Amended in Senate September 4, 2015

Amended in Senate September 1, 2015

Amended in Senate July 16, 2015

Amended in Senate July 7, 2015

Amended in Senate June 24, 2015

Amended in Assembly June 1, 2015

Amended in Assembly May 20, 2015

Amended in Assembly May 4, 2015

Amended in Assembly April 7, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 339


Introduced by Assembly Member Gordon

(Coauthor: Assembly Member Atkins)

February 13, 2015


An act to amend Section 1367.205 of, to add Sections 1367.41 and 1367.42 to, and to add and repeal Section 1342.71 of, the Health and Safety Code, and to amend Section 10123.192 of, to add Section 10123.201 to, and to add and repeal Section 10123.193 of, the Insurance Code, relating to health care coverage.

LEGISLATIVE COUNSEL’S DIGEST

AB 339, as amended, Gordon. Health care coverage: outpatient prescription drugs.

(1) Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law requires a health care service plan or insurer that provides prescription drug benefits and maintains one or more drug formularies to make specified information regarding the formularies available to the public and other specified entities. Existing law also specifies requirements for those plans and insurers regarding coverage and cost sharing of specified prescription drugs.

This bill would prohibit the formulary or formularies for outpatient prescription drugs maintained by a health care service plan or health insurer from discouraging the enrollment of individuals with health conditions and from reducing the generosity of the benefit for enrollees or insureds with a particular condition. The bill, until January 1, 2020, would provide that the copayment, coinsurance, or any other form of cost sharing for a covered outpatient prescription drug for an individual prescription shall not exceed $250 for a supply of up to 30 days, except as specified, and would prohibit, for a nongrandfathered individual or small group plan contract or policy, thebegin insert annualend insert deductible for outpatient drugs from exceeding a specified amount. The bill would make these cost-sharing limits applicable only to covered outpatient prescription drugs that constitute essential health benefits, as defined. The bill would require a plan contract or policy to cover a single-tablet prescription drug regimen for combination antiretroviral drug treatments that are medically necessary for the treatment of AIDS/HIV, as specified. The bill, until January 1, 2020, would require abegin insert nongrandfathered individual or small groupend insert plan contract or policy to use specified definitions for each tier of a drug formulary. The bill would make related findings and declarations.

This bill would require a health care service plan contract or health insurance policy that provides coverage for outpatient prescription drugs to provide coverage for medically necessary prescription drugs, including nonformulary drugs determined to be medically necessary, and, for an insurer, would require copayments, coinsurance, and other cost sharing for outpatient prescription drugs to be reasonable.

This bill would make these provisions applicable to nongrandfathered health care service plan contracts or health insurance policies that are offered, renewed, or amended on or after January 1, 2017.

(2) Existing law requires every health care service plan that provides prescription drug benefits to maintain specified information that is required to be made available to the Director of the Department of Managed Health Care upon request.

This bill would also impose these requirements on a health insurer that provides prescription drug benefits, as provided. The bill would authorize an insurer to require step therapy, as defined, when more than one drug is appropriate for the treatment of a medical condition, subject to specified requirements. The bill would require an insurer that requires step therapy to have an expeditious process in place to authorize exceptions to step therapy when medically necessary and to conform effectively and efficiently with continuity of care requirements. The bill, with regard to an insured changing policies, would prohibit a new insurer from requiring the insured to repeat step therapy when that person is already being treated for a medical condition by a prescription drug, as specified. For plan years commencing on or after January 1, 2017, the bill, except as specified, would require a plan or insurer that provides essential health benefits to allow an enrollee or insured to access his or her prescription drug benefits at an in-network retail pharmacy, and would authorize abegin insert nongrandfathered individual or small groupend insert plan or insurer to charge an enrollee or insured a different cost sharing for obtaining a covered drug at a retail pharmacy, and would require that cost-sharing amount to count towards the plan’s or insurer’s annual out-of-pocket limitation, as specified.

This bill, commencing January 1, 2017, would require a plan or insurer to maintain a pharmacy and therapeutics committee that is responsible for developing, maintaining, and overseeing any drug formulary list, as provided. The bill would require the committee to, among other things, evaluate and analyze treatment protocols and procedures related to the plan’s or insurer’s drug formulary at least annually.

(3) Existing law requires the Department of Managed Health Care and the Department of Insurance to jointly develop a standard formulary template by January 1, 2017, and requires plans and insurers to use that template to display formularies, as specified. Existing law requires the standard formulary template to include specified information.

This bill would require the standard formulary template to include additional specified information, including which medications are covered, including both generic and brand name.

(4) Because a willful violation of the bill’s requirements relative to health care service plans would be a crime, this bill would impose a state-mandated local program.

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

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

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

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

P4    1

SECTION 1.  

Section 1342.71 is added to the Health and Safety
2Code
, to read:

3

1342.71.  

(a) The Legislature hereby finds and declares all of
4the following:

5(1) The federal Patient Protection and Affordable Care Act, its
6implementing regulations and guidance, and related state law
7prohibit discrimination based on a person’s expected length of life,
8present or predicted disability, degree of medical dependency,
9quality of life, or other health conditions, including benefit designs
10that have the effect of discouraging the enrollment of individuals
11with significant health needs.

12(2) The Legislature intends to build on existing state and federal
13law to ensure that health coverage benefit designs do not have an
14unreasonable discriminatory impact on chronically ill individuals,
15and to ensure affordability of outpatient prescription drugs.

16(3) Assignment of all or most prescription medications that treat
17a specific medical condition to the highest cost tiers of a formulary
18may effectively discourage enrollment by chronically ill
19individuals, and may result in lower adherence to a prescription
20drug treatment regimen.

21(b) A nongrandfathered health care service plan contract that is
22offered, amended, or renewed on or after January 1, 2017, shall
23comply with this section. The cost-sharing limits established by
24this section apply only to outpatient prescription drugs covered by
25the contract that constitute essential health benefits, as defined in
26Section 1367.005.

P5    1(c) begin delete(1)end deletebegin deleteend deleteA health care service plan contract that provides
2coverage for outpatient prescription drugs shall cover medically
3necessary prescription drugs, including nonformulary drugs
4determined to be medically necessary consistent with this chapter.

begin delete

5(2) If a nonformulary drug is authorized consistent with this
6chapter, the cost sharing shall be the same as for a formulary drug.

end delete

7(d) (1) Consistent with federal law and guidance, the formulary
8or formularies for outpatient prescription drugs maintained by the
9health care service plan shall not discourage the enrollment of
10individuals with health conditions and shall not reduce the
11generosity of the benefit for enrollees with a particular condition
12in a manner that is not based on a clinical indication or reasonable
13medical management practices. Section 1342.7 and any regulations
14adopted pursuant to that section shall be interpreted in a manner
15that is consistent with this section.

16(2) For combination antiretroviral drug treatments that are
17medically necessary for the treatment of AIDS/HIV, a health care
18service plan contract shall cover a single-tablet drug regimen that
19is as effective as a multitablet regimen unless, consistent with
20clinical guidelines and peer-reviewed scientific and medical
21literature, the multitablet regimen is clinically equally or more
22effective and more likely to result in adherence to a drug regimen.

23(e) (1) With respect to an individual or group health care service
24plan contract subject to Section 1367.006, the copayment,
25coinsurance, or any other form of cost sharing for a covered
26outpatient prescription drug for an individual prescription for a
27supply of up to 30 days shall not exceed two hundred fifty dollars
28($250), except as provided in paragraphs (2) and (3).

29(2) With respect to products with actuarial value at, or equivalent
30to, the bronze level, cost sharing for a covered outpatient
31prescription drug for an individual prescription for a supply of up
32to 30 days shall not exceed five hundred dollars ($500), except as
33provided in paragraph (3).

34(3) For a health care service plan contract that is a “high
35deductible health plan” under the definition set forth in Section
36223(c)(2) of Title 26 of the United States Code, paragraphs (1)
37and (2) of this subdivision shall apply only once an enrollee’s
38deductible has been satisfied for the year.

39(4) For a nongrandfathered individual or small group health
40care service plan contract, thebegin insert annualend insert deductible for outpatient
P6    1drugs, if any, shall not exceed twice the amount specified in
2paragraph (1) or (2), respectively.

3(5) For purposes of paragraphs (1) and (2), “any other form of
4cost sharing” shall not include deductible.

5(f) (1) If a health care service plan contractbegin insert for a
6nongrandfathered individual or small group productend insert
maintains a
7drug formulary grouped into tiers that includes a fourth tier, a
8health care service plan contract shall use the following definitions
9for each tier of the drug formulary:

10(A) Tier one shall consist of most generic drugs and low-cost
11preferred brand name drugs.

12(B) Tier two shall consist of nonpreferred generic drugs,
13preferred brand name drugs, and any other drugs recommended
14by the health care service plan’s pharmacy and therapeutics
15committee based on safety, efficacy, and cost.

16(C) Tier three shall consist of nonpreferred brand name drugs
17or drugs that are recommended by the health care service plan’s
18pharmacy and therapeutics committee based on safety, efficacy,
19and cost, or that generally have a preferred and often less costly
20therapeutic alternative at a lower tier.

21(D) Tier four shall consist of drugs that are biologics, drugs that
22the FDA or the manufacturer requires to be distributed through a
23specialty pharmacy, drugs that require the enrollee to have special
24training or clinical monitoring for self-administration, or drugs
25that cost the health plan more than six hundred dollars ($600) net
26of rebates for a one-month supply.

begin insert

27(2) In placing specific drugs on specific tiers, or choosing to
28place a drug on the formulary, the health care service plan shall
29take into account the other provisions of this section and this
30chapter.

end insert
begin delete

31(2)

end delete

32begin insert(3)end insert A health care service plan contract may maintain a drug
33formulary with fewer than four tiers.

begin delete

34(3)

end delete

35begin insert(4)end insert This section shall not be construed to limit a health care
36service plan from placing any drug in a lower tier.

37(g) A health care service plan contract shall ensure that the
38placement of prescription drugs on formulary tiers is based on
39clinically indicated, reasonable medical management practices.

P7    1(h) This section shall not be construed to require a health care
2service plan to impose cost sharing. This section shall not be
3construed to require cost sharing for prescription drugs that state
4or federal law otherwise requires to be provided without cost
5sharing.

6(i) This section does not require or authorize a health care
7service plan that contracts with the State Department of Health
8Care Services to provide services to Medi-Cal beneficiaries to
9provide coverage for prescription drugs that are not required
10pursuant to those programs or contracts, or to limit or exclude any
11prescription drugs that are required by those programs or contracts.

12(j) In the provision of outpatient prescription drug coverage, a
13health care service plan may utilize formulary, prior authorization,
14step therapy, or other reasonable medical management practices
15consistent with this chapter.

16(k) This section shall not apply to a health care service plan that
17contracts with the State Department of Health Care Services.

18(l) This section shall remain in effect only until January 1, 2020,
19and as of that date is repealed, unless a later enacted statute, that
20is enacted before January 1, 2020, deletes or extends that date.

21

SEC. 2.  

Section 1342.71 is added to the Health and Safety
22Code
, to read:

23

1342.71.  

(a) The Legislature hereby finds and declares all of
24the following:

25(1) The federal Patient Protection and Affordable Care Act, its
26implementing regulations and guidance, and related state law
27prohibit discrimination based on a person’s expected length of life,
28present or predicted disability, degree of medical dependency,
29quality of life, or other health conditions, including benefit designs
30that have the effect of discouraging the enrollment of individuals
31with significant health needs.

32(2) The Legislature intends to build on existing state and federal
33law to ensure that health coverage benefit designs do not have an
34unreasonable discriminatory impact on chronically ill individuals,
35and to ensure affordability of outpatient prescription drugs.

36(3) Assignment of all or most prescription medications that treat
37a specific medical condition to the highest cost tiers of a formulary
38may effectively discourage enrollment by chronically ill
39individuals, and may result in lower adherence to a prescription
40drug treatment regimen.

P8    1(b) A nongrandfathered health care service plan contract that is
2offered, amended, or renewed on or after January 1, 2017, shall
3comply with this section.

4(c) begin delete(1)end deletebegin deleteend deleteA health care service plan contract that provides
5coverage for outpatient prescription drugs shall cover medically
6necessary prescription drugs, including nonformulary drugs
7determined to be medically necessary consistent with this chapter.

begin delete

8(2) If a nonformulary drug is authorized consistent with this
9chapter, the cost sharing shall be the same as for a formulary drug.

end delete

10(d) (1) Consistent with federal law and guidance, the formulary
11or formularies for outpatient prescription drugs maintained by the
12health care service plan shall not discourage the enrollment of
13individuals with health conditions and shall not reduce the
14generosity of the benefit for enrollees with a particular condition
15in a manner that is not based on a clinical indication or reasonable
16medical management practices. Section 1342.7 and any regulations
17adopted pursuant to that section shall be interpreted in a manner
18that is consistent with this section.

19(2) For combination antiretroviral drug treatments that are
20medically necessary for the treatment of AIDS/HIV, a health care
21service plan contract shall cover a single-tablet drug regimen that
22is as effective as a multitablet regimen unless, consistent with
23clinical guidelines and peer-reviewed scientific and medical
24literature, the multitablet regimen is clinically equally or more
25effective and more likely to result in adherence to a drug regimen.

begin delete

26(e) (1) A health care service plan contract may maintain a drug
27formulary with fewer than four tiers.

end delete
begin delete

28(2) This section shall not be construed to limit a health care
29service plan from placing any drug in a lower tier.

end delete
begin delete

30(f)

end delete

31begin insert(e)end insert A health care service plan contract shall ensure that the
32placement of prescription drugs on formulary tiers is based on
33clinically indicated, reasonable medical management practices.

begin delete

34(g)

end delete

35begin insert(f)end insert This section shall not be construed to require a health care
36service plan to impose cost sharing. This section shall not be
37construed to require cost sharing for prescription drugs that state
38or federal law otherwise requires to be provided without cost
39sharing.

begin delete

40(h)

end delete

P9    1begin insert(g)end insert This section does not require or authorize a health care
2service plan that contracts with the State Department of Health
3Care Services to provide services to Medi-Cal beneficiaries to
4provide coverage for prescription drugs that are not required
5pursuant to those programs or contracts, or to limit or exclude any
6prescription drugs that are required by those programs or contracts.

begin delete

7(i)

end delete

8begin insert(h)end insert In the provision of outpatient prescription drug coverage, a
9health care service plan may utilize formulary, prior authorization,
10step therapy, or other reasonable medical management practices
11consistent with this chapter.

begin delete

12(j)

end delete

13begin insert(i)end insert This section shall not apply to a health care service plan that
14contracts with the State Department of Health Care Services.

begin delete

15(k)

end delete

16begin insert(j)end insert This section shall become operative on January 1, 2020.

17

SEC. 3.  

Section 1367.41 is added to the Health and Safety
18Code
, immediately following Section 1367.4, to read:

19

1367.41.  

(a) Commencing January 1, 2017, a health care
20service plan shall maintain a pharmacy and therapeutics committee
21that shall be responsible for developing, maintaining, and
22overseeing any drug formulary list. If the plan delegates
23responsibility for the formulary to any entity, the obligation of the
24plan to comply with this chapter shall not be waived.

25(b) The pharmacy and therapeutics committee board membership
26shall conform with both of the following:

27(1) Represent a sufficient number of clinical specialties to
28adequately meet the needs of enrollees.

29(2) Consist of a majority of individuals who are practicing
30physicians, practicing pharmacists, and other practicing health
31professionals who are licensed to prescribe drugs.

32(c) Members of the board shall abstain from voting on any issue
33in which the member has a conflict of interest with respect to the
34issuer or a pharmaceutical manufacturer.

35(d) At least 20 percent of the board membership shall not have
36a conflict of interest with respect to the issuer or any
37pharmaceutical manufacturer.

38(e) The pharmacy and therapeutics committee shall meet at least
39quarterly and shall maintain written documentation of the rationale
P10   1for its decisions regarding the development of, or revisions to, the
2formulary drug list.

3(f) The pharmacy and therapeutics committee shall do all of the
4following:

5(1) Develop and document procedures to ensure appropriate
6drug review and inclusion.

7(2) Base clinical decisions on the strength of the scientific
8evidence and standards of practice, including assessing
9peer-reviewed medical literature, pharmacoeconomic studies,
10outcomes research data, and other related information.

11(3) Consider the therapeutic advantages of drugs in terms of
12safety and efficacy when selecting formulary drugs.

13(4) Review policies that guide exceptions and other utilization
14management processes, including drug utilization review, quantity
15limits, and therapeutic interchange.

16(5) Evaluate and analyze treatment protocols and procedures
17related to the plan’s formulary at least annually.

18(6) Review and approve all clinical prior authorization criteria,
19step therapy protocols, and quantity limit restrictions applied to
20each covered drug.

21(7) Review new United States Food and Drug
22Administration-approved drugs and new uses for existing drugs.

23(8) Ensure that the plan’s formulary drug list or lists cover a
24range of drugs across a broad distribution of therapeutic categories
25and classes and recommended drug treatment regimens that treat
26all disease states and do not discourage enrollment by any group
27of enrollees.

28(9) Ensure that the plan’s formulary drug list or lists provide
29appropriate access to drugs that are included in broadly accepted
30treatment guidelines and that are indicative of general best practices
31at the time.

32(g) This section shall be interpreted consistent with federal
33guidance issued under paragraph (3) of subdivision (a) of Section
34156.122 of Title 45 of the Code of Federal Regulations. This
35section shall apply to the individual, small group, and large group
36markets.

37

SEC. 4.  

Section 1367.42 is added to the Health and Safety
38Code
, to read:

39

1367.42.  

(a) For plan years commencing on or after January
401, 2017, a plan that provides essential health benefits shall allow
P11   1an enrollee to access prescription drug benefits at an in-network
2retail pharmacy unless the prescription drug is subject to restricted
3distribution by the United States Food and Drug Administration
4or requires special handling, provider coordination, or patient
5education that cannot be provided by a retail pharmacy.

6(b) A nongrandfathered individual or small group health plan
7contract may charge an enrollee a different cost sharing for
8 obtaining a covered drug at a retail pharmacy, but all cost sharing
9shall count toward the plan’s annual limitation on cost sharing
10consistent with Section 1367.006.

11

SEC. 5.  

Section 1367.205 of the Health and Safety Code is
12amended to read:

13

1367.205.  

(a) In addition to the list required to be provided
14under Section 1367.20, a health care service plan that provides
15prescription drug benefits and maintains one or more drug
16formularies shall do all of the following:

17(1) Post the formulary or formularies for each product offered
18by the plan on the plan’s Internet Web site in a manner that is
19accessible and searchable by potential enrollees, enrollees,
20providers, the general public, the department, and federal agencies
21as required by federal law or regulations.

22(2) Update the formularies posted pursuant to paragraph (1)
23with any change to those formularies on a monthly basis.

24(3) No later than six months after the date that a standard
25formulary template is developed under subdivision (b), use that
26template to display the formulary or formularies for each product
27offered by the plan.

28(b) (1) By January 1, 2017, the department and the Department
29of Insurance shall jointly, and with input from interested parties
30from at least one public meeting, develop a standard formulary
31template for purposes of paragraph (3) of subdivision (a). In
32developing the template, the department and Department of
33Insurance shall take into consideration existing requirements for
34reporting of formulary information established by the federal
35Centers for Medicare and Medicaid Services. To the extent feasible,
36in developing the template, the department and the Department of
37Insurance shall evaluate a way to include on the template, in
38addition to the information required to be included under paragraph
39(2), cost-sharing information for drugs subject to coinsurance.

P12   1(2) The standard formulary template shall include the
2notification described in subdivision (c) of Section 1363.01, and
3as applied to a particular formulary for a product offered by a plan,
4shall do all of the following:

5(A) Include information on cost-sharing tiers and utilization
6controls, including prior authorization or step therapy requirements,
7for each drug covered by the product.

8(B) Indicate any drugs on the formulary that are preferred over
9other drugs on the formulary.

10(C) Include information to educate enrollees about the
11differences between drugs administered or provided under a health
12care service plan’s medical benefit and drugs prescribed under a
13health care service plan’s prescription drug benefit and about how
14to obtain coverage information regarding drugs that are not covered
15under the plan’s prescription drug benefit.

16(D) Include information to educate enrollees that health care
17service plans that provide prescription drug benefits are required
18to have a method for enrollees to obtain prescription drugs not
19listed in the health plan drug formulary if the drugs are deemed
20medically necessary by a clinician pursuant to Section 1367.24.

21(E) Include information on which medications are covered,
22including both generic and brand name.

23(F) Include information on what tier of the plan’s drug formulary
24each medication is in.

25(c) For purposes of this section, “formulary” means the complete
26list of drugs preferred for use and eligible for coverage under a
27health care service plan product and includes the drugs covered
28under the pharmacy benefit of the product.

29

SEC. 6.  

Section 10123.192 of the Insurance Code is amended
30to read:

31

10123.192.  

(a) A health insurer that provides prescription drug
32benefits and maintains one or more drug formularies shall do all
33of the following:

34(1) Post the formulary or formularies for each product offered
35by the insurer on the insurer’s Internet Web site in a manner that
36is accessible and searchable by potential insureds, insureds,
37providers, the general public, the department, and federal agencies
38as required by federal law or regulations.

39(2) Update the formularies posted pursuant to paragraph (1)
40with any change to those formularies on a monthly basis.

P13   1(3) No later than six months after the date that a standard
2formulary template is developed under subdivision (b), use that
3template to display the formulary or formularies for each product
4offered by the insurer.

5(b) (1) By January 1, 2017, the department and the Department
6of Managed Health Care shall jointly, and with input from
7interested parties from at least one public meeting, develop a
8standard formulary template for purposes of paragraph (3) of
9subdivision (a). In developing the template, the department and
10Department of Managed Health Care shall take into consideration
11existing requirements for reporting of formulary information
12established by the federal Centers for Medicare and Medicaid
13Services. To the extent feasible, in developing the template, the
14department and the Department of Managed Health Care shall
15evaluate a way to include on the template, in addition to the
16information required to be included under paragraph (2),
17cost-sharing information for drugs subject to coinsurance.

18(2) The standard formulary template shall include a notification
19that the presence of a drug on the insurer’s formulary does not
20guarantee that an insured will be prescribed that drug by his or her
21prescribing provider for a particular medical condition. As applied
22to a particular formulary for a product offered by an insurer, the
23standard formulary template shall do all of the following:

24(A) Include information on cost-sharing tiers and utilization
25controls, including prior authorization or step therapy requirements,
26for each drug covered by the product.

27(B) Indicate any drugs on the formulary that are preferred over
28 other drugs on the formulary.

29(C) Include information to educate insureds about the differences
30between drugs administered or provided under a health insurer’s
31medical benefit and drugs prescribed under a health insurer’s
32prescription drug benefit and about how to obtain coverage
33information about drugs that are not covered under the health
34insurer’s prescription drug benefit.

35(D) Include information to educate insureds that health insurers
36that provide prescription drug benefits are required to have a
37method for insureds to obtain prescription drugs not listed in the
38health insurer’s drug formulary if the drugs are deemed to be
39medically necessary by a clinician pursuant to Section 1367.24 of
40the Health and Safety Code, as required by clause (iv) of
P14   1subparagraph (A) of paragraph (2) of subdivision (a) of Section
210112.27.

3(E) Include information on which medications are covered,
4including both generic and brand name.

5(F) Include information on what tier of the health insurer’s drug
6formulary each medication is in.

7(c) The commissioner may adopt regulations as may be
8necessary to carry out the purposes of this section. In adopting
9regulations, the commissioner shall comply with Chapter 3.5
10(commencing with Section 11340) of Part 1 of Division 3 of Title
112 of the Government Code.

12(d) For purposes of this section, “formulary” means the complete
13list of drugs preferred for use and eligible for coverage under a
14health insurance product and includes the drugs covered under the
15pharmacy benefit of the product.

16

SEC. 7.  

Section 10123.193 is added to the Insurance Code, to
17read:

18

10123.193.  

(a) The Legislature hereby finds and declares all
19of the following:

20(1) The federal Patient Protection and Affordable Care Act, its
21implementing regulations and guidance, and related state law
22prohibit discrimination based on a person’s expected length of life,
23present or predicted disability, degree of medical dependency,
24quality of life, or other health conditions, including benefit designs
25that have the effect of discouraging the enrollment of individuals
26with significant health needs.

27(2) The Legislature intends to build on existing state and federal
28law to ensure that health coverage benefit designs do not have an
29unreasonable discriminatory impact on chronically ill individuals,
30and to ensure affordability of outpatient prescription drugs.

31(3) Assignment of all or most prescription medications that treat
32a specific medical condition to the highest cost tiers of a formulary
33may effectively discourage enrollment by chronically ill
34individuals, and may result in lower adherence to a prescription
35drug treatment regimen.

36(b) A nongrandfathered policy of health insurance that is offered,
37amended, or renewed on or after January 1, 2017, shall comply
38with this section. The cost-sharing limits established by this section
39apply only to outpatient prescription drugs covered by the policy
P15   1that constitute essential health benefits, as defined by Section
210112.27.

3(c) begin delete(1)end deletebegin deleteend deleteA policy of health insurance that provides coverage for
4outpatient prescription drugs shall cover medically necessary
5prescription drugs, including nonformulary drugs determined to
6be medically necessary consistent with this part.

begin delete

7(2) If a nonformulary drug is authorized consistent with this
8part, the cost sharing shall be the same as for a formulary drug.

end delete

9(d) Copayments, coinsurance, and other cost sharing for
10outpatient prescription drugs shall be reasonable so as to allow
11access to medically necessary outpatient prescription drugs.

12(e) (1) Consistent with federal law and guidance, the formulary
13or formularies for outpatient prescription drugs maintained by the
14health insurer shall not discourage the enrollment of individuals
15with health conditions and shall not reduce the generosity of the
16benefit for insureds with a particular condition in a manner that is
17not based on a clinical indication or reasonable medical
18management practices. Section 1342.7 of the Health and Safety
19Code and any regulations adopted pursuant to that section shall
20be interpreted in a manner that is consistent with this section.

21(2) For combination antiretroviral drug treatments that are
22medically necessary for the treatment of AIDS/HIV, a policy of
23health insurance shall cover a single-tablet drug regimen that is as
24effective as a multitablet regimen unless, consistent with clinical
25guidelines and peer-reviewed scientific and medical literature, the
26multitablet regimen is clinically equally or more effective and
27more likely to result in adherence to a drug regimen.

28(3) Any limitation or utilization management shall be consistent
29with and based on clinical guidelines and peer-reviewed scientific
30and medical literature.

31(f) (1) With respect to an individual or group policy of health
32insurance subject to Section 10112.28, the copayment, coinsurance,
33or any other form of cost sharing for a covered outpatient
34prescription drug for an individual prescription for a supply of up
35to 30 days shall not exceed two hundred fifty dollars ($250), except
36as provided in paragraphs (2) and (3).

37(2) With respect to products with actuarial value at or equivalent
38to the bronze level, cost sharing for a covered outpatient
39prescription drug for an individual prescription for a supply of up
P16   1to 30 days shall not exceed five hundred dollars ($500), except as
2provided in paragraph (3).

3(3) For a policy of health insurance that is a “high deductible
4health plan” under the definition set forth in Section 223(c)(2) of
5Title 26 of the United States Code, paragraphs (1) and (2) of this
6subdivision shall apply only once an insured’s deductible has been
7satisfied for the year.

8(4) For a nongrandfathered individual or small group policy of
9health insurance, thebegin insert annualend insert deductible for outpatient drugs, if
10any, shall not exceed twice the amount specified in paragraph (1)
11or (2), respectively.

12(5) For purposes of paragraphs (1) and (2), “any other form of
13cost sharing” shall not include deductible.

14(g) (1) If a policy of health insurancebegin insert offered, sold, or renewed
15in the nongrandfathered individual or small group marketend insert

16 maintains a drug formulary grouped into tiers that includes a fourth
17 tier, a policy of health insurance shall use the following definitions
18for each tier of the drug formulary:

19(A) Tier one shall consist of most generic drugs and low-cost
20preferred brand name drugs.

21(B) Tier two shall consist of nonpreferred generic drugs,
22preferred brand name drugs, and any other drugs recommended
23by the health insurer’s pharmacy and therapeutics committee based
24on safety, efficacy, and cost.

25(C) Tier three shall consist of nonpreferred brand name drugs
26 or drugs that are recommended by the health insurer’s pharmacy
27and therapeutics committee based on safety, efficacy, and cost, or
28that generally have a preferred and often less costly therapeutic
29alternative at a lower tier.

30(D) Tier four shall consist of drugs that are biologics, drugs that
31the FDA or the manufacturer requires to be distributed through a
32specialty pharmacy, drugs that require the insured to have special
33training or clinical monitoring for self-administration, or drugs
34that cost the health insurer more than six hundred dollars ($600)
35net of rebates for a one-month supply.

begin insert

36(2) In placing specific drugs on specific tiers, or choosing to
37place a drug on the formulary, the insurer shall take into account
38the other provisions of this section and this part.

end insert
begin delete

39(2)

end delete

P17   1begin insert(3)end insert A policy of health insurance may maintain a drug formulary
2with fewer than four tiers.

begin delete

3(3)

end delete

4begin insert(4)end insert This section shall not be construed to limit a health insurer
5from placing any drug in a lower tier.

6(h) This section shall not be construed to require a health insurer
7to impose cost sharing. This section shall not be construed to
8require cost sharing for prescription drugs that state or federal law
9otherwise requires to be provided without cost sharing.

10(i) A policy of health insurance shall ensure that the placement
11of prescription drugs on formulary tiers is based on clinically
12indicated, reasonable medical management practices.

13(j) In the provision of outpatient prescription drug coverage, a
14health insurer may utilize formulary, prior authorization, step
15therapy, or other reasonable medical management practices
16consistent with this part.

17(k) This section shall remain in effect only until January 1, 2020,
18and as of that date is repealed, unless a later enacted statute, that
19is enacted before January 1, 2020, deletes or extends that date.

20

SEC. 8.  

Section 10123.193 is added to the Insurance Code, to
21read:

22

10123.193.  

(a) The Legislature hereby finds and declares all
23of the following:

24(1) The federal Patient Protection and Affordable Care Act, its
25implementing regulations and guidance, and related state law
26prohibit discrimination based on a person’s expected length of life,
27present or predicted disability, degree of medical dependency,
28quality of life, or other health conditions, including benefit designs
29that have the effect of discouraging the enrollment of individuals
30with significant health needs.

31(2) The Legislature intends to build on existing state and federal
32law to ensure that health coverage benefit designs do not have an
33unreasonable discriminatory impact on chronically ill individuals,
34and to ensure affordability of outpatient prescription drugs.

35(3) Assignment of all or most prescription medications that treat
36a specific medical condition to the highest cost tiers of a formulary
37may effectively discourage enrollment by chronically ill
38individuals, and may result in lower adherence to a prescription
39drug treatment regimen.

P18   1(b) A nongrandfathered policy of health insurance that is offered,
2amended, or renewed on or after January 1, 2017, shall comply
3with this section.

4(c) begin delete(1) end deleteA policy of health insurance that provides coverage for
5outpatient prescription drugs shall cover medically necessary
6prescription drugs, including nonformulary drugs determined to
7be medically necessary consistent with this part.

begin delete

8(2) If a nonformulary drug is authorized consistent with this
9part, the cost sharing shall be the same as for a formulary drug.

end delete

10(d) Copayments, coinsurance, and other cost sharing for
11outpatient prescription drugs shall be reasonable so as to allow
12access to medically necessary outpatient prescription drugs.

13(e) (1) Consistent with federal law and guidance, the formulary
14or formularies for outpatient prescription drugs maintained by the
15health insurer shall not discourage the enrollment of individuals
16with health conditions and shall not reduce the generosity of the
17benefit for insureds with a particular condition in a manner that is
18not based on a clinical indication or reasonable medical
19management practices. Section 1342.7 of the Health and Safety
20Code and any regulations adopted pursuant to that section shall
21be interpreted in a manner that is consistent with this section.

22(2) For combination antiretroviral drug treatments that are
23medically necessary for the treatment of AIDS/HIV, a policy of
24health insurance shall cover a single-tablet drug regimen that is as
25effective as a multitablet regimen unless, consistent with clinical
26guidelines and peer-reviewed scientific and medical literature, the
27multitablet regimen is clinically equally or more effective and
28more likely to result in adherence to a drug regimen.

29(3) Any limitation or utilization management shall be consistent
30with and based on clinical guidelines and peer-reviewed scientific
31and medical literature.

begin delete

32(f) (1) A policy of health insurance may maintain a drug
33formulary with fewer than four tiers.

end delete
begin delete

34(2) This section shall not be construed to limit a health insurer
35from placing any drug in a lower tier.

end delete
begin delete

36(g)

end delete

37begin insert(f)end insert This section shall not be construed to require a health insurer
38to impose cost sharing. This section shall not be construed to
39require cost sharing for prescription drugs that state or federal law
40otherwise requires to be provided without cost sharing.

begin delete

P19   1(h)

end delete

2begin insert(g)end insert A policy of health insurance shall ensure that the placement
3of prescription drugs on formulary tiers is based on clinically
4indicated, reasonable medical management practices.

begin delete

5(i)

end delete

6begin insert(h)end insert In the provision of outpatient prescription drug coverage, a
7health insurer may utilize formulary, prior authorization, step
8therapy, or other reasonable medical management practices
9consistent with this part.

begin delete

10(j)

end delete

11begin insert(i)end insert This section shall become operative on January 1, 2020.

12

SEC. 9.  

Section 10123.201 is added to the Insurance Code, to
13read:

14

10123.201.  

(a) A policy of health insurance that covers
15outpatient prescription drugs shall cover medically necessary drugs.
16The policy may provide for step therapy and prior authorization
17consistent with Section 1342.7 of the Health and Safety Code and
18any regulations adopted pursuant to that section.

begin delete

19(b) Any insurer that disapproves a request made pursuant to
20subdivision (a) by a prescribing provider to obtain authorization
21for a nonformulary drug shall provide the reasons for the
22disapproval in a notice provided to the insured. The notice shall
23indicate that the insured may file a complaint with the insurer if
24the insured objects to the disapproval, including any alternative
25drug or treatment offered by the insurer. The notice shall comply
26with Section 10133.661.

end delete
begin delete

27(c)

end delete

28begin insert(b)end insert (1) Commencing January 1, 2017, an insurer shall maintain
29a pharmacy and therapeutics committee that shall be responsible
30for developing, maintaining, and overseeing any drug formulary
31list. If the insurer delegates responsibility for the formulary to any
32entity, the obligation of the insurer to comply with this part shall
33not be waived.

34(2) The pharmacy and therapeutics committee board membership
35shall conform with both of the following:

36(A) Represent a sufficient number of clinical specialties to
37adequately meet the needs of insureds.

38(B) Consist of a majority of individuals who are practicing
39physicians, practicing pharmacists, and other practicing health
40professionals who are licensed to prescribe drugs.

P20   1(3) Members of the board shall abstain from voting on any issue
2in which the member has a conflict of interest with respect to the
3issuer or a pharmaceutical manufacturer.

4(4) At least 20 percent of the board membership shall not have
5a conflict of interest with respect to the issuer or any
6pharmaceutical manufacturer.

7(5) The pharmacy and therapeutics committee shall meet at least
8quarterly and shall maintain written documentation of the rationale
9for its decisions regarding the development of, or revisions to, the
10formulary drug list.

11(6) The pharmacy and therapeutics committee shall do all of
12the following:

13(A) Develop and document procedures to ensure appropriate
14drug review and inclusion.

15(B) Base clinical decisions on the strength of the scientific
16evidence and standards of practice, including assessing
17peer-reviewed medical literature, pharmacoeconomic studies,
18outcomes research data, and other related information.

19(C) Consider the therapeutic advantages of drugs in terms of
20safety and efficacy when selecting formulary drugs.

21(D) Review policies that guide exceptions and other utilization
22management processes, including drug utilization review, quantity
23limits, and therapeutic interchange.

24(E) Evaluate and analyze treatment protocols and procedures
25related to the insurer’s formulary at least annually.

26(F) Review and approve all clinical prior authorization criteria,
27step therapy protocols, and quantity limit restrictions applied to
28each covered drug.

29(G) Review new United States Food and Drug
30Administration-approved drugs and new uses for existing drugs.

31(H) Ensure the insurer’s formulary drug list or lists cover a range
32of drugs across a broad distribution of therapeutic categories and
33classes and recommended drug treatment regimens that treat all
34disease states and does not discourage enrollment by any group
35of insureds.

36(I) Ensure the insurer’s formulary drug list or lists provide
37appropriate access to drugs that are included in broadly accepted
38treatment guidelines and that are indicative of general best practices
39at the time.

P21   1(7) This subdivision shall be interpreted consistent with federal
2guidance issued under paragraph (3) of subdivision (a) of Section
3156.122 of Title 45 of the Code of Federal Regulations. This
4subdivision shall apply to the individual, small group, and large
5group markets.

begin delete

6(d)

end delete

7begin insert(c)end insert (1) A health insurer may impose prior authorization
8requirements on prescription drug benefits, consistent with the
9requirements of this part.

10(2) (A) When there is more than one drug that is appropriate
11for the treatment of a medical condition, a health insurer may
12require step therapy.

13(B) In circumstances where an insured is changing policies, the
14new policy shall not require the insureds to repeat step therapy
15when that insured is already being treated for a medical condition
16by a prescription drug provided that the drug is appropriately
17prescribed and is considered safe and effective for the insured’s
18condition. Nothing in this section shall preclude the new policy
19from imposing a prior authorization requirement pursuant to
20subdivision (a) for the continued coverage of a prescription drug
21prescribed pursuant to step therapy imposed by the former policy,
22or preclude the prescribing provider from prescribing another drug
23covered by the new policy that is medically appropriate for the
24insured.

25(3) An insurer shall provide coverage for the medically
26necessary dosage and quantity of the drug prescribed for the
27treatment of a medical condition consistent with professionally
28recognized standards of practice.

29(4) For plan years commencing on or after January 1, 2017, an
30insurer that provides essential health benefits shall allow an insured
31to access prescription drug benefits at an in-network retail
32pharmacy unless the prescription drug is subject to restricted
33distribution by the United States Food and Drug Administration
34or requires special handling, provider coordination, or patient
35education that cannot be provided by a retail pharmacy.begin delete An insurer
36that provides essential health benefitsend delete
begin insert A nongrandfathered
37individual or small group health insurerend insert
may charge an insured a
38different cost sharing for obtaining a covered drug at a retail
39pharmacy, but all cost sharing shall count toward the policy’s
40annual limitation on cost sharing consistent with Section 10112.28.

begin delete

P22   1(e)

end delete

2begin insert(d)end insert Every health insurer that provides prescription drug benefits
3shall maintain all of the following information, which shall be
4made available to the commissioner upon request:

5(1) The complete drug formulary or formularies of the insurer,
6if the insurer maintains a formulary, including a list of the
7prescription drugs on the formulary of the insurer by major
8therapeutic category with an indication of whether any drugs are
9preferred over other drugs.

10(2) Records developed by the pharmacy and therapeutic
11committee of the insurer, or by others responsible for developing,
12modifying, and overseeing formularies, including medical groups,
13individual practice associations, and contracting pharmaceutical
14benefit management companies, used to guide the drugs prescribed
15for the insureds of the insurer, that fully describe the reasoning
16behind formulary decisions.

17(3) Any insurer arrangements with prescribing providers,
18medical groups, individual practice associations, pharmacists,
19contracting pharmaceutical benefit management companies, or
20other entities that are associated with activities of the insurer to
21encourage formulary compliance or otherwise manage prescription
22drug benefits.

begin delete

23(f)

end delete

24begin insert(e)end insert If an insurer provides prescription drug benefits, the
25commissioner shall, as part of its market conduct examination,
26review the performance of the insurer in providing those benefits,
27including, but not limited to, a review of the procedures and
28information maintained pursuant to this section, and describe the
29performance of the insurer as part of its report issued as part of its
30market conduct examination.

begin delete

31(g)

end delete

32begin insert(f)end insert The commissioner shall not publicly disclose any information
33reviewed pursuant to this section that is determined by the
34commissioner to be confidential pursuant to state law.

begin delete

35(h)

end delete

36begin insert(g)end insert For purposes of this section, the following definitions shall
37apply:

38(1) “Authorization” means approval by the health insurer to
39provide payment for the prescription drug.

P23   1(2) “Step therapy” means a type of protocol that specifies the
2sequence in which different prescription drugs for a given medical
3condition and medically appropriate for a particular patient are to
4be prescribed.

begin delete

5(i) (1)

end delete

6begin insert(h)end insert Nonformulary prescription drugs shall include any drug for
7which an insured’s copayment or out-of-pocket costs are different
8than the copayment for a formulary prescription drug, except as
9otherwise provided by law or regulation.

begin delete

10(2) If a nonformulary drug is authorized consistent with this
11section, the cost sharing shall be the same as for a formulary drug
12consistent with, until January 1, 2020, subdivision (f) of Section
1310123.193.

14(j)

end delete

15begin insert(i)end insert Nothing in this section shall be construed to affect an
16insured’s or policyholder’s eligibility to submit a complaint to the
17department for review or to apply to the department for an
18independent medical review under Article 3.5 (commencing with
19Section 10169).

begin delete

20(k)

end delete

21begin insert(j)end insert Nothing in this section shall be construed to restrict or impair
22the application of any other provision of this part.

23

SEC. 10.  

No reimbursement is required by this act pursuant to
24Section 6 of Article XIII B of the California Constitution because
25the only costs that may be incurred by a local agency or school
26district will be incurred because this act creates a new crime or
27infraction, eliminates a crime or infraction, or changes the penalty
28for a crime or infraction, within the meaning of Section 17556 of
29the Government Code, or changes the definition of a crime within
30the meaning of Section 6 of Article XIII B of the California
31Constitution.



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