Kiley, Levine, Limón, Low, Mathis, McCarty, Medina, Mullin, Muratsuchi, Nazarian, O'Donnell, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Mark Stone, Thurmond, Ting, Waldron, Weber, Wood, Rendon

NOES: Baker, Chen, Lackey, Obernolte, Ridley-Thomas, Steinorth, Voepel

NO VOTE RECORDED: Acosta, Travis Allen, Bigelow, Bocanegra, Burke, Chiu, Choi, Flora, Frazier, Grayson, Harper, Maienschein, Mayes, Melendez, Patterson

Prepared by: Melanie Moreno / HEALTH / (916) 651-4111

9/3/17 17:41:12

**** END ****

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

AB 315 (Wood) - Pharmacy benefit management

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 315 would require pharmacy benefit managers to register with the Department of Managed Health Care. The bill would require pharmacy benefit managers to disclose specified information, upon request, to purchasers. The bill would impose certain requirements on pharmacy benefit managers relating to their interactions with pharmacies.

Fiscal Impact:

One-time costs of $330,00 in 2017-18, $940,000 in 2018-19, $920,000 in 2019-20, and ongoing costs of $840,000 per year thereafter, for the Department of Managed Health Care to register pharmacy benefit managers (Managed Care Fund). The Department would be required to develop regulations, perform annual reviews of registration applications, review complaints from payers and pharmacies, and take enforcement actions. The costs incurred by the Department would be paid for by registration fees paid by pharmacy benefit managers.

Background:

Pharmacy benefit managers are companies that contract with payers (e.g. health plans, self-insured employers, etc.) to manage the purchase and payment for prescription drugs. Initially, pharmacy benefit managers primarily acted as payment processors, acting as a financial intermediary between pharmacies and health plans or other payers. Over time, pharmacy benefit managers have evolved to play a much more significant role in the delivery of prescription drugs. Currently, pharmacy benefit managers negotiate prescription drug prices with manufacturers and often determine how different prescription drugs will be covered under the “drug formulary” used by payers.

While there are about 80 pharmacy benefit managers nationwide, the top three companies control about 75% of the market. Those pharmacy benefit managers have considerable market power when negotiating with drug manufacturers. In theory, this market power should act to reduce drug prices, since pharmacy benefit managers are in a strong position to negotiate lower prices for payers. Because so little information on drug costs and prices is available publicly, it is difficult to determine the extent to which pharmacy benefit managers are successful in reducing drug prices for payers.

Unlike most large participants in the health care sector (such as health plans, drug manufacturers, hospitals, etc.), pharmacy benefit managers are not licensed by the state.

Proposed Law:

AB 315 would require pharmacy benefit managers to register with the Department of Managed Health Care. The bill would require pharmacy benefit managers to disclose specified information, upon request, to purchasers. The bill would impose certain requirements on pharmacy benefit managers relating to their interactions with pharmacies.

Specific provisions of the bill would:

• Require a pharmacy benefit manager to register with the Department of Managed Health Care before doing business in the state;
• Exempt a health plan or insurer (or its affiliates) that provides pharmacy benefit management services only to its enrollees;
• Specify the information that must be provided to the Department by an applicant for registration;
• Require applicants for registration to pay a fee, to be set by the Department;
• Authorize the Department to suspend a registration for specified reasons;
• Require a pharmacy benefit manager act in good faith and fair dealing with its purchaser and require notification to a purchaser of any conflict of interest;
• Require a pharmacy benefit manager, upon request from a purchaser, to disclose specified information on drug acquisition costs, rebates, administrative fees, financial relationships with any drug manufacturers, drug utilization information, payments to pharmacies owned by the pharmacy benefit manager and pharmacies not owned by the pharmacy benefit manger, and fees assessed on network pharmacies;
• Require most of the above disclosures to be contingent on the payer agreeing to maintain confidentiality of the information;
• Require pharmacy benefit managers to provide certain information and notifications to contracted pharmacies;
• Prohibit a contract between a pharmacy benefit manager and a pharmacy from including a prohibition on the pharmacy informing a patient about a less costly alternative to a prescribed medication or prohibiting a pharmacy from dispensing a particular amount of a prescribed medication if the pharmacy benefit manager allows that amount to be dispensed by a pharmacy that it owns or controls.

Related Legislation:

• AB 29 (Nazarian) contained many provisions similar to the provisions of this bill. That bill was held on the Assembly Appropriations Committee’s Suspense File.
• SB 17 (Hernandez) would require additional disclosure of information relating to prescription drug prices by health plans, health insurers, and drug manufacturers. That bill is pending in the Assembly Appropriations Committee.

Staff Comments:

Overall, this bill is not likely to have any significant impact on health care costs in the state, to private payers or the state. There are a limited number of pharmacy benefit managers that have a large share of the market for those services. However, health plans and health insurers are also large, sophisticated consumers of pharmacy benefit manager services. Health plans and insurers indicate that they do not believe that the presence of pharmacy benefit managers in the market increases overall drug costs.

-- END --

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: AB 315

SUBJECT: Pharmacy benefit management

SUMMARY:

1. Requires pharmacy benefit managers (PBMs) to obtain a license from the Department of Managed Health Care before conducting business in California, as specified. Requires PBMs to renew licenses on an annual basis. Requires PBMs, on a quarterly basis, to disclose, upon a purchaser’s request, information with respect to prescription product benefits specific to the purchaser for all retail, mail order, specialty, and compounded prescription products, as specified.

Existing law:

1. Establishes the Department of Managed Health Care (DMHC) to regulate health care service plans (health plans) under the Knox-Keene Act and makes it unlawful for any person to engage in business as a health plan in California or to receive advance or periodic consideration in connection with a plan from or on behalf of persons in California unless such person has first secured from the director a license, then in effect, as a plan or unless such person is exempted, as specified.
   
2. States that a person licensed pursuant to the Knox-Keene Act need not be licensed pursuant to the Insurance Code to operate a health plan or specialized health plan unless the plan is operated by an insurer, in which case the insurer shall also be licensed by the California Department of Insurance (CDI).
   
3. Requires, consistent with federal law, a sponsor of a prescription drug plan authorized by the federal Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173) to hold a valid license as a health plan issued by DMHC or as a life and disability insurer by CDI and requires an entity that is licensed as a health plan and that operates a prescription drug plan to be subject to the provisions of the Knox-Keene Act, unless preempted by federal law.
   
4. Requires each health plan applying for licensure to reimburse the director for the actual cost of processing the application, including overhead, up to an amount not to exceed $25,000. Prohibits the director from issuing a license to an applicant prior to receiving payment in full from that applicant. Requires, in addition to other fees and reimbursements required to be paid under the Knox-Keene Act, each licensed plan to pay to the director an amount as estimated by the director for the ensuing fiscal year, as a reimbursement of its share of all costs and expenses, including, but not limited to, costs and expenses associated with routine financial examinations, grievances, and complaints, including maintaining a toll-free telephone number for consumer grievances and complaints, investigation and enforcement, medical surveys and reports, and overhead reasonably incurred in the administration of the Knox-Keene Act and not otherwise recovered by the director under the Knox-Keene Act. The amount paid by each plan shall be $10,000 plus an amount as specified calculated on a per enrollee basis.
   
5. Permits the director, after appropriate notice and opportunity for a hearing, to suspend or revoke any license issued under the Knox-Keene Act to a health plan or assess administrative penalties if the director determines that the licensee has committed any of the acts or omissions constituting grounds for disciplinary action.
   
6. Makes any person who violates any provision of the Knox-Keene Act, or who violates any rule or order adopted or issued pursuant to the Knox-Keene Act, to be liable for a civil penalty not to exceed $2,500 for each violation, which shall be assessed and recovered in a civil action brought by the director in any court of competent jurisdiction.
   
7. Requires any pharmacy located outside this state that ships, mails, or delivers, in any manner, controlled substances, dangerous drugs, or dangerous devices into this state to be considered a nonresident pharmacy. Prohibits a person from acting as a nonresident pharmacy unless he or she has obtained a license from Board of Pharmacy (board). Permits the board to register a nonresident pharmacy that is organized as a limited liability company in the state in which it is licensed.
8. Requires a nonresident pharmacy to disclose to the board the location, names, and titles of its agent for service of process in this state, all principal corporate officers, if any, all general partners, if any, and all pharmacists who are dispensing controlled substances, dangerous drugs, or dangerous devices to residents of this state.
9. Requires all nonresident pharmacies to comply with all lawful directions and requests for information from the regulatory or licensing agency of the state in which it is licensed as well as with all requests for information made by the board. Requires the nonresident pharmacy to maintain, at all times, a valid unexpired license, permit, or registration to conduct the pharmacy in compliance with the laws of the state in which it is a resident. Requires as a prerequisite to registering with the board, the nonresident pharmacy to submit a copy of the most recent inspection report resulting from an inspection conducted by the regulatory or licensing agency of the state in which it is located.
10. Prohibits a nonresident pharmacy from selling or distributing dangerous drugs or dangerous devices in this state through any person or media, other than a wholesaler or third-party logistics provider who has obtained a license from the board or through a selling or distribution outlet that is licensed as a wholesaler or third-party logistics provider without registering as a nonresident pharmacy.
    
11. Permits the board to report any violation by a nonresident pharmacy of the laws and regulations of this state, any other state, or of the United States, including, but not limited to, any violation of Pharmacy law or of the regulations established by the board, to any appropriate state or federal regulatory or licensing agency, including, but not limited to, the regulatory or licensing agency of the state in which the nonresident pharmacy is a resident or in which the pharmacist is licensed.
12. Permits the board to cancel, deny, revoke, or suspend a nonresident pharmacy registration, issue a citation or letter of admonishment to a nonresident pharmacy, or take any other action against a nonresident pharmacy that the board may take against a resident pharmacy license, on any of the same grounds upon which such action might be taken against a resident pharmacy, provided that the grounds for the action are also grounds for action in the state in which the nonresident pharmacy is permanently located.
13. Requires, if the home state pharmacy license of a nonresident pharmacy is canceled, revoked, or suspended for any reason, any license issued by the board to be immediately canceled, revoked, or suspended by operation of law.
    
14. 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. States that nothing in this subdivision shall be construed to prevent the PBM 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; and,
    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.
15. Prohibits a pharmacy from being subject to recoupment of funds for a clerical or recordkeeping error, unless the error resulted in actual financial harm to the pharmacy benefit manager, the carrier, or the beneficiary of a health benefit plan.
16. Requires a PBM that reimburses a contracting pharmacy for a drug on a maximum allowable cost basis to do the following, among other provisions related to maximum allowable cost:
    1. Include in a contract, initially entered into, or renewed on its scheduled renewal date, on or after January 1, 2016, with the contracting pharmacy information identifying any national drug pricing compendia or other data sources used to determine the maximum allowable cost for the drugs on a maximum allowable cost list; and,
    2. Make available to a contracting pharmacy, upon request, the most up-to-date maximum allowable cost list or lists used by the PBM for patients served by that pharmacy in a readily accessible, secure, and usable Web-based format or other comparable format.

This bill:

PBM Licensing

1. Requires PBMs to obtain a license by completing and submitting an application for a license and paying a license fee from DMHC before conducting business, including, but not limited to, acting as a PBM for any dangerous drug or dangerous device, in California. Requires PBMs to renew licenses on an annual basis by completing and submitting an application for a renewed license and paying a renewed license fee to DMHC.
2. Requires DMHC to develop application forms for new and renewed PBM licenses. Requires new license application forms to require PBMs to submit the following information to DMHC:
   1. The name of the PBM;
   2. The address and contact telephone number for the PBM;
   3. The name and address of the PBM’s agent for service of process in the state;
   4. The name and address of each person beneficially interested in the PBM;
   5. The name and address of each person with management or control over the license; and,
   6. The location, name, and title of all pharmacists of the PBM who are dispensing controlled substances, dangerous drugs, or dangerous devices to California residents.
3. Requires DMHC, upon receipt of a completed application and license fee for a new license, to issue a new PBM license to the applicant. Requires DMHC, upon receipt of a completed application and license fee for a renewed license from a PBM, to issue a renewed license to the applicant. Requires a new or renewed PBM license to be effective for a period of one year from the date of issuance of the license. Specifies that this license is not transferable.
4. Requires the application to state if the applicant is a partnership or other unincorporated association, a limited liability company, or a corporation, and the number of partners, members, or stockholders, as the case may be, exceeds five. Requires, in this case, the application to further state the name, address, usual occupation, and professional qualifications of each of the five partners, members, or stockholders who own the five largest interests in the applicant entity. Requires the applicant, upon request by DMHC, to furnish the name, address, usual occupation, and professional qualifications of partners, members, or stockholders not named in the application, or to refer DMHC to an appropriate source of that information.
5. Requires the applicant to contain a statement to the effect that the applicant has not been convicted of a felony and has not violated any of the provisions of this division. If the applicant cannot make this statement, the application shall contain a statement of the violation, if any, or reasons which will prevent the applicant from being able to comply with the requirements with respect to the statement.
6. Permits DMHC to set a fee for a new or renewed license, but prohibits the fee from exceeding the actual costs incurred by DMHC in carrying out its duties under this bill.
7. Requires PBMs, within 30 days of a change in any of the information disclosed on an application for a new or renewed license, to notify DMHC of that change in writing.
8. Permits the DMHC director to assess a civil penalty in a unspecified amount against a PBM who conducts business, including, but not limited to, acting as a PBM for a dangerous drug or dangerous device in California without a current license.
9. Permits DMHC to suspend, revoke, or place on probational status a license under the following circumstances:
   1. The PBM has engaged in fraudulent activity that constitutes a violation of state or federal law;
   2. DMHC has received consumer complaints that justify an action under this subdivision in order to protect the safety and interests of consumers;
   3. The PBM fails to pay a civil penalty assessed pursuant to 8) above;
   4. The PBM fails to pay an application fee for a new or renewed license’; or,
   5. The PBM fails to comply with a requirement contained in the “Duties of PBMs” portion of this bill.
10. Requires DMHC to develop procedures that provide a PBM with reasonable notice of, and an opportunity to respond, prior to DMHC taking an action pursuant to 9) above.

Duties of PBMs

1. Requires PBMs to notify a purchaser in writing of any activity, policy, or practice that directly or indirectly presents a conflict of interest that interferes with the discharge of the PBM’s duty to the purchaser to exercise good faith and fair dealing in the performance of its contractual duties, as specified.
2. Requires PBMs, on a quarterly basis beginning in the second fiscal quarter after the effective date of a contract between a PBM and a purchaser, to disclose, upon the purchaser’s request, the following information with respect to prescription product benefits specific to the purchaser for all retail, mail order, specialty, and compounded prescription products:
   1. The aggregate acquisition cost from a pharmaceutical manufacturer or labeler for each therapeutic class of drugs;
   2. The aggregate amount of rebates received by the PBM for each therapeutic class of drugs. The aggregate amount of rebates shall include any utilization discounts the PBM receives from a pharmaceutical manufacturer or labeler;
   3. Any administrative fees received from a pharmaceutical manufacturer or labeler.
   4. The aggregate of rates negotiated by the PBM with pharmacies with respect to each therapeutic class of drugs;
   5. Prescription drug utilization information for the purchaser’s enrollees or insureds that is not specific to any individual enrollee or insured; and,
   6. Whether the PBM has a contract, agreement, or other arrangement with a pharmaceutical manufacturer to exclusively dispense or provide a drug to a purchaser’s employees or enrollees, and the application of all consideration or economic benefits collected or received pursuant to that arrangement.
3. Requires “therapeutic class,” for purposes of 12) a), b), and d) above, to include at least three drugs. In the case that there are fewer than three drugs in a therapeutic class, the information is required to be reported by therapeutic category.
4. Prohibits PBMs from imposing a penalty or offering an inducement to a purchaser for the purpose of deterring the purchaser from requesting the information in 12) above. Specifies that PBMs do not need to make the disclosures unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information, as defined.
5. Requires a PBM to disclose to a pharmacy network provider contracting with the PBM of any material change to a contract provision that affects the terms of reimbursement, the process for verifying benefits and eligibility, dispute resolution, procedures for verifying drugs included on the formulary, and contract termination at least 30 days before the date of the change to the provision.
6. Prohibits PBMs from including in a contract with a pharmacy network provider either of the following:
   1. A provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication; and,
   2. A provision that prohibits the provider from dispensing a particular amount of a prescribed medication, if the PBM allows that amount to be dispensed through a pharmacy owned or controlled by the PBM.
7. Prohibits 16) above from being construed to prohibit differential cost sharing designed to encourage or discourage the use of mail-order pharmacy services.
8. Permits PBMs to report to DMHC, through a toll-free provider line or by submitting a complaint to DMHC’s provider complaint unit, instances in which the pharmacy network provider believes a PBM is engaging in a violation 15) or 16) above.
9. Applies the provisions of this bill related to PBM duties to contracts or contractual relationships between a PBM and a purchaser or a PBM and a pharmacy network provider that are entered into, issued, amended, renewed, or delivered on or after January 1, 2018.
10. Requires PBMs to exercise good faith and fair dealing in the performance of its contractual duties to a purchaser.

FISCAL EFFECT:

According to the Assembly Appropriations Committee analysis, one-time costs to DMHC likely in excess of $300,000 to develop a licensure program and perform related activities, and ongoing costs likely in the hundreds of thousands or more (Managed Care Fund). Ongoing costs would partially depend on the number of complaints and related enforcement.

PRIOR VOTES:

COMMENTS:

1. Author’s statement. According to the author, PBMs play a major role in negotiating the prices of prescription drugs, creating and managing formularies, and several other functions key to the management of pharmacy benefits for millions of Californians. However, despite a PBM’s interaction with most major players, including drug manufacturers, health plans and insurers, and pharmacies, very little is known about those relationships. The author states that this bill will ensure that all purchasers, regardless of their size, will receive standard information from the PBM that is specific to the purchaser. With this bill, purchasers will know information such as the amount of rebates and discounts, as well as the nature and type of all other revenue the PBM receives in connection with prescription drug benefits related to the purchaser. According to the author, with this information, purchasers will be provided tools to enhance their negotiating ability and assist them in properly evaluating whether the PBM’s services are delivering the anticipated savings promised.
2. Oversight hearing. On March 20, 2017, the Senate Committee on Business and Professions held an oversight hearing on PBMs to provide members with a primer on this segment of the prescription drug supply chain. The hearing background paper indicates that while PBMs are regulated generally as third party administrators (organizations that processes claims and perform other administrative services in accordance with a service contract; PBMs must abide by the terms required of health insurance plans, to the extent PBMs are authorized to effectuate those plans), they are not regulated at a national level. Twenty one states, however, regulate them specifically to varying degrees. While the majority of laws relate to standardizing audit practices (including California’s), many focus on regulating other aspects of their business practices such as requiring a PBM to attest to any conflicts of interest, disclose all financial arrangements between themselves and insurers, and prohibiting a PBM from contacting a covered individual without express written permission of the covered entity. States are increasingly requiring PBMs to license or register with their Department of Insurance or Board of Pharmacy, as well.
   
3. PBMs. According to the background paper for the March 2017 hearing, PBMs have been around since the early 1970s. Initially, PBMs’ functions were limited -- they

served merely as fiscal and administrative intermediaries between health plans, plan members, and pharmacies. The role of a PBM is mainly to process claims. Claims processing requires a pharmacy to contact a PBM to verify that a consumer has coverage for a requested prescription, determine whether the customer’s plan covers the drug, and how much copay is required. Once the prescription is filled, the pharmacy transmits patient details -- the health plan number, the physician’s prescription, and the drug price -- to the PBM. The PBM responds by approving or disapproving the transaction, and then forwards the reimbursement from the health plan to the retail pharmacy. PBMs are a key player in the prescription-drug supply chain, linking pharmacies, drug manufacturers, health plans, and consumers. According to the Pharmaceutical Care Management Association (PCMA), the PBM trade group, PBMs process prescriptions for the vast majority of Americans. While PCMA estimates there are over 80 PBMs nationwide, only three firms, Express Scripts, CVSHealth, and OptumRx, constitute about 75% of the market. Nearly every health plan, whether sponsored by an employer, a union, Medicare, or self-purchased, employs a PBM, and PBMs’ functions have evolved over time from merely claims processing to include managing their clients’ entire pharmacy benefit. The functions offered to clients may include:

1. Negotiating prices for drugs, including discounts, rebates, and other concessions, with;
2. pharmaceutical manufacturers;
3. Conducting drug-utilization reviews (i.e., compiling information regarding the projected volume of plan members who use a given drug);
4. Disease management (i.e., managing the chronic conditions of high-risk, high-cost patients);
5. Determining the composition of pharmacy and wholesaler networks;
6. Running mail-order and affiliated specialty pharmacies; and,
7. Creating and managing formularies.

While PBMs establish the frameworks for their services, the final decisions on formularies,

pharmacy networks, and reimbursements are ultimately made by the client.

1. Related legislation. AB 29 (Nazarian) contains many similar provisions to this bill, including PBM licensure by DMHC and disclosure requirements. AB 29 was held on suspense in the Assembly Appropriations Committee.
2. Prior legislation. AB 1960 (Pavley of 2004) would have required PBMs to make various disclosures to purchasers and prospective purchasers of PBM services. Requires PBM contracts to include certain provisions. Prohibits PBMs from substituting medications in specified situations. AB 1960 was vetoed by Governor Schwarzenegger, who stated in his veto message that the bill “…would have the unintended consequence of increasing drug costs to health plans, the Medi-Cal Program and other purchasers, without providing any real consumer benefit. Studies, including one from the Federal Trade Commission, have shown that enactment of this legislation will limit competition and significantly increase the cost of prescription drugs."
3. Support. Health Access California supports provisions of this bill that require greater transparency of rebates, discounts and other price concessions as well as those requiring regulation of PBMs. The California Academy of Family Physicians states that as the cost of prescription drugs and health care overall has increased, there has been increased scrutiny of all providers, insurers, and manufacturers, and the sole exception has been the PBM industry. Consumers Union states that the secrecy around PBM transactions has a ripple affect across various areas for consumers, not the least of which is health insurance premiums, and this bill will improve transparency in PBM business practices. The California Labor Federation writes that this bill brings more transparency and accountability to the PBM market, to bring it in line with the majority of the health care industry, as PBMs and prescription drug companies are some of the last few health care actors that have escaped state requirements for regulation, disclosure, and transparency. The California Rheumatology Alliance states that this bill is vital to ensuring rheumatologists are able to treat patients with effective courses of treatments and ensure PBMs do their part to address the rising costs of prescription medications. The Community Oncology Alliance writes that while the initial purpose of PBMs was to negotiate contracts on behalf of insurance carries, PBM corporations have grown and evolved into behemoths with an inherent conflict of interest and lack of transparency in how they operate. The Association of Northern California Oncologists states that this bill is a critical first step in bringing to light the role PBMs play in the drug supply chain and how those entities contribute to the cost of health care. Project Inform writes that patients with chronic diseases (like HIV and hepatitis C) that require medication and consultation with trusted health care providers are becoming increasingly aware of the ways PBMs are limiting consumer access through the creation of narrow pharmacy provider networks which restrict the pharmacies they can use and often direct patients to the PBM-owned mail order pharmacies. Project Inform states that PBMs and plans continue to push patients to mail order pharmacies over community pharmacies through a dubious medical necessity claims or economic inducements that local pharmacies, by virtue of their PBM contracts, cannot match.
4. Opposition. The Association of California Life & Health Insurance (ACLHIC) writes that by publicly exposing individually negotiated discounts and rebates at the therapeutic class level, this bill will most certainly have a chilling effect on negotiations and take away an important and critical tool health plans and insurers use to lower drugs costs across the board. ACLHIC further states that the option to limit the 90 day supply provision to mail order is often used to incentivize insureds through convenience to utilize an option that is often more cost effective for both consumers and payers, and by requiring that a 90 day supply be available both through retail pharmacies and through mail order, this measure would diminish the potential cost savings associated with mail order supply. The California Association of Health Plans is opposed to the addition of language that complicates the use of mail-order pharmacies. CAHP states that payers use mail-order because they save money, reduce medication errors, and increase adherence; and restricting the use of mail order services limits choice and flexibility and will raise – rather than lower – drug costs. PCMA is concerned that AB 315 eliminates this client flexibility and standardizes disclosures. PCMA writes that if clients want to receive information about pricing relevant to their business, they presently can—and many do—secure that information through contract. While one client may want to receive all the pharmaceutical manufacturer rebates associated with its plan, another may want to use their rebates to offset its plan’s administrative fees.
5. Amendments. The author is proposing to amend this bill to:
   1. Delete provisions related to licensure of PBMs and instead require PBMs to register with DMHC, as specified;
   2. Require PBMs to disclose aggregate acquisition cost and aggregate amount of rebates by therapeutic category, rather than therapeutic class;
   3. Delete the requirement that PBMs disclose the aggregate of rates negotiated and instead require PBMs to disclose the aggregate of payments made to pharmacies they do not own or control vs. those they own or control;
   4. Add to the list of disclosures the aggregate amount of fees imposed on, or collected from, network pharmacies or other assessments against network pharmacies, as specified;
   5. Prohibit PBMs from notifying an individual receiving benefits through that PBM that it has terminated a pharmacy from its network until the pharmacy has been notified; and,
   6. Make technical, clarifying changes.

SUPPORT AND OPPOSITION:

Support: Association of Northern California Oncologists

California Academy of Family Physicians

California Alliance for Retired Americans

California Labor Federation

California Pharmacists Association

California Professional Firefighters

California Rheumatology Alliance

California Society of Health System Pharmacists

Community Oncology Alliance

Consumers Union

Health Access California

Medical Oncology Association of Southern California

North Bay Leadership Council

Pharmacy Alternatives

Project Inform

Retired Public Employees Association

United Food and Commercial Workers

Oppose: America’s Health Insurance Plans

Anthem Blue Cross (unless amended)

Association of California Life & Health Insurance Companies

California Association of Health Plans

Pharmaceutical Care Management Association

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 315

Author:(Wood and Dahle)

As Amended Ver:May 30, 2017

Majority vote

SUMMARY: Requires pharmacy benefit managers (PBMs) to be licensed by the Department of Managed Health Care (DMHC); requires a PBM to periodically disclose to a purchaser certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies; and applies these provisions to a contract or contractual relationship between a PBM and a purchaser that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018. Specifically, this bill:

1. Requires PBMs to be licensed by the DMHC.
2. Requires a PBM to periodically disclose to a purchaser certain information such as aggregate drug acquisition cost, aggregate rebates received from pharmaceutical manufacturers, rates negotiated with pharmacies, administrative fees, and prescription drug utilization information, unless the purchaser does not agree in writing to maintain confidentiality.
3. Stipulates disclosure and other requirements related to pharmacy benefit manager's relationship to pharmacy network providers.
4. Applies to a contract or contractual relationships between a PBM and a purchaser, or a pharmacy benefit manager and a pharmacy network provider that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018.
5. Excludes health care service plans or other entities that provide services only to the health plan's enrollees or subscribers.
6. Requires PBMs to provide 30 days notice of any material change to a contract provision with a pharmacy contractor, and prohibits certain contracting practices.
7. Allows pharmacy network providers to report complaints related to PBM violations of pharmacy provisions to DMHC's provider complaint unit.
8. Imposes a fee for a new or renewed license, in an amount not to exceed the actual DMHC administrative costs, and allows DMHC to issue civil penalties to unlicensed PBMs.
9. Requires the department to develop an application for new and renewed licenses, and would specify certain information to be provided in those applications. Authorizes the department to charge a license fee for a new or renewed license, as specified. The bill would authorize the director of the department to assess a civil penalty against a pharmacy benefit manager that conducts business in the state without a current license, and would authorize the director to revoke, suspend, or place on probational status the license of a pharmacy benefit manager under specified circumstances.
10. Requires a pharmacy benefit manager to exercise a duty of good faith and fair dealing in the performance of its contractual duties to a purchaser
11. Requires a pharmacy benefit manager to notify a pharmacy network provider of certain material contract changes at least 30 days before those changes take effect. Prohibits a pharmacy benefit manager from including in a contract with a pharmacy network provider provisions that prohibit the provider from informing consumers of alternative medication options or from dispensing a certain amount of prescribed medication, as specified
12. Specifies that provisions and those relating to licensing described above do not apply to a health care service plan, health insurer, or related entities that perform pharmacy benefit management services only for enrollees of the plan or insureds of the insurer.

FISCAL EFFECT: According to the Assembly Appropriations Committee, one-time costs to DMHC likely in excess of $300,000 to develop a licensure program and perform related activities, and ongoing costs likely in the hundreds of thousands or more (Managed Care Fund). Ongoing costs would partially depend on the number of complaints and related enforcement.

COMMENTS:

Purpose. This bill is sponsored by the author. According to the author, "After a series of informational hearings on drug pricing, the author believes that the only way to fully understand and attempt to address the issue of escalating drug prices is to increase information available from the variety of players in the supply chain. There is existing discussion and legislation calling for greater transparency and disclosure from drug companies. While this information is critical without similar disclosure on the part of pharmaceutical benefit managers, purchasers and policymakers will not have a complete picture."

Background. PBMs. In the1960's PBMs were utilized to assist insurance companies who were overwhelmed with processing claims. However, PBMs have evolved from basic claims administrators to more complex organizations offering a wide range of prescription drug managed tools, like drug utilization review, disease management, and consultative services. PBMs can also assist clients with establishing their benefit structure, including developing and maintaining a prescription drug formulary; developing a network of pharmacy providers; and, providing mail order fulfillment services.

According to the Pharmaceutical Care Management Association, PBMs administer prescription drug plans for more than 266 million Americans. PBMs may achieve savings for their customers by negotiating discounts and through cost containment programs, including use of formularies and cost sharing. In 2015, the three largest public PBMs were Express Scripts, CVS Health (formerly CVS Caremark), and United Health/OptumRx/Catamaran.

The DMHC and the Department of Insurance (DOI) Regulatory Jurisdiction. In California, the health plans, which PBMs contract with, are regulated by the Department of Insurance and the Department of Managed Health Care. Though originally the DOI regulated PPOs and the DMHC regulated Knox Keene health plans, the distinction has faded as a result of the standardized benefits provisions of the Affordable Care Act. Currently, the DMHC regulates the majority of the insurance market.

Health plans regulated by the DOI and the DMHC have mechanisms by which patients can contact the health plan if the patient has a problem with the PBM. The DMHC also has a “help line” that patients can utilize to report complaints, and there is a process in place for DMHC to review patient appeals to the Independent Medical Review panel if, for example, coverage is denied for specific drugs.

The DMHC receives some indirect information about PBMs. For example, whenever a health plan contracts with a PBM, the DMHC reviews the contract to ensure there is compliance with the Knox Keene Act. The DMHC also examines how health plans delegate functions to PBMs.

Board of Pharmacy Regulatory Jurisdiction. In California, pharmacists and pharmacies are regulated by the State Board of Pharmacy. There are 42,691 pharmacists and 70,624 pharmacy technicians with active licenses in the state. There are 7081 pharmacies regulated by the Board. Of these, 513 are hospital pharmacies. The Board reported it also regulates 506 non-resident pharmacies which generally include mail order pharmacies. The board has additional licenses for those pharmacies that perform sterile compounding and are located in California (890) and ship into CA from another state (91).

Other States. Eighteen states have specific statutes or regulations requiring certain disclosures from PBMs. Twelve states have requirements for audits and disclosures between pharmacies and PBMs. Oversight in other states is typically handled by the insurance commissioner. According to information from the Federal Trade Commission, Mississippi is the only state to have their board of pharmacy regulate PBMs.

Scrutiny of PBMs. In recent years, there has been much attention focused on the role that PBMs play. Many have criticized PBMs accusing them of being middlemen that make profits as they deal with pharmacies, insurers and drug manufacturers.

In December of 2016, the United States Senate Special Committee on Aging held a hearing entitled: Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Health Care System. In the Committee report they state "PBMs, for example are tasked with negotiating back and forth between hospitals, employers, and pharmaceutical companies, to reportedly get the best deal. But it is unclear who the parties are that are getting the best deal as well as how much PBMs charge for these negotiations. There is good reason to suspect that the patient may not be getting the best deal." Subsequently, multiple lawsuits in Missouri and New York were filed against Express Scrips, CVS Health Corporation, Optum Rx, Inc., and Prime Therapeutics, LLC.

In January of 2017, the Centers for Medicare & Medicaid Services reported that rebates that drug companies and pharmacies pay are growing, but PBMs are benefiting as the rebates are not lowering costs for patients or government health care programs. In March of 2017, Anthem announced that it was suing Express Scripts Holding Company for $15 billion dollars in damages, alleging that the PBM violated their contract through excessive charges and failures in its operations.

CalPERS and PBM Disclosure Requirements. According to information obtained from the CalPERS, for more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members. The pension fund serves more than 1.8 million members in the CalPERS retirement system and administers benefits for more than 1.4 million members and their families in the health program, making CalPERS the largest defined-benefit public pension in the United States.

In March of 2016, CalPERS selected a new PBM- OptumRx. Contract terms require that the PBM provide drugs of the highest quality and value, based on sound clinical evidence. It also requires transparency and full disclosure of the financial relationships between the PBM and drug manufacturers. The Chair of the CalPERS Pension and Health Benefits Committee stated:

We placed a lot of emphasis in this solicitation on the company's ability to deal with the increasingly high cost of prescription drugs, and OptumRx presented a very strong proposal. "In addition to being concerned about the health and safety of our members, we wanted to ensure the company we selected would be as committed as we are to continually develop strategies to mitigate the impact of those rapidly rising costs on our members.

Federal Trade Commission (FTC) Comments. According to a 2011 letter from the FTC to Mississippi Representative Mark Formby, Mississippi is the only state to have their Board of Pharmacy regulate PBMs. Further, this oversight was deemed problematic by the FTC. In the letter the FTC staff writes:

Although we offer no specific recommendations on the ideal structure for regulation of PBMs,…because pharmacists and PBMs have a competitive, and at times, adversarial relationship, we are concerned that giving the pharmacy board regulator power over PBMs may create tensions and conflicts of interest for the pharmacy board. Indeed, the antitrust laws recognize that there is a real danger that regulatory boards composed of market participants may pursue their own interest rather than those of the state. We urge the Mississippi legislature to consider this concern.

In August of 2014, the FTC staff wrote a letter to Larry Good, the Executive Secretary of the Employee Retirement and Income Security Act (ERISA) Advisory Council. In the letter the FTC staff writes:

The Council asked whether the FTC has conducted further study of the PBM industry since 2005. FTC staff has analyzed a number of state legislative proposals involving mandatory transparency requirements and their likely effect on competition. These FTC staff comments have highlighted two particular types of concerns:

1. Mandatory disclosure requirements may hinder the ability of plans to negotiate an efficient level of disclosure with PBMs; and
2. If such disclosures publicly reveal previously proprietary and private information about discounts negotiated with PBMs, disclosure may result in less aggressive pricing by, or even collusion among, pharmaceutical manufacturers.

We encourage the ERISA Advisory Council to consider whether harm may result if plan sponsors are denied the ability to choose the level of transparency that best suits them within the context of their overall plan design…we encourage the council to consider whether and how mandatory disclosure requirements might be tailored narrowly to present useful and meaningful information.

Analysis Prepared by: Le Ondra Clark Harvey, Ph.D. / B. & P. / (916) 319-3301 FN: 0000909

Date of Hearing: May 24, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 315

Author:(Wood) – As Amended Ver:May 10, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes licensure for pharmacy benefit managers (PBMs). Specifically, this bill:

1. Requires PBMs to be licensed by the Department of Managed Health Care (DMHC).
2. Requires a PBM to periodically disclose to a purchaser certain information such as aggregate drug acquisition cost, aggregate rebates received from pharmaceutical manufacturers, rates negotiated with pharmacies, administrative fees, and prescription drug utilization information, unless the purchaser does not agree in writing to maintain confidentiality.
3. Stipulates disclosure and other requirements related to pharmacy benefit manager's relationship to pharmacy network providers.
4. Applies to a contract or contractual relationships between a PBM and a purchaser, or a pharmacy benefit manager and a pharmacy network provider that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018.
5. Excludes health care service plans or other entities that provide services only to the health plan's enrollees or subscribers.
6. Requires PBMs to provide 30 days notice of any material change to a contract provision with a pharmacy contractor, and prohibits certain contracting practices.
7. Allows pharmacy network providers to report complaints related to PBM violations of pharmacy provisions to DMHC's provider complaint unit.
8. Imposes a fee for a new or renewed license, in an amount not to exceed the actual DMHC administrative costs, and allows DMHC to issue civil penalties to unlicensed PBMs.

FISCAL EFFECT:

One-time costs to DMHC likely in excess of $300,000 to develop a licensure program and perform related activities, and ongoing costs likely in the hundreds of thousands or more (Managed Care Fund). Ongoing costs would partially depend on the number of complaints and related enforcement.

COMMENTS:

1. Purpose. This bill is intended to improve transparency and accountability in an important aspect of the health care system: the management of prescription drug benefits.
2. Background. According to the Pharmaceutical Care Management Association, the national association of PBMs, PBMs administer prescription drug plans for more than 266 million Americans who have health insurance from a variety of sponsors, including commercial health plans, self-insured employer plans, union plans, and state and federal employee and public health insurance plans. PBMs process prescriptions on behalf of plan sponsors that pay for drugs, and use their scale to negotiate with drug manufacturers and pharmacies. The PBM market is dominated by three large players: CVS Health, ExpressScripts, and OptumRx, which control nearly 80% of the market.

In recent years, there has been more attention to the role PBMs play. Market participants have complained about various issues. First, given the size of the market players, many pharmacies and smaller plan sponsors indicate PBM contracts are often take- it-or-leave it, leaving little room to negotiate beneficial terms. Second, observers have noted potential conflicts of interest related to a PBMs ownership and operation of pharmacies and pharmacy services, as well as financial partnerships with drug manufacturers, which may lead to limited consumer choice and higher out-of-pocket costs in some instances. Third, unlike many other parts of the health care system, PBMs are subject to very little regulation and their business operations, including potential conflicts of interest, are not transparent. Finally, a high degree of market concentration has raised questions about the competitiveness of the PBM industry.

On the other hand, it should be noted that PBMs are subcontractors of licensed or regulated entities, and the provision of drug benefits is ultimately the responsibility of those entities, whether or not they choose to subcontract with a PBM for delivery of drug benefits. The ability of adequately-sized plans or groups to negotiate their own prescription drug benefits provides a meaningful backstop to the PBMs' market power. Competition among large players appears fierce despite high levels of market concentration, and economies of scale appear to assist PBMs to negotiate with drug-makers and pharmacies. In addition, the Federal Trade Commission has raised concerns with mandating transparency in this market, as certain types of information could encourage less aggressive pricing, or collusion, by drug-makers. The bill includes confidentiality protections to deal with this latter concern.

1. Support and Opposition. Pharmacists, doctors, some pharmacies, and consumer groups supported a prior version of this bill. PBMs and health plans and insurers opposed a prior version of the bill.
2. Related Legislation. AB 29 (Nazarian), also being heard today in this committee, contains many similar provisions to this bill, including PBM licensure and disclosure requirements.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: April 18, 2017

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Rudy Salas, Chair

ABPCA Bill Id:AB 315

Author:(Wood) – As Amended Ver:April 5, 2017

SUBJECT: Pharmacy benefits management.

SUMMARY: Requires pharmacy benefit managers (PBMs) to be licensed by the state Board of Pharmacy (Board); require a PBM to periodically disclose to a purchaser certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies; and applies these provisions to a contract or contractual relationship between a PBM and a purchaser that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018.

EXISTING LAW:

1. Provides for the licensure and regulation of pharmacists and pharmacies by the Board. (Business and Professions Code (BPC) § 4000 et seq.)
2. Imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan. (BPC § 4430)

THIS BILL:

1. Defines “pharmacy benefit manager” (PBM) as 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.
2. Requires that within 30 days after a change of address of record with the board or a change of name according to law, a pharmacist, intern pharmacist, technician, designated representative, or pharmacy benefit manager shall notify the executive officer of the board of the change of address or change of name.
3. Specifies that a person or entity shall not act as PBM for any dangerous drug or dangerous device unless he, she, or it has obtained a license from the board.
4. Requires a PBM to disclose to the Board the location, names, and titles of all of the following:
   1. Its agent for service of process in this state.
   2. All pharmacists of the PBM who are dispensing controlled substances, dangerous drugs, or dangerous devices to residents of this state.
5. This information shall be made disclosed on an annual basis and within 30 days after any change of office, corporate officer, partner, or pharmacist.
6. Requires the Board, upon approval by the board and the payment of the required fee, to issue a license to the applicant.
7. Defines “labeler” as a person or entity that receives prescription drugs from a manufacturer or wholesaler and repackages those drugs for later retail sale and who has a labeler code from the federal Food and Drug Administration.
8. Defines “pharmacy benefit manager” as a person, business, or entity described in Section 4037.5.
9. Defines “proprietary information” as trade secrets and information on pricing, costs, revenue, taxes, market share, negotiating strategies, customers, and personnel that is held by a private entity and used for that entity’s business purposes.
10. Defines “purchaser” as health benefit plan sponsor or other third-party payer with whom a PBM contracts to provide the administration and management of prescription drug benefits.
11. States that a PBM has a fiduciary duty to a purchaser and shall discharge that duty in accordance with all applicable laws.
12. Requires that a PBM notifies a purchaser in writing of any activity, policy, or practice of the pharmacy benefit manager that directly or indirectly presents a conflict of interest that interferes with the discharge of the pharmacy benefit manager’s fiduciary duty to the purchaser.
13. Requires, beginning in the second fiscal quarter after the effective date of a contract between a pharmacy benefit manager and a purchaser, the PBM to, on a monthly basis, disclose the following information to the purchaser with respect to prescription product benefits specific to the purchaser:
    1. The aggregate acquisition cost from a pharmaceutical manufacturer or labeler for each therapeutic class of drugs.
    2. The aggregate amount of rebates received by the pharmacy benefit manager for each therapeutic class of drugs. The aggregate amount of rebates shall include any utilization discounts the pharmacy benefit manager receives from a pharmaceutical manufacturer or labeler.
    3. Any administrative fees received from a pharmaceutical manufacturer or labeler.
    4. The aggregate of rates negotiated by the PBM with pharmacies with respect to each therapeutic class of drug.
    5. Prescription drug utilization information for the purchaser’s enrollees or insureds that is not specific to any individual enrollee or insured.
14. Specifies that the information disclosed shall include all retail, mail order, specialty, and compounded prescription products.
15. Specifies that a therapeutic class shall include at least two drugs. If there are fewer than two drugs in a therapeutic class, the required information shall be reported by therapeutic category.
16. States that except for utilization information, a pharmacy benefit manager need not make the required disclosures unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information.
17. Requires the bill to apply to a contract or a contractual relationship between a PBM and a purchaser that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018.
18. Declares that these provisions do not apply to:
    1. A health care service plan or health insurer, if the health care service plan or health insurer offers or provides PBM services and if those services are offered or provided only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered or provided by that health care service plan or health insurer.
    2. An affiliate, subsidiary, related entity, or contracted medical groups of a health care service plan or health insurer that would otherwise qualify as a pharmacy benefit manager but offers or provides services only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered or provided by the health care service plan or health insurer.

FISCAL EFFECT: Unknown. This bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the author. According to the author, “After a series of informational hearings on drug pricing, the author believes that the only way to fully understand and attempt to address the issue of escalating drug prices is to increase information available from the variety of players in the supply chain. There is existing discussion and legislation calling for greater transparency and disclosure from drug companies. While this information is critical without similar disclosure on the part of pharmaceutical benefit managers, purchasers and policymakers will not have a complete picture.”

Background. PBMs. In the1960’s PBMs were utilized to assist insurance companies who were overwhelmed with processing claims. However, PBMs have evolved from basic claims administrators to more complex organizations offering a wide range of prescription drug managed tools, like drug utilization review, disease management, and consultative services. PBMs can also assist clients with establishing their benefit structure, including developing and maintaining a prescription drug formulary; developing a network of pharmacy providers; and, providing mail order fulfillment services.

According to the Pharmaceutical Care Management Association, PBMs administer prescription drug plans for more than 266 million Americans. PBMs may achieve savings for their customers by negotiating discounts and through cost containment programs, including use of formularies and cost sharing. In 2015, the three largest public PBMs were Express Scripts, CVS Health (formerly CVS Caremark), and United Health/OptumRx/Catamaran.

The Department of Managed Health Care (DMHC) and the Department of Insurance (DOI) Regulatory Jurisdiction. In California, the health plans, which PBMs contract with, are regulated by the Department of Insurance and the Department of Managed Health Care. Though originally the DOI regulated PPOs and the DMHC regulated Knox Keene health plans, the distinction has faded as a result of the standardized benefits provisions of the Affordable Care Act. Currently, the DMHC regulates the majority of the insurance market.

Health plans regulated by the DOI and the DMHC have mechanisms by which patients can contact the health plan if the patient has a problem with the PBM. The DMHC also has a “help line” that patients can utilize to report complaints, and there is a process in place for DMHC to review patient appeals to the Independent Medical Review panel if, for example, coverage is denied for specific drugs.

The DMHC receives some indirect information about PBMs. For example, whenever a health plan contracts with a PBM, the DMHC reviews the contract to ensure there is compliance with the Knox Keene Act. The DMHC also examines how health plans delegate functions to PBMs.

Board of Pharmacy Regulatory Jurisdiction. In California, pharmacists and pharmacies are regulated by the State Board of Pharmacy. There are 42,691 pharmacists and 70,624 pharmacy technicians with active licenses in the state. There are 7081 pharmacies regulated by the Board. Of these, 513 are hospital pharmacies. The Board reported it also regulates 506 non-resident pharmacies which generally include mail order pharmacies. The board has additional licenses for those pharmacies that perform sterile compounding and are located in California (890) and ship into CA from another state (91).

Other States. Eighteen states have specific statutes or regulations requiring certain disclosures from PBMs. Twelve states have requirements for audits and disclosures between pharmacies and PBMs. Oversight in other states is typically handled by the insurance commissioner. According to information from the Federal Trade Commission, Mississippi is the only state to have their board of pharmacy regulate PBMs.

Scrutiny of PBMs. In recent years, there has been much attention focused on the role that PBMs play. Many have criticized PBMs accusing them of being middlemen that make profits as they deal with pharmacies, insurers and drug manufacturers.

In December of 2016, the United States Senate Special Committee on Aging held a hearing entitled: Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Health Care System. In the Committee report they state “PBMs, for example are tasked with negotiating back and forth between hospitals, employers, and pharmaceutical companies, to reportedly get the best deal. But it is unclear who the parties are that are getting the best deal as well as how much PBMs charge for these negotiations. There is good reason to suspect that the patient may not be getting the best deal.” Subsequently, multiple lawsuits in Missouri and New York were filed against Express Scrips, CVS Health Corporation, Optum Rx, Inc., and Prime Therapeutics, LLC.

In January of 2017, the Centers for Medicare & Medicaid Services reported that rebates that drug companies and pharmacies pay are growing, but PBMs are benefiting as the rebates are not lowering costs for patients or government health care programs. In March of 2017, Anthem announced that it was suing Express Scripts Holding Company for $15 billion dollars in damages, alleging that the PBM violated their contract through excessive charges and failures in its operations.

CalPERS and PBM Disclosure Requirements. According to information obtained from the CalPERS, for more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members. The pension fund serves more than 1.8 million members in the CalPERS retirement system and administers benefits for more than 1.4 million members and their families in the health program, making CalPERS the largest defined-benefit public pension in the United States.

In March of 2016, CalPERS selected a new PBM- OptumRx. Contract terms require that the PBM provide drugs of the highest quality and value, based on sound clinical evidence. It also requires transparency and full disclosure of the financial relationships between the PBM and drug manufacturers. The Chair of the CalPERS Pension and Health Benefits Committee stated,

We placed a lot of emphasis in this solicitation on the company's ability to deal with the increasingly high cost of prescription drugs, and OptumRx presented a very strong proposal. "In addition to being concerned about the health and safety of our members, we wanted to ensure the company we selected would be as committed as we are to continually develop strategies to mitigate the impact of those rapidly rising costs on our members.

Federal Trade Commission (FTC) Comments. According to a 2011 letter from the FTC to Mississippi Representative Mark Formby, Mississippi is the only state to have their Board of Pharmacy regulate PBMs. Further, this oversight was deemed problematic by the FTC. In the letter the FTC staff writes:

Although we offer no specific recommendations on the ideal structure for regulation of PBMs,…because pharmacists and PBMs have a competitive, and at times, adversarial relationship, we are concerned that giving the pharmacy board regulator power over PBMs may create tensions and conflicts of interest for the pharmacy board. Indeed, the antitrust laws recognize that there is a real danger that regulatory boards composed of market participants may pursue their own interest rather than those of the state. We urge the Mississippi legislature to consider this concern.

In August of 2014, the FTC staff wrote a letter to Larry Good, the Executive Secretary of the Employee Retirement and Income Security Act (ERISA) Advisory Council. In the letter the FTC staff writes:

The Council asked whether the FTC has conducted further study of the PBM industry since 2005. FTC staff has analyzed a number of state legislative proposals involving mandatory transparency requirements and their likely effect on competition. These FTC staff comments have highlighted two particular types of concerns:

• • • 1. Mandatory disclosure requirements may hinder the ability of plans to negotiate an efficient level of disclosure with PBMs; and
      2. If such disclosures publicly reveal previously proprietary and private information about discounts negotiated with PBMs, disclosure may result in less aggressive pricing by, or even collusion among, pharmaceutical manufacturers.

We encourage the ERISA Advisory Council to consider whether harm may result if plan sponsors are denied the ability to choose the level of transparency that best suits them within the context of their overall plan design…we encourage the council to consider whether and how mandatory disclosure requirements might be tailored narrowly to present useful and meaningful information.

Current Related Legislation. AB 29 (Nazarian) of the current Legislative Session requires, except as provided, a pharmacy benefit manager to disclose certain information to a purchaser or prospective purchaser, including, among other things, the aggregate amount of rebates, retrospective utilization discounts, and other income that the pharmacy benefit manager would receive from a pharmaceutical manufacturer or labeler in connection with drug benefits related to the purchaser or prospective purchaser. The bill would excuse a pharmacy benefit manager from making these disclosures unless the purchaser or prospective purchaser agrees to keep any proprietary information disclosed to it pursuant to these provisions confidential, as specified. STATUS: This bill is scheduled to be heard in this Committee.

Prior Related Legislation. AB 1960 (Pavley) 2004 would have required a PBM to make specified disclosures to its purchasers and prospective purchasers, including specified information about the pharmacy benefit manager’s revenues and its drug formularies, and to make specified disclosures to the public upon request. The bill would have established certain standards and requirements with regard to PBM contracts and the provision of certain drugs. The bill would have imposed certain requirements on the membership of a pharmacy and therapeutics committee for a PBM. The bill would have required a PBM to meet certain conditions before substituting a prescribed medication. NOTE: this bill was vetoed by Governor Schwarzenegger. In his veto message he stated, “I share the authors concerns with the rising cost of prescription drugs and generally, her interest in disclosure of information to consumers. However, this measure would have the unintended consequence of increasing drug costs to health plans, the Medi-Cal Program and other purchasers, without providing any real consumer benefit. Studies, including one from the Federal Trade Commission, have shown that enactment of this legislation will limit competition and significantly increase the cost of prescription drugs.”

IMPLEMENTATION CONCERNS:

The goal of this measure appears to be consumer protection. This is accomplished via requirements for PBMs be more transparent about their business practices. The BOP is enlisted to assist in providing oversight of PBMs to support this goal. Considering the points raised by the FTC regarding the appropriateness of a licensing board providing oversight of PBMs, the Committee may wish to consider if this entity is the most appropriate regulatory entity to carry out this function. Alternatively, should the existing oversight the DMHC has over health plans be expanded to require a registration program for PBMs? Additionally, should more direct consumer protection measures be included to ensure patients have information about drug costs? For example, the American Consumer Institute suggests the following:

• Patients paying coinsurance and/or deductibles should pay the negotiated price and not pay the full price for drugs;

Pharmacies should be allowed and encouraged to disclose to patients when lower cost generics or over-the-counter medications are available outside of patients’ drug plans; and,

Pharmacists should be allowed and encourage to disclose to patients when out-of-pocket costs are lower – if prescriptions are paid in cash instead of using insurance benefits.

REGISTERED SUPPORT:

Board of Pharmacy

California Medical Association

California Pharmacists Association

Consumers Union

Health Access California

Independent Pharmacy Cooperative

Project Inform

REGISTERED OPPOSITION:

Anthem Blue Cross

America’s Health Insurance Plans

Association of California Life & Health Insurance Companies

California Association of Health Plans

Pharmaceutical Care Management Association

Analysis Prepared by: Le Ondra Clark Harvey, Ph.D. / B. & P. / (916) 319-3301

Date of Hearing: April 18, 2017

ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS

Rudy Salas, Chair

ABPCA Bill Id:AB 315

Author:(Wood) – As Amended Ver:April 5, 2017

SUBJECT: Pharmacy benefits management.

SUMMARY: Requires pharmacy benefit managers (PBMs) to be licensed by the state Board of Pharmacy (Board); require a PBM to periodically disclose to a purchaser certain information such as drug acquisition cost, rebates received from pharmaceutical manufacturers, and rates negotiated with pharmacies; and applies these provisions to a contract or contractual relationship between a PBM and a purchaser that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018.

EXISTING LAW:

1. Provides for the licensure and regulation of pharmacists and pharmacies by the Board. (Business and Professions Code (BPC) § 4000 et seq.)
2. Imposes requirements on audits of pharmacy services provided to beneficiaries of a health benefit plan. (BPC § 4430)

THIS BILL:

1. Defines “pharmacy benefit manager” (PBM) as 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.
2. Requires that within 30 days after a change of address of record with the board or a change of name according to law, a pharmacist, intern pharmacist, technician, designated representative, or pharmacy benefit manager shall notify the executive officer of the board of the change of address or change of name.
3. Specifies that a person or entity shall not act as PBM for any dangerous drug or dangerous device unless he, she, or it has obtained a license from the board.
4. Requires a PBM to disclose to the Board the location, names, and titles of all of the following:
   1. Its agent for service of process in this state.
   2. All pharmacists of the PBM who are dispensing controlled substances, dangerous drugs, or dangerous devices to residents of this state.
5. This information shall be made disclosed on an annual basis and within 30 days after any change of office, corporate officer, partner, or pharmacist.
6. Requires the Board, upon approval by the board and the payment of the required fee, to issue a license to the applicant.
7. Defines “labeler” as a person or entity that receives prescription drugs from a manufacturer or wholesaler and repackages those drugs for later retail sale and who has a labeler code from the federal Food and Drug Administration.
8. Defines “pharmacy benefit manager” as a person, business, or entity described in Section 4037.5.
9. Defines “proprietary information” as trade secrets and information on pricing, costs, revenue, taxes, market share, negotiating strategies, customers, and personnel that is held by a private entity and used for that entity’s business purposes.
10. Defines “purchaser” as health benefit plan sponsor or other third-party payer with whom a PBM contracts to provide the administration and management of prescription drug benefits.
11. States that a PBM has a fiduciary duty to a purchaser and shall discharge that duty in accordance with all applicable laws.
12. Requires that a PBM notifies a purchaser in writing of any activity, policy, or practice of the pharmacy benefit manager that directly or indirectly presents a conflict of interest that interferes with the discharge of the pharmacy benefit manager’s fiduciary duty to the purchaser.
13. Requires, beginning in the second fiscal quarter after the effective date of a contract between a pharmacy benefit manager and a purchaser, the PBM to, on a monthly basis, disclose the following information to the purchaser with respect to prescription product benefits specific to the purchaser:
    1. The aggregate acquisition cost from a pharmaceutical manufacturer or labeler for each therapeutic class of drugs.
    2. The aggregate amount of rebates received by the pharmacy benefit manager for each therapeutic class of drugs. The aggregate amount of rebates shall include any utilization discounts the pharmacy benefit manager receives from a pharmaceutical manufacturer or labeler.
    3. Any administrative fees received from a pharmaceutical manufacturer or labeler.
    4. The aggregate of rates negotiated by the PBM with pharmacies with respect to each therapeutic class of drug.
    5. Prescription drug utilization information for the purchaser’s enrollees or insureds that is not specific to any individual enrollee or insured.
14. Specifies that the information disclosed shall include all retail, mail order, specialty, and compounded prescription products.
15. Specifies that a therapeutic class shall include at least two drugs. If there are fewer than two drugs in a therapeutic class, the required information shall be reported by therapeutic category.
16. States that except for utilization information, a pharmacy benefit manager need not make the required disclosures unless and until the purchaser agrees, in writing, to maintain as confidential any proprietary information.
17. Requires the bill to apply to a contract or a contractual relationship between a PBM and a purchaser that is entered into, issued, amended, renewed, or delivered on or after January 1, 2018.
18. Declares that these provisions do not apply to:
    1. A health care service plan or health insurer, if the health care service plan or health insurer offers or provides PBM services and if those services are offered or provided only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered or provided by that health care service plan or health insurer.
    2. An affiliate, subsidiary, related entity, or contracted medical groups of a health care service plan or health insurer that would otherwise qualify as a pharmacy benefit manager but offers or provides services only to enrollees, subscribers, policyholders, or insureds who are also covered by health benefits offered or provided by the health care service plan or health insurer.

FISCAL EFFECT: Unknown. This bill is keyed fiscal by the Legislative Counsel.

COMMENTS:

Purpose. This bill is sponsored by the author. According to the author, “After a series of informational hearings on drug pricing, the author believes that the only way to fully understand and attempt to address the issue of escalating drug prices is to increase information available from the variety of players in the supply chain. There is existing discussion and legislation calling for greater transparency and disclosure from drug companies. While this information is critical without similar disclosure on the part of pharmaceutical benefit managers, purchasers and policymakers will not have a complete picture.”

Background. PBMs. In the1960’s PBMs were utilized to assist insurance companies who were overwhelmed with processing claims. However, PBMs have evolved from basic claims administrators to more complex organizations offering a wide range of prescription drug managed tools, like drug utilization review, disease management, and consultative services. PBMs can also assist clients with establishing their benefit structure, including developing and maintaining a prescription drug formulary; developing a network of pharmacy providers; and, providing mail order fulfillment services.

According to the Pharmaceutical Care Management Association, PBMs administer prescription drug plans for more than 266 million Americans. PBMs may achieve savings for their customers by negotiating discounts and through cost containment programs, including use of formularies and cost sharing. In 2015, the three largest public PBMs were Express Scripts, CVS Health (formerly CVS Caremark), and United Health/OptumRx/Catamaran.

The Department of Managed Health Care (DMHC) and the Department of Insurance (DOI) Regulatory Jurisdiction. In California, the health plans, which PBMs contract with, are regulated by the Department of Insurance and the Department of Managed Health Care. Though originally the DOI regulated PPOs and the DMHC regulated Knox Keene health plans, the distinction has faded as a result of the standardized benefits provisions of the Affordable Care Act. Currently, the DMHC regulates the majority of the insurance market.

Health plans regulated by the DOI and the DMHC have mechanisms by which patients can contact the health plan if the patient has a problem with the PBM. The DMHC also has a “help line” that patients can utilize to report complaints, and there is a process in place for DMHC to review patient appeals to the Independent Medical Review panel if, for example, coverage is denied for specific drugs.

The DMHC receives some indirect information about PBMs. For example, whenever a health plan contracts with a PBM, the DMHC reviews the contract to ensure there is compliance with the Knox Keene Act. The DMHC also examines how health plans delegate functions to PBMs.

Board of Pharmacy Regulatory Jurisdiction. In California, pharmacists and pharmacies are regulated by the State Board of Pharmacy. There are 42,691 pharmacists and 70,624 pharmacy technicians with active licenses in the state. There are 7081 pharmacies regulated by the Board. Of these, 513 are hospital pharmacies. The Board reported it also regulates 506 non-resident pharmacies which generally include mail order pharmacies. The board has additional licenses for those pharmacies that perform sterile compounding and are located in California (890) and ship into CA from another state (91).

Other States. Eighteen states have specific statutes or regulations requiring certain disclosures from PBMs. Twelve states have requirements for audits and disclosures between pharmacies and PBMs. Oversight in other states is typically handled by the insurance commissioner. According to information from the Federal Trade Commission, Mississippi is the only state to have their board of pharmacy regulate PBMs.

Scrutiny of PBMs. In recent years, there has been much attention focused on the role that PBMs play. Many have criticized PBMs accusing them of being middlemen that make profits as they deal with pharmacies, insurers and drug manufacturers.

In December of 2016, the United States Senate Special Committee on Aging held a hearing entitled: Sudden Price Spikes in Off-Patent Prescription Drugs: The Monopoly Business Model that Harms Patients, Taxpayers, and the U.S. Health Care System. In the Committee report they state “PBMs, for example are tasked with negotiating back and forth between hospitals, employers, and pharmaceutical companies, to reportedly get the best deal. But it is unclear who the parties are that are getting the best deal as well as how much PBMs charge for these negotiations. There is good reason to suspect that the patient may not be getting the best deal.” Subsequently, multiple lawsuits in Missouri and New York were filed against Express Scrips, CVS Health Corporation, Optum Rx, Inc., and Prime Therapeutics, LLC.

In January of 2017, the Centers for Medicare & Medicaid Services reported that rebates that drug companies and pharmacies pay are growing, but PBMs are benefiting as the rebates are not lowering costs for patients or government health care programs. In March of 2017, Anthem announced that it was suing Express Scripts Holding Company for $15 billion dollars in damages, alleging that the PBM violated their contract through excessive charges and failures in its operations.

CalPERS and PBM Disclosure Requirements. According to information obtained from the CalPERS, for more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members. The pension fund serves more than 1.8 million members in the CalPERS retirement system and administers benefits for more than 1.4 million members and their families in the health program, making CalPERS the largest defined-benefit public pension in the United States.

In March of 2016, CalPERS selected a new PBM- OptumRx. Contract terms require that the PBM provide drugs of the highest quality and value, based on sound clinical evidence. It also requires transparency and full disclosure of the financial relationships between the PBM and drug manufacturers. The Chair of the CalPERS Pension and Health Benefits Committee stated,

We placed a lot of emphasis in this solicitation on the company's ability to deal with the increasingly high cost of prescription drugs, and OptumRx presented a very strong proposal. "In addition to being concerned about the health and safety of our members, we wanted to ensure the company we selected would be as committed as we are to continually develop strategies to mitigate the impact of those rapidly rising costs on our members.

Federal Trade Commission (FTC) Comments. According to a 2011 letter from the FTC to Mississippi Representative Mark Formby, Mississippi is the only state to have their Board of Pharmacy regulate PBMs. Further, this oversight was deemed problematic by the FTC. In the letter the FTC staff writes:

Although we offer no specific recommendations on the ideal structure for regulation of PBMs,…because pharmacists and PBMs have a competitive, and at times, adversarial relationship, we are concerned that giving the pharmacy board regulator power over PBMs may create tensions and conflicts of interest for the pharmacy board. Indeed, the antitrust laws recognize that there is a real danger that regulatory boards composed of market participants may pursue their own interest rather than those of the state. We urge the Mississippi legislature to consider this concern.

In August of 2014, the FTC staff wrote a letter to Larry Good, the Executive Secretary of the Employee Retirement and Income Security Act (ERISA) Advisory Council. In the letter the FTC staff writes:

The Council asked whether the FTC has conducted further study of the PBM industry since 2005. FTC staff has analyzed a number of state legislative proposals involving mandatory transparency requirements and their likely effect on competition. These FTC staff comments have highlighted two particular types of concerns:

• • • 1. Mandatory disclosure requirements may hinder the ability of plans to negotiate an efficient level of disclosure with PBMs; and
      2. If such disclosures publicly reveal previously proprietary and private information about discounts negotiated with PBMs, disclosure may result in less aggressive pricing by, or even collusion among, pharmaceutical manufacturers.

We encourage the ERISA Advisory Council to consider whether harm may result if plan sponsors are denied the ability to choose the level of transparency that best suits them within the context of their overall plan design…we encourage the council to consider whether and how mandatory disclosure requirements might be tailored narrowly to present useful and meaningful information.

Current Related Legislation. AB 29 (Nazarian) of the current Legislative Session requires, except as provided, a pharmacy benefit manager to disclose certain information to a purchaser or prospective purchaser, including, among other things, the aggregate amount of rebates, retrospective utilization discounts, and other income that the pharmacy benefit manager would receive from a pharmaceutical manufacturer or labeler in connection with drug benefits related to the purchaser or prospective purchaser. The bill would excuse a pharmacy benefit manager from making these disclosures unless the purchaser or prospective purchaser agrees to keep any proprietary information disclosed to it pursuant to these provisions confidential, as specified. STATUS: This bill is scheduled to be heard in this Committee.

Prior Related Legislation. AB 1960 (Pavley) 2004 would have required a PBM to make specified disclosures to its purchasers and prospective purchasers, including specified information about the pharmacy benefit manager’s revenues and its drug formularies, and to make specified disclosures to the public upon request. The bill would have established certain standards and requirements with regard to PBM contracts and the provision of certain drugs. The bill would have imposed certain requirements on the membership of a pharmacy and therapeutics committee for a PBM. The bill would have required a PBM to meet certain conditions before substituting a prescribed medication. NOTE: this bill was vetoed by Governor Schwarzenegger. In his veto message he stated, “I share the authors concerns with the rising cost of prescription drugs and generally, her interest in disclosure of information to consumers. However, this measure would have the unintended consequence of increasing drug costs to health plans, the Medi-Cal Program and other purchasers, without providing any real consumer benefit. Studies, including one from the Federal Trade Commission, have shown that enactment of this legislation will limit competition and significantly increase the cost of prescription drugs.”

IMPLEMENTATION CONCERNS:

The goal of this measure appears to be consumer protection. This is accomplished via requirements for PBMs be more transparent about their business practices. The BOP is enlisted to assist in providing oversight of PBMs to support this goal. Considering the points raised by the FTC regarding the appropriateness of a licensing board providing oversight of PBMs, the Committee may wish to consider if this entity is the most appropriate regulatory entity to carry out this function. Alternatively, should the existing oversight the DMHC has over health plans be expanded to require a registration program for PBMs? Additionally, should more direct consumer protection measures be included to ensure patients have information about drug costs? For example, the American Consumer Institute suggests the following:

• Patients paying coinsurance and/or deductibles should pay the negotiated price and not pay the full price for drugs;

Pharmacies should be allowed and encouraged to disclose to patients when lower cost generics or over-the-counter medications are available outside of patients’ drug plans; and,

Pharmacists should be allowed and encourage to disclose to patients when out-of-pocket costs are lower – if prescriptions are paid in cash instead of using insurance benefits.

REGISTERED SUPPORT:

Advanced Medical Technology Association

Board of Pharmacy

California Medical Association

California Pharmacists Association

Consumers Union

Health Access California

Independent Pharmacy Cooperative

Project Inform

REGISTERED OPPOSITION:

Anthem Blue Cross

America’s Health Insurance Plans

Association of California Life & Health Insurance Companies

California Association of Health Plans

Pharmaceutical Care Management Association

Analysis Prepared by: Le Ondra Clark Harvey, Ph.D. / B. & P. / (916) 319-3301