California Senate Bill SB1195 Amended / Bill

 BILL NUMBER: SB 1195AMENDED BILL TEXT AMENDED IN SENATE MAY 1, 2012 AMENDED IN SENATE MARCH 26, 2012 INTRODUCED BY Senator Price FEBRUARY 22, 2012 An act to add Part 6.01 (commencing with Section 12665) to Division 2 of the Insurance Code, relating to health care coverage. LEGISLATIVE COUNSEL'S DIGEST SB 1195, as amended, Price. Audits of pharmacy benefits. Existing law, the Pharmacy Law, provides for the licensure and regulation of pharmacies by the California State Board of Pharmacy. Existing law provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and for the regulation of health insurers by the Department of Insurance. Existing law requires health care service plan contracts and health insurance policies to provide coverage for specified benefits and requires contracts between plans or insurers and providers to contain provisions requiring a fast, fair, and cost-effective dispute resolution mechanism. This bill would require a contract entered into between a pharmacy and a health insurer, health care service plan, or pharmacy benefit manager, as defined, for the provision of pharmacy services to beneficiaries of a health benefit plan, to include policies and procedures for any audits under the contract, and would impose specified requirements on those audits. Among other things, the bill would prohibit the entity conducting the audit from receiving payment on any basis tied to the amount claimed or recovered from the pharmacy and would require the entity to deliver a preliminary audit report to the pharmacy and to give the pharmacy an opportunity to respond to the report. The bill would require the entity to deliver a final audit report to the pharmacy and to establish a process for appealing the findings of that report, as specified. The bill would  prohibit   require that when  the entity  from   is  using extrapolation, as defined, in calculating penalties or amounts to be recouped from a pharmacy  and   , that the pharmacy be given an opportunity to provide evidence validating certain orders. The bill also  would prohibit a pharmacy from being subject to recoupment of funds for a clerical or recordkeeping error. The bill would enact other related provisions. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Part 6.01 (commencing with Section 12665) is added to Division 2 of the Insurance Code, to read: PART 6.01. Audits of Pharmacy Benefits 12665. For purposes of this article, the following definitions shall apply: (a) "Carrier" means a health care service plan, as defined in Section 1345 of the Health and Safety Code, or a health insurer that issues policies of health insurance, as defined in Section 106. (b) "Clerical or recordkeeping error" includes, but is not limited to, a typographical error, scrivener's error, or computer error in a required document or record. (c) "Extrapolation" means the practice of inferring a frequency or dollar amount of overpayments, underpayments, nonvalid claims, or other errors on any portion of claims submitted, based on the frequency or dollar amount of overpayments, underpayments, nonvalid claims, or other errors actually measured in a sample of claims. (d) "Health benefit plan" means any plan or program that provides, arranges, pays for, or reimburses the cost of health benefits. "Health benefit plan" includes, but is not limited to, a health care service plan contract issued by a health care service plan, as defined in Section 1345 of the Health and Safety Code, and a policy of health insurance, as defined in Section 106, issued by a health insurer. (e) "Pharmacy" has the same meaning  as  provided in Section 4037 of the Business and Professions Code. (f) "Pharmacy audit" means an audit, either onsite or remotely, of any records of a pharmacy conducted by or on behalf of a carrier or a pharmacy benefits manager, or a representative thereof, for prescription drugs that were dispensed by that pharmacy to beneficiaries of a health benefit plan pursuant to a contract with the health benefit plan or the issuer or administrator thereof. (g) "Pharmacy benefit manager" means a person, business, or other entity that, pursuant to a contract or under an employment relationship with a carrier, health benefit plan sponsor, or other third-party payer, either directly or through an intermediary, manages the prescription drug coverage provided by the carrier, plan sponsor, or other third-party payer, including, but not limited to, the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to prescription drug coverage, contracting with network pharmacies, and controlling the cost of covered prescription drugs. 12665.1. (a) Nothing in this article shall apply to an audit conducted because a pharmacy benefit manager, carrier, health benefit plan sponsor, or other third-party payer has evidence or a significant suspicion that criminal wrongdoing, willful misrepresentation, or fraud has occurred. (b) Nothing in this article shall apply to an audit conducted by the California State Board of Pharmacy, the State Department of Health Care Services, or the State Department of Public Health. 12665.2. Notwithstanding any other provision of law, a contract that is issued, amended, or renewed on or after January 1, 2013, between a pharmacy and a carrier or a pharmacy benefit manager to provide pharmacy services to beneficiaries of a health benefit plan shall include policies and procedures for any audits performed under the contract. The policies and procedures shall be consistent with generally accepted auditing practices and shall comply with the provisions of this part. 12665.3. (a) An entity conducting a pharmacy audit shall not receive payment or any other consideration on any basis that is tied to the amount claimed or actual amount recovered from the pharmacy that is the subject of the audit.  (b) An entity conducting a pharmacy audit shall not use extrapolation in calculating penalties or amounts to be recouped from a pharmacy. Any findings of overpayment or underpayment to a pharmacy shall be based solely on documented instances of overpayment or underpayment to the pharmacy and shall not be based on an estimate or projection based on the number of patients served having a similar diagnosis or on the number of similar orders or refills for similar drugs.   (c) Any calculation of overpayment to a pharmacy determined pursuant to a pharmacy audit shall not include the portion of any payment that constitutes dispensing fees.   (d)   (b)  A pharmacy shall not be subject to recoupment of funds for a clerical or recordkeeping error, unless there is proof of intent to commit fraud or that the error resulted in actual financial harm to the pharmacy benefit manager, the carrier, or the beneficiary of a health benefit plan. 12665.4. (a) Except as otherwise prohibited by state or federal law, an entity conducting a pharmacy audit shall keep confidential any information collected during the course of the audit and shall not share any information with any person other than the carrier, pharmacy benefit manager, or third-party payer for which the audit is being performed. An entity conducting a pharmacy audit shall have access only to previous audit reports relating to a particular pharmacy conducted by or on behalf of the same entity. Nothing in this subdivision shall be construed to authorize access to information that is otherwise prohibited by law. (b) An entity that is not a carrier or pharmacy benefit manager and that is conducting a pharmacy audit on behalf of a carrier or pharmacy benefit manager shall, prior to conducting the audit, provide the pharmacy with an attestation that the entity and the carrier or pharmacy benefit manager have executed a business associate agreement or other agreement as required under state and federal privacy laws. (c) An entity conducting a pharmacy audit shall, prior to leaving a pharmacy at the end of an onsite portion of the audit, provide the pharmacist in charge with a complete list of records reviewed to allow the pharmacy to account for disclosures as required by state and federal privacy laws. 12665.5. (a) An entity conducting a pharmacy audit shall not initiate or schedule a pharmacy audit during the first five business days of any calendar month, unless it is expressly agreed to by the pharmacy being audited. (b) An entity conducting an onsite pharmacy audit shall provide the pharmacy at least one week's prior written notice before conducting an initial audit. 12665.6. (a) A pharmacy audit that involves clinical judgment shall be conducted by a pharmacist licensed pursuant to Chapter 9 (commencing with Section 4000) of Division 2 of the Business and Professions Code. (b) An entity conducting a pharmacy audit shall make all determinations regarding the legal validity of a prescription or other record consistent with determinations made pursuant to Article 4 (commencing with Section 4070) of Chapter 9 of Division 2 of the Business and Professions Code  and shall accept as valid   . A   pharmacy may submit to an entity conducting a pharmacy audit  electronically stored images of prescriptions, electronically created annotations, and other related supporting documentation  as valid proof of the pharmacy record with respect to orders or refills of a dangerous drug or device  . (c)  An entity conducting a pharmacy audit shall accept   A pharmacy may submit to an entity conducting a pharmacy audit    paper or electronic signature logs that indicate the delivery of pharmacy services as valid proof of receipt of those services by a health benefit plan beneficiary. 12665.7. The time period covered by a pharmacy audit shall not exceed a 24-month period beginning no more than 24 months prior to the initial date of the onsite portion of the audit, and the audit shall encompass only claims that were submitted to or adjudicated by the carrier or pharmacy benefit manager during that 24-month period. 12665.8. (a) (1) An entity conducting a pharmacy audit shall deliver a preliminary audit report to the pharmacy before issuing a final audit report. This preliminary report shall be issued no later than 60 days after conclusion of the audit. (2) A pharmacy shall be provided a time period of no less than 30 days following receipt of the preliminary audit report under paragraph (1) to respond to the findings in the report, including addressing any alleged mistakes or discrepancies and producing documentation to that effect. (3) A pharmacy may use the records of a health facility, physician and surgeon, or other authorized practitioner of the healing arts involving drugs, medicinal supplies, or medical devices written or transmitted by any means of communication for purposes of validating the pharmacy record with respect to orders or refills of a dangerous drug or device.  (4) If an entity conducting a pharmacy audit uses extrapolation to calculate penalties or amounts to be recouped, the pharmacy may present evidence to validate orders for dangerous drugs or devices that are subject to invalidation due to extrapolation.   (4)   (5)  Prior to issuing a final audit report, an entity conducting a pharmacy audit shall take into consideration any response by the pharmacy to the preliminary audit report. (b) (1) An entity conducting a pharmacy audit shall deliver a final audit report to the pharmacy no later than 90 days after the conclusion of the audit or 30 days after receipt of a pharmacy's response to the preliminary audit report, as applicable. (2) An entity conducting a pharmacy audit shall establish a process for appealing the findings in a final audit report that complies with the following requirements: (A) A pharmacy shall be provided a time period of no less than 60 days following receipt of the final audit report to file an appeal with the entity identified in the appeal process. (B) A pharmacy may use the records of a hospital, physician and surgeon, or other authorized practitioner of the healing arts involving drugs, medicinal supplies, or medical devices written or transmitted by any means of communication for purposes of validating the pharmacy record with respect to orders or refills of a dangerous drug or device. (C) An entity conducting a pharmacy audit shall provide the pharmacy with a written determination of appeal issued by the entity identified in the appeal process, which shall be appended to the final audit report, and a copy of the determination shall be sent to the carrier, health benefit plan sponsor, or other third-party payer. (D) The appeals process may include a dispute resolution option as long as the pharmacy retains the right to file a written appeal and obtain a written determination pursuant to this subdivision. (c) An entity conducting a pharmacy audit, a carrier, a health benefit plan sponsor, or other third-party payer, or any person acting on behalf of those entities, shall not attempt to make chargebacks or seek recoupment from a pharmacy, or assess or collect penalties from a pharmacy, until the time period for filing an appeal to a final audit report has passed, or until the appeal process has been exhausted, whichever is later. (d) An entity conducting a pharmacy audit, a carrier, a health benefit plan sponsor, or other third-party payer, or any person acting on behalf of those entities, shall not charge interest during the audit or appeal period. (e) If, following final disposition of a pharmacy audit pursuant to this section, an entity conducting a pharmacy audit, a carrier, a health benefit plan sponsor, or other third-party payer, or any person acting on behalf of those entities, finds that an audit report or any portion thereof is unsubstantiated, the entity shall dismiss the audit report or the unsubstantiated portion thereof without the necessity of any further proceedings  and shall return any moneys recouped as a result of the lack of substantiation, as applicable  .