BILL NUMBER: AB 339	CHAPTERED
	BILL TEXT

	CHAPTER  619
	FILED WITH SECRETARY OF STATE  OCTOBER 8, 2015
	APPROVED BY GOVERNOR  OCTOBER 8, 2015
	PASSED THE SENATE  SEPTEMBER 10, 2015
	PASSED THE ASSEMBLY  SEPTEMBER 11, 2015
	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

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, 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, the annual 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 a nongrandfathered individual or small group 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, 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 a nongrandfathered individual or small
group 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.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Section 1342.71 is added to the Health and Safety Code,
to read:
   1342.71.  (a) The Legislature hereby finds and declares all of the
following:
   (1) The federal Patient Protection and Affordable Care Act, its
implementing regulations and guidance, and related state law prohibit
discrimination based on a person's expected length of life, present
or predicted disability, degree of medical dependency, quality of
life, or other health conditions, including benefit designs that have
the effect of discouraging the enrollment of individuals with
significant health needs.
   (2) The Legislature intends 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,
and to ensure affordability of outpatient prescription drugs.
   (3) 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, and may result in lower adherence to a prescription drug
treatment regimen.
   (b) A nongrandfathered health care service plan contract that is
offered, amended, or renewed on or after January 1, 2017, shall
comply with this section. The cost-sharing limits established by this
section apply only to outpatient prescription drugs covered by the
contract that constitute essential health benefits, as defined in
Section 1367.005.
   (c) A health care service plan contract that provides coverage for
outpatient prescription drugs shall cover medically necessary
prescription drugs, including nonformulary drugs determined to be
medically necessary consistent with this chapter.
   (d) (1) Consistent with federal law and guidance, the formulary or
formularies for outpatient prescription drugs maintained by the
health care service plan shall not discourage the enrollment of
individuals with health conditions and shall not reduce the
generosity of the benefit for enrollees with a particular condition
in a manner that is not based on a clinical indication or reasonable
medical management practices. Section 1342.7 and any regulations
adopted pursuant to that section shall be interpreted in a manner
that is consistent with this section.
   (2) For combination antiretroviral drug treatments that are
medically necessary for the treatment of AIDS/HIV, a health care
service plan contract shall cover a single-tablet drug regimen that
is as effective as a multitablet regimen unless, consistent with
clinical guidelines and peer-reviewed scientific and medical
literature, the multitablet regimen is clinically equally or more
effective and more likely to result in adherence to a drug regimen.
   (e) (1) With respect to an individual or group health care service
plan contract subject to Section 1367.006, the copayment,
coinsurance, or any other form of cost sharing for a covered
outpatient prescription drug for an individual prescription for a
supply of up to 30 days shall not exceed two hundred fifty dollars
($250), except as provided in paragraphs (2) and (3).
   (2) With respect to products with actuarial value at, or
equivalent to, the bronze level, cost sharing for a covered
outpatient prescription drug for an individual prescription for a
supply of up to 30 days shall not exceed five hundred dollars ($500),
except as provided in paragraph (3).
   (3) For a health care service plan contract that is a "high
deductible health plan" under the definition set forth in Section 223
(c)(2) of Title 26 of the United States Code, paragraphs (1) and (2)
of this subdivision shall apply only once an enrollee's deductible
has been satisfied for the year.
   (4) For a nongrandfathered individual or small group health care
service plan contract, the annual deductible for outpatient drugs, if
any, shall not exceed twice the amount specified in paragraph (1) or
(2), respectively.
   (5) For purposes of paragraphs (1) and (2), "any other form of
cost sharing" shall not include deductible.
   (f) (1) If a health care service plan contract for a
nongrandfathered individual or small group product maintains a drug
formulary grouped into tiers that includes a fourth tier, a health
care service plan contract shall use the following definitions for
each tier of the drug formulary:
   (A) Tier one shall consist of most generic drugs and low-cost
preferred brand name drugs.
   (B) Tier two shall consist of nonpreferred generic drugs,
preferred brand name drugs, and any other drugs recommended by the
health care service plan's pharmacy and therapeutics committee based
on safety, efficacy, and cost.
   (C) Tier three shall consist of nonpreferred brand name drugs or
drugs that are recommended by the health care service plan's pharmacy
and therapeutics committee based on safety, efficacy, and cost, or
that generally have a preferred and often less costly therapeutic
alternative at a lower tier.
   (D) Tier four shall consist of drugs that are biologics, drugs
that the FDA or the manufacturer requires to be distributed through a
specialty pharmacy, drugs that require the enrollee to have special
training or clinical monitoring for self-administration, or drugs
that cost the health plan more than six hundred dollars ($600) net of
rebates for a one-month supply.
   (2) In placing specific drugs on specific tiers, or choosing to
place a drug on the formulary, the health care service plan shall
take into account the other provisions of this section and this
chapter.
   (3) A health care service plan contract may maintain a drug
formulary with fewer than four tiers.
   (4) This section shall not be construed to limit a health care
service plan from placing any drug in a lower tier.
   (g) A health care service plan contract shall ensure that the
placement of prescription drugs on formulary tiers is based on
clinically indicated, reasonable medical management practices.
   (h) This section shall not be construed to require a health care
service plan to impose cost sharing. This section shall not be
construed to require cost sharing for prescription drugs that state
or federal law otherwise requires to be provided without cost
sharing.
   (i) This section does not require or authorize a health care
service plan that contracts with the State Department of Health Care
Services to provide services to Medi-Cal beneficiaries to provide
coverage for prescription drugs that are not required pursuant to
those programs or contracts, or to limit or exclude any prescription
drugs that are required by those programs or contracts.
   (j) In the provision of outpatient prescription drug coverage, a
health care service plan may utilize formulary, prior authorization,
step therapy, or other reasonable medical management practices
consistent with this chapter.
   (k) This section shall not apply to a health care service plan
that contracts with the State Department of Health Care Services.
   (l) This section shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2020, deletes or extends
that date.
  SEC. 2.  Section 1342.71 is added to the Health and Safety Code, to
read:
   1342.71.  (a) The Legislature hereby finds and declares all of the
following:
   (1) The federal Patient Protection and Affordable Care Act, its
implementing regulations and guidance, and related state law prohibit
discrimination based on a person's expected length of life, present
or predicted disability, degree of medical dependency, quality of
life, or other health conditions, including benefit designs that have
the effect of discouraging the enrollment of individuals with
significant health needs.
   (2) The Legislature intends 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,
and to ensure affordability of outpatient prescription drugs.
   (3) 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, and may result in lower adherence to a prescription drug
treatment regimen.
   (b) A nongrandfathered health care service plan contract that is
offered, amended, or renewed on or after January 1, 2017, shall
comply with this section.
   (c) A health care service plan contract that provides coverage for
outpatient prescription drugs shall cover medically necessary
prescription drugs, including nonformulary drugs determined to be
medically necessary consistent with this chapter.
   (d) (1) Consistent with federal law and guidance, the formulary or
formularies for outpatient prescription drugs maintained by the
health care service plan shall not discourage the enrollment of
individuals with health conditions and shall not reduce the
generosity of the benefit for enrollees with a particular condition
in a manner that is not based on a clinical indication or reasonable
medical management practices. Section 1342.7 and any regulations
adopted pursuant to that section shall be interpreted in a manner
that is consistent with this section.
   (2) For combination antiretroviral drug treatments that are
medically necessary for the treatment of AIDS/HIV, a health care
service plan contract shall cover a single-tablet drug regimen that
is as effective as a multitablet regimen unless, consistent with
clinical guidelines and peer-reviewed scientific and medical
literature, the multitablet regimen is clinically equally or more
effective and more likely to result in adherence to a drug regimen.
   (e) A health care service plan contract shall ensure that the
placement of prescription drugs on formulary tiers is based on
clinically indicated, reasonable medical management practices.
   (f) This section shall not be construed to require a health care
service plan to impose cost sharing. This section shall not be
construed to require cost sharing for prescription drugs that state
or federal law otherwise requires to be provided without cost
sharing.
   (g) This section does not require or authorize a health care
service plan that contracts with the State Department of Health Care
Services to provide services to Medi-Cal beneficiaries to provide
coverage for prescription drugs that are not required pursuant to
those programs or contracts, or to limit or exclude any prescription
drugs that are required by those programs or contracts.
   (h) In the provision of outpatient prescription drug coverage, a
health care service plan may utilize formulary, prior authorization,
step therapy, or other reasonable medical management practices
consistent with this chapter.
   (i) This section shall not apply to a health care service plan
that contracts with the State Department of Health Care Services.
   (j) This section shall become operative on January 1, 2020.
  SEC. 3.  Section 1367.41 is added to the Health and Safety Code,
immediately following Section 1367.4, to read:
   1367.41.  (a) Commencing January 1, 2017, a health care service
plan shall maintain a pharmacy and therapeutics committee that shall
be responsible for developing, maintaining, and overseeing any drug
formulary list. If the plan delegates responsibility for the
formulary to any entity, the obligation of the plan to comply with
this chapter shall not be waived.
   (b) The pharmacy and therapeutics committee board membership shall
conform with both of the following:
   (1) Represent a sufficient number of clinical specialties to
adequately meet the needs of enrollees.
   (2) Consist of a majority of individuals who are practicing
physicians, practicing pharmacists, and other practicing health
professionals who are licensed to prescribe drugs.
   (c) Members of the board shall abstain from voting on any issue in
which the member has a conflict of interest with respect to the
issuer or a pharmaceutical manufacturer.
   (d) At least 20 percent of the board membership shall not have a
conflict of interest with respect to the issuer or any pharmaceutical
manufacturer.
   (e) The pharmacy and therapeutics committee shall meet at least
quarterly and shall maintain written documentation of the rationale
for its decisions regarding the development of, or revisions to, the
formulary drug list.
   (f) The pharmacy and therapeutics committee shall do all of the
following:
   (1) Develop and document procedures to ensure appropriate drug
review and inclusion.
   (2) Base clinical decisions on the strength of the scientific
evidence and standards of practice, including assessing peer-reviewed
medical literature, pharmacoeconomic studies, outcomes research
data, and other related information.
   (3) Consider the therapeutic advantages of drugs in terms of
safety and efficacy when selecting formulary drugs.
   (4) Review policies that guide exceptions and other utilization
management processes, including drug utilization review, quantity
limits, and therapeutic interchange.
   (5) Evaluate and analyze treatment protocols and procedures
related to the plan's formulary at least annually.
   (6) Review and approve all clinical prior authorization criteria,
step therapy protocols, and quantity limit restrictions applied to
each covered drug.
   (7) Review new United States Food and Drug Administration-approved
drugs and new uses for existing drugs.
   (8) Ensure that the plan's formulary drug list or lists cover a
range of drugs across a broad distribution of therapeutic categories
and classes and recommended drug treatment regimens that treat all
disease states and do not discourage enrollment by any group of
enrollees.
   (9) Ensure that the plan's formulary drug list or lists provide
appropriate access to drugs that are included in broadly accepted
treatment guidelines and that are indicative of general best
practices at the time.
   (g) This section shall be interpreted consistent with federal
guidance issued under paragraph (3) of subdivision (a) of Section
156.122 of Title 45 of the Code of Federal Regulations. This section
shall apply to the individual, small group, and large group markets.
  SEC. 4.  Section 1367.42 is added to the Health and Safety Code, to
read:
   1367.42.  (a) For plan years commencing on or after January 1,
2017, a plan that provides essential health benefits shall allow an
enrollee to access prescription drug benefits at an in-network retail
pharmacy unless the prescription drug is subject to restricted
distribution by the United States Food and Drug Administration or
requires special handling, provider coordination, or patient
education that cannot be provided by a retail pharmacy.
   (b) A nongrandfathered individual or small group health plan
contract may charge an enrollee a different cost sharing for
obtaining a covered drug at a retail pharmacy, but all cost sharing
shall count toward the plan's annual limitation on cost sharing
consistent with Section 1367.006.
  SEC. 5.  Section 1367.205 of the Health and Safety Code is amended
to read:
   1367.205.  (a) In addition to the list required to be provided
under Section 1367.20, a health care service plan that provides
prescription drug benefits and maintains one or more drug formularies
shall do all of the following:
   (1) Post the formulary or formularies for each product offered by
the plan on the plan's Internet Web site in a manner that is
accessible and searchable by potential enrollees, enrollees,
providers, the general public, the department, and federal agencies
as required by federal law or regulations.
   (2) Update the formularies posted pursuant to paragraph (1) with
any change to those formularies on a monthly basis.
   (3) No later than six months after the date that a standard
formulary template is developed under subdivision (b), use that
template to display the formulary or formularies for each product
offered by the plan.
   (b) (1) By January 1, 2017, the department and the Department of
Insurance shall jointly, and with input from interested parties from
at least one public meeting, develop a standard formulary template
for purposes of paragraph (3) of subdivision (a). In developing the
template, the department and Department of Insurance shall take into
consideration existing requirements for reporting of formulary
information established by the federal Centers for Medicare and
Medicaid Services. To the extent feasible, in developing the
template, the department and the Department of Insurance shall
evaluate a way to include on the template, in addition to the
information required to be included under paragraph (2), cost-sharing
information for drugs subject to coinsurance.
   (2) The standard formulary template shall include the notification
described in subdivision (c) of Section 1363.01, and as applied to a
particular formulary for a product offered by a plan, shall do all
of the following:
   (A) Include information on cost-sharing tiers and utilization
controls, including prior authorization or step therapy requirements,
for each drug covered by the product.
   (B) Indicate any drugs on the formulary that are preferred over
other drugs on the formulary.
   (C) Include information to educate enrollees about the differences
between drugs administered or provided under a health care service
plan's medical benefit and drugs prescribed under a health care
service plan's prescription drug benefit and about how to obtain
coverage information regarding drugs that are not covered under the
plan's prescription drug benefit.
   (D) Include information to educate enrollees that health care
service plans that provide prescription drug benefits are required to
have a method for enrollees to obtain prescription drugs not listed
in the health plan drug formulary if the drugs are deemed medically
necessary by a clinician pursuant to Section 1367.24.
   (E) Include information on which medications are covered,
including both generic and brand name.
   (F) Include information on what tier of the plan's drug formulary
each medication is in.
   (c) For purposes of this section, "formulary" means the complete
list of drugs preferred for use and eligible for coverage under a
health care service plan product and includes the drugs covered under
the pharmacy benefit of the product.
  SEC. 6.  Section 10123.192 of the Insurance Code is amended to
read:
   10123.192.  (a) A health insurer that provides prescription drug
benefits and maintains one or more drug formularies shall do all of
the following:
   (1) Post the formulary or formularies for each product offered by
the insurer on the insurer's Internet Web site in a manner that is
accessible and searchable by potential insureds, insureds, providers,
the general public, the department, and federal agencies as required
by federal law or regulations.
   (2) Update the formularies posted pursuant to paragraph (1) with
any change to those formularies on a monthly basis.
   (3) No later than six months after the date that a standard
formulary template is developed under subdivision (b), use that
template to display the formulary or formularies for each product
offered by the insurer.
   (b) (1) By January 1, 2017, the department and the Department of
Managed Health Care shall jointly, and with input from interested
parties from at least one public meeting, develop a standard
formulary template for purposes of paragraph (3) of subdivision (a).
In developing the template, the department and Department of Managed
Health Care shall take into consideration existing requirements for
reporting of formulary information established by the federal Centers
for Medicare and Medicaid Services. To the extent feasible, in
developing the template, the department and the Department of Managed
Health Care shall evaluate a way to include on the template, in
addition to the information required to be included under paragraph
(2), cost-sharing information for drugs subject to coinsurance.
   (2) The standard formulary template shall include a notification
that the presence of a drug on the insurer's formulary does not
guarantee that an insured will be prescribed that drug by his or her
prescribing provider for a particular medical condition. As applied
to a particular formulary for a product offered by an insurer, the
standard formulary template shall do all of the following:
   (A) Include information on cost-sharing tiers and utilization
controls, including prior authorization or step therapy requirements,
for each drug covered by the product.
   (B) Indicate any drugs on the formulary that are preferred over
other drugs on the formulary.
   (C) Include information to educate insureds about the differences
between drugs administered or provided under a health insurer's
medical benefit and drugs prescribed under a health insurer's
prescription drug benefit and about how to obtain coverage
information about drugs that are not covered under the health insurer'
s prescription drug benefit.
   (D) Include information to educate insureds that health insurers
that provide prescription drug benefits are required to have a method
for insureds to obtain prescription drugs not listed in the health
insurer's drug formulary if the drugs are deemed to be medically
necessary by a clinician pursuant to Section 1367.24 of the Health
and Safety Code, as required by clause (iv) of subparagraph (A) of
paragraph (2) of subdivision (a) of Section 10112.27.
   (E) Include information on which medications are covered,
including both generic and brand name.
   (F) Include information on what tier of the health insurer's drug
formulary each medication is in.
   (c) The commissioner may adopt regulations as may be necessary to
carry out the purposes of this section. In adopting regulations, the
commissioner shall comply with Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code.
   (d) For purposes of this section, "formulary" means the complete
list of drugs preferred for use and eligible for coverage under a
health insurance product and includes the drugs covered under the
pharmacy benefit of the product.
  SEC. 7.  Section 10123.193 is added to the Insurance Code, to read:

   10123.193.  (a) The Legislature hereby finds and declares all of
the following:
   (1) The federal Patient Protection and Affordable Care Act, its
implementing regulations and guidance, and related state law prohibit
discrimination based on a person's expected length of life, present
or predicted disability, degree of medical dependency, quality of
life, or other health conditions, including benefit designs that have
the effect of discouraging the enrollment of individuals with
significant health needs.
   (2) The Legislature intends 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,
and to ensure affordability of outpatient prescription drugs.
   (3) 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, and may result in lower adherence to a prescription drug
treatment regimen.
   (b) A nongrandfathered policy of health insurance that is offered,
amended, or renewed on or after January 1, 2017, shall comply with
this section. The cost-sharing limits established by this section
apply only to outpatient prescription drugs covered by the policy
that constitute essential health benefits, as defined by Section
10112.27.
   (c) A policy of health insurance that provides coverage for
outpatient prescription drugs shall cover medically necessary
prescription drugs, including nonformulary drugs determined to be
medically necessary consistent with this part.
   (d) Copayments, coinsurance, and other cost sharing for outpatient
prescription drugs shall be reasonable so as to allow access to
medically necessary outpatient prescription drugs.
   (e) (1) Consistent with federal law and guidance, the formulary or
formularies for outpatient prescription drugs maintained by the
health insurer shall not discourage the enrollment of individuals
with health conditions and shall not reduce the generosity of the
benefit for insureds with a particular condition in a manner that is
not based on a clinical indication or reasonable medical management
practices. Section 1342.7 of the Health and Safety Code and any
regulations adopted pursuant to that section shall be interpreted in
a manner that is consistent with this section.
   (2) For combination antiretroviral drug treatments that are
medically necessary for the treatment of AIDS/HIV, a policy of health
insurance shall cover a single-tablet drug regimen that is as
effective as a multitablet regimen unless, consistent with clinical
guidelines and peer-reviewed scientific and medical literature, the
multitablet regimen is clinically equally or more effective and more
likely to result in adherence to a drug regimen.
   (3) Any limitation or utilization management shall be consistent
with and based on clinical guidelines and peer-reviewed scientific
and medical literature.
   (f) (1) With respect to an individual or group policy of health
insurance subject to Section 10112.28, the copayment, coinsurance, or
any other form of cost sharing for a covered outpatient prescription
drug for an individual prescription for a supply of up to 30 days
shall not exceed two hundred fifty dollars ($250), except as provided
in paragraphs (2) and (3).
   (2) With respect to products with actuarial value at or equivalent
to the bronze level, cost sharing for a covered outpatient
prescription drug for an individual prescription for a supply of up
to 30 days shall not exceed five hundred dollars ($500), except as
provided in paragraph (3).
   (3) For a policy of health insurance that is a "high deductible
health plan" under the definition set forth in Section 223(c)(2) of
Title 26 of the United States Code, paragraphs (1) and (2) of this
subdivision shall apply only once an insured's deductible has been
satisfied for the year.
   (4) For a nongrandfathered individual or small group policy of
health insurance, the annual deductible for outpatient drugs, if any,
shall not exceed twice the amount specified in paragraph (1) or (2),
respectively.
   (5) For purposes of paragraphs (1) and (2), "any other form of
cost sharing" shall not include deductible.
   (g) (1) If a policy of health insurance offered, sold, or renewed
in the nongrandfathered individual or small group market maintains a
drug formulary grouped into tiers that includes a fourth tier, a
policy of health insurance
shall use the following definitions for each tier of the drug
formulary:
   (A) Tier one shall consist of most generic drugs and low-cost
preferred brand name drugs.
   (B) Tier two shall consist of nonpreferred generic drugs,
preferred brand name drugs, and any other drugs recommended by the
health insurer's pharmacy and therapeutics committee based on safety,
efficacy, and cost.
   (C) Tier three shall consist of nonpreferred brand name drugs or
drugs that are recommended by the health insurer's pharmacy and
therapeutics committee based on safety, efficacy, and cost, or that
generally have a preferred and often less costly therapeutic
alternative at a lower tier.
   (D) Tier four shall consist of drugs that are biologics, drugs
that the FDA or the manufacturer requires to be distributed through a
specialty pharmacy, drugs that require the insured to have special
training or clinical monitoring for self-administration, or drugs
that cost the health insurer more than six hundred dollars ($600) net
of rebates for a one-month supply.
   (2) In placing specific drugs on specific tiers, or choosing to
place a drug on the formulary, the insurer shall take into account
the other provisions of this section and this part.
   (3) A policy of health insurance may maintain a drug formulary
with fewer than four tiers.
   (4) This section shall not be construed to limit a health insurer
from placing any drug in a lower tier.
   (h) This section shall not be construed to require a health
insurer to impose cost sharing. This section shall not be construed
to require cost sharing for prescription drugs that state or federal
law otherwise requires to be provided without cost sharing.
   (i) A policy of health insurance shall ensure that the placement
of prescription drugs on formulary tiers is based on clinically
indicated, reasonable medical management practices.
   (j) In the provision of outpatient prescription drug coverage, a
health insurer may utilize formulary, prior authorization, step
therapy, or other reasonable medical management practices consistent
with this part.
   (k) This section shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2020, deletes or extends
that date.
  SEC. 8.  Section 10123.193 is added to the Insurance Code, to read:

   10123.193.  (a) The Legislature hereby finds and declares all of
the following:
   (1) The federal Patient Protection and Affordable Care Act, its
implementing regulations and guidance, and related state law prohibit
discrimination based on a person's expected length of life, present
or predicted disability, degree of medical dependency, quality of
life, or other health conditions, including benefit designs that have
the effect of discouraging the enrollment of individuals with
significant health needs.
   (2) The Legislature intends 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,
and to ensure affordability of outpatient prescription drugs.
   (3) 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, and may result in lower adherence to a prescription drug
treatment regimen.
   (b) A nongrandfathered policy of health insurance that is offered,
amended, or renewed on or after January 1, 2017, shall comply with
this section.
   (c) A policy of health insurance that provides coverage for
outpatient prescription drugs shall cover medically necessary
prescription drugs, including nonformulary drugs determined to be
medically necessary consistent with this part.
   (d) Copayments, coinsurance, and other cost sharing for outpatient
prescription drugs shall be reasonable so as to allow access to
medically necessary outpatient prescription drugs.
   (e) (1) Consistent with federal law and guidance, the formulary or
formularies for outpatient prescription drugs maintained by the
health insurer shall not discourage the enrollment of individuals
with health conditions and shall not reduce the generosity of the
benefit for insureds with a particular condition in a manner that is
not based on a clinical indication or reasonable medical management
practices. Section 1342.7 of the Health and Safety Code and any
regulations adopted pursuant to that section shall be interpreted in
a manner that is consistent with this section.
   (2) For combination antiretroviral drug treatments that are
medically necessary for the treatment of AIDS/HIV, a policy of health
insurance shall cover a single-tablet drug regimen that is as
effective as a multitablet regimen unless, consistent with clinical
guidelines and peer-reviewed scientific and medical literature, the
multitablet regimen is clinically equally or more effective and more
likely to result in adherence to a drug regimen.
   (3) Any limitation or utilization management shall be consistent
with and based on clinical guidelines and peer-reviewed scientific
and medical literature.
   (f) This section shall not be construed to require a health
insurer to impose cost sharing. This section shall not be construed
to require cost sharing for prescription drugs that state or federal
law otherwise requires to be provided without cost sharing.
   (g) A policy of health insurance shall ensure that the placement
of prescription drugs on formulary tiers is based on clinically
indicated, reasonable medical management practices.
   (h) In the provision of outpatient prescription drug coverage, a
health insurer may utilize formulary, prior authorization, step
therapy, or other reasonable medical management practices consistent
with this part.
   (i) This section shall become operative on January 1, 2020.
  SEC. 9.  Section 10123.201 is added to the Insurance Code, to read:

   10123.201.  (a) A policy of health insurance that covers
outpatient prescription drugs shall cover medically necessary drugs.
The policy may provide for step therapy and prior authorization
consistent with Section 1342.7 of the Health and Safety Code and any
regulations adopted pursuant to that section.
   (b) (1) Commencing January 1, 2017, an insurer shall maintain a
pharmacy and therapeutics committee that shall be responsible for
developing, maintaining, and overseeing any drug formulary list. If
the insurer delegates responsibility for the formulary to any entity,
the obligation of the insurer to comply with this part shall not be
waived.
   (2) The pharmacy and therapeutics committee board membership shall
conform with both of the following:
   (A) Represent a sufficient number of clinical specialties to
adequately meet the needs of insureds.
   (B) Consist of a majority of individuals who are practicing
physicians, practicing pharmacists, and other practicing health
professionals who are licensed to prescribe drugs.
   (3) Members of the board shall abstain from voting on any issue in
which the member has a conflict of interest with respect to the
issuer or a pharmaceutical manufacturer.
   (4) At least 20 percent of the board membership shall not have a
conflict of interest with respect to the issuer or any pharmaceutical
manufacturer.
   (5) The pharmacy and therapeutics committee shall meet at least
quarterly and shall maintain written documentation of the rationale
for its decisions regarding the development of, or revisions to, the
formulary drug list.
   (6) The pharmacy and therapeutics committee shall do all of the
following:
   (A) Develop and document procedures to ensure appropriate drug
review and inclusion.
   (B) Base clinical decisions on the strength of the scientific
evidence and standards of practice, including assessing peer-reviewed
medical literature, pharmacoeconomic studies, outcomes research
data, and other related information.
   (C) Consider the therapeutic advantages of drugs in terms of
safety and efficacy when selecting formulary drugs.
   (D) Review policies that guide exceptions and other utilization
management processes, including drug utilization review, quantity
limits, and therapeutic interchange.
   (E) Evaluate and analyze treatment protocols and procedures
related to the insurer's formulary at least annually.
   (F) Review and approve all clinical prior authorization criteria,
step therapy protocols, and quantity limit restrictions applied to
each covered drug.
   (G) Review new United States Food and Drug Administration-approved
drugs and new uses for existing drugs.
   (H) Ensure the insurer's formulary drug list or lists cover a
range of drugs across a broad distribution of therapeutic categories
and classes and recommended drug treatment regimens that treat all
disease states and does not discourage enrollment by any group of
insureds.
   (I) Ensure the insurer's formulary drug list or lists provide
appropriate access to drugs that are included in broadly accepted
treatment guidelines and that are indicative of general best
practices at the time.
   (7) This subdivision shall be interpreted consistent with federal
guidance issued under paragraph (3) of subdivision (a) of Section
156.122 of Title 45 of the Code of Federal Regulations. This
subdivision shall apply to the individual, small group, and large
group markets.
   (c) (1) A health insurer may impose prior authorization
requirements on prescription drug benefits, consistent with the
requirements of this part.
   (2) (A) When there is more than one drug that is appropriate for
the treatment of a medical condition, a health insurer may require
step therapy.
   (B) In circumstances where an insured is changing policies, the
new policy shall not require the insureds to repeat step therapy when
that insured is already being treated for a medical condition by a
prescription drug provided that the drug is appropriately prescribed
and is considered safe and effective for the insured's condition.
Nothing in this section shall preclude the new policy from imposing a
prior authorization requirement pursuant to subdivision (a) for the
continued coverage of a prescription drug prescribed pursuant to step
therapy imposed by the former policy, or preclude the prescribing
provider from prescribing another drug covered by the new policy that
is medically appropriate for the insured.
   (3) An insurer shall provide coverage for the medically necessary
dosage and quantity of the drug prescribed for the treatment of a
medical condition consistent with professionally recognized standards
of practice.
   (4) For plan years commencing on or after January 1, 2017, an
insurer that provides essential health benefits shall allow an
insured to access prescription drug benefits at an in-network retail
pharmacy unless the prescription drug is subject to restricted
distribution by the United States Food and Drug Administration or
requires special handling, provider coordination, or patient
education that cannot be provided by a retail pharmacy. A
nongrandfathered individual or small group health insurer may charge
an insured a different cost sharing for obtaining a covered drug at a
retail pharmacy, but all cost sharing shall count toward the policy'
s annual limitation on cost sharing consistent with Section 10112.28.

   (d) Every health insurer that provides prescription drug benefits
shall maintain all of the following information, which shall be made
available to the commissioner upon request:
   (1) The complete drug formulary or formularies of the insurer, if
the insurer maintains a formulary, including a list of the
prescription drugs on the formulary of the insurer by major
therapeutic category with an indication of whether any drugs are
preferred over other drugs.
   (2) Records developed by the pharmacy and therapeutic committee of
the insurer, or by others responsible for developing, modifying, and
overseeing formularies, including medical groups, individual
practice associations, and contracting pharmaceutical benefit
management companies, used to guide the drugs prescribed for the
insureds of the insurer, that fully describe the reasoning behind
formulary decisions.
   (3) Any insurer arrangements with prescribing providers, medical
groups, individual practice associations, pharmacists, contracting
pharmaceutical benefit management companies, or other entities that
are associated with activities of the insurer to encourage formulary
compliance or otherwise manage prescription drug benefits.
   (e) If an insurer provides prescription drug benefits, the
commissioner shall, as part of its market conduct examination, review
the performance of the insurer in providing those benefits,
including, but not limited to, a review of the procedures and
information maintained pursuant to this section, and describe the
performance of the insurer as part of its report issued as part of
its market conduct examination.
   (f) The commissioner shall not publicly disclose any information
reviewed pursuant to this section that is determined by the
commissioner to be confidential pursuant to state law.
   (g) For purposes of this section, the following definitions shall
apply:
   (1) "Authorization" means approval by the health insurer to
provide payment for the prescription drug.
   (2) "Step therapy" means a type of protocol that specifies the
sequence in which different prescription drugs for a given medical
condition and medically appropriate for a particular patient are to
be prescribed.
   (h) Nonformulary prescription drugs shall include any drug for
which an 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.
   (i) Nothing in this section shall be construed to affect an
insured's or policyholder's eligibility to submit a complaint to the
department for review or to apply to the department for an
independent medical review under Article 3.5 (commencing with Section
10169).
   (j) Nothing in this section shall be construed to restrict or
impair the application of any other provision of this part.
  SEC. 10.  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.