IMPLEMENTATION GUIDE AB 339: Outpatient Prescription Drugs

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1 IMPLEMENTATION GUIDE AB 339: Outpatient Prescription Drugs Effective Date: January 1, 2016 (as noted below some provisions effective January 1, 2017 and some with a sunset of January 1, 2020.) Codes Affected: An act to amend Section of, to add Sections and to, and to add and repeal Section of, the Health and Safety Code, and to amend Section of, to add Section to, and to add and repeal Section of, the Insurance Code, relating to health care coverage. Further Regulation? Yes No. Link to Full Text: Description and Background: According to the California Health Benefits Review Program (CHBRP), prescription drug benefits are a specific type of covered benefit usually subject to cost sharing as part of the medical benefit or a separate outpatient prescription drug benefit. The separate drug benefit designs can be characterized by the number of tiers (up to four) into which drug classes and specific medications are assigned. Each tier has a distinct cost sharing level and/or form; the lower tiers are less costly to both the enrollee and to the health plan or insurer. Some payers use a fourtier system which includes life-style drugs and specialty drugs in the fourth tier; typically these are the most costly drugs. The four-tier design frequently results in greater enrollee out-ofpocket expenses. CHBRP notes that there is no standard industry definition of specialty prescription drugs, but it is generally recognized by many payers as prescription drugs with an average minimum monthly cost of $1,150. Other criteria may include prescription drugs that treat a rare disease, require special handling, or have a limited distribution network. Most of the conditions targeted by these specialty drugs tend to be chronic and progressive in nature and can impact quality of life, along with morbidity and mortality. Examples include growth hormone disorders, rheumatoid arthritis, asthma, multiple sclerosis, hepatitis C, hemophilia, cancer, and lupus. In 2013, the annual California HealthCare Foundation employer benefits survey found that 66% of covered California workers had a three- or four-tier cost sharing formula for prescription drugs. Nationally, 82% of covered workers were subject to three- or four-tier formulas. Changes to Current Law: DIGEST: This bill requires health plans and health insurers that provide coverage for outpatient prescription drugs to have formularies that do not discourage the enrollment of individuals with

2 health conditions, and requires combination antiretrovirals drug treatment coverage of a single-tablet that is as effective as a multitablet regimen for treatment of HIV/AIDS, as specified. This bill places in state law, federal requirements related to pharmacy and therapeutics committees, access to in-network retail pharmacies, standardized formulary requirements, formulary tier requirements similar to those required of health plans and insurers participating in Covered California and copayment caps of $250 and $500 for a supply of up to 30 days for an individual prescription, as specified. Senate Floor Amendments of 9/4/15 1) delete a requirement that if a nonformulary drug is authorized consistent with this bill, the cost sharing is the same as for a formulary drug, 2) limit the formulary tier requirements to nongrandfathered individual and small group products, 3) require the health plan or insurer to take into account other provisions of the bill and existing law in placing specific drugs on specific formulary tiers, or choosing to place a drug on the formulary, and 4) delete a provision that requires insurers to provide the reasons for a disapproval for coverage of an outpatient prescription drug. ANALYSIS: Existing law: 1) Regulates health plans through the Department of Managed Health Care (DMHC) under the Knox-Keene Act and health insurance policies through the California Department of Insurance (CDI) under the Insurance Code. 2) Establishes Covered California as California s health benefit exchange where individuals and small employers can purchase standardized health insurance from selectively contracted qualified health plans based on bronze, silver, gold and platinum actuarial level categories. 3) Requires health plans and insurers to update their posted formularies with any change to those formularies on a monthly basis. This bill: 1) States legislative intent to build on existing state and federal law to ensure that health coverage benefit designs do not have an unreasonable discriminatory impact on chronically ill individuals, to ensure affordability of outpatient prescription drugs, and that assignment of all or most prescription medications that treat a specific medical condition to the highest cost tiers of a formulary may effectively discourage enrollment by chronically ill individuals. 2) Requires a non-grandfathered health plan or policy of health insurance offered, amended, or renewed on or after January 1, 2017 to comply with the following, with respect to plans and policies that cover outpatient prescription drugs: a) Cover medically necessary prescription drugs, including nonformulary drugs determined to be medically necessary consistent with this bill; b) Prohibit the formulary or formularies from discouraging the enrollment of individuals with health conditions and do not reduce the generosity of the benefit for enrollees or insureds with a particular condition in a manner that is not based on a clinical indication or reasonable medical management practices, consistent with federal law, as specified; Page 2 of 4

3 c) Cover combination antiretroviral drug treatments that are medically necessary for the treatment of AIDS/HIV, that is a single-tablet drug regimen that is as effective as a multitablet regimen unless the health plan is able to demonstrate to the DMHC director, or insurer is able to demonstrate to the CDI Commissioner (Commissioner), consistent with clinical guidelines and peer-reviewed scientific and medical literature, that the multitablet regimen is clinically equally or more effective and more likely to result in adherence to a drug regimen; d) Limit the copayment, coinsurance, or any other form of cost sharing for a covered outpatient prescription drug for an individual prescription for up to a 30 day supply to not more than $250, as specified, except for a product with actuarial value to bronze coverage, cost sharing for a covered outpatient prescription drug for an individual prescription for a supply of up to 30 days to not more than $500. Requires for a federally defined high deductible health plan the limit to apply only after the enrollee s deductible has been satisfied for the year, and limits for nongrandfathered individual and small group products the annual outpatient drug deductible to not more than twice these caps; e) Use defined formulary tier groupings for nongrandfathered individual and small group plans only, if a plan contract or insurance policy maintains a drug formulary with a fourth tier, but does not require the use of a fourth tier, and prohibits this bill from being construed to limit a health plan or insurer from placing any drug in a lower tier; and, f) Ensure placement of prescription drugs on formulary tiers is clinically indicated, reasonable medical management practices. 3) States that this bill does not require a health plan or health insurance policy to impose cost sharing for prescription drugs that state and federal law requires to be provided without cost sharing. 4) States that this bill does not require or authorize a Medi-Cal managed care plan to provide coverage for prescription drugs that are not required pursuant to program contracts, or to limit or exclude any prescription drugs that are required by those programs or contracts. 5) States that health plan or health insurer may utilize formulary, prior authorization, step therapy, or other reasonable medical management practices in the provision of outpatient prescription drug coverage, consistent with this bill. 6) Requires, in placing specific drugs on specific tiers, or choosing to place a drug on the formulary, the health plan or insurer to take into account the other provisions of this bill and existing law. 7) Sunset s the cost cap and tiering definitions on January 1, ) Requires, commencing January 1, 2017, a plan or insurer to maintain a pharmacy and therapeutics (P&T) committee responsible for developing, maintaining, and overseeing any drug formulary list, and establishes requirements associated with the P&T committee that are substantially similar to federal regulations. 9) Requires, commencing January 1, 2017, a plan or insurer that provides essential health benefits to allow an enrollee or insured to access prescription drug benefits at an innetwork retail pharmacy unless the prescription drug is subject to restricted distribution by the Food and Drug Administration, or requires special handling, as specified, or patient Page 3 of 4

4 education, as specified. Permits the plan or insurer to charge an enrollee or insured different cost sharing but requires all cost sharing to count toward the plan s or policies annual limitation on cost sharing. 10) Requires a health insurance policy that provides coverage for outpatient prescription drugs to cover medically necessary prescription drugs, and a medically necessary prescription drug for which there is not a therapeutic equivalent. 11) Requires copayments, coinsurance and other cost sharing for prescription drugs to be reasonable so as to allow access to medically necessary outpatient prescription drugs. 12) Authorizes a health insurer to impose prior authorization requirements consistent with this bill. Prohibits an insurer from requiring an insured to repeat step therapy when changing policies. 13) Requires an insurer to provide coverage for the medically necessary dosage and quantity of the drug prescribed consistent with professionally recognized standards of practice. 14) Requires the Commissioner as part of its market conduct examination to review the performance of an insurer that provides prescription drug benefits, in providing those benefits, as described. Prohibits the Commissioner from publicly disclosing any information reviewed. 15) Defines, for the purposes of the Insurance Code, nonformulary prescription drugs to include any drugs for which the insured s copayment or out-of-pocket costs are different than the copayment for a formulary prescription drug, except as otherwise provided by law or regulation. Comments: According to the author, the goal of this bill is to implement and improve upon concepts from federal guidance and Covered California in order to ensure that Californians are better able to afford their prescription drugs and that the anti-discrimination provisions of the ACA remain intact. The author asserts that this bill is needed to address the devastating financial effects of high out-of-pocket prescription expenses. High cost drugs are often on the highest cost tier of a drug formulary with coinsurance of up to 20%. As a result, a patient may exhaust their annual out-of-pocket limit of $6,600 with a single prescription in the first month. Too many patients are forced to choose between paying for their life-saving drugs and paying for housing, child care, or food. AB 339 was opposed by health plans. PhRMA was neutral and some pharmaceutical manufacturers were in opposition to the proposal. AB 339 is an attempt by the author to combine and apply existing medical necessity provisions in Knox-Keene, provisions in federal law, and recently adopted Covered California provisions, to health plan and insurance products regulated under Knox-Keene and the California Insurance Code. Many of the provisions have a sunset date of January 1, 2020 to reflect similar provisions contained in Covered California that will also be reviewed at that time to assess cost impacts on the prescription drug benefit limits recently adopted by Covered California. Page 4 of 4

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