Assigned to FICO & APPROP AS PASSED BY COW
ARIZONA STATE SENATE
Fifty-Sixth Legislature, Second Regular Session
AMENDED
FACT SHEET FOR S.B. 1164
pharmacy benefits; coverage; exemptions
(NOW: pharmacy benefits; coverage)
Purpose
Prohibits a pharmacy benefit manager (PBM) from limiting or excluding coverage of a
prescription drug for any covered individual who is on a specific prescription drug and outlined
conditions are met. Prescribes formulary change notification requirements and establishes a
prescription coverage exemption determination process.
Background
The Department of Insurance and Financial Institutions (DIFI) regulates and monitors
insurance companies and professionals operating in Arizona to protect the public and help ensure
that these entities follow Arizona and federal law (Ariz. Const. art. 15 § 5). Beginning January 1,
2025, PBMs must apply and pay a fee to DIFI for a valid certificate of authority to operate as a
PBM who performs services for a health plan subject to state jurisdiction (A.R.S. § 20-3333).
A PBM is a person, business or entity that, either directly or through an intermediary,
manages the prescription drug coverage provided by a contracted insurer or other third-party
payor, including the processing and payment of claims for prescription drugs, the performance of
drug utilization review, the processing of drug prior authorization requests, the adjudication of
appeals or grievances related to prescription drug coverage, contracting with network pharmacies
and controlling the cost of covered prescription drugs (A.R.S. § 20-3321).
PBMs are charged with: 1) updating price and drug information for each list that the PBM
maintains; 2) making the sources used to determine maximum allowable cost pricing available to
each network pharmacy at the beginning of a contract or upon renewal; 3) establishing a process
for network pharmacies to appeal its reimbursement for any drug subject to maximum allowable
cost pricing; and 4) allowing a contracted pharmacy services organization to file an appeal of a
drug on behalf of the organization's contracted pharmacies (A.R.S. § 20-3331).
If the outlined prohibition and requirements increase costs to the state employee health
plan, there may be a fiscal impact to the state General Fund.
Provisions
PBM Prescription Drug Coverage
1. Prohibits a PBM, if the PBM enters into an agreement with a health care insurer (insurer) to
provide PBM services, from limiting or excluding coverage of a prescription drug for any
covered individual who is on a specific prescription drug, if: FACT SHEET – Amended
S.B. 1164
Page 2
a) the drug was previously approved by the PBM or insurer for coverage for the covered
individual; and
b) the covered individual continues to be an enrollee of the insurer that the PBM has
contracted with to provide PBM services.
2. Requires a PBM to continue coverage of a covered individual's prescription drug through the
last day of the covered individual's plan year, if:
a) the drug was previously approved by the PBM or insurer for coverage for the covered
individual; and
b) the covered individual continues to be an enrollee of the insurer that the PBM has
contracted with to provide PBM services.
3. Prohibits the PBM, for the purposes of the above prohibition and requirement, from:
a) limiting or reducing the maximum coverage of prescription drug benefits;
b) increasing cost sharing for a covered prescription drug;
c) moving a prescription drug to a more restrictive formulary tier; or
d) removing a prescription drug from a formulary unless either:
i. the U.S. Food and Drug Administration (FDA) revokes approval for or removes a
prescription drug from the prescription drug market; or
ii. the prescription drug manufacturer notifies the FDA of a manufacturing
discontinuation or potential discontinuation.
4. Requires a PBM or insurer, if the PBM or insurer makes any formulary change during a plan
year, to provide written notice of the formulary change for any prescription drug to each
impacted covered individual and their prescribing health care provider at least 60 days before
the change.
5. Allows a PBM or insurer to change a covered individual from a previously covered
prescription drug only if the covered individual's prescribing health care provider provides
written authorization for the change to the PBM or insurer.
6. Requires a PBM or insurer to provide written notice of the removal from, or an increase in
cost-sharing for, a prescription drug on the drug formulary to each impacted covered individual
and their prescribing health care provider at least 60 days before the end of the plan year, if the
covered individual's prescribing provider did not previously approve a change in the
prescription drug.
7. Requires the notice to set forth the process by which the covered individual's health care
professional may request a prescription drug coverage exemption for the continued use of the
nonformulary prescription drug and requires the exemption process to comply with the
outlined prescription coverage exemption determination process.
Prescription Coverage Exemption Determination Process
8. Specifies that a prescription coverage exemption determination process is available to covered
individuals and the prescribing health care professional to ensure continuity of care after a
covered individual's renewal, as outlined. FACT SHEET – Amended
S.B. 1164
Page 3
9. Requires an insurer, PBM or utilization review agent that is contracted to provide PBM
services for the insurer to provide a covered individual and prescribing health care professional
with access to a clear and convenient process to request a coverage exemption determination.
10. Allows an insurer, PBM or utilization review agent to use its existing medical exceptions
process to satisfy the prescription coverage exemption determination requirement, if the
existing process is consistent with the prescribed requirements.
11. Requires an insurer, PBM or utilization review agent to respond to a coverage exemption
determination request within 72 hours, unless exigent circumstances exist in which case the
response must occur within 24 hours, as prescribed by federal law.
12. Requires an insurer, PBM or utilization review agent to approve a prescription drug coverage
exemption for a covered individual who has been previously approved to receive the
nonformulary prescription drug by the individual's current insurer or PBM and the prescribing
health care provider continues to prescribe the drug for the individual's medical condition.
13. Requires an approval of a coverage exemption to be in writing and delivered to the covered
individual and their treating health care provider.
14. Stipulates that, if the corporation authorizes a coverage exemption, the coverage exemption
authorization is in effect until the end of the covered individual's plan year.
15. Requires a licensed pharmacist or medical director to make a denial of coverage in writing for
an insurer's or PBM's denial of coverage for a nonformulary prescription drug.
16. Requires the written denial to contain an explanation of the denial that includes the medical or
pharmacological reasons why the authorization was denied and a signature by the licensed
pharmacist or medical director who made the decision to deny coverage.
17. Requires a corporation to:
a) send a copy of the written denial to the covered individual's treating health care provider
who requested the authorization;
b) maintain copies of all written denials; and
c) make the copies available to DIFI for inspection during regular business hours.
18. Allows a covered individual or their authorized representative to appeal any determination to
deny a coverage exemption.
19. Requires the written notification to include the process in which a covered individual may
appeal the determination.
Miscellaneous
20. Grants the Director of DIFI, if an insurer, PBM or utilization review agent violates the
prescription drug coverage and exemption determination process requirements, the authority
to impose a civil penalty against the insurer, PBM or utilization review agent.
21. Specifies that the outlined prescription drug coverage and exemption determination process
requirements do not:
a) prevent a health care provider from prescribing another prescription drug covered by the
carrier, insurer or PBM, if the carrier, insurer or PBM is contracted to provide PBM FACT SHEET – Amended
S.B. 1164
Page 4
services and the health care provider deems the prescription drug medically necessary for
the covered individual; or
b) prevent an insurer or PBM from:
i. adding a prescription drug to its formulary;
ii. removing a prescription drug from its formulary, if the drug manufacturer has removed
the drug for sale in the United States; or
iii. making any formulary changes for patients who are not on a previously approved
prescription drug.
22. Specifies that a policy that is issued or renewed by a disability insurer does not include a policy
that provides limited benefit coverage.
23. Defines terms.
24. Applies the newly established drug coverage and exemption determination process requirements
to contracts entered into, amended, extended or renewed beginning January 1, 2025.
25. Becomes effective on the general effective date.
Amendments Adopted by the Finance and Commerce Committee
1. Modifies the prescription coverage exemption determination process.
2. Requires a PBM or insurer to provide notice of the removal from, or an increase in the cost
sharing for, any prescription drug on the drug formulary to each impacted covered individual
at least 60 days before the plan year ends and requires the notice to set forth the process by
which the covered individual's health care professional may request authorization for the
continued use of a nonformulary prescription drug.
3. Requires hospital, medical, dental and optometric service corporations with a prescription drug
benefit plan that uses a drug formulary to approve an alternative prescription drug when the
subscriber has previously been approved to receive a nonformulary prescription drug by the
current or previous insurer or PBM and:
a) the subscriber is medically stable on the drug as determined by the prescribing health care
professional; and
b) the prescribing health care professional continues to prescribe the drug for the subscriber's
covered medical condition.
4. Allows a subscriber or their authorized representative to appeal a determination to deny
coverage and deems a formulary exemption authorization in effect until the end of the
subscriber's plan year.
5. Specifies that the prescription drug coverage and determination process requirements do not
prevent an insurer or PBM from making any formulary changes for patients that are not
currently stable on a previously approved prescription drug.
6. Makes technical and conforming changes.
FACT SHEET – Amended
S.B. 1164
Page 5
Amendments Adopted by the Appropriations Committee
• The Appropriations Committee adopted the strike-everything amendment relating to PBMs.
Amendments Adopted by Committee of the Whole
1. The Finance and Commerce Committee amendment was withdrawn.
2. The Appropriations Committee strike-everything amendment was adopted.
Senate Action
FICO 2/12/24 DPA 7-0-0
APPROP 2/20/24 DPA/SE 7-2-1
Prepared by Senate Research
March 4, 2024
MG/cs