Senate Standing Committee on Budget and Fiscal Review

Committee on Budget and Fiscal Review will come to order. We're holding our hearing in room 1200 at our swing space, 1021 O Street. We will hear public comment after both discussion items have been presented.

And so today this is an oversight hearing of the Budget Committee on two important health topics, both issues where we have provided significant funding through the budget process in recent years and we want to see how things are going.

The first part of the hearing will cover regulation of critical consumer protections in California's commercial health insurance market and with enforcement by the Department of Managed Health Care.

The second part section of this hearing will be oversight and update on California's generic drug manufacturing and contracting entity, called CalRx, to extremely important program to see how things are going and how effective CalRx's efforts have been in driving down the high cost of prescription drugs, particularly insulin.

So we'll start with our first section around enforcement of consumer protections by the Department of Managed Health Care. Very few things in a person's life are as essential as having access to medically necessary health care, both physical health and behavioral health.

While California has made great strides in partnership with previous federal administrations to expand health coverage and access for all Californians, it's more important than ever that the coverage that Californians receive is available to them when they most need it.

Since the 1970s and the passage of the Knox Keene Health Care Service Plan Act, California has been at the forefront of ensuring that health plans provide timely access to care within reasonable geographic distance standards so that no Californian is denied essential health care services because of where they live or because the next available appointment is months away. California has also been a leader in ensuring access to behavioral health care.

State and federal laws, including California's Mental Health Parity act and the federal Mental Health Parity and Addiction Equity act, have ensured that health plans that offer behavioral health health coverage do so under conditions that are no more restrictive than the conditions under which they provide medical or surgical coverage.

Recent efforts, including SB 855 and SB 255, have sought to expand the availability of behavioral health coverage subject to parity requirements and to ensure that consumers have the same timely access to care within reasonable geographic distance standards as for other services.

Despite the promises represented by these great legislative strides in ensuring access to care, the state's health plan regulator, dmhc, has at times, in my personal opinion, struggled with enforcement and has not always kept pace with health plans that are violating the consumer protections California has put in place.

Aside from triennial routine surveys of health plans and other Focused investigations prompted by complaints or legislative or Gubernatorial mandates. Dmhc, the agency often relies on the receipt of consumer complaints through its health center to monitor health plan compliance with consumer protection provisions in state and federal law.

By the time a critical mass of health plan consumers have complained about a health plan's routine denial or delay of medically necessary care, it's often too late to mitigate the damage to those consumers health and behavioral health conditions.

In addition, the process consumers must navigate to redress inappropriate denials or delays by their health plans first filing a grievance through their health plan before gaining access to an independent medical review. At dmhc, it's a burdensome, opaque and time consuming process. The vast majority of denials never reach the independent medical review stage.

And many people, particularly those who don't speak English, are completely unaware that they have the ability to file these reviews. We know those that do choose to pursue internal and independent appeals processes too often find that they delay access to care that should never have been denied in the first place.

We also know that when independent medical reviews are requested, they typically overturn the denial. And I think that is a real indictment of our system that we have. Once you get to a review which very few claims do, they typically overturn the denial.

So we need more data on how many people are just being denied inappropriately, illegally denied care and it never sees the light of day. They just don't get the care. I also just want to note that now it is even more important for California to lead an expanding healthcare access in California, including in the private commercial market.

Our new federal Administration is working overtime to strip away health care access for Americans. They've been very clear that they want to take a wrecking ball to Medicaid. 40% of Californians and 70 million Americans get health care through Medicaid. They're targeting the Affordable Care Act.

They have been firing people at the Veterans Administration and so on and so forth, in addition to removing information from the CDC website. So it's more important than ever for California to lead. So today we will hear from some folks in the Administration and also or in the agency and also folks on the outside about how we're doing in terms of, of this enforcement. So I'll now ask if Vice Chair Niello has any comments and then we'll get to our first panel.

Thank you, Mr. Chair, a few comments. I look forward to the testimony relative to these budget items. Though it is my observation this dips well into really the policy area that I would think ought to be the purview of the Health Committee, but that notwithstanding it raises with regard to mental health and also related drug addiction issues, that it raises the question of funding for Proposition 36, particularly the drug court portion of that Proposition, passed by about 70% of the voters, which is currently not in the budget at all.

This hearing acknowledges the importance of that care. And we are not going to address the issue of people being addicted and committing crimes where the Proposition intends to have a treatment mandated felony for that, for that incident issue. The whole point being we need to cure people of the problems that they have and that needs to be addressed in this budget.

I'd also point out that there are other issues that if we're going to be looking at results and accountability that this Committee ought to be looking at, such as spending on homelessness, spending on education, which is of course formulaic, but nonetheless, to juxtapose that against the achievement that we have in our K12 system in the state and how that matches up to the funding per pupil spending having increased dramatically in the last decade.

These are pretty important issues also. And as I have continually stated, with the out year deficits that we're looking at, very large $20 to 30 billion deficits, according to the LAO, we need to start assessing very critically existing programs, particularly those that have been initiated in the last four or five years, to assess their accomplishment, their outcomes.

And if it isn't matching with what we intended, we need to cut those programs back or we're not going to come anywhere near to balancing our budget in the 26-27 year and a few years beyond that. Thank you.

Thank you, Mr. Vice Chair. Okay, we'll now go to our first panel. I want to welcome Mary Watanabe, the Director of the Department of Managed Healthcare, who's joined by Sara Ream, Chief Counsel at DMHC. And I'm sorry, you are?

Dan Southard. I'm the Chief Deputy Director at the DMHC.

Okay, great. Thank you. Welcome, Director Watanabe.

All right. Can you hear me? All right, I think I'm on. Good morning. As you mentioned, Senator Wiener, I'm Mary Watanabe, Director of the Department of Managed Healthcare.

I appreciate the opportunity to provide an Update on the DMHC's oversight of the delivery of behavioral health services, including the implementation of SB 855, SB 221, our behavioral health investigations, and our review of compliance with federal mental health parity. Dan Southard, our Chief Deputy, will be helping present on grievances and our help center independent medical review process.

And Sarah Ream, our General counsel, our chief counsel is here to help with any legal and technical questions. The department's mission is to protect consumers health care rights and ensure a stable health care delivery system. We license and regulate 140 health plans that provide coverage to nearly 30 million Californians.

I will just note, given the purview of this Committee, we are not funded through the General Fund. We are funded through assessments on health plans. I'll start with an overview.

Well, ... and I know on the agenda there's reference to behavioral health and others. We want to talk more broadly. Yes, mental health parity, but this is also just about.

behavioral health parity, mental health and substance use disorders

And also just General accountability for health plans for not just behavioral health, but also for physical health.

Okay. All right. Well, we'll focus a lot on behavioral health given the questions we received. But I'll just say generally the items I'll talk about of our oversight include not just behavioral health, but it also applies to our General oversight of health.

Great, thank you.

So I'll start with SB 855 and 221. Both of these bills gave the DMHC increased authority and standards we can enforce to hold health plans accountable for delivering timely access to behavioral health services. SB 855 substantially overhauled California's mental health parity law both in terms of coverage and access to services.

SB221 requires health plans to ensure that their contracted provider networks can offer non urgent follow up appointments with a non physician mental health or substance use disorder provider within 10 business days of the prior appointment. I will note that this does not guarantee it will be with the same provider.

However, plans must consider the enrollee's needs and generally accepted standards of care when offering a follow up appointment. Both SB 855 and 221 require health plans to arrange coverage outside of the plan's network if medically necessary care is not timely available within the plan's network.

When receiving out of network services, enrollees are only responsible for paying the cost sharing they would have paid if services were in network.

I'm sorry, I just want to make sure I'm accurately following along. Excuse me, chair, for interrupting. Could you clarify if you're. Are you following this or not? Neither of these are for what you're saying right now, correct? Because your name's on the front of this one, that's why.

We do not have a presentation for part A. Okay. Yeah, no, Part B. I'll be back. Okay. I'll be back to present that when we get to the Calorx and prescription drug information. Okay, great. Thank you so much. Thank you. Chair. Sorry for the interruption. All right.

In regards to implementation of SB55 and 221, we've taken a number of steps to implement these bills, including issuing all plan letters requiring plans to demonstrate compliance with the new requirements and to provide additional clarification such as the circumstances in which plan plans must arrange for out of network care to demonstrate compliance.

And I'll just say this is with any new requirement of the law. We require plans to file documents with us, and that includes evidence of coverage documents, disclosure documents, policies and procedures. In the case of SB 855, that includes proof of contractual arrangements with the nonprofit associations.

We've added the 10 business behavioral health follow up appointment standard into our methodology for monitoring timely access, which was implemented in measurement year 2023 and set an 80% performance target. If a health plan did not meet that rate, they're required to submit a corrective action plan.

And beginning in measurement 2024, we'll be able to take disciplinary action, including administrative penalties against a plan that does not meet the 80% rate of compliance. We also promulgated a regulation related to the implementation of SB 8, which became effective in April of last year.

Health plans were required to submit several filings to demonstrate compliance with the new regulation, including revisions to their evidence of coverage policies and procedures and notices regarding arranging for out of network care policies and procedures demonstrating adoption of the nonprofit criteria and information regarding delegation of behavioral services, including revision of plan to plan contracts.

Generally, the DMHC monitors health plan compliance in a number of ways. Senator Wiener mentioned our triannual medical surveys, so we conduct routine medical surveys or audits of health plan operations every three years. This includes a comprehensive review of compliance with all requirements, but specifically with the requirements of SB 855 and 221.

Now that the SB 855 regulations are final, the circumstances surveys will expand significantly to include the additional specifications outlined in the regulation. We also can conduct a non routine survey when a specific or issue problem requires a focused review of health plan operations. Again, we call those non routine surveys.

I'll talk a little bit more about our behavioral health investigations in a moment, but that's also another area where we may find violations of both of the SB 855 and 2.

Then, as mentioned earlier, we do monitor complaints to our help center and may conduct a non routine survey or Take enforcement action if we find patterns of non compliance. In regards to the questions about enforcement of SB855, we have prosecuted several matters involving health plan non compliance with SB855.

The DMHC has prosecuted Aetna Health of California for the improper denial of ABA therapy services under the Acts that requirements of SB 855 and United Healthcare Benefits Plan for the improper denial of claims related to out of network behavioral health services. Most notably, the DMHC entered into a historic settlement agreement with Kaiser Permanent for those first two.

What were the penalties?

I don't have that with me. We can follow up and get that. Yeah. Most notably, the DMHC entered into a historic settlement agreement with Kaiser permanente which included a 501.0 million million 1.0 administrative penalty or fine and requires Kaiser to make significant changes to the plan's delivery of behavioral health services.

The Kaiser settlement agreement is a good example of the various components of our oversight work and how we monitor compliance beyond just the review of documents and help center complaints. The settlement agreement included findings related to both SB855 and 221.

In May of 2022, we initiated a non routine survey of Kaiser's behavioral health delivery system in both Northern and Southern California in response to numerous consumer complaints media articles and a 20% increase in complaints to our help center.

In August of 2022, we initiated a targeted enforcement investigation to examine if Kaiser was providing timely access to appointments during the National Union of Healthcare Workers Member strike in Northern California.

In October of 2023, we reached a settlement agreement with Kaiser that addressed issues related to the non routine survey in Northern and Southern California and the enforcement investigation related to the NUHW strike.

As part of the settlement agreement, Kaiser was required to submit a corrective action work plan which was accepted by the DMHC and posted to our website in January of this year.

The Corrective Action Work Plan is Kaiser's self direction drafted initial blueprint describing in more detail how the plan will address the issues outlined in the settlement agreement, including a timeline with key dates and deliverables with activities that currently run through this year. Did you have a question? No. Okay.

The DMHC will closely monitor Kaiser's progress during quarterly meetings where Kaiser is required to submit quarterly written reports and updates on the progress of it has made. We will post updates on the quarterly meetings to our website.

We will continue to assess Kaiser's compliance with all applicable laws and regulations through our normal review of consumer complaints and regulatory filings which could include updated documents such as policies and procedures.

In addition we will conduct an in depth on site review of Kaiser's behavioral health delivery system through the non routine follow up survey and our behavioral health investigation where we will validate that Kaiser has implemented what they've reported in quarterly meetings.

Ultimately, the metrics against which the DMHC will hold the plan is whether the plan is complying with the Knox Keen act, including the strong consumer protections enacted through SB 855 and 221.

Moving on to our behavioral health investigations, we received approval in the 2021 state budget to conduct focused behavioral health investigations of all full service commercial health plans to understand the challenges Members face accessing services and to identify barriers that both enrollees and providers experience.

We've completed two phases of the BHIS and have issued final reports detailing the results of the investigation and corrective action plans. The third phase is expected to be completed this summer and we anticipate completing all investigations in 2029.

I'll note that the BHIS or behavioral health investigations are different from our routine medical surveys because they focus specifically on behavioral health services where medical surveys that we conduct every three years are all operations for the plan. In addition, the behavioral health investigations are not limited to Knox Keen compliance.

We really are seeking to understand the barriers that consumers experience navigating the behavioral health system. In addition, we also conduct enrollee and provider interviews to understand their experience with the plan being investigated. The first two phases of the investigations found 31 Knox Keen violations and 13 barriers in several areas of operations.

These violations are referred to our Office of Enforcement to evaluate and take appropriate enforcement action which may include corrective actions and administrative payments penalties. In the effort to save some time, I'm not going to go through the findings. I think they're in the background materials for the hearing, but happy to answer questions.

Just Moving on to Federal Mental Health Parity Compliance, the Paul Wellstone and Pete Dominici Mental Health Parity and Addiction Equity act of 2008, which we tend to call Mopea, requires full service health plans to provide services to treat mental health and substance use disorder disorders and parity with services to treat physical or medical conditions.

Following the release of the Federal Rules For MPEA in 2013, we took a phased approach to review initial compliance from 2014 to 2017.

Since the initial compliance review, the DMHC has incorporated compliance and enforcement of mental health parity into our ongoing work such as routine medical surveys, reviewing help center complaints, taking informal enforcement action, and ongoing review of compliance when plans make changes to policies or when we license new plans.

More recently, the Consolidated Appropriations act of 2021amended the Mental Health Parenting Addiction act, implementing new federal requirements for plans to do a comparative analysis of non quantitative treatment limits or NQTLS. In 2023, the Department began at NQTLS Comparative Analysis Project to assess health plan compliance with MPEA and the Consolidated Appropriations act of 2021.

We're conducting a phased review process beginning with the five largest commercial health plans that cover the nearly 95% of commercial Members. This review includes reviewing prior authorization review processes, concurrent review process, retrospective and claims utilization management, pharmacy services, provider reimbursement methodology, network adequacy.

In addition, the federal TRI agencies, which include the Departments of Health and Human Services, labor and the treasury, released 2024 final MPAEA rules on September 9th of 2024. We're in the process of reviewing the new regulations and evaluating whether we need to incorporate that into our compliance project.

We also intend to promulgate our own MPEA regulations in line with existing federal law. And now I'll turn it over to Dan to talk about Member grievances and our help center complaint and IMR process.

Before we do that, can I just because you talked about Kaiser a little bit. Sure.

So I took a look at the corrective action work plan and I guess a question is to me it seems fairly non specific in some ways and it relies on Kaiser to sort of use their I forget the exact phrases like good faith or that probably wasn't, maybe wasn't that phrase.

But those kinds of very in my mind vague standards and it sort of like seems a little bit like self regulatory and I'm wondering why it wasn't more specific. I know that at some point the VA was federal officials sort of came down on the V.

VA for behavioral health parity issues and the corrective action plan that the VA ultimately had to comply with was much more specific in terms of like vacancy rates and you know, and penalties, et cetera.

So I'm just curious why the Kaiser Carthroax work poem was a little more General and again my word, vague because it makes it hard to have accountability.

Yeah. So a couple things. I think it's really important to look at the corrective action work plan in the context of the settlement agreement as well. So the settlement agreement actually lays out the terms and really our ability to enforce the settlement agreement which outlined eight areas of concern.

There's kind of an initial corrective action plan of the steps that Kaiser will take to remediate those areas of concern. As I noted, the corrective action work plan is really Kaiser's their blueprint, their plan to implement these corrective actions. There is a timeline that's associated with that.

The third piece that I think really needs to be considered with this is our quarterly meetings and the reports, that's where I think we'll probably see some of that detail that you're talking about.

Because a lot of this is really about Kaiser's oversight of the delivery of care, their oversight and visibility into what is happening with the medical groups, which again will likely include reports and information about reports. But I think you really need to kind of look at those three pieces.

Quarterly meetings will be starting soon and so we'll post some information about those in the.

Yeah, and just because of the, just the history here, you know, it just seems to me that the more hands on and more detailed, the better. And again, I've said this before, I'm a big fan of Kaiser on so many levels. It's a really fantastic model that provides a lot of great care for so many people.

So this isn't about demonizing Kaiser, but on behavioral health, Kaiser has just had huge issues. And so as you and I have talked about many times, and just one other question that'll turn over to Senator Blakespear.

In terms of independent medical reviews, both behavioral health, but also physical, when you look at those IMRs, the frequency of denials being overturned on IMRs is extremely high, particularly for behavioral health and to a lesser degree, but still significant for physical health.

And so the question is, what does that say to you in terms of why we're seeing such a high rate of IMR reversal? Why does someone even have to go through a 30 day grievance process if they have such a high likelihood of succeeding on imr?

And what does it mean to have that level of overturning in the independent medical review of denials when we know so many people don't even know to do a grievance or an imr?

And that means to, to me it's tip of the iceberg and you have this vast number of people who are getting illegally and improperly denied care and they never even see an imr. It's just like what does that say to you about the system if health plans are engaging in this pattern of denials and delays?

Yeah, so I'm just, it's a loaded question, but I think it's really an important one.

Well, I'll, I'll steal a little bit of Dan's thunder in his talking points here. I will just, I mean, I share your concern. When we see very high reversal rates. So overturn rates are the IMR process, which means an independent reviewer has disagreed with the plan's determination as well as reversal rates from the plan.

When something comes to us, I think that's concerning. Right. I think I fully agree. It's a small percentage of people that actually understand that this is their right. I will say that the law really states that there's a 30 day grievance process and that enrollees need to go through that process unless there's an urgent or emergent issue.

So some of this is just this is the law and how the system was set up. But I think share your concerns. When we see these high overturn rates, we don't have the authority currently to collect data on the number of approvals, denials or modifications through the.

We want to give you that.

I saw, I was going to say I know there's a Bill this year, but again, I think, you know, this has been a gap of we don't have that visibility.

So we don't know how many people filed a grievance, how many were approved, denied or modified at that process to be able to understand how many people actually are coming to us.

There are, I will just say there are some circumstances where through the IMR process we get additional information, additional medical records or other information may come to light that may influence that decision or the plan's decision to reverse. But I will just share. It's something that I track closely.

It's very concerning, I think, particularly in the behavioral space. We've seen particularly an uptick with I think, residential treatment. So I don't know if you want Dan has talking points related to kind of the requirements around grievance and IMRs. If you'd like him to go through that or we're happy to take questions too.

Yeah. Senator Blixer, if you.

We can do it now. I wanted to just ask. So on December 31st of last year, Anthem Blue Cross left Scripps Healthcare. And that was very difficult for many of my constituents.

And I had dozens of constituents reach out to my office who were left high and dry without the coverage and the providers that they had seen for years. And I authored a letter to you, Director Watanabe, alongside this Diego delegation, who also signed the letter requesting that you look into Anthem's network adequacy requirements.

I understand you're still working on a response to that letter, but I wanted to ask right now if there's anything you'd like to add about that circumstance and also Just toward the reality that my hope is that there's a commitment to not just protecting consumers, but also to advocating for them and making sure that, you know, you do have a lot of authority, so making sure that you're using that to make sure that consumers are protected.

So I wanted to give you the opportunity to respond to that.

Yeah, no, and maybe I'll ask Dan to help me answer some of this, too. I mean, my highest priority is protecting consumers and make sure they have access to care. I think in our next presentation, you're going to hear about just the rising cost of healthcare.

There's a lot of money, particularly our commercial enrollees are spending, spending on their monthly premiums, potentially on their deductibles and cost sharing, too. And so it is absolutely imperative that we ensure that enrollees have access to care.

I think one of the things we face with these contract terminations is that we don't really have authority to dictate, you know, whether reimbursement rates or that they have to agree to contracts.

This ultimately is a contract negotiation where we have authority authorities to make sure the health plan can demonstrate that they have an adequate network that meets all the network adequacy requirements in the law and that consumers continue to have access to care.

It may not always mean that they get to go to the provider they're used to seeing or the provider they want to see. But, Dan, I don't know if you want to add any flavor around just our block transfer process and what we review.

So that Anthem Scripps termination was reviewed through our block transfer process. So anytime a health plan terminates a contract with a provider group or a hospital, they're required to file a block transfer filing with our Department. And part of that block transfer filing includes what we call enrollee transfer notices.

So there's specific information that is required to be included in the early transfer notice. And to your 0.1 of those things is how do they request continuity of care? So there are specific conditions that health plan Members can request continuity of care from their health plan.

The caveat to that is the provider in this case would be Scripps would have to agree to the amount that they'd be reimbursed for that continuity of care to take place and that Member to continue to see their previous providers. My understanding is that the negotiations are still ongoing between Anthem and Scripps.

Hopefully they do reach an agreement. And when we get that block transfer filing, we are looking at where they're looking to transfer those Members to either to a new provider group or groups or to other hospitals to make sure that they're within the timely access and geographic access standards. So that's how we're looking at that block transfer.

As Mary indicated, we can't say you must continue the contract. We don't have that authority to tell a health plan you must continue to contract with any particular hospital or provider group.

Right, yeah, I understand that. I mean, I think the point is that network adequacy requirements really gets at the, the reality that there need to be enough doctors and hospitals in the patient area who accept their insurance that meet their healthcare needs.

So, you know, really zeroing in on that is the thing that I'm most interested in making sure that the state is doing.

Yeah. And we, through the block transfer process, we are looking at that. We're also getting confirmation from whatever the receiving groups that the Members will be transferred to that they have the capacity to take on those Members as well.

Okay, thank you. Thank you. And I think you had a couple things to say and then we'll go to Senator Perez and Senator Weber Pearson.

So we'll just go through my presentation piece. Yeah, very good. So I'm going to talk about first the health plan grievance process. In most cases, health plan Members must complete the health plan's grievance process before availing themselves to the DMHC services.

Health plan Members can submit a grievance to their health plan by simply calling their Member services number on their ID card or by submitting a grievance through the health plan's grievance form.

For standard grievances, the health plan is required to inform the enrollee that they've received the grievance within five days of receipt of that, and then they have 30 days to review that grievance and then respond to the consumer. So the consumer can avail themselves of the DMC's free services.

If either one of two things happens, they're not satisfied with the grievance response from the health plan, or 30 days have passed for expedited issues, we can bypass that grievance process for the consumer. So what we will look at, some Members will file grievances with us. They haven't gone through the health plans grievance process.

We'll review that issue and usually our clinical staff in our help center, which are nurses, will review that for any triggering language or condition to determine if we should expedite that issue. And if we do, we err on the side of caution and expedite those issues.

I would say 40% of our complaints to our help center, we expedite. The DMHC's health center is available to help Members with their issues with their health plan.

And while 96% of state regulated, commercial and government enrollment in California is under the DMEC's jurisdiction, if a consumer calls or submits a complaint to us and it's not under our jurisdiction, if it's a phone call, usually warm, transfer that person to the right jurisdictional agency, or if it's in writing, submit something back to the consumer in writing informing where they can go for assistance.

And the help center assists consumers in a couple of different ways. The first is a quick resolution process. So during this Kaiser strike, as an example, we have set up a specific IVR system where consumers can select the number 8. They get directly connected to one of our contact center Members.

And through a quick resolution process, if they're having difficulty obtaining an appointment, we will get on the phone call with the health plan Member, the health plan, and our health contact center representative, and work with whatever health plan, in this case Kaiser, to obtain a timely appointment for that consumer.

The other ways we look at we've discussed briefly are the independent medical review process. So anytime a health plan denies, modifies or delays a request for healthcare services as not medically necessary, experimental, investigational, or non emergent urgent, it would qualify for an independent medical review.

In that case, we send all the information that we receive from the consumer to the health plan for their review, give them 5 days to provide us with all documentation related to that complaint issue.

We then review that, qualify it for an independent medical review, and send it to our independent medical review organization, which is currently Maximus Federal Services. They then assign that issue to an appropriate provider who is not affiliated with the health plan under review.

They review that issue and determine if the health plan's denial of that issue was appropriate or not. If they overturn the health plan's decision, the health plan has five business days to authorize that service. The last piece I'll talk about is our standard complaints. So anything that does not fall into the IMR bucket.

So quality of care issues with a health plan, with a provider upset about a copay, quality of care issues all fall into that standard complaint process. And we have a mandated timeframe of 30 days to resolve those issues. Those times can be expended, can be extended at the director's discretion.

I know the Committee was looking for some data on our IMRs, so I'll provide a little bit from the last couple of years. In 2023, we resolved a total of 2,838 IMRs, and 557 of those 2038 IMRs were related to behavioral health services. For all IMRs, 72.7 resulted in overturn or reversing the plan's decision.

And for the 557 behavioral health IMRs, 76.7% were overturned through that IMR process in 2024. And I'll caveat that data is still being reviewed for cleanup. But current numbers show that we had 3,478 IMRs in total, and 483 of those were related to behavioral health services.

For all IMRs in 202473% resulted in an overturn of the plan's initial denial. And for The Behavioral Health IMRs, which is 48377% of those were overturned through the IMR process. As I noted, that 2024 data stands still under review. It may slightly change as we move forward.

There's a question also from the Committee about the policy rationale for requiring consumers to first participate in the grievance process of the health plan that originally denied the carefree treatment to the consumer.

And I will state that, and Mary noted this a little bit earlier, Health and Safety Code 1368 requires that the health plans establish and maintain a grievance system.

And after the Member complains or files a congrevance that has been either resolved by the health plan after 30 days or 30 days of exhausted, as noted before they can come to the Department. And if it's a serious and imminent threat to their enrollees health or severe pain, we can expedite that issue as well.

And as Mary noted, it's possible during the grievance process or our process, we received additional information from a provider or the consumer that may result in the health plan reversing their decision on their own.

Okay, I'm going to turn it over to Senator Perez, but I just want to reiterate that those statistics about the IMR overturning, they are jarring. Like I said, I think it's the tip of the iceberg and I think it's an absolute indictment of so much of our system that the plans are able to engage in these denials knowing that the vast majority of people are not going to have either know about or have the wherewithal to be able to do independent medical review.

And even if we assume that the, you know, that the IMR is going to probably may not be 100% typical. And so that's why, you know, maybe the rate I'm not suggesting that, you know, that, that those percentages carried down throughout the system, but I think it is still, it's extreme, and I think it is an indictment of our, of our entire healthcare system here in California.

So we're going to try to get you better data in addition to some other items. So, Senator Perez, thank you for your patience. And then, Senator Weber Pierson, great.

Thank you. And thank you for your presentation. You know, I wanted to start off a little bit, just focusing a bit on mental health care and mental health parity. What is DMHC's process for addressing violations such as the one appointment at a time rule?

Yes. Thank you, Senator. So the Knox Keane act does not dictate that a health. It doesn't prohibit a health plan from requiring the one appointment at a time.

Where we would look at that as a violation of mental health parity would be if, on the physical health side, the plan allowed an enrollee to schedule out multiple appointments at a time.

But if the plan on the physical health side says you can, you know, let's say physical therapy, for example, if your provider has said you need 15, we recommend 15 physical therapy appointments. But as a patient, you will come in on Tuesday, you'll have your physical therapy at that appointment.

We'll schedule your next appointment, and then you'll go to that one, you'll schedule the next one. If that is occurring on the mental health side as well, the behavioral health, then that plan is in compliance with mental health parity.

I am not aware of plans that are allowing multiple appointment scheduling on the physical health side, but if they did, then that would be something we would look at. To say, if you're not allowing a similar situation on behavioral health, that may be a violation of mental health parity.

It isn't necessarily a violation, but it would be something that would need to be investigated.

You know, I think when I think about mental health, and I mean, as someone that's gone to therapy myself and, you know, certainly has had, you know, many family Members that have faced challenges, whether they're, you know, going through some sort of cancer therapy and need to have that regularly scheduled appointment, I think it's a little bit different, right.

Than physical therapy or for going in for a regular checkup. You know, there's a kind of stated time. Right. Typically, therapy, especially top therapy that you have with the counselor is something that you want to have on a regular basis, on a predictable basis, especially for somebody that's in the middle of a mental health crisis.

So what you're telling me is that you try to treat the two exactly the same. And so that's why that is what.

Mental health parody requires. Mental health parody does not say behavioral health gets something different or extra. And this made this. In my personal opinion, I think that this is a weakness of mental health parity, is that if.

If you have a terrible behavior physical health benefit and you have a terrible behavioral health benefit, you have mental health parity. Now, that doesn't mean you're complying with California law, but mental health parity is. Is the physical health being treated. It's the mental health being treated the same as the physical health, mental health parity.

Has done amazing things. It got rid of the quantitative treatment limits where health plans and insurers in the past said we don't treat behavioral health at all. Or you get 10 visits a year, whereas physical health, you get a tremendous amount.

But we are seeing access issues not because there's mental health parity violations, but because to your point, you, you may need something more or different with behavioral health, mental health parity. Looking at mental health parity is not going to get you there. We need something more.

We need more on the behavioral health potentially than just mental health parity. Mental health parity may not get you where you need to be.

Okay, I know and I've heard from several of my constituents that typically that work as mental health care workers and they've flagged for me some concerns, particularly those that work for Kaiser. And I know right now I think Kaiser's been on a corrective action work plan.

So you know, that seems like, that seems like some sort of rule that you all have in place so that they're looking at and assessing their own system. So can you tell me a little bit more about that?

When that decision is made to either remove a restriction or versus undergoing a study, creating a work plan to create improvements like how is that determination made and how do folks determine whether or not they're going to be making changes to what their setup is?

Yeah, maybe. Let me, I'll start and Sarah can jump in here. So as I mentioned earlier, we conducted a non routine investigation or what we call a survey into Kaiser's behavioral health operations in Northern and Southern California. We also did a very targeted investigation to make sure they were providing behavioral services during the strike in Northern California.

And so Kaiser, you know, there's a total of $200 million in penalties that were assessed against Kaiser. They agreed to a settlement agreement with us to really, and you can see this in the corrective action work plan documents to make transformational change to the delivery of behavioral health services.

Which is significant because we could have just gone out with a big fine, Potentially ended up in years of litigation with Kaiser. But they have agreed, they've signed a settlement agreement agreeing to make changes.

I would encourage, if you haven't looked at the settlement agreement along with the corrective action work plan because they really lay out our expectations in the settlement agreement of what Kaiser is going to do to make those changes. It is over a two year period of time.

The corrective action work plan is Kaiser's plan that they've told us how they're going to fix it. Again, they'll have quarterly meetings with us starting probably somewhere around April where they're going to tell us by each area how they're doing. And again, we don't just take their word for it.

We don't just say, you filed all these papers with us. It's a lot of paper. We're going to go in and we do a follow up to say, okay, let's see in practice, did you actually make these changes? We pull files. We actually look at the data to Senator Weiner's point.

The number of people that come to our help center are small, but they're also a really good indication for us of where there's problems. So we'll continue to monitor that. We meet with many stakeholders, including many of the people in this room. We're happy to meet with the Legislature on specific issues.

But that accountability and our metric really is are they following the law? At the end of the day, the Legislature and the Governor has done a fantastic job of increasing our authority and that's the metric we'll use to hold them accountable.

And so were penalties issued because they weren't following the one appointment at a time rule or why were the penalties issued? And also you talked about changes that you want to see like to that system. So what is the ultimate goal, the ultimate outcome that you all are seeking through this work plan?

Yeah, no, so the single appointment at a time, I think that's in the corrective action work plan. Kaiser has indicated that's something they're looking into to see if they can give the ability. I mean, this is a system change. Right.

So we'll be working with them as they file these updates to see if that's a system change they're going to make. That's, I would say, separate. For me, this is just as the Director, based on my lived experience, there are two really big changes I'm looking for.

The biggest one is how do we get people in the door? It is if you probably a quarter of the people in this room have Kaiser, you, if you're a Kaiser enrollee, can make an appointment on the app through their phone number. If you've ever tried to do that for behavioral health, it is a very different experience.

I am looking and part of what they have put into their corrective action work plan, if you have the app, you can go today. You can actually book an e visit for depression and for mild to moderate depression anxiety online today in Northern California, they have committed to having a single phone number.

They have a single phone number in Southern California this is significant change to how consumers access care today. The other really big issue is during the strike in our investigations, Kaiser, the health plan did not have the oversight and visibility into what was happening in their medical groups and whether or not people were getting timely appointments.

That is absolutely what I will be expecting to see changed, is that they are monitoring their medical groups. The Corrective Action Work plan has outlined additional staff that are going in to audit and monitor the medical group. Those are just two high level things that I think will make significant changes. But that's just some of the areas.

There's a lot more that's outlined in the Corrective Action work plan and that will come through these quarterly meetings. And then again, we will validate all of that when we go back in.

So the $200 million in penalties that Kaiser was fined was due to a result of appointments not being easily accessible to patients and to those appointments not being able to be made in a timely manner.

That was just one issue. So just to be clear, the $200 million penalty, 150 million will be in community investments. Kaiser's paid 40 million last year. There's a $10 million withhold. If they don't meet these requirements that we've outlined in the settlement agreement, they'll need to pay the remaining 10 million.

I will say there were eight areas of concern in the settlement agreement. Timely access to appointments is a really important one. That's a big one.

But there were other areas, including the oversight and there's a number of other issues, but that was a big one, I would say, in particular during the strike and monitoring, just the ability to get a timely appointment even during the strike.

And so how are you all continuing to have oversight for, you know, some of these healthcare providers to make sure that they're following these policies and that they're being enforced? I know you mentioned, you know, obviously Kaiser in particular is on this work plan. So you all are going to be continuing to make that assessment.

Is there like a specific deadline in place in order for them to meet some of those requirements? I'd love to just hear how all of that works.

Yeah. So in the settlement agreement, there was a consultation period that was two years from the signature date on the settlement agreement, which I believe takes us through October of this year. Kaiser can request an extension if they need more time on those dates. Ultimately, it's the department's discretion about whether or not they've met that time frame.

So for Kaiser specifically, again, we'll be monitoring through these quarterly meetings. We may extend the timeframe for them to make these corrections. And then once we've had enough time, so when we go out to do our follow up survey, we pull records for the prior, I believe it's six months.

And so we want to make sure there's enough time that's passed since they've made these corrections they've told us they've made and then we'll go back and do that on site review.

So that's kind of our typical process for oversight of health plans is we do these three year surveys, we go back out to see if they've corrected them.

Again, I think I described, there's a lot of documents and paper we get, but we want to actually validate through review records and interviews and other activities that it's actually happened.

Okay. And just to circle back. So for it's your position as DMHC that right now there's not a healthcare provider that is violating the one appointment at a time rule. Did I hear you correctly when you.

Were going through that there is no rule that requires. Well, first of all, we have to separate the plan from the provider. So a provider could on their provider group or individual provider could say, you know what, I am going to schedule you for, you know, every Tuesday at 5, we'll be meeting.

DMHC has no control over that. We don't control the providers. But there's no requirement that a plan authorize multiple appointments at a schedule at a time. That just is not in the law. It's the law dictates timely how quickly an enrollee can get the initial appointment and then how quickly they get the follow up appointment.

But there's no rule that says, you know, a plan must or a provider must schedule out X number of visits.

Thank you.

Thank you, Senator Weber Pearson.

Thank you. Chair. Good morning everyone. Thank you so much for your presentation. When looking at the information that we were given with the violations, I was surprised that what you found wasn't that the majority of them were under the appointment availability and timely access. It was actually under the quality assurance for both of those.

What does that mean for our health plans?

I'll take a stab on it. And Sarah and Dan can jump in here. So I think, I think your question is that there were timely access violations that were under the quality assurance finding. Yeah.

So quality assurances really has, I think to do with the plan's oversight of their medical groups and that they're monitoring the quality of care and compliance with the law. I don't know. Sarah, Dan, if there's anything else you want to add, can I maybe clarify, is this Kaiser or in the behavioral health investigations?

No, this is under your investigation investigations. 21 violations of the Nazkin of the five plans that you did. Got it. Okay. 2021. And then you did another round in 2022, I believe.

Got it. Okay, let me. Let us get to that page really quick and we'll look here. Dan, if you find it first, let me know.

And while you guys are looking at that, I'll move on to another question. So under the same thing, Senator Blakespear was talking about the anthem scripts, because that was in San Diego. County.

In my conversations with individuals, it was cited that one of the issues had to do with the Office of Healthcare Affordability and their target requirements or suggestions.

Have you all heard of that being an issue anywhere else throughout the state in the negotiations are health plans utilizing the Office of Healthcare Affordability as a way to pull out of coverage of certain areas, certain hospitals.

Yeah, I mean, so the state has set a spending target, and I think there is an expectation that the healthcare delivery system collectively is moving to meet that spending target.

And so I think as plans are taking steps to meet the spending target that's coming up in their contract negotiations, I would expect at some point the providers would also raise that. I will say that it's not an excuse to not have an adequate network.

So part of what we look at is can they meet the network adequacy requirements with new providers? And so I think we fully expect that to continue to come up. We likely will see more, you know, potential contract terminations as everybody's trying to move to reining costs.

At the end of the day, we are a little bit of the backstop of you can't do that at the expense of not providing both timely access as well as geographic access. As Dan talked about, we actually go through a very lengthy process in the block transfer review to make sure we're mapping individual provider types. Looking at.

We have these maps. We actually map out the entire area and look at where the providers are, where potential enrollees would be to make sure that enrollees have. Still have access. And again, we can't force contract agreements with the parties. In some cases, we're hearing about very, very high rate increases from some provider types.

But that really is between the hospital and the provider. Okay, I don't know if we had. A.

I'll go back to your quality assurance overview. Really, that's an oversight. We can call it probably better understood, a quality oversight.

So it's is the health plan's oversight of their delegated groups, either through their plan to plan arrangements or through contracts with provider groups to ensure that their delegated entities are still following all the laws that the health plan needs to follow.

So when we do our triennial surveys, we look at health plan documents, but if they've delegated activities to downstream to someone else, we are looking at files from that downstream provider to make sure they're following the law too. And, and if they aren't, we hold the health plan accountable because they're the ultimate responsible party.

Okay, so there have been issues with their ability to provide correct oversight over the individual organizations entities that they have delegated their own responsibility. That's correct. Interesting. Okay, now with the. Thank you for that. With the IMR rate, I like Chair Wiener was very surprised at the highest kind of overturned rate of the original denial.

But are you, do you not have the tools to go in and see how many people necessarily did not take the step? Because, you know, I initially was alarmed, but then it's kind of hard for me to look at that data without knowing how many individuals actually submitted a claim, got denied.

And then of those, how many actually went through the appeal process. I mean, I have many patients that have been denied, and I could probably count on one or two hands how many actually went through the appeal process. Can't say that all of the claims that were denied should not have been denied.

But it's hard for me to really get a good sense of how flawed our system is in terms of denial rates if we don't have the overall picture. So do you have that ability to do that?

We don't currently collect and have the ability to collect that on an ongoing basis. We do look through our routine surveys at a look back period of denials at the health plan level or the delegate level, but that is not the complete picture of what's occurring.

And I'll just note that in some of these high rates of overturns, there are certain circumstances that may elevate that number too. But we've had a lot of the weight loss drugs that have been overturned over the last two years that I think elevated some of these numbers.

And then I think in the behavioral health space, my understanding, and I'm not an expert on the nonprofit criteria by any means, but it doesn't dictate frequency or duration. It is what's the appropriate level of care.

And so what I think we're seeing in a lot of the IMRs that come to us is someone was requesting maybe 30 days of residential treatment center services and a health plan authorized something less than that. And so then they avail themselves to the DMHC's process and then we overturn that.

Another thing I want to note too is over the last couple of years we've enhanced our data analytics ability in our help center.

And so we are meeting, and I join some of these meetings with some of these health plans on a quarterly basis, meet with them to walk through high overturn rates for that specific health plan and ask them questions. What are you doing to address this?

We don't really have authority to say you must stop doing something, but at least now we're noting some of these things better than we have historically and putting pressure on them to take second looks at some of these things.

And over time, where we say the denial rates are going, is it staying steady, going down, going up?

I don't have that information available across all health plans on a consistent basis, so I don't know.

Okay. I will just say I think our overall IMR overturn reversal rate, I've been at the Department for almost 10 years now. I think we've gone somewhere between 6265 to 72%. And that's overall across all services. And that's overturned through the IMR process or the health plan reverses their position through the review process.

Are you seeing more patients going through the appeal process or is that pretty much stayed the same?

Yeah, I mean, our volumes have definitely gone up. I mean, our. So we have nearly 30 million Californians that are under our jurisdiction. I think, you know, that's gone up maybe somewhere five to 6000 in the last, I don't know, 7ish years or so.

So we have more people under our jurisdiction, but I think we're seeing some increases in the volume, would you say? Yeah, I think.

I think the volume of the IMRs has steadily increased. It hasn't been a huge increase. The number of standard complaints we received has significantly jumped. And those are things that are not based on a medical necessity decision, but those have jumped up moderately. And we've come forward with workload BCPs to address that in the past.

Okay, thank you. And my final question under issues for us to consider, it says the Legislature may wish to consider how best to ensure DMHC has the tools, the resources and the necessary statutory mandates to ensure California do not. Inappropriate. Denied. My question is, what is it that you all need from us?

Yeah, I'm not sure I have a great answer for that. I mean, I think, you know, Senator Wiener mentioned there's a Bill that would give us the authority to collect this data to give us more visibility.

I think, you know, anything that helps to enhance consumers understanding of the delivery system too and how to navigate and the availability of just to file a grievance and come to our help center. But yeah, I don't know that I have much more to add.

I think getting the comprehensive data would be helpful too. Just to see as to your point, Dr. Weber Pierson, excuse me, what the current issue is. Are we seeing a significant number of denials and very few coming to us. Is it somewhere in between? We don't know to your point.

And so having that data would be helpful for us too to make some sound decisions moving forward.

Okay, I have Senator Choi and Senator Richardson.

Okay, thank you very much. I appreciate for your effort to protect the consumers health care issues, especially in the mental health area. You brought up Kaiser numerous times as an illustration. And then a very heavy fine they assessed for violation of health care, mental health care during their crisis.

I wonder if that was one illustration or there were since there are generally so many health care providers and among them I'm sure certain degree they also provide mental health care. And were there any other agencies who violated your requirements or just Kaiser was the one in one, I wonder.

Yeah, no, I think Kaiser was the most significant enforcement action and the largest fine we've ever assessed. Just generally aside from behavioral health, we take enforcement action and have fines and penalties and ultimately corrective action plans that we require from other health plans. So we do share that information. Just behavioral health.

Again, I think as part of our behavioral health investigations we will go through all of the commercial health plans eventually. To date, every single plan that we've done an investigation of has had violations. We thought we were mostly looking for barriers, but we've seen violations of the law. Those are currently being reviewed by our office of enforcement.

But we at some point we'll likely see some enforcement action related to other health plans.

Also so far, how many other agencies healthcare providers were in violation?

So we've done nine so far. All of them had violations. There's another, I believe four or five that are currently in process. But eventually we'll get through all 29ish, I think total plans. And again, these are plans that are operating in the commercial market.

We also have authority over the medi Cal managed care plans, but they're not part of this.

Are you being Prompted to investigate because of complaints you receive. Is it called IMR complaints or do you do it routinely?

Yeah. So the behavioral health investigations were something that really resulted, I think, out of the pandemic and the just increased demand and need for behavioral health services. And so we received funding and authority to conduct those specifically of behavioral health. I will say, just broadly, as we get complaints to our help center.

All of that information through our help center informs the other work we do, like those triennial surveys.

And then if we get a large volume or if someone comes to us and says we think there's a problem with this health plan, that's where we can do like an off schedule, non routine survey and go out and investigate that.

But yeah, I think the behavioral health investigations are really where, at least on the commercial market, we'll look at the violations of all of the plans across the board.

Is it required for all the healthcare providers to include behavioral health care programs? they are required. I see. So you are planning right now in the middle of investigating the rest of the provider.

Correct.

I see. Okay, so far you have completed nine of them.

Yes, nine. And I think there's another four or five that are in the process. But we'll get through all of the commercial health plans by 2029.

Okay. So you cannot explain the next level, second or third violations or what were the typical violations that they are committing.

So it's in the materials for the hearing, there is a summary of those. We also have the full reports on our website if you wanted to see the individual violations. But yeah, you can see those in the reports. Sure, yeah. Let me just go here.

So we have failure to ensure the wait time for enroll is to speak to someone on the phone did not exceed 10 minutes. Yeah, there's a whole section here on just appointment availability. So timely providing an appointment or answering the phones. Failure to monitor provider referrals and specialist care monitoring geographic access and timely access.

Operating at variance with their utilization management policies. That's when I think we worry if they're conducting prior authorization, for example, when they shouldn't be. That could lead to delays in care. Let's see. Failure to notify providers of the utilization management decision decisions within 24 hours. Let's see. Let me just. I'll scan here. Go ahead, Dan.

I'll note also that we had a failure to implement the requirements of SB 855 as one of the violations. Pharmacy benefit manager oversight policies and procedures. We talked about the quality assurance or oversight piece of the delegates. They Failed to do that in a number of areas there too grievance and appeals fair to consider and identify grievance categories.

So if someone an example that someone files a grievance that has multiple issues, they're identifying all of the issues and categorizing them correctly.

I think that's enough. I just want to make my final statement in the beginning statement of since Senator Vice Chair mentioned that we need to also address education aspect rather than just trying to treat mental health or behavioral health issues.

But what is causing and as many of them I would say that the dependency on the bad drugs. So educating early for little children.

So I think we need to expand the budget to do some early education for their lifestyle what kind of harmful effects it cost in their life so that they will have a better judgment early on and would not be persuaded by peer pressure for testing bad drugs, things like that.

So I think I would really emphasize early school education on the behavioral science or mental health issues caused from the bad drugs in early lives. Thank you.

Okay. Thank you. I do have Senator Richardson followed by Senator Allen, Senator Cabalda and Senator McNerney. I do just want to note we have another panel on this part A and then we have the entire CALRX piece. And we were wanting to begin the CalRx part 2 by about 11 or so.

And so just if folks in answering questions and our subsequent panelists could just be mindful. We just want to try to be efficient. So Senator Richardson.

Thank you Mr. Chair. First of all, my first question is with all the funds allocated to DMHC to create positions for investigations and enforcement of health plan compliance with behavioral health parity requirements which several people now have asked about. Why are we only looking at up to five investigations each year out of 140 licensed healthcare service plans? That's roughly only about 3 to 4% of the plans.

Yeah. So the behavioral health investigations we got some initial resources that we thought we could utilize to do those and found that they were insufficient. So we came back with a second BCP for some additional positions so we could get back on track. We had fallen behind because our goal was to do five per year.

And it's not of every health plan of the 140 is of the commercial health plans. So it's about 29 total health plans that we it's expanded since we initially went forward with this proposal. And so we're doing five per year. We got some additional resources to get caught up.

Our third phase of these behavioral health investigations we've released sometime this Summer. So it's not. I just want to be clear. It's not all 140 plans. It's just the 29 or so commercial health plans.

So what percentage would you say that you are in the process of investing? Beginning.

So through phase three, we should probably be close to half done this summer.

Okay. And then what's our long term goal? Because a half's not enough. Yeah.

You mean speeding up our investigations. Yeah, I, I'll probably have to take that back as we have, we have resources. We, we requested resources to do approximately 5 on an average per year. We didn't ask for resources to do them all at once.

And the goal long term is to utilize the resources that we use for these one time behavioral health investigations, fold those people into our regular routine survey activities to enhance the oversight of the behavioral health systems through that process as well.

Okay. All right. Did you want to add on to that at all?

And I'll just say I think the intent of these was really to understand the challenges that enrollees and providers face that could enforce future policy decisions. I think we've already seen one Bill last year that addressed one of the barriers, but I think we're really trying to understand why is it so hard for enrollees.

And I think to Sarah's earlier comment, you may just need something different in the behavioral health space than you do on the medical side. So I think that's really what we're hoping to glean from this, in addition to the fact that obviously we found violations of the law.

Thank you. And thank you for your work. I'm looking at the report, Prescription Drug Cost Transparency Report, and I missed your initial presentation. I was speaking at another event. I don't have a page number here, but the one of 25 drugs with the highest year over year increase in total annual spending.

Of course, it wasn't to my surprise to see that the primary, and I'm quoting from your report, the primary drugs that are driving the increase in the total prescription drug cost spending for 2023 are drugs used in the management of diabetes and, or for weight loss. And then you list what those are. Do we.

Of course, you know, significant work was done from a research perspective to develop, you know, these incredible drugs and the results that we're seeing from them.

However, do you anticipate being, based upon your work, seeing a more affordable cost coming down, or is there some evaluation of, okay, if a person's losing a lot of weight, then they're not as susceptible to diabetes, which then there should be a reduce there so what do you see that's happening in the industry?

Because on average, I'm hearing that it costs anywhere between 800 and $1,000 a month. And unfortunately, you know, a lot of people cannot afford that cost, even though they need the physical benefit.

Yeah, I'll just maybe quickly say that's part of the. Part B of this. And so, good news. You haven't missed my presentation. I haven't done it yet. Zero, okay. I'll be back up.

But I will say, I think, you know, lots of unknowns about what will happen with, hopefully the drug costs will come down, but I think we'll talk more about that in the next session. Okay. Yeah. Thank you. Thank you. Thank you, Mr. Chair.

Thank you. Senator Allen,

I just had a quick question about, you know, the phenomenon of step therapy. We had someone from a neurologist in my district who treats folks with multiple sclerosis, for example, and they end up having to go through this whole process where, you know, I guess the current rules that I understand, it's a cost saving measure.

It requires that the patient try and fail several medications before insurance will authorize the one that the doctors originally prescribed. And they end up in these big fights over denials.

And then you get situations where sometimes the insurance company then has another month to render a decision, and then there's delay as a result, which can then lead to a diminution in the neurological condition of the patient. So from this Doctor's perspective, the Department just hasn't been adequately enforcing the existing statutory limitations on mandating step therapy.

And I just wanted to get a sense response from you. How do you identify when insurers are violating the laws governing insurance denials in these kinds of situations? What's your response when you see a violation? And how do we make sure that patients aren't experiencing dangerous delays in this kind of situation?

I can address that one. So you are correct. The law allows health plans to impose step therapy. And there's a hardship that can be rendered, but it also can be a benefit in that it may allow the enrollee to succeed on a less expensive drug, but it should not be an impediment to a patient getting the drug they actually need. So if we were to. So if a patient feels.

Or a provider feels that the patient isn't able to access the drug they need, they can. Certainly they should come to our Department and we would intervene. And look at how, you know, is the plan approving authorizations or denying. Is it reviewing those authorizations within the standards that are set out by the law.

If not, that's a violation. We would take an enforcement action. We would also assist that enrollee and provider in ensuring that the enrollee is able to get the drug they want.

We also have laws in place that once an enrollee has been prescribed a drug and the health plan has approved coverage for that drug, so long as the provider continues to prescribe the drug, the health plan cannot require that enrollee to go through step therapy again or require that enrollee to go through the utilization management process again.

So the laws are there to be protective. And when enrollees come to us, we will obviously provide them with all the assistance that we're allowed to by law.

But to your point, if enrollees don't come to us or if the providers don't come to us, then the way that we discover those violations is through our surveys of health plans or through our for the behavioral health. Through the behavioral health investigations. Those are the different access points that we have to look into what the plans are doing.

Do you feel as though there's a good enough system for providers to raise these kinds of concerns with you in a timely manner, Especially when time is of the essence in a neurological condition?

Someone may be yeah, I'll say it. It really is the consumer that has the rights to come to the help center.

I think there's always this challenge of providers are reimbursed and so is there a conflict or an incentive for providers to complain, but it really is the consumer right to one file agreements or to come to the Department and file an independent medical reviewer complaint.

I will just note we've worked with a lot of providers and provider associations. They can be an authorized assistant and assist enrollees. But I just would say if there's certain providers or provider types that want to engage with. So we're happy to do that and educate them on the process.

Thank you, Senator Cabaldon, followed by Senator McNerney.

Thank you, Mr. Chair, and thanks for the presentation. Just one quick question. So if I have an issue as a consumer and it's in the same frame as case that you've overturned or reversed 70% of the time, do I still have to start at the through the plan's internal Is there any sort of recognition that there's a pattern here and I can sort of me to it, or do I have to start in the internal grievance process of the plan and then you review it De novo as though you didn't know it?

You already know that's correct. Unfortunately, the current the law currently requires you to go through the plan's grievance process unless it's an imminent serious threat to your health, then we could bypass that process. I think the reason for that is each particular IMR is a fact based issue.

And so although the request for a particular medication might be the same across 10 different people, their conditions or diagnosis might be the same, their response to different drugs or otherwise there may be different factors, other comorbidities that they have that that drug may not be good for.

So that's why we look at those on an individual basis. As I talked earlier, when we're seeing high overturn rates in certain areas, we will have these quarterly meetings with the health plans to try and push them. Why are you seeing this on your end? What are you doing about it?

To your point of trying to trying to decrease the frequency of what consumers need to come to us if health plans change their direction.

And do the IMRs, do the review panels? Are they aware of the. So you say the facts of each case are different except if you know that the plan has a 70% freedom being done, that seems like a relevant fact that is maybe not different across these cases. That should expedite, should allow either the complainant or the panel to expedite the process.

So if it's an imminent, serious threat to someone's health, that we can absolutely expedite that and bypass the grievance process in those cases. I think the independent review organization looks at each, has to look at each case independently of other things.

So they may have this information in their back of their mind because they've reviewed a number of cases for a particular health plan. But I don't know that they take that into consideration for that particular case that's under review. Thanks, Mr. Chairman.

Well, first, thank you, Chairman. And I agree wholeheartedly with your comment about the number of healthcare grievances that are overturned and comparing that to the number of cases that aren't brought up. So it's a huge problem. And your comments about educating the public on the services you're providing.

My first question was to Ms. Watanabe. You mentioned the 64% overturn rate, but I think that specific, that's a General term, but the mental health issue is probably even higher. So I'd like a little clarification on that, if you would.

Yeah. No, and I think over the last, I'm going to say 10 years they've kind of that overturn rate on an annual basis has fluctuated. I'm Going to say somewhere from probably around 6264% to now. It's 72% for 2023. I think, as Dan indicated, for behavioral health, it's a little bit higher overall.

And this is overturned through the independent medical review as well as health plan reversals were around 76 to 77% in the last two years for behavioral health. So I agree it is a little bit higher.

Okay, so it's not, you know, grossly higher.

Like, let's just say 72% in 2023 was overall, and I think it was 77% for behavioral. So about 5 percentage points higher.

Yeah, it's even worse. So I'm going to follow up on Dr. Weber's question. What can we do to help to prevent or to make sure that the. Fewer cases are overturned and, you know. That they're given the correct assessment in the first round?

Yeah, no, I think Senator Wiener's got a Bill that will give us the ability to collect data. I think if it's hard to know without having the whole story, the full picture. What we don't know is what's happening at the health plan level and how many people are coming to us.

So again, I think that's a good start, giving us some visibility into that. But, yeah, I don't know if I have much more to add.

Okay, thank you, Mr. Chairman. Edel. Thank you, Senator. Okay, thank you so much. We're going to go to our second panel now.

And so the second panel, we, as our stakeholder perspectives, we have Lauren Finke from the senior Director of policy from the Kennedy Forum, John Drebinger, senior advocate at the Steinberg Institute, who I think are going to. We're going to try to have two of you sort of share presentation if possible.

And then Leandra Clark Harvey, the CEO of the California Behavioral Health Association. And then welcome here for the plans, Right? Yes. Okay, thank you. And we're just going to ask folks to try to be concise if possible. Thank you.

Good morning, Chair. Thank you for the invitation. I'm Dr. Le Ondra Clark Harvey. I'm a psychologist and I'm the Chief Executive Officer of the California Behavioral Health Association. We represent a variety of providers across the state. I'm also the Executive Director of the California Access Coalition, which is a unique coalition of pharmaceutical industry stakeholders and patient advocacy groups.

In my role as an advocate for providers and clients, I often hear about the struggles with appealing denials with health plans and via the state's independent medical review process. Though in recent years there has been increased communication between DMHC and providers about these struggles, there is still much room for improvement.

We know, as has been discussed this morning, that over 70% of denials that reach the IMR stage are overturned, and we also know that only a small percentage of denials advanced to imr. This fact alone indicates that we have a disconnect.

What we don't know is what is happening behind the scenes with the plans that is causing so many denials for patient care. I've been asked to address several questions about the experience of clients who encounter denials for medication or other behavioral health treatment, and I will try to do so quickly.

The services that we see most often denied include substance use disorder treatment such as medication assistant treatment or mat, and admission for inpatient behavioral health services. For one Sacramento small business owner, her longtime provider suddenly denied her regularly prescribed medication assistant treatment and she was told that behavioral health services were not covered anymore.

She needed the medication to support her 10 year sobriety and in order to renew her prescription she had to pay hundreds of out of pocket costs monthly for telehealth behavioral health providers. But what about those who cannot afford to or who are not well enough to advocate for themselves?

We have noticed that clients who are transient and have lapses in treatment are more susceptible to impacts on their quality of life, including higher rates of substance use, relapse, homelessness and co occurring chronic health issues.

These clients rarely understand or pursue the appeal or IMR processes and as we heard in the prior panel, in one year DMHC received about 500 complaints. And this process should be client driven is what I heard them say.

Out of all of the clients that we hear from, just in my membership alone I can find you 500 complaints. We know there's so many that are not being addressed and that points to a problem in our system in terms of access.

So for those that are resilient enough to figure out how to navigate the appeals process, they are met with a tedious and sometimes cumbersome process per their report. In addition, the appeals process can be inadequate depending on the behavioral health knowledge of the assigned medical professional.

We know that if you complete the IMR process, the rate for overturning the appeal is promising, but you have to be well enough to understand what the process is and also have the time to engage in the process, all while missing medication doses or access to needed treatment.

And as illustrated in the story I shared earlier about the business owner, treatment for substance use disorders are more often subject to denials and prior authorization requirements by health plans.

This is in direct contrast to the principles of behavioral health parity, which was a hard and long fought battle in order to provide inclusive and comprehensive coverage for treatment. So what's missing from the current process is the client voice. The complaint database needs to be easier to navigate for both the plan and imr.

Medical professionals on the plan side assigned to cases should have specialty training about specific behavioral health conditions. IMRs must be offered in additional languages. Currently they're in Spanish and English only. Fines for excessive denial should be considered.

DMHC should be granted the authority to investigate denials from plans and extending prior authorization periods following approval to support more seamless care is necessary. So in essence, denial should be an anomaly and the appeal and IMR processes should be client friendly and response time should be shortened. Clients literally cannot afford the wait or be denied access to essential behavioral health care anymore. Thank you.

Thank you Chair Wiener Members of the Committee. My name is John Drebinger, Senior Advocate with the Steinberg Institute. Thank you for the opportunity to speak on behalf of counsel Californians who have been unjustly denied life saving behavioral health care. The Steinberg Institute was a proud co sponsor alongside the Kennedy forum of SB855.

When SB855 became law, it was a landmark step toward ensuring behavioral health care is treated equally to physical health care. Yet patients still face denials, delays and barriers that don't exist for physical health conditions. As you have heard today, patients challenges with accessing care begin with identifying an available provider, which can often take months.

While health plans are required to maintain adequate provider networks to meet patient demand for services, it is routine that patients receive lists of providers who don't take their insurance, aren't accepting new patients, or don't actually exist. Often referred to as ghost networks.

Once patients have connected with a provider health plan's overly restrictive interpretations of medical necessity, often made by unqualified reviewers, delay or prevent access to care. Plans, also frequently rare, rely on fail first strategies, as Senator Allen mentioned earlier, approving only short term symptom relief rather than the long term recovery focused care that patients need.

They will deny the full course of treatment recommended by a qualified provider and instead insist on step therapies that do not address the patient's complex needs. The most recent available data from DMHC, as you heard today, says that close to 80% of appealed behavioral health denials are overturned in favor of the patient.

This highlights the scale and impact of plans priority practices to deny medically necessary care. Collectively, these issues impose significant costs on the people and the State of California. Delayed treatment leads to worsening conditions, higher intensity care, and in some cases, suicide or overdose. When health plans deny care, the need and cost don't disappear.

They shift to counties, to hospitals and law enforcement. The homelessness crisis, overcrowded ERs, and public behavioral health systems bear the financial and human tolerance toll of these failures. Millions of Californians are forced to pay for care out of pocket as a result of these practices.

I'm sure each person in this room knows someone today who has had to make a similar choice. And for many, as my colleague mentioned, the expense is too great and so they go without treatment entirely.

If we want to create a more equitable State of affairs, plans must improve upon their current approach to complying with state and federal parity laws. At a minimum, health plans should maintain accurate provider networks, ensure adequate provider reimbursement rates, and reform the utilization review process to prevent unnecessary denials and delays.

But the responsibility for ensuring parity doesn't end with the plans. Securing real parity requires stronger enforcement at the state level, greater transparency, and meaningful financial consequences for non compliance. First, DMHC should work to mandate the reporting of key parity data. As discussed today, denial rates, network adequacy reports, access timelines, and IMR outcomes.

To ensure accountability, this data should be reported and shared with the public and shared often. The Department should also pursue greater enforcement actions, including corrective action plans and financial penalties for parity violations.

For example, a policy that could help dramatically improve compliance and patient access to care would be automatic financial penalties for plans with high rates of overturned independent medical reviews, which has been introduced in addition to to the recommendations I have provided here. I also align our comments with those of our colleague at the Kennedy Forum.

I want to finish by saying parity is achievable if we hold plans accountable and enforce the law as written. I invite health plan leaders to consider the real life stories behind denials and take responsibility for their role in saving lives.

We also encourage the Legislature to provide the tools, resources and accountability needed to help make DMHC a more effective regulator on behalf of our most vulnerable neighbors. California has an opportunity to be a national leader in behavioral health parity, but that means using every tool available legislation, oversight and enforcement to ensure people get the care they need. We owe it to patients, our friends, neighbors and loved ones to get this right. Thank you.

Thank you, Chair Wiener and Members of the Committee. I'm Lauren Finke, Senior Policy Director of the Kennedy Forum. Our mission is to ensure that parity laws are implemented with Fidelity and that consumers access medically necessary mental health care.

We co sponsored SB855 alongside the Steinberg Institute and have engaged regulators since then on issues around implementation and we lead these implementation efforts nationwide. Currently, regulators understanding of plan compliance largely relies on individual complaints.

I know a number of folks have spoken about the IMR issue, so I won't go into much detail there, but I will add that a health plan is practices while compliant on paper may not always translate on the ground, resulting in illegal denials for medically necessary mental health care.

And the primary way regulators currently rely on understanding the realities consumer face is still at this individual level. Regulators are also missing opportunities to understand plan level compliance with parity and mental health access laws.

DMHC should utilize Federal parity reporting templates available for oversight since 2021, states can request health plans federal parity analyses for use in their oversight. The DMHC has not utilized these recommended templates on NQTLs, which is where the vast majority of parity non compliance is found. States that have done so have found widespread non compliance recently.

As an example, Georgia used these templates and found this to be the case with its two largest Medicaid plans and they can now use the results of these parity analyses to aid in their Medicaid RFP selections. DMHC has the opportunity to utilize special investigation budget funding for its parity oversight. We discussed the Behavioral Health Investigations.

DMHC has stated that it has not investigated parity compliance as part of the BHIS, which it received approval for in the 2020-21 budget in which it indicated it would do in its 2021 annual report which stated, and I quote, evaluate health plan compliance with parity and assess whether enrollees have consistent access to care.

As the goals going forward. DMHC should review NQTLs and parity violations as part of the Behavioral Health Investigations, report unrelated findings and summary reports and include these in corrective action plans. In the first two phases. They did not do so and we would hope that they would do that in continued phases. When parity non compliance is highlighted.

DMHC should offer meaningful timelines and public processes to ensure identified issues are being resolved in a timely manner that consumers deserve. Public reporting should detail parity findings when the Department does show violations. The processes for which it ensures plans move into compliance should be detailed and have clear timelines.

Kaiser Settlement Agreement was discussed much today already, but I think that's a great example of areas where there can be more detailed resolution timelines and outcome metrics that are centered on full compliance.

Existing compliance Compliance processes with health plans rely on an extended back and forth with no time limits for when enough is enough and enforcement actions are taken.

Clear timelines and public reporting would prevent the Department from getting stuck in these long contracted back and forths to resolve issues which hamper DMHC's effectiveness and result in the benefit of a non compliant plan instead of the consumer.

We recommend that specific enforcement timelines and public reporting structures be implemented to ease DMHC administrative burden, provide needed clarity to plans and better support consumers. We do not recommend more procedures, rather more transparent measurable processes that align with existing law, specifically internal process standards.

So establishing annual agency wide enforcement priorities, clear expectations and timelines for plans and routine reporting and special investigations and corrective action plans reporting on each DMHC Department department's roles in these actions.

So for example how the Office of Plan Licensing, the Office of Enforcement and the HELP center together ensure identified violations are resolved and continually monitored Standardized reporting so using federal parity compliance templates on all NQTLs requiring uniform reporting formats across all plans, clear resolution timelines for corrective action plans and then public reporting.

So publishing annual progress reports on enforcement priorities and actions reporting outcomes data disaggregated by service types. So for example mental health and substance use disorders identified separately.

So in the IMR process that 77% number for mental health, we don't know how much of that is in substance use disorder space currently in public reporting and then documenting the scope of impact of enforcement actions, including the number of consumers affected by enforcement actions.

Together we think these things can minimize protracted administrative battles and free the Department up to more effectively regulate. We recommend any new budget funds, prioritize and further DMHC's role as an implementer of the law's consumer protections. The DMHC is an important conduit between consumers, providers and health plans in ensuring medically necessary care.

In its recent draft all plan letter on emergency Service on emergency services they clarify acceptable billing codes and types of providers, which is an unusual but welcome clarifying guidance on an often denied mental health service. We support the continued communication in this way and the proactive and effective regulations over these often denied mental health services.

In his press conference reviewing this year's budget, the Governor declared accountability as the Administration's guiding principle and we hope that these recommendations will help guide the Committee on Decision Making. Thank you.

Thank you. Good morning everyone. Nick Louizos on behalf of the California Association of Health plans, or CAHP, we represent 41 public, nonprofit and private health care plans that provide coverage to nearly 28 million Californians and we appreciate the invitation today to participate.

California's health plans firmly believe that that mental health is an essential component of overall health and well being. Our Members are committed to complying with state and federal laws mandating parity for mental health coverage and physical health coverage.

Since it was signed into law in 2020, California's health plans have worked closely with the Department of Managed Health care to implement SB 855. Indeed, California's plans have been working for decades to reduce stigma and provide greater mental health access to California and seeking help. But there are Challenges.

One of the most pressing challenges our Members face is workforce development and the relative scarcity of behavioral health, substance abuse disorder providers and others. And this is well documented.

Health plans in California are actively recruiting providers or trying to but they do face significant challenges because of the workforce shortage issue and resistance from some providers that are available to sign contracts and join our networks. It is difficult to get behavioral health providers and substance use disorder providers to contract with health plans.

Often our Members can only get the providers to sign one off letter agreements and this is a problem for several reasons. These one off agreements are clunky and inefficient for both the plan and the enrollee and more expensive.

It takes time to effectuate these one off agreements and during the back and forth over the reimbursement rate, sometimes a provider will back out at the last moment, causing more delays for our enrollees.

Letters of agreements also have become a way of assigning reimbursement rates without providers being bound to the regulatory environment that they would otherwise be bound to by contracting with a health plan.

In some cases, providers have asked to be removed from provider directories altogether and you know, our plans are facing similar concerns with respect to the provision of SB 855 regarding the arrangement of out of network.

Despite these issues, our Members do remain focused on expanding the pipeline of providers through recruitment, education, training programs and offering scholarship and loan forgiveness programs, encouraging more individuals to pursue careers in mental health care. California's health plans are fully dedicated to strengthening our mental health care system and finding innovative and effective solutions to meet these challenges.

We recognize that there is still more to be done to meet the growing needs of those struggling with addiction and mental illness. We believe that by working collaboratively with a shared sense of responsibility, plans, providers, state leaders and advocates can effectively address these issues facing our state.

And that should include an honest review of current state laws, including SB 855 to ensure that they properly reflect the reality complexity and nuances of the behavioral healthcare system, and look forward to the discussion. Thank you.

Thank you very much. Colleagues, are there any questions or comments for this panel? Senator Durazo and then Vice Chair Niello.

Thank you. Mr. Chair, just with regards to your last comments on workforce development, can you give me a better idea as to what efforts have been made, what steps have been taken to address the shortage and specific examples?

As much as you can, Because I've heard that in our labor Committee, I mean, everywhere we go, that pops up as an issue. And while there are many other issues to address, certainly without workforce development, we made some investment in the healthcare industry a couple of years ago. I think it was in our budget.

So I've been really trying to push that, push that hard. But I'd like to see what is actually going on, as someone said on the ground.

Is that question directed me, Senator? Thank you. Yeah. So.

Or any. I'm sorry, you and anybody else that wants to check.

Yeah, I mean, if I can take a first shot. I mean, you know, prior to the pandemic, you know, a study was released that said that by 2028, California will have 28% fewer psychologists, MFTs, licensed counselors and social workers, and 50% fewer psychiatrists again by the year 2028.

I think there are other studies as well that demonstrate similar concerns. I know the American Association of Psychologists put out some information as well around this issue.

And so it is a major concern for our Members because, I mean, we need the providers out there to be able to reach out to and try to recruit to be a part of our networks. So it is a problem. I mean, you know, the situation has, you know, improved slightly.

America's Health Insurance Plan surveyed its Members, this is the National Trade Association for Health Plans, and did say in a report in 2022 that, you know, health plans have grown, grown their behavioral provider networks. The number of in network behavioral providers has grown by an average of 48% in three years at that time, you know, in 2022.

But we're still, you know, struggling to get the ones that are available into our network, which we think is beneficial for consumers, you know, not just in terms of cost, but in terms of the quality of care and the timeliness of care. So these are real challenges that our Members are trying to sort through.

There's a provision in SB855 that requires us to arrange out of network care if someone in network is not available. One of the challenges that our Members are facing with respect to that specific provision is that Sometimes the provider's office will insist on arranging the care instead of the plan.

And so I think there's some communication that needs to be done as you know, to kind of sort that out. But it is causing some friction and some delays of getting care in those situations. So there's still some clunkiness for us to sort out with our provider partners and you know, we hope we can do that collaboratively.

Senator? Zero, sorry Leandra. I was just going to add to that a bit. You know, these providers are kind of do whatever it takes folks in terms of providing services to their clients. So we must ask the question, why would they resist contracting? I don't believe it's within their nature to do such a thing.

I think we have to really hone in on what one of the issues is, as you called out was the financial negotiations and you talked about the back and forth. That's a real problem. If we have a shortage of providers and we are Low balling them on payment, then you're putting them in an untenable position.

So yes, there is a workforce shortage across all healthcare. We know that, and especially for behavioral healthcare.

But if you're offering rates that aren't in parity, it's one thing to have the law say that there must be parity with treatment, but if there's not parity with negotiation and prices, then that is a problem and that will impact care and availability.

And Senator, I would just echo my colleagues comments and reinforce them with there is good research to show that we do have a workforce shortage when it comes to behavioral health professionals.

But there is also really good data, the Steinberg Institute, who just published some of it, that demonstrates that we do have behavioral health professionals that as my colleague from the plans mentioned, are just not contracting with plans for those same reasons. And I would just add documentation burden is a major barrier.

The amount of documentation that folks have to complete when they are contracting with plans is often burdensome for independent providers who are not operating with their own staff, who are often just folks who are providing care to their patients.

So there are a lot of reimbursement rate issues and administrative barriers that are leaving a large swath of our available workforce not available to folks who are covered by commercial plans.

To the Association representative. I'm sorry, I didn't get your name.

Nick Louizos.

Thank you. Nick Louizos. Thank you. Would you provide any response to the question about reimbursement rates?

Yeah, I mean our plans, you know, actively try to recruit these providers. You know, in fact, in the ahip, survey, it indicated that, you know, almost 90% of our plans are in active recruitment of behavioral health providers. Now that's national.

Of course, California is different and we have a special dedication to mental health parity here in, in order to recruit providers, we offer competitive rates. My plans tell me they offer competitive rates, but they have to be negotiated rates.

I mean, we can't default to a fee for service type system where the plans are responding to billed charges, which, you know, and I'm not saying this is the case in the behavioral health space, but it might be.

But in other areas where we've seen, you know, the actual list price or charges from providers, you know, beyond, beyond an affordability kind of measurement. So, you know, the plans do offer competitive rates, but they have to be negotiated. They can't be, you know, fee for service, build charges type situations.

We have to make sure that healthcare is affordable for all of our enrollees.

Just a comment aside, I would hope that those that are concerned about reimbursement rates from plans in this case might also aggressively advocate for the adequate reimbursement rates with regard to public paid health services, which is woefully inadequate. We all know that.

I wasn't here, but my understanding is that when this Bill was introduced that the health plans indicated that there was a shortage of mental health workers and that creates to them a problem with complying.

So again, for the Association representative, is there any way that you would suggest that SB855 should be amended to perhaps address some of the. I think there's a million ways to address some of the issues.

I don't have any, you know, an official position on any amendments to SB85. I just will say that, you know, when the Bill was moving through the process, we didn't have a straight opposed position on the Bill. I mean, we had an opposed, unless amended position on the Bill.

We felt that the next logical step was to embrace, you know, a mandate of the DSM 5, you know, conditions into state law. We asked for a more efficient Bill.

And so I think, as I said, you know, I don't have any specific answers for you today, but I think, you know, a collective review of the law to see whether it's reflects the behavioral health delivery system is definitely in order.

One of the things about that law was the mandated use of specific nonprofit guidelines, which has been kind of an issue for our Members. I think we're getting over it. But a lot of those organizations were not prepared to contract with plans. They didn't have experience. And how to establish relationships with my Members.

So there were some issues there, but specific to the behavioral health provider issue, I don't have any suggestions there, but I just do come with some feedback from my Members that getting folks in network and the arrangement for out of network care has been a little bit of an issue.

And I think better communication with our provider partners actually would probably go a long way.

And A question for Ms. Watanabe, relative to the Department of Mental Health Care and speaking perhaps for the Administration, what actions might you be taking or would suggest to be taken to cure this workforce shortage in this area, other than better pay.

Sorry. So I'll just say we have our next presenter. Actually, our Healthcare Access Information Department has a number of initiatives to support workforce programs. We don't necessarily have workforce programs. I will say as part of the Kaiser Corrective Action work plan, they are making some investments in workforce.

I think overall our job is to make sure the plans have an adequate network and hold them to the network adequacy standards, which I would hope incurs to make their own investments and to get creative. I do think plans historically probably have not made the investments and looked at reimbursement. So I think that's an area that they'll need to look at to increase their network.

As well could the state relative to other healthcare reimbursements. Thank you.

Great. Thank you all so much. Lots of work ahead.

Exactly 11:00.

Thank God. Exactly. This Committee's good. Oh, yes. My apologies, Senator Richardson. One question from Senator Richardson.

Thank you for all of your comments and participation. However, I couldn't resist not to ask a question of the Association of Health Plans. You might have heard my question earlier. Your comments focus primarily on behavioral health. However, with the topic, I'm assuming we're able to ask the other subjects related to it, which is.

My question is with all of the new diabetes and obesity, weight loss drugs and things like that, where do you see the health plans coming in terms of accepting and covering these as a regular part of health care? The.

The costs are insurmountable and many of the people who need the drugs are unable to pay for them or gain access to them. And I think eventually we're going to see an off market and problems that will occur with that which will cause more healthcare issues for your providers.

Yeah, no, thank you. And I have my binder for part B of the hearing behind me. I was prepared to speak to that, but I just will say that one of the issues here is that Americans are getting ripped off when it comes to weight loss drugs.

Other countries are paying way less for those same drugs, which are highly effective. And health plans do cover them for diabetes. With respect to weight loss, there are some parameters about how it will be covered. Where does somebody fall in the obesity index, do they have a comorbidity, et cetera. But they will be covered for weight loss.

But there are some guidelines around that they do follow. You know, we've seen proposals to just open it up to more casual use of these drugs and that would be very, very well.

We would think that would be bad public policy, not just from a cost perspective, but there is A shortage of these drugs because they are being kind of gobbled up outside of insurance coverage for more casual purposes if you will. And so that's a problem for folks that need it.

One of the hopeful things in this area is that Ozempic is finally coming off patent, which hopefully means I don't have to see their commercials anymore. But so there is some hope in that, in that Department. But I will say just writ large when it comes to weight loss drugs.

We just don't understand why American payers are paying so much more than other countries. And I have that data in the next presentation if you'd like to read it.

Yes, thank you.

Okay. I'm sorry, Senator Ochoa Bogh, my apologies, I didn't see you.

No, no, no worries. I tried to hide as much as I can. So a couple of questions I wanted just clarification. You had mentioned earlier that you would rather, you would rather see a negotiated cost payment for providers rather than a fee for service, is that correct? I would like you to expand a little bit more as to why that would be the case.

Because I, for the consumer, I would assume that a fee for service would probably be a better option for them so that they could have the more of a free market based perspective on that and be able to choose who to attend.

Well, so you know, behavioral health is unique as opposed to other areas of the healthcare system. So typically California is very much based on a managed care model, just generally speaking.

So what health plans do in a lot of cases is the way we arrange for care is that we contract with large medical and hospital systems and we pay them a capitated rate. It's a per Member per month rate. And so the financial risk is shared between the plan and the providers in the hospitals.

Which also means that a lot of the care management is also shared between the plans and the providers.

So the HMO is out of the Doctor's office and the providers have a lot of responsibility over the care management and some of the decisions that we talked about earlier today in this presentation, you know, look, you know, my wife's a therapist and she works for a practice and so I hear a lot of this at the dinner table.

But the idea here is that, you know, if we're going to contract with a provider, I guess the point I was trying to make is that, you know, my health plan strive to offer them competitive rates, but they do have to be negotiated in order to make, you know, healthcare writ large, affordable for, you know, our entire membership.

The point was, is that more on the Bill charges side of things. I mean, we just can't accept, you know, across the healthcare system, providers and hospitals just sending us Bill charges and expecting us just to pay whatever they ask. I mean, we have to have a negotiated rate or, you know, the system becomes unsustainable.

From a cost perspective, you don't believe that having more of a fee for service from many would make the system more competitive as a whole and lower the cost on your side?

No, because fee for service as opposed to more of a managed care model and negotiated model means that the incentive is to just do more whether it's needed or not. And so what we try to do with our delegated provider groups is to give some of the financial risk to them.

That way they can manage the care and they're responsible for making sure that people are given the appropriate care at the right level and are responsible for managing the costs and they benefit if they do well for doing that.

Okay, I might want to have additional conversation.

Yeah, we can have a follow up.

Conversation on that end.

And then the last question that I have had to do with the comment that you made with regards to Europe pays less for medications than in the US but it's my understanding, correct me if I'm wrong, but I believe that the medications in Europe, from my understanding they're subsidized a little bit more by the government and that not California, but the USAs a whole actually makes up for that cost for pharmaceutical companies. Is that correct?

Well, you know, I don't know the answer to that, but I would just counter that independent bodies have reviewed the cost of weight loss drugs and have determined that they're way overpriced.

Not just in weight loss, I meant just in General medications as a whole.

Yeah, well, I'm pretty sure the US Government subsidizes research and development here as well. You know, I don't have a specific breakdown of that information in front of me right now, but I'm almost positive there's government involvement in R and D.

And there are some statistics out there that show that advertising outstrips the investment in RD by a lot of the manufacturers as well. So. So, yeah, I mean, I didn't come prepared to answer that specific question, but yeah, I'm almost positive the US subsidizes some of the research and development that goes on in drugs.

Thank you.

Yeah. And some of we can talk about PBMs and why generic insulin is typically not on formularies for health plans. Interesting question. Thank you very much to all of you. I'm Not. Sorry, did I? Anyone else? Okay, great. We'll now move to part B of this informational or oversight hearing around Calrex. 0.

We're going to do public comment. Okay, apologies. We're going to do public comment for part A and then we will do Calrex. So, folks, have public comment relating to part A. Please come forward. My apologies for that confusion.

Good morning. Fred Seavey National Union of Healthcare Workers NUHW is the largest union of private sector behavioral health providers in California. Our Members include licensed clinical social workers, marriage and family therapists, psychologists, addiction counselors, psychiatric RNs and others. And I'd like to comment a bit about the mental health parity discussion, the Corrective Action work plan and other issues.

So, while we've seen great improvements in our parity laws over recent years, Speaking specifically about SB 855 and 221, we've experienced poor compliance by health plans and poor enforcement by regulators at Kaiser. NUHW represents about nearly 5,000 behavioral health professionals at more than 150 clinical sites across the state.

And over many years, we've tried to engage Kaiser's leaders to bring about improvements in terms of their compliance with the Parity act and other health laws, but had little success. Consequently, we've been forced to rely on DMHC to enforce our laws. But DMHC has not proven effective.

Kaiser continues to violate our laws despite multiple rounds of sanctions, fines and corrective actions. So Kaiser was sanctioned by DMHC in 2013, 2015, 2017. In 2017, it entered into a three year outside monitoring program. In 20222 investigations found additional violations by Kaiser, which led to the settlement agreement that Mary Watanabe discussed in 2023.

We had hoped that the Corrective action work plan required by the Settlement Agreement would produce long overdue improvements. But after reviewing the plan, we have little reason to believe it will. First, the plan was released about 10 months late. Secondly, the plan's provisions. Many of the plan's provisions are inadequate, with some directly contradicting the Settlement Agreement.

For example, the Settlement Agreement specifies the plan shall set forth corrective actions, performance measures, reporting provisions, timelines, deadlines, deliverables, benchmarks, and expected outcomes, end quote. The plan, however, contains few such specifics. For example, the term deliverable and deadline each appear only once in the entire document. The term benchmark doesn't appear at all in the document.

Third, the Plan backtracks on the Settlement Agreement's key requirements on some of the plan's key requirements. So to provide one example, there was earlier Some discussion about the one appointment at a time rule.

The settlement agreement found that this rule, which Kaiser applies only to mental health patients with mental health and substance use disorders, that this was a clear violation of the Parity act and it directs Kaiser to cease this practice.

In contrast, the Corrective Action Agreement instructs Kaiser or allows Kaiser to carry out a feasibility study as to whether or not it will comply with this provision. We've documented additional concerns in a written analysis we'll share with the Committee.

To make the Corrective Action plan effective, it must contain detailed, measurable time bound performance outcomes backed by specific allocations of resources and audited independently by regulators. Not just promises from Kaiser to improve its self policing.

DMHC must also develop the capacity to act swiftly to assess deficiencies, issue sanctions, enforce corrections in the event of large scale violations like those that are taking place right now during Southern California therapy strike.

Regarding further reforms, several recent studies and this addresses again some of the comments that have been made about workforce shortage and difficulty of recruiting providers to provider networks. There are several studies in recent years, including one by RTI International published in April of last year regarding consumers difficulty in accessing behavioral healthcare.

And they find that the difficulty in accessing is due less to behavioral health professionals, a shortage among them, but rather to plans, inadequate compensation and reimbursement rates. Under the Parity act, health plans cannot use more restrictive methods for compensating behavioral health care than they use for medical surgical care.

This is because systematic underfunding causes understaffing which leads to access problems by consumers. In Southern California, Kaiser is engaged in precisely these practices. Nearly 2,000 behavioral health professionals receive compensation that's 40% lower than the staff, similarly situated staff who provide so called physical health care. Leaving Kaiser's mental health clinics severely understaffed as documented by dmhc.

We believe these practices are violations of the Parity act. And these violations are one of the key issues that are prompting the current strike. Lastly, these actions are particularly damaging because of the enormous market size that Kaiser has allowing it to become a market maker.

As a result, the market failures identified by the RTI strike study are unlikely to be resolved without state action to correct Kaiser's compensation and reimbursement practices. Thank you.

Good morning. Randall Hagar, representing the Psychiatric Physicians Alliance of California. I'll keep this really brief. I know the time is late to address the workforce issue. A little bit better competency compensation would make make it easier for psychiatrists to participate in plans right now.

Of all the specialties Psychiatrists have the lowest rate of participation. And that's in part because they have typical practice models of solo office. And you don't even, you know, your front office is basically a desk and a phone.

And so what you've got is somebody who has to carve time out in order to deal with plans when they do things like prepayment audits. So prepayment audit is we need to see your chart records for this patient in order to, you know, verify that we're, we're going to pay you.

And so what happens is you find that over time that you're being audited for all the high value codes that are out there. And so Maybe you're spending 15 minutes, 15 minutes of time doing med management and 45 minutes of therapy and you know you're going to be ding dinged for that.

They're going to ask you to spend an hour getting your charts together and sending them in so you don't do it. So you down code. And it's hassles like these that cause psychiatrists to say, I'm just going to be cash on the barrel head. I wish it weren't true. But that's the way it is.

And it's one of many different kinds of strategies that are used to disincentivize psychiatrists involvement in managed care. Thank you.

Health Access fully supports the implementation and accountability for health plans and all parity laws and continuing to explore new ways the state can ensure access to behavioral health care. We've made significant progress in several of the bills that were mentioned 855221 in trying to close loopholes.

But we have also seen time and again we need multiple system of accountability and oversight to ensure that the laws of the Legislature's passing are having the intended effect on consumers. We also continue to support reducing unwarranted coverage denials and streamlining this process and having multiple layers of accountability.

Finally, we also appreciate the comments made by the Steinberg Institute on the role of provider directory accuracy in access to care and the need for information and oversight on denials of care, particularly for the outliers. Thank you.

Thank you. Any additional public commenters? Okay. Any additional public comment? Seeing none. Public comment is closed and we will now move to the second part of our hearing. Thank you so much to everyone. So item two around CalRx, one second here.

So we focused on insurance coverage and the first panel, the second panel is around prescription drug costs. And the Legislature and the Governor created CalRx so that California could get into the endeavor of manufacturing our own drugs, particularly in the generics market, to try to drive down costs. It's a really excellent idea and an incredibly important program.

And particularly with everything happening in the country right now, California is one of the very few places with the scale to be able to really impact drug prices, particularly generic drug prices. We know that there has been so much manipulation of the generic drug market.

A grifter by the name of Martin Shkreli who manipulated generic drug prices, ended up going to prison. We've seen it with EpiPens and so forth. So it's incredibly important. And we know that even though insulin is not the only drug that CalRx is focused on, I know naloxone has been a successful endeavor and there are others.

Obviously insulin is just a huge issue. We know that as I mentioned before, pharmacy benefit managers frequently exclude generic insulin from their formularies because they make more money by selling higher, by purchasing higher cost drugs. And so what Calrx is doing is incredibly important. We do not have the Calrex insulin yet.

And so I want to talk about that today. What the status is timing and we appreciate everyone for being here today and so we have two panels. The first panel is Elizabeth Landsberg, who is the Director of hcai. Vishal Pagani, the Deputy Director of the Office of Healthcare Affordability, Michael Valli. Did I pronounce that correctly?

Okay, thank you. The Chief information officer at HCAI and then Ms. Director Watanabe is joining us again. Thank you for spending time with us this morning. So, Ms.

Landsberg, thank you very much. Mr. Chair and Members, good morning. Elizabeth Landsberg, the Director of hcai, as you noted, joined by two of my wonderful deputy directors and happy to talk about workforce at the end if that's of interest. Senator Niello or others. We do have substantial workforce development components, including under the Behavioral Health Services Act.

So there are 3% of those funds that go for behavioral health development in addition to a Medicaid waiver. But here to talk about the administration's commitment to more affordable prescription drugs and very happy to be here to talk about our efforts toward that goal.

CALRX is a state powered pharmaceutical market disruptor that aims to make medication more affordable and accessible to Californians. Our program works to enhance competition in the pharmaceutical market by addressing areas with limited competition in the pharmaceutical market, drug shortages and vulnerable supply chain.

Our vision is an equitable, transparently priced pharmaceutical market where all Californians can afford and access the medications they need for healthy lives. We believe that pricing should be based on the actual development, production and distribution costs of the drugs without markups or rebates. We were asked to start by providing an update on the biosimilar insulin initiative.

So the $50 million Calorex Civica deal was announced in March of 2023. So Civica, who is our nonprofit partner, is making progress in developing an affordable biosimilar insulin glargine product which will be interchangeable with a branded product. Lantus and Glargine is a long acting insulin product. Developing a new insulin product is complex.

There are multiple states of manufacturing, analytical methods, development, quality oversight and a series of studies. Civica is committed to ensuring the safety, quality and efficiency of manufacturing procedures and resulting insulin products. I'm pleased to report to the Legislature the following milestones that have been achieved by Civica to date.

So Civica has passed initial facility inspections by regulatory authorities and has started manufacturing both glargine vials and pens at a new United States facility to support the clinical trial. They have also been meeting with the FDA in conducting product quality and stability testing for upcoming clinical trials.

Civica is collaborating with wholesalers, pharmacy benefit managers, health plans and pharmacies to secure commitments to distribute Calorex insulin products upon FDA approvals. These engagements are critical to ensuring that once insulin receives approval, it reaches patients swiftly and efficiently.

We have a new Calorex Insulin Patient Advisory Council which is a joint effort between HCAI and Civica, which will launch this year and we'll continue to gather critical patient feedback to refine our strategies for distribution and access.\

In the meantime, pressure from efforts including Calorex has prodded major insulin manufacturers to lower their prices and that's detailed in the agenda for today's hearing. Many insulin users rely on fast acting insulin analogs or use both long and fast acting insulins, so Civica has always planned to develop multiple insulin sequentially and that is still the plan.

Civica has already started planning steps on their first fast acting product and is poised to begin development of a fast acting insulin in the very near future. Having completed its manufacturing plant and built its internal insulin development team, that development program is expected to go faster than that for the first product glargine.

As Civica shares with HCI non public details about drug development, including the results of initial tests and studies, our staff and our contracted experts review and track Civica's progress.

Our internal and external experts all believe that the implementation timeframe, while not as fast as we had hoped, are not outside industry norms and we fully expect their efforts to lead to high quality FDA approved biosimilar insulins.

I was also asked to address the status of the construction of a California based factory for biosimilar insulin production and HCAI has been evaluating and conducting our due diligence on what it would take to stand up a California based insulin manufacturing facility, including consulting with the Governor's Office of Business and Economic Development.

I don't unfortunately have a specific update for the Legislature today, but will in short order. I do want to note that there isn't a delay in manufacturing the insulin glargine product because we are obtaining that drug substance. And again there's a manufacturing facility in the United States that has started making those pens and vials.

Has Civica applied to the FDA for.

Approval of the glargine of the insulin glargine? They have applied for the first clinical trial.

When did that happen?

I will phone a friend. Yeah, they haven't filed with the FDA yet, but they're soon to begin clinical trials. Okay. Does it necessarily step before filing? Okay. Do you. When will they apply to the FDA for approval? Can't put a definitive date on that because the trials are.

It'll take some time for them to complete the studies associated with the trials. But as soon as that is concluded, they would immediately file. You don't know how long that's going to take. No trials. Yeah, not until we don't have a date on when the filing will occur.

But typically when the filing does occur, it's about a year long process.

Okay. So we have however long the trials take and we're not sure how long it's going to take and then they'll file and then it'll be a year after that. Yes. Do we.

Obviously we've had a change of Administration and we have a secretary of Health and Human Services who has views that I think in my view can only be described as bizarre. I'll just note that.

So it's going to take some additional time to get to have this actually because it's going to be the trials, however long that takes, then a year long FDA process which hopefully will go well. And, and then manufacturing, is that correct?

The, the manufacturing will occur simultaneously while it's being reviewed by the Fda.

Okay. And how you mentioned Director Pharmacy benefit managers, as you probably heard me say a little earlier, that PBMs, because their compensation model is such that they make more money when they go with more expensive drugs and so typically generic insulin is often not included on formularies.

You know, we went through this last year when we put a big PBM Bill in the governor's desk to address some of these abusive practices and unfortunately that Bill is vetoed. We've reintroduced it because it is a way to drive down costs.

But do you have confidence that PBMs are actually going to put this Low cost insulin on their formularies?

It's why we're working hard now to have the conversation with PBMs. Certainly note the dynamic that you described. That PBM, even when we've seen generic insulin products, that we have that Markup and we're very committed, as you know, to the transparent price without any rebates. So we're working hard to make that happen.

Yeah, it's probably better not to have the middle person involved, but. And then finally I just want to, like I said, I'm a big believer in CalRx. I'm a big believer in what you're doing on insulin. And I want you to have 1000% success and you have my full support.

I also, you know, I also don't think Calorex shows up in a lot of veto messages. And I think it sometimes sends a message that Calorex is like the complete solution to everything. When it comes to the cost of health care. And I think that that is absolutely not the case.

There are a lot of different things we have to do to try to get costs down and Calrx is one of them. I don't expect you to comment on that. I understand, you know, you play a role, but I just want to really publicly express that. So thank you.

Thank you. Senator, you did also ask for an update on the Naloxone access initiative. And so I'm pleased to give that. As part of our ongoing efforts to reduce opioid overdoses, the 2023 budget provided resources for Calorex to partner with with a manufacturer to offer a Low cost Naloxone product.

This initiative has made significant strides in improving access to affordable Naloxone. Part of the success stemmed from Calrex being able to leverage volume purchasing through the Department of Healthcare Services Naloxone Distribution Product, or ndp.

The NDP distributes Naloxone free of charge to qualifying organizations such as schools, fire departments and community based organizations and has distributed over 5 million naloxone twin packs. And I brought one here, our Calorix bears on the box. And we've distributed over 5 million of these twin packs since the program started in 2018.

The NDP estimates the program has reversed over 297,000 overdoses through an open RFI process. HCAI contracted with Amneal Pharmaceuticals in 2024 to manufacture a Calorx branded generic over the counter naloxone product at a reduced price of $24 per twin pack, which represents a 40% savings compared to the state's previously contracted rate.

Since May of 2024, this product has been the primary supplier for the NDP. In spring of 2024, Calorex announced that all California businesses and governmental entities can purchase the Calorex naloxone at the $24 Calorx price by directly ordering from Amnio, further expanding access to this life saving medication. And we are working on direct to consumer next.

We do believe there's been important spillover effects. The Calorex and Amnio partnership has had a broad market impact on the cost of Naloxone. Prior to the Calorex Naloxone Access Initiative, generic naloxone prices had only declined 15% over two years.

But in just the quarter following the Calorex and Amnio entry, the national average drug acquisition for generic naloxone dropped by 22%. So we're very proud of that initiative. You also asked us, as you noted, the Calorex Program is an important partnership between the Legislature and the Administration.

So Senate Bill 852 by Pan did require Calorex to explore other target drugs. So I wanted to give an update on our target drug list development. So we began identifying drugs as potential candidates in 2021 with guidance from academic universities.

So we've been collaborating with Johns Hopkins, with UC Hastings Law center, prioritizing medications with high public health impact, large patient populations, particularly for vulnerable populations, those of course with high costs and those that do not have patent barriers.

As part of its research, Calorex has consulted multiple stakeholders, including our sibling state departments, data from the Federal Government, including cms, congressional investigative reports, as well as some of the data that you'll hear later presented that HCAI compiles and that our partners at DMHC compile to narrow to to a priority list of drugs.

Calorx has used several public health and pharmaceutical market criteria, including high amount of consumer out of pocket spending, high price per unit, vulnerable target population, and evidence that a new market entrant would help resolve the market problem versus market failures that require regulation or policy solutions.

So we have identified 15 priority drugs across 12 different disease categories for initial focus. These include medications that treat these conditions. So I'll just list a few anaphylaxis so those epinephrine or epipens. We've identified asthma COPD drugs such as albuterol and levaalbuterol, some cancer drugs and those you've already talked about, the GLP1 medications.

And the Administration continues to evaluate potential target drugs, including those identified as the high cost drugs.

That's great. That's very exciting. And I will also it also given the vetoes we've had around insulin, for example, vetoing an insulin co pay cap based on the existence of CalRx, which we won't even have that insulin for quite some time.

I think it's great to pursue these other drugs, but that does not in any way mean that we should not be, that doesn't mean that we should avoid other cost reduction strategies around those drugs.

And so I guess I'm expressing to you my fundamental objection that because this important program of CALRX exists that that means it's the only solution to driving down drug costs.

And I know you're not saying that, but I want to just express my objection to anyone who is saying that because I think this is Calrex is one piece of the puzzle, but there are other important strategies as well.

Thank you, Senator.

Thank you.

I'm happy to give the other Questions I was asked are about the diaper initiative, how we're using, how Oka is using the data. Would you like us to continue just to the data reports?

Yeah. And we have a couple questions from Senator Blakespear and Senator Weber Pearson. So if you.

We have a little. Some data from HCAI, from RSP17 and HPD reports. I know Director Watanabe does as well, or can take questions, whatever the chair's pleasure.

Mine's really short. Yeah, why not? Okay. Senator Blakesbury.

Yeah, thank you. And maybe you covered this, but it was under a different name. But we heard earlier that the weight loss drugs like Ozempic type are really expensive. So is that one of the ones that we're looking at?

Yes, the GLP1s include Azembic. So that is on our target list of drugs that we're exploring, possible intervention, market interventions. Okay. Okay, good. Thank you. Yes.

Senator Weber Pierson.

Sorry, mine is short piggybacks off of what Chair Wiener was saying around CalRx. Really excited that we have it, but also very troubled by some of the Vetoes based on CalRx. And so I think there may be some confusion, misconception, misunderstanding of how quickly we would be able to get a generic insulin.

And so if we're able to get that information, that's great. I know Calorex is not the only company that's contracted with someone that is trying to do generic insulin. We do have other pharmaceutical companies that produce it.

And so if we're able to look back and see how long did those clinical trials take, that can maybe give us a little bit more information as to when we could expect the clinical trials that they are currently doing to take.

And then we can add a year onto it as we're having conversations to figure out what is it that we can do for Californians instead of continuously waiting on CalRx with this insulin, which it may be in a year, maybe five years, maybe 10 years, we don't have that data, but it is out there from what the other companies have used.

So that would be great. If you can get that in and.

Let us know, we'd be happy to follow up. And certainly, you know, I wish I could sit here today and say we have a date certain. And there are so many variables involved, as you well know, in manufacturing a product of this type.

Yeah, I completely understand. But at least we have a baseline because other companies have done it.

So if we have that information, I think it would be great for us, but also good for others who look at our bills and determine whether or not, you know, they should go through at this time what it means when those are vetoed for Californians who are looking for reduced prices at this point. Thank you, Senator.

Thank you, Senator. Senator Smallwood-Cuevas.

Thank you, Mr. Chair. And I wanted to just align my comments with the chair and Senator Weber in terms of the importance of us looking for solutions.

In my district, we have just overburdened number of individuals who are diabetic, who are seeking treatment and who are unfortunately dying as we have some remedies for these preventable, this preventable disease and the others that you raised. So being able to expedite the process is so important.

But my question had to do more with when you, when the Biden's reduction in insulin costs were rolled back, what does that do to our sort of clinical trials and what pressure does that put on our ability to keep, you know, our projected costs down to what we were saying, $30 per vial, $55 for a 5 injectable pin.

Can you say how as we wait for all of this federal setbacks, as we look at the clinical trial delays and additional years, what does that do in terms of the pressures on keeping the prices at the estimated rate that voters certainly are expecting us to maintain?

There is certainly a lot of federal uncertainties. And so we don't yet have a sense of whether any changes about how any changes at the FDA might impact the timeline for FDA approval of our insulin glargine product.

But we are still committed to the price, that price that you named in terms of the pens and the vials and having that be a transparent price.

Great. And then my other question has to do about the facility. You said it's being manufactured in the US Is that, and is that related to California? And then is there a sense of, you know, what is the timeline on the facility and what's needed to expedite that process?

Of course. So Civica has stood up a manufacturing facility in Virginia. Mr. Pagani has been there. I have not yet. And so they are again producing those insulin pens and vials. They're getting drug substance overseas to produce those pens. We are also continuing to explore the feasibility of a California based manufacturing facility.

But the Virginia facility has sufficient capacity to produce the insulin, to produce the vials and pens with the drug substance.

When you say you still have plans on a facility, can you say more about that in terms of when and where?

Where we're continuing to evaluate the feasibility and I apologize that I'm not able to give a more concrete update to you today.

Is that just needing to collect the information or you're still trying to ascertain what that answer is in terms of the when and the where?

We've had discussions with the Go Biz office. It's quite complicated to set up a manufacturing facility. So we have done our due diligence and I just don't have anything more specific specific for you today, but we will in very short order. Okay, thank you.

Okay.

Should we do our data or what's.

Yeah, why don't we. And I want to hear if Ms. Watanabe has anything. The Director Watanabe.

No. So I think Mike and I both have data to present on our SB17 data. So I mean, they're short presentations. I think we could quickly go through those.

Yeah, why don't we, why don't we just do that briefly? Sorry for the crunch time. The first panel took a little while. Mike, I think.

Are you going first or is it me? Go ahead.

Second. Go first. Good morning Chairman Members. Michael Valli, Deputy Director I'll provide a brief overview of HCI's prescription dug data and reporting. I'll be referring to a slide deck presentation, HCI Prescription Drug Cost Transparency and Data Reporting and on slide 2.

Per Senate Bill 17 passed by the Legislature in 2017, HCAI collects data from prescription drug manufacturers on the wholesale acquisition cost, or wac, often referred to as the list price or sticker price that is set by the manufacturer.

Beginning in 2019, manufacturers report cost increases that total over 16% over a three year period for all prescription drug products sold in California. They also must provide advance notice of such increases to purchasers. Additionally, manufacturers also report information about certain new drug products introduced to market that have a starting wholesale acquisition cost above a specified threshold.

HCAI then makes this information public by posting it on its website. For 2019-2023, HCAI published over 1500 new drugs introduced to market and reports for over 6000 drugs with price increases and is preparing analysis of the 2024 information.

In addition to making this information collected public by posting on the HCAI website, HCAI takes the additional step of producing online interactive visualizations from the data which are also available for public use. Move to slide 3. On this slide you'll see several of the key findings from the reports that HCAI has published.

In the interest of time, I'll highlight the third finding as an example of the types of information included in these reports. HCAI received 205 reported new drugs with a price greater than $10,000 in 2023 more than in any of the prior four years.

I'll move to slide four and show a visualization of that finding I just mentioned where you can see in the dark blue those drug products with the price being introduced to market above $10,000 compared to other costs categories and the increase in the recent years of such higher priced drugs being introduced to market compared to prior years.

The HCAI website has other such charts and graphs that help to visualize this information. Move to slide five. I also just want to take the opportunity to share with the Committee another data report HCAI has produced related to prescription drug costs.

The Legislature passed Assembly Bill 80 in 2020 establishing the Health Care Payments database, California's All Payer claims Database, a new research database made up of healthcare claims, the claims that providers submit to health plans for payment after they are adjudicated and that when collated together from across the healthcare system, can be useful for health services research and policy analysis.

The database represents most of the insured population in California, resulting in a large repository of data with over 10 billion healthcare claims. 3 billion of those are pharmacy claims collected from health care payers for years 2018 through 2023.

The prescription drug Cost Report is the first report from the database on health care costs and the report includes information about the top 25 prescription drugs with the highest out of pocket costs, such as CO pays paid by consumers for pharmacy prescriptions paid under a Fee for service arrangement in the commercial market in 2021.

The monthly median out of pocket cost for drugs in the top 25 range from 150 to $250 per month for all drugs in the data set and the range was $50 to $190 per month for the top 25 generic drugs. Much more for HCAI to study from this database and we will be continuing to publish new reports.

As we continue to mature our understanding of this information, we expect to begin reporting on more recent years of data, adding data for Medi Cal and Medicare drugs to the report and performing analyses on specific drug categories that I'll say Thank you, Happy to answer questions now or conclusion of the panel. Great. Thank you Ms. Watanoui.

All right, so the next PowerPoint. Hopefully that'll come up. Here I'll provide a brief overview of the findings from our latest Prescription Drug Cost Transparency Report, which I think some people still call the SB17 report. Next slide.

SB17 was signed by the Governor in 2017 and requires health plans that offer commercial products and file rate information with the DMHC to annually report specific information related to the cost of covered prescription drugs, including the 25 most frequently prescribed drugs, 25 most costly drugs by total annual spending 25 drugs with the highest Year over year Increase in total annual spending each year the DMHC prepares a report summarizing the data and the impact of prescription drugs on healthcare premiums.

The data you'll see today is for measurement year 2023 and includes information submitted by 25 health plans. Health plans first started submitting data in 2018 for measurement year 2017, so we actually have seven years worth of trend data. Next slide.

This chart shows the total health health plan premium, medical expenses, prescription drug expenses and profit from 27 to 2023 on a per Member per month basis or what we call PMPM. All categories except for profit increased consistently from 2017 to 2023.

On average, enrollees paid nearly $600 per month in health plan premiums in 2023 compared to $560 in 2022 and $455 in 2017. That means the average premium has gone up over 30% since 2017. Prescription drug expenses increased by 53.6% over the last seven years compared to medical expenses which increased by 31.7%.

And I'll quickly show you two charts that show that next slide. So this just really shows the seven year trend you'll see here. The year over year increase in prescription drug costs on a PM basis is shown with the blue bars and then the cumulative increase in prescription drug costs is the green line.

So even though you're seeing just smaller increases year over year, when you look at it and it's a total, it's 53.6%. And then on the next slide you'll see similarly for medical expenses which you can see did not go up as much as prescription drug expense expenses.

On the next slide here I think we've got a table that shows the portion of total annual spending on generic brand and specialty drugs for the last four years.

You'll see that specialty drugs account for a small portion of the total drugs prescribed, but make up two thirds of total annual spending, while generic Drugs accounted for 89.2% of all prescriptions but only 12% of annual spending.

You can see see that over the last four years spending on generic and brand name drugs has decreased even if just a little bit, while the portion of specialty drug spending has increased year over year for the 25 most frequently prescribed drugs. I'll just highlight a few of our key findings.

The 25 most frequently prescribed drugs accounted for nearly half of all prescription drugs and a little over half of total spice spending. While most of the top 25 most frequently prescribed drugs were generic drugs, they only counted for a small percentage of total spending.

Specialty drugs accounted for a very small percentage of the total, but accounted for nearly 40% of annual spending on drugs. The next slide, I think you have the full list of the top 25 maybe in your materials, but this just shows the top five generic brand and specialty drugs and the most frequently prescribed category. You'll see.

We continue to see Pfizer, Moderna, COVID 19 vaccines in this list as well as I think a continued theme across all of these lists is the drugs for the management of diabetes or weight loss, including Jardiance, Ozempic and Wegovy. And then again on the next slide here we have the 25% I think.

We are going to need to wind up.

Okay. I think maybe I can just leave it here. You have the information in our report as well as in the materials.

Great. Really appreciate it. And sorry for the lopsidedness between the two panelists, but you got to participate in both.

Lucky me.

Thank you all so, so much. We really appreciate this is helpful. Thank you. Thank you. And now we'll bring up our final panel, stakeholder perspectives regarding CalRx. Diana Douglas, Director of policy and advocacy with Health Access. We'll welcome Leandra Clean Park Harvey back. And then Mr. Louisos from the Association of Health Plans.

Thank you so much for being here. I don't know what order you'd like to go. Ms. Douglas, you have not been on a panel before, so maybe we'll start with you.

Thank you.

Thank you. Good morning, Mr. Chair and Members. Diana Douglas with Health Access California, California's Healthcare Consumer Advocacy Coalition. We appreciate the opportunity to testify on high drug costs. Health Access was pleased to co-sponsor SB 17, Hernandez, in 2017 at a time when very little public information was available on drug costs and the impact on consumers.

It was clear then, and even more clear now that drug costs are a major driver of out of pocket costs and in pushing up healthcare costs overall. As we heard earlier in today's hearing, SB 17 has provided a wealth of public information about drug costs on outpatient prescription drugs.

Among the findings, Health Plans spent 8.7 billion on prescription drugs in 2017 and almost 14 billion in 2023. An increase, as we heard, of 54% as a share of premiums. Specialty drugs, those that cost over $670 for a 30-day supply, accounted for not even 2% of prescriptions, but almost 70% of drug costs in 2023.

In some cases, such as Covid vaccines, high costs are reflective of new discoveries which we as consumers of course, all welcome. But almost two thirds of the time, the cost of prescription drugs increases without any improvement or change in the drugs or their use.

This is simply taking advantage of a market opportunity to extract higher drug costs without any improvement in care. It is well documented that for drugs like for those for MS, when a new drug is introduced, the price of the existing drugs actually goes up.

This is so contrary to how the market operates for other goods and services, it's almost difficult to explain. When there are more drugs to treat a condition, the existing drugs cost more, not less. With most other consumer products, as logic would follow, when there's more competition, the price goes down.

We've also seen time and again drug manufacturers suing to stop any state efforts to lower prices. It was in this context of a broken market that CalRx was proposed. We were pleased to support the administration's efforts to develop CalRx. And with the initial focus on insulin. As we all know, far too many Californians must depend on insulin.

And for them, it's literally a life saving drug and was yet another drug where market competition increased rather than decreased prices.

In such a situation, it made sense for the State of California to step in and to contract for manufacturing insulin in order to reduce prices for consumers and for the state government, a major purchaser of health coverage. For the 15 million doll Californians on Medi-Cal and the million or so who get coverage via CalPERS.

The CalRx insulin initiative is able to both give the state control over pricing, but also put downward pressure on the market. As we have seen with several drug companies already lowering prices.

The prices are often arbitrary and not tied to production or supply and demand. In terms of what drugs CalRx could identify, the law includes various parameters and we'd welcome seeing the full potential of the program to include more drugs that are driving up costs.

Health Access supports strategic inclusion of drugs in CalRx that can best be targeted to both bring down consumer costs and increase access.

Also, in light of federal threats to access to medicated abortion, neuromodulators, prep, and so forth that we've seen recently. We also urge expediency and transparency as the process of bringing insulin to market is taking perhaps longer than anticipated.

Though as we heard, maybe in line with what some folks may have predicted, it does seem to be taking a long time. And as was noted, there have been many vetoes along the way of other opportunities to potentially bring down costs.

We do urge increased communication and transparency just to understand where the process is and how far along it's gotten. In the meantime, we also advocate for many other efforts to lower prescription drug costs and also lower costs overall.

Specifically, we've advocated for measures such as the Office of Healthcare Affordability and efforts to address rampant healthcare consolidation to slow cost growth overall. Health Access appreciates this opportunity to testify today and looks forward to ongoing partnership with the Legislature and Administration to lower costs. Thank you.

Great. Mr. Louizos, I know you're used to probably being last.

Appreciate that Mr. Chair. Nick Louizos with the California Association of Health Plans. Again, thanks for inviting us here. Prescription drug prices continue to accelerate in California, driving up healthcare costs in creating inflationary pressures on consumer premiums. A lot of the stats have already been reported as a result of the SB 17 report, so I'll skip most of those.

But that was a Bill that we were happy to support with Health Access and the Labor Community. Of course, the manufacturers opposed it and sued over it and lost. But it is the law of the land and we're getting a lot of good information out of it. A couple of data points, extra data points.

In 2023, Health Plans covered 93.6% of the cost of the 25 most costly prescribed drugs across all three categories. And the Department of Managed Health Care as well as Covered California California and other payers have stated that the recent popularity of high-priced brand-name weight loss drugs and diabetes medications drove much of the increase in the total prescription drug spending for Health Plans in 2022 and 2023.

On that point, some intriguing questions are raised. Again, why are Americans paying so much more for essential drugs like insulin, Ozempic, inhalers, and arthritis medications when other countries are paying a fraction of what we do? Brand name GLP-1 weight loss drugs for instance are priced upwards of 13 times more in the US than in Japan, Switzerland, and Germany.

The price of insulin is over 600% higher in the US than in nations where with similar healthcare systems like Japan and Germany. The price of Humira is approximately 228% higher in the US than in Switzerland. And pharmaceutical companies charge Americans more than 30 times more for life-saving inhalers than in Germany.

So why, and I think, you know, some focus needs to be done on that. The focus of CalRX on biosimilars for chronic disease drug, where American payers are paying so much more than other countries is a smart way to go.

And I think, you know, some of the principles and priorities that were outlined by Director Landsberg makes sense to us. We do need outside-the-box thinking because innovative solutions work.

For example, many plans are adding an interchangeable biosimilar of Humira to their formularies which is going to drastically lower cost for consumers, including zeroing out co-pays. So this, you know, brings us to some suggestions. We believe we need to review the state statutes around biosimilars. The state's biosimilar substitution law is out of date.

Medicare allows for the automatic substitution of biosimilars, not just those designated as interchangeable, and the states should follow suit. This can save consumers tens of million dollars annually. We should also expand the discussion beyond outpatient prescription drugs. We should also focus on inpatient drugs that are purchased and administered by hospitals.

A recent study found that hospitals mark up drug costs by an average of 108%, which drives up the cost of patient hospital bills exponentially and healthcare premiums.

We also asked the Legislature to refrain from passing legislation that compels payers to prioritize the coverage of expensive brand-name drugs even when there is a lower-cost alternative on the market. This rewards a drug company's patent extension tactics. Ultimately, the problem is one of price set by the companies.

They price the drug at whatever the market will bear. They said so during the uproar over the pricing of Sovaldi and would submit that there's an empty chair at the table here today. Thanks.