Amended  IN  Senate  April 22, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill No. 642

Introduced by Senator Stone

February 22, 2019

An act to amend Section 131005 of the Health and Safety Code, relating to public health. add Section 1368.8 to, and to add Division 40 (commencing with Section 60000) to, the Health and Safety Code, and to add Section 10123.66 to the Insurance Code, relating to pharmacy benefit management.


LEGISLATIVE COUNSEL'S DIGEST


SB 642, as amended, Stone. Public health. Pharmacy benefit management: Prescription Acquisition and Adjudication Agency.
Existing law provides for the regulation of health care service plans by the Department of Managed Health Care. A willful violation of those provisions is a crime. Existing law, on and after January 1, 2020, prohibits a health care service plan from including in a contract with a pharmacy provider or its contracting agent a provision that prohibits the provider from informing a patient of a less costly alternative to a prescribed medication. Existing law requires a health care service plan that contracts with a pharmacy benefit manager for management of any or all of its prescription drug coverage to require the pharmacy benefit manager to comply with specified provisions, register with the department pursuant to those provisions, and exercise good faith and fair dealing in the performance of its contractual duties to a health care service plan. Existing law provides for the regulation of health insurers by the Department of Insurance.
This bill would, on and after July 1, 2021, prohibit a health care service plan or a health insurer from entering into, renewing, or extending a contract for pharmacy benefit manager services, as defined. Because a violation of this prohibition by a health care service plan would be a crime, this bill would impose a state-mandated local program.
This bill would create the Prescription Acquisition and Adjudication Agency, and would create an advisory board for that agency, as specified. The bill would require a division of the agency to offer pharmacy benefit manager services to health care service plans and health insurers, including adjudicated claim processing, negotiations for pharmaceutical discounts, and the creation of formularies for each plan or insurer, as specified.
This bill would additionally require a separate division of the agency to negotiate with pharmaceutical manufacturers for discounts and rebates for those plans or insurers, and would require the agency to develop a closed bidding process for those negotiations. The bill would require an agreement between the agency and a health care service plan or health insurer to include provisions granting 10% of any rebate or of the difference between the market value and the price negotiated by the agency, or 100% of the rebate or difference if the agreement is with a Medi-Cal managed care plan, to be paid to the agency, and deposited in to the Pharmaceutical Discount Fund, and would make those funds available, upon appropriation by the Legislature, to the agency to fund its costs or for other programs to lower health care costs in the state.
Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.
This bill would make legislative findings to that effect.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
By authorizing the agency, in its agreements with health care service plans or health insurers, to receive more than the reasonable costs of its services, this bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.

Existing law establishes the State Department of Public Health within the California Health and Human Services Agency, and requires the appointment of a State Public Health Officer to serve as the director of the State Department of Public Health, as prescribed.

This bill would make technical, nonsubstantive changes to that provision.

Vote: MAJORITY2/3   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NOYES  

The people of the State of California do enact as follows:


SECTION 1.

 Section 1368.8 is added to the Health and Safety Code, to read:

1368.8.
 (a) On and after July 1, 2021, a health care service plan shall not enter into, renew, or extend a contract for pharmacy benefit manager services.
(b) On and after January 1, 2020, a health care service plan shall not enter into, renew, or extend a contract for pharmacy benefit manager services that will cover a period of more than 24 months.
(c) For the purposes of this section, “pharmacy benefit manager services” means services to manage the prescription drug coverage provided by the health care service plan, including, but not limited to, the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to prescription drug coverage, contracting with network pharmacies, and controlling the cost of covered prescription drugs. “Pharmacy benefit manager services” does not include services provided by the Prescription Acquisition and Adjudication Agency.

SEC. 2.

 Division 40 (commencing with Section 60000) is added to the Health and Safety Code, to read:

DIVISION 40. Prescription Acquisition and Adjudication Agency

60000.
 (a) The Prescription Acquisition and Adjudication Agency is hereby established.
(b) The agency shall be led by the Secretary of the Prescription Acquisition and Adjudication Agency, appointed by the Governor.
(c) The agency shall be advised by a board consisting of five members. The members shall be appointed as follows:
(1) One member to assist and advise on information technology.
(2) One member to represent health insurers and health care service plans.
(3) One member to represent the Public Employees Retirement System.
(4) One member who is a licensed physician and surgeon.
(5) One member to represent labor trust funds.
(d) (1) Appointments pursuant to subdivision (c) shall be for four years, except as specified in paragraph (2).
(2) Of the members appointed pursuant to subdivision (c), one member shall serve an initial term of one year, one member shall serve an initial term of two years, one member shall serve an initial term of three years, and two members shall serve an initial term of four years. All subsequent terms of all members shall be for four years. Each member’s term shall continue until the appointment and qualification of that member’s successor.
(e) The agency shall contain five divisions, as follows:
(1) The Division of Information Technology, to provide software and hardware support to the agency.
(2) The Division of Pharmaceutical Negotiations, to oversee and perform negotiations with pharmaceutical manufacturers.
(3) The Division of Pharmacy Provider Contracting, to oversee contracting and negotiations with pharmacy providers.
(4) The Division of Accounting and Auditing, to oversee the financial oversight of the agency and ensure that contracts are followed.
(5) The Division of Legal Assistance, to oversee negotiations and ensure adherence to all federal and state laws.

60010.
 (a) The Division of Pharmacy Provider Contracting shall offer pharmacy benefit manager services to health care service plans and health insurers in California.
(b) The services offered pursuant to subdivision (a) shall include, but not be limited to:
(1) Adjudicated claim processing.
(2) Negotiations pursuant to Section 60020.
(3) The creation of formularies for each plan or insurer.
(c) As part of a contract entered into pursuant to this section, the plan or insurer shall provide the division with a list of pharmaceuticals to be included on the formulary. This list shall contain groups of pharmaceuticals that have similar pharmacology, or multiple generic versions.
(d) (1) Except as specified in subdivision (2), a contract to provide pharmacy benefit manager services pursuant to this section shall include provisions granting 10 percent of any rebate, or of any difference between the market value of a pharmaceutical drug and the price negotiated pursuant to Section 60020, to the department, to be deposited in the Pharmaceutical Discount Fund.
(2) A contract with a Medi-Cal managed care plan to provide pharmacy benefit manager services pursuant to this section shall include provisions granting all of any rebate, or of any difference between the market value of a pharmaceutical drug and the price negotiated pursuant to Section 60020, to the department, to be deposited in the Pharmaceutical Discount Fund.
(e) As part of a contract to provide pharmacy benefit manager services, the division shall not require an enrollee or insured to use a specific pharmacy.
(f) In negotiating a contract pursuant to this section, the division shall guarantee existing discounts for health care service plans if those discounts are available from pharmaceutical manufacturers.

60020.
 (a) The Division of Pharmaceutical Negotiations shall, in accordance with agreements entered into by the agency pursuant to Section 60010, negotiate with pharmaceutical manufacturers for discounts and rebates for the plans or insurers.
(b) (1) Upon receiving a list from a plan or insurer pursuant to subdivision (c) of Section 60010, for each grouping of pharmaceuticals with similar pharmacology or multiple generic versions, the division shall begin a bidding process to determine which pharmaceutical manufacturer offers the product at the lowest cost.
(2) Upon determining which pharmaceutical manufacturer offers the product at the lowest cost, the division shall include that product on the formulary developed for that plan or insurer.
(3) On or before July 1, 2021, the division shall promulgate regulations establishing a closed bid process, based on pharmacological category, to implement this subdivision.
(c) The negotiations and bidding process and resulting prices pursuant to subdivision (b) shall be confidential.

60030.
 (a) The Pharmaceutical Discount Fund is hereby created in the State Treasury.
(b) Funds in the Pharmaceutical Discount Fund shall be available, upon appropriation by the Legislature, to the agency to fund the costs of the agency in implementing this division and for other programs to lower the cost of health care in the state.

60040.
 (a) The agency shall establish a process for contracting and negotiating pursuant to Sections 60010 and 60020. A contract entered into pursuant to Section 60010 or 60020 shall be exempt from Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, and shall be exempt from the review or approval of the Department of General Services.
(b) The agency may adopt regulations as necessary to implement this division.

SEC. 3.

 Section 10123.66 is added to the Insurance Code, to read:

10123.66.
 (a) On and after July 1, 2021, a health insurer shall not enter into, renew, or extend a contract for pharmacy benefit manager services.
(b) On and after January 1, 2020, a health insurer shall not enter into, renew, or extend a contract for pharmacy benefit manager services that will cover a period of more than 24 months.
(c) For the purposes of this section, “pharmacy benefit manager services” means services to manage the prescription drug coverage provided by the health insurer, including, but not limited to, the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to prescription drug coverage, contracting with network pharmacies, and controlling the cost of covered prescription drugs.“Pharmacy benefit manager services” does not include services provided by the Prescription Acquisition and Adjudication Agency.

SEC. 4.

 The Legislature finds and declares that Section 2 of this act, which adds Division 40 (commencing with Section 60000) of the Health and Safety Code, imposes a limitation on the public’s right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest:
In order to protect negotiations and trade secrets, it is necessary that the negotiations and bidding processes of the Prescription Acquisition and Adjudication Agency remain confidential.

SEC. 5.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.
SECTION 1.Section 131005 of the Health and Safety Code is amended to read:
131005.

(a)There is in state government an executive officer known as the State Public Health Officer, who shall be appointed by the Governor, subject to confirmation by the Senate, and shall hold office at the pleasure of the Governor. The State Public Health Officer shall receive the annual salary provided by Article 1 (commencing with Section 11550) of Chapter 6 of Part 1 of Division 3 of Title 2 of the Government Code.

(b)The State Public Health Officer shall serve as the director of, and have control over, the State Department of Public Health.

(c)Any statutory reference to “director,” “the Director of Health Services,” “the Director of Public Health,” or the “Director of the State Department of Public Health,” regarding a function transferred to the State Department of Public Health pursuant to Chapter 2 (commencing with Section 131050), is deemed to, instead, refer to the State Public Health Officer.

(d)Any statutory reference to “department” or “state department” regarding a function transferred to the State Department of Public Health pursuant to Chapter 2 (commencing with Section 131050), shall refer to the State Department of Public Health.

(e)The director shall be a licensed physician and surgeon pursuant to Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code, and have demonstrated medical, public health, and management experience.