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AB-399 Medi-Cal: pharmacy providers: drug reimbursement.(2011-2012)

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AB399:v95#DOCUMENT

Amended  IN  Senate  June 26, 2012
Amended  IN  Senate  March 05, 2012
Amended  IN  Senate  June 29, 2011
Amended  IN  Senate  June 06, 2011

CALIFORNIA LEGISLATURE— 2011–2012 REGULAR SESSION

Assembly Bill
No. 399


Introduced  by  Assembly Member Bonnie Lowenthal

February 14, 2011


An act to amend Sections 14105.192, 14105.45, 14105.451, and 14105.455 of the Welfare and Institutions Code, relating to Medi-Cal.


LEGISLATIVE COUNSEL'S DIGEST


AB 399, as amended, Bonnie Lowenthal. Medi-Cal: pharmacy providers: drug reimbursement.
Existing law provides for the Medi-Cal program, which is administered by the State Department of Health Care Services, under which qualified low-income individuals receive health care services. The Medi-Cal program is, in part, governed and funded by federal Medicaid Program provisions. Existing law requires reimbursement to Medi-Cal pharmacy providers for drugs, as prescribed, and authorizes the department to establish a new reimbursement methodology based on average acquisition cost, as defined.
This bill would modify requirements relating to the establishment of the average acquisition cost methodology and would make other related changes.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

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


SECTION 1.

 Section 14105.192 of the Welfare and Institutions Code is amended to read:

14105.192.
 (a) The Legislature finds and declares the following:
(1) Costs within the Medi-Cal program continue to grow due to the rising cost of providing health care throughout the state and also due to increases in enrollment, which are more pronounced during difficult economic times.
(2) In order to minimize the need for drastically cutting enrollment standards or benefits during times of economic crisis, it is crucial to find areas within the program where reimbursement levels are higher than required under the standard provided in Section 1902(a)(30)(A) of the federal Social Security Act and can be reduced in accordance with federal law.
(3) The Medi-Cal program delivers its services and benefits to Medi-Cal beneficiaries through a wide variety of health care providers, some of which deliver care via managed care or other contract models while others do so through fee-for-service arrangements.
(4) The setting of rates within the Medi-Cal program is complex and is subject to close supervision by the United States Department of Health and Human Services.
(5) As the single state agency for Medicaid in California, the department has unique expertise that can inform decisions that set or adjust reimbursement methodologies and levels consistent with the requirements of federal law.
(b) Therefore, it is the intent of the Legislature for the department to analyze and identify where reimbursement levels can be reduced consistent with the standard provided in Section 1902(a)(30)(A) of the federal Social Security Act and consistent with federal and state law and policies, including any exemptions contained in the provisions of the act that added this section, provided that the reductions in reimbursement shall not exceed 10 percent on an aggregate basis for all providers, services, and products.
(c) Notwithstanding any other provision of law, the director shall adjust provider payments, as specified in this section.
(d) (1) Except as otherwise provided in this section, payments shall be reduced by 10 percent for Medi-Cal fee-for-service benefits for dates of service on and after June 1, 2011.
(2) For managed health care plans that contract with the department pursuant to this chapter or Chapter 8 (commencing with Section 14200), except contracts with Senior Care Action Network and AIDS Healthcare Foundation, payments shall be reduced by the actuarial equivalent amount of the payment reductions specified in this section pursuant to contract amendments or change orders effective on July 1, 2011, or thereafter.
(3) Payments shall be reduced by 10 percent for non-Medi-Cal programs described in Article 6 (commencing with Section 124025) of Chapter 3 of Part 2 of Division 106 of the Health and Safety Code, and Section 14105.18, for dates of service on and after June 1, 2011. This paragraph shall not apply to inpatient hospital services provided in a hospital that is paid under contract pursuant to Article 2.6 (commencing with Section 14081).
(4) (A) Notwithstanding any other provision of law, the director may adjust the payments specified in paragraphs (1) and (3) of this subdivision with respect to one or more categories of Medi-Cal providers, or for one or more products or services rendered, or any combination thereof, so long as the resulting reductions to any category of Medi-Cal providers, in the aggregate, total no more than 10 percent.
(B) The adjustments authorized in subparagraph (A) shall be implemented only if the director determines that, for each affected product, service, or provider category, the payments resulting from the adjustment comply with subdivision (m).
(e) Notwithstanding any other provision of this section, payments to hospitals that are not under contract with the State Department of Health Care Services pursuant to Article 2.6 (commencing with Section 14081) for inpatient hospital services provided to Medi-Cal beneficiaries and that are subject to Section 14166.245 shall be governed by that section.
(f) Notwithstanding any other provision of this section, the following shall apply:
(1) Payments to providers that are paid pursuant to Article 3.8 (commencing with Section 14126) shall be governed by that article.
(2) (A) Subject to subparagraph (B), for dates of service on and after June 1, 2011, Medi-Cal reimbursement rates for intermediate care facilities for the developmentally disabled licensed pursuant to subdivision (e), (g), or (h) of Section 1250 of the Health and Safety Code, and facilities providing continuous skilled nursing care to developmentally disabled individuals pursuant to the pilot project established by Section 14132.20, as determined by the applicable methodology for setting reimbursement rates for these facilities, shall not exceed the reimbursement rates that were applicable to providers in the 2008–09 rate year.
(B) (i) If Section 14105.07 is added to the Welfare and Institutions Code during the 2011–12 Regular Session of the Legislature, subparagraph (A) shall become inoperative.
(ii) If Section 14105.07 is added to the Welfare and Institutions Code during the 2011–12 Regular Session of the Legislature, then for dates of service on and after June 1, 2011, payments to intermediate care facilities for the developmentally disabled licensed pursuant to subdivision (e), (g), or (h) of Section 1250 of the Health and Safety Code, and facilities providing continuous skilled nursing care to developmentally disabled individuals pursuant to the pilot project established by Section 14132.20, shall be governed by the applicable methodology for setting reimbursement rates for these facilities and by Section 14105.07.
(g) The department may enter into contracts with a vendor for the purposes of implementing this section on a bid or nonbid basis. In order to achieve maximum cost savings, the Legislature declares that an expedited process for contracts under this subdivision is necessary. Therefore, contracts entered into to implement this section and all contract amendments and change orders shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code.
(h) To the extent applicable, the services, facilities, and payments listed in this subdivision shall be exempt from the payment reductions specified in subdivision (d) as follows:
(1) Acute hospital inpatient services that are paid under contracts pursuant to Article 2.6 (commencing with Section 14081).
(2) Federally qualified health center services, including those facilities deemed to have federally qualified health center status pursuant to a waiver pursuant to subsection (a) of Section 1115 of the federal Social Security Act (42 U.S.C. Sec. 1315(a)).
(3) Rural health clinic services.
(4) Payments to facilities owned or operated by the State Department of Mental Health or the State Department of Developmental Services.
(5) Hospice services.
(6) Contract services, as designated by the director pursuant to subdivision (k).
(7) Payments to providers to the extent that the payments are funded by means of a certified public expenditure or an intergovernmental transfer pursuant to Section 433.51 of Title 42 of the Code of Federal Regulations. This paragraph shall apply to payments described in paragraph (3) of subdivision (d) only to the extent that they are also exempt from reduction pursuant to subdivision (l).
(8) Services pursuant to local assistance contracts and interagency agreements to the extent the funding is not included in the funds appropriated to the department in the annual Budget Act.
(9) Breast and cervical cancer treatment provided pursuant to Section 14007.71 and as described in paragraph (3) of subdivision (a) of Section 14105.18 or Article 1.5 (commencing with Section 104160) of Chapter 2 of Part 1 of Division 103 of the Health and Safety Code.
(10) The Family Planning, Access, Care, and Treatment (Family PACT) Program pursuant to subdivision (aa) of Section 14132.
(i) Subject to the exception for services listed in subdivision (h), the payment reductions required by subdivision (d) shall apply to the benefits rendered by any provider who may be authorized to bill for the service, including, but not limited to, physicians, podiatrists, nurse practitioners, certified nurse-midwives, nurse anesthetists, and organized outpatient clinics.
(j) Notwithstanding any other provision of law, for dates of service on and after June 1, 2011, Medi-Cal reimbursement rates applicable to the following classes of providers shall not exceed the reimbursement rates that were applicable to those classes of providers in the 2008–09 rate year, as described in subdivision (f) of Section 14105.191, reduced by 10 percent:
(1) Intermediate care facilities, excluding those facilities identified in paragraph (2) of subdivision (f). For purposes of this section, “intermediate care facility” has the same meaning as defined in Section 51118 of Title 22 of the California Code of Regulations.
(2) Skilled nursing facilities that are distinct parts of general acute care hospitals. For purposes of this section, “distinct part” has the same meaning as defined in Section 72041 of Title 22 of the California Code of Regulations.
(3) Rural swing-bed facilities.
(4) Subacute care units that are, or are parts of, distinct parts of general acute care hospitals. For purposes of this subparagraph, “subacute care unit” has the same meaning as defined in Section 51215.5 of Title 22 of the California Code of Regulations.
(5) Pediatric subacute care units that are, or are parts of, distinct parts of general acute care hospitals. For purposes of this subparagraph, “pediatric subacute care unit” has the same meaning as defined in Section 51215.8 of Title 22 of the California Code of Regulations.
(6) Adult day health care centers.
(7) Freestanding pediatric subacute care units, as defined in Section 51215.8 of Title 22 of the California Code of Regulations.
(k) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement and administer this section by means of provider bulletins or similar instructions, without taking regulatory action.
(l) The reductions described in this section shall apply only to payments for services when the General Fund share of the payment is paid with funds directly appropriated to the department in the annual Budget Act and shall not apply to payments for services paid with funds appropriated to other departments or agencies.
(m) Notwithstanding any other provision of this section, the payment reductions and adjustments provided for in subdivision (d) shall be implemented only if the director determines that the payments that result from the application of this section will comply with applicable federal Medicaid requirements and that federal financial participation will be available.
(1) In determining whether federal financial participation is available, the director shall determine whether the payments comply with applicable federal Medicaid requirements, including those set forth in Section 1396a(a)(30)(A) of Title 42 of the United States Code.
(2) To the extent that the director determines that the payments do not comply with the federal Medicaid requirements or that federal financial participation is not available with respect to any payment that is reduced pursuant to this section, the director retains the discretion to not implement the particular payment reduction or adjustment and may adjust the payment as necessary to comply with federal Medicaid requirements.
(n) The department shall seek any necessary federal approvals for the implementation of this section.
(o) (1) The payment reductions and adjustments set forth in this section shall not be implemented until federal approval is obtained.
(2) To the extent that federal approval is obtained for one or more of the payment reductions and adjustments in this section and Section 14105.07, the payment reductions and adjustments set forth in Section 14105.191 shall cease to be implemented for the same services provided by the same class of providers. In the event of a conflict between this section and Section 14105.191, other than the provisions setting forth a payment reduction or adjustment, this section shall govern.
(3) When federal approval is obtained, the payments resulting from the application of this section shall be implemented retroactively to June 1, 2011, or on any other date or dates as may be applicable.
(4) The director may clarify the application of this subdivision by means of provider bulletins or similar instructions, pursuant to subdivision (k).
(p) Adjustments to pharmacy drug product payments pursuant to this section shall no longer apply when the department determines that the average acquisition cost methodology pursuant to Section 14105.45 has been fully implemented.

SEC. 2.

 Section 14105.45 of the Welfare and Institutions Code is amended to read:

14105.45.
 (a) For purposes of this section, the following definitions shall apply:
(1) “Average acquisition cost” means the average weighted cost determined by the department to represent the actual acquisition cost paid for drugs by Medi-Cal pharmacy providers, including those that provide specialty drugs. The average acquisition cost shall not be considered confidential and shall be subject to disclosure pursuant to the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code).
(2) “Average manufacturers price” means the price reported to the department by the federal Centers for Medicare and Medicaid Services pursuant to Section 1927 of the Social Security Act (42 U.S.C. Sec. 1396r-8).
(3) “Average wholesale price” means the price for a drug product listed as the average wholesale price in the department’s primary price reference source, which shall reflect current average wholesale prices pursuant to regular updates and ongoing maintenance and shall be concurrently and readily available to pharmacies from the department’s Internet Web site.
(4) “Estimated acquisition cost” means the department’s best estimate of the price generally and currently paid by providers for a drug product sold by a particular manufacturer or principal labeler in a standard package.
(5) “Federal upper limit” means the maximum per unit reimbursement when established by the federal Centers for Medicare and Medicaid Services and published by the department in Medi-Cal pharmacy provider bulletins and manuals.
(6) “Generically equivalent drugs” means drug products with the same active chemical ingredients of the same strength and dosage form, and of the same generic drug name, as determined by the United States Adopted Names (USAN) and accepted by the federal Food and Drug Administration (FDA), as those drug products having the same chemical ingredients.
(7) “Legend drug” means any drug whose labeling states “Caution: Federal law prohibits dispensing without prescription,” “Rx only,” or words of similar import.
(8) “Maximum allowable ingredient cost” (MAIC) means the maximum amount the department will reimburse Medi-Cal pharmacy providers for generically equivalent drugs.
(9) “Innovator multiple source drug,” “noninnovator multiple source drug,” and “single source drug” have the same meaning as those terms are defined in Section 1396r-8(k)(7) of Title 42 of the United States Code.
(10) “Nonlegend drug” means any drug whose labeling does not contain the statement referenced in paragraph (7).
(11) “Pharmacy warehouse,” as defined in Section 4163 of the Business and Professions Code, means a physical location licensed as a wholesaler for prescription drugs that acts as a central warehouse and performs intracompany sales or transfers of those drugs to a group of pharmacies under common ownership and control.
(12) “Specialty drugs” means drugs determined by the department pursuant to subdivision (f) of Section 14105.3 to generally require special handling, complex dosing regimens, specialized self-administration at home by a beneficiary or caregiver, or specialized nursing facility services, or may include extended patient education, counseling, monitoring, or clinical support.
(13) “Volume weighted average” means the aggregated average volume for a group of legend or nonlegend drugs, weighted by each drug’s percentage of the group’s total volume in the Medi-Cal fee-for-service program during the previous six months. For purposes of this paragraph, volume is based on the standard billing unit used for the legend or nonlegend drugs.
(14) “Wholesaler” means a drug wholesaler that is engaged in wholesale distribution of prescription drugs to retail pharmacies in California.
(15) “Wholesaler acquisition cost” means the price for a drug product listed as the wholesaler acquisition cost in the department’s primary price reference source, which shall reflect current prices pursuant to regular updates and ongoing maintenance.
(b) (1) Reimbursement to Medi-Cal pharmacy providers for legend and nonlegend drugs shall not exceed the lowest of either of the following:
(A) The estimated acquisition cost of the drug plus a professional fee for dispensing.
(B) The pharmacy’s usual and customary charge as defined in Section 14105.455.
(2) The professional fee shall be seven dollars and twenty-five cents ($7.25) per dispensed prescription until the department implements the average acquisition cost methodology, at which time the department shall pay retail pharmacy providers the professional fee determined pursuant to subparagraph (F) of paragraph (5). The professional fee for legend drugs dispensed to a beneficiary residing in a skilled nursing facility or intermediate care facility shall be eight dollars ($8) per dispensed prescription. For purposes of this paragraph “skilled nursing facility” and “intermediate care facility” shall have the same meaning as defined in Division 5 (commencing with Section 70001) of Title 22 of the California Code of Regulations. If the department determines that a change in dispensing fee is necessary pursuant to this section, the department shall establish the new dispensing fee through the budget process by an enactment of statutory authorization and implement the new dispensing fee pursuant to subdivision (d).
(3) The department shall establish the estimated acquisition cost of legend and nonlegend drugs as follows:
(A) For single source and innovator multiple source drugs, the estimated acquisition cost shall be equal to the lowest of the average wholesale price minus 17 percent, the average acquisition cost, the federal upper limit, or the MAIC.
(B) For noninnovator multiple source drugs, the estimated acquisition cost shall be equal to the lowest of the average wholesale price minus 17 percent, the average acquisition cost, the federal upper limit, or the MAIC.
(C) Average wholesale price shall not be used to establish the estimated acquisition cost once the department has determined that the average acquisition cost methodology has been fully implemented.
(4) For purposes of paragraph (3), the department shall establish a list of MAICs for generically equivalent drugs, which shall be published in pharmacy provider bulletins and manuals. The department shall establish a MAIC only when three or more generically equivalent drugs are available for purchase and dispensing by retail pharmacies in California. The department shall update the list of MAICs and establish additional MAICs in accordance with all of the following:
(A) The department shall base the MAIC on the mean of the average manufacturer’s price of drugs generically equivalent to the particular innovator drug plus a percent markup determined by the department to be necessary for the MAIC to represent the average purchase price paid by retail pharmacies in California.
(B) If average manufacturer prices are unavailable, the department shall establish the MAIC in one of the following ways:
(i) Based on the volume weighted average of wholesaler acquisition costs of drugs generically equivalent to the particular innovator drug plus a percent markup determined by the department to be necessary for the MAIC to represent the average purchase price paid by retail pharmacies in California.
(ii) Pursuant to a contract with a vendor for the purpose of surveying drug price information, collecting data, and calculating a proposed MAIC.
(iii) Based on the volume weighted average acquisition cost of drugs generically equivalent to the particular innovator drug adjusted by the department to represent the average purchase price paid by Medi-Cal pharmacy providers.
(C) The department shall update MAICs at least every three months and notify Medi-Cal providers at least 30 days prior to the effective date of a MAIC.
(D) The department shall establish a process for providers to seek a change to a specific MAIC when the providers believe the MAIC does not reflect current available market prices. If the department determines a MAIC change is warranted, the department may update a specific MAIC prior to notifying providers.
(E) In determining the average purchase price, the department shall consider the provider-related costs of the products that include, but are not limited to, shipping, handling, storage, and delivery. Costs of the provider that are included in the costs of the dispensing shall not be used to determine the average purchase price.
(5) (A) The department may establish the average acquisition cost in one of the following ways:
(i) Based on the volume weighted average acquisition cost adjusted by the department to ensure that the average acquisition cost represents the average purchase price paid by retail pharmacies in California.
(ii) Based on the proposed average acquisition cost as calculated by the vendor pursuant to subparagraph (B).
(iii) Based on a national pricing benchmark obtained from the federal Centers for Medicare and Medicaid Services or on a similar benchmark listed in the department’s primary price reference source adjusted by the department to ensure that the average acquisition cost represents the average purchase price paid by retail pharmacies in California.
(B) For the purposes of paragraph (3), the department may contract with a vendor for the purposes of surveying drug price information, collecting data from providers, wholesalers, or drug manufacturers, and calculating a proposed average acquisition cost.
(C) (i) Medi-Cal pharmacy providers shall submit drug price information to the department or a vendor designated by the department for the purposes of establishing the average acquisition cost. The information submitted by pharmacy providers shall include, but not be limited to, invoice prices and all discounts, rebates, and refunds known to the provider on the date of delivery as the acquisition cost of the drug products purchased that would apply to the acquisition cost of the drug product purchased during the calendar quarter. Pharmacy warehouses shall be exempt from the survey process but shall provide drug cost information upon audit by the department for the purposes of validating individual pharmacy provider acquisition costs. Pharmacy invoice information shall be considered confidential and shall not be subject to public disclosure under the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code).
(ii) Pharmacy providers that fail to submit drug price information to the department or the vendor as required by this subparagraph shall receive notice that if they do not provide the required information within 15 business days, they may be subject to suspension under subdivisions (a) and (c) of Section 14123.
(D) (i) For new drugs or new formulations of existing drugs, where drug price information is unavailable pursuant to clause (i) of subparagraph (C), drug manufacturers and wholesalers shall submit drug price information to the department or a vendor designated by the department for the purposes of establishing the average acquisition cost. Drug price information shall include, but not be limited to, net unit sales of a drug product sold to retail pharmacies in California divided by the total number of units of the drug sold by the manufacturer or wholesaler in a specified period of time determined by the department.
(ii) Drug products from manufacturers and wholesalers that fail to submit drug price information to the department or the vendor as required by this subparagraph may not be a reimbursable benefit of the Medi-Cal program for those manufacturers and wholesalers until the department has established the average acquisition cost for those drug products.
(E) Drug pricing information provided to the department or a vendor designated by the department for the purposes of establishing the average acquisition cost pursuant to this section shall be confidential and shall be exempt from disclosure under the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code).
(F) Prior to the implementation of an average acquisition cost methodology, the department shall collect data through a survey of pharmacy providers, including specific data from pharmacy providers that dispense specialty drugs, for purposes of establishing a professional fee for dispensing, including a professional fee for dispensing specialty drugs, in compliance with federal Medicaid requirements. The department shall adjust the pharmacy professional fee for dispensing pursuant to the survey results and shall propose the adjusted pharmacy professional fee for dispensing to the Legislature for approval through the budget process by an enactment of statutory authorization. The department shall not implement the average acquisition cost methodology without adjusting and implementing until the pharmacy professional fee for dispensing has been adjusted pursuant to the survey and until statutory authorization of the adjusted pharmacy professional fee for dispensing has been enacted through the budget process.
(i) The department shall seek stakeholder input on the retail pharmacy factors and elements used for the pharmacy survey relative to both average acquisition costs and dispensing costs.
(ii) For specialty drug products provided by pharmacy providers pursuant to subdivision (f) of Section 14105.3, a differential professional fee or payment for services to provide specialized care may be considered as part of the contracts established pursuant to that section.
(G) When the department implements the average acquisition cost methodology, the department shall update the Medi-Cal claims processing system to reflect the average acquisition cost of drugs not later than 30 days after the department has established average acquisition cost pursuant to subparagraph (A).
(H) Notwithstanding any other provision of law, if the department implements average acquisition cost pursuant to clause (i) or (ii) of subparagraph (A), the department shall update actual acquisition costs at least every three months based on average acquisition costs determined by surveys of pharmacy invoices collected in the prior three-month period and shall notify Medi-Cal pharmacy providers at least 30 days prior to the effective date of any change in an actual acquisition cost.
(I) The department shall establish a process for providers to seek a change to a specific average acquisition cost when the providers believe the average acquisition cost does not reflect current available market prices and shall update the average acquisition cost within one week of receipt of reasonable information justifying that the average acquisition cost does not reflect current available market prices.
(c) The director shall implement this section in a manner that is consistent with federal Medicaid law and regulations. The director shall seek any necessary federal approvals for the implementation of this section. This section shall be implemented only to the extent that federal approval is obtained.
(d) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement this section by means of a provider bulletin or notice, policy letter, or other similar instructions, without taking regulatory action.
(e) The department may enter into contracts with a vendor for the purposes of implementing this section on a bid or nonbid basis. In order to achieve maximum cost savings, the Legislature declares that an expedited process for contracts under this section is necessary. Therefore, contracts entered into to implement this section, and all contract amendments and change orders, shall be exempt from Chapter 2 (commencing with Section 10290) of Part 2 of Division 2 of the Public Contract Code.
(f) (1) The rates provided for in this section shall be implemented only if the director determines that the rates will comply with applicable federal Medicaid requirements and that federal financial participation will be available.
(2) In determining whether federal financial participation is available, the director shall determine whether the rates comply with applicable federal Medicaid requirements, including those set forth in Section 1396a(a)(30)(A) of Title 42 of the United States Code.
(3) To the extent that the director determines that the rates do not comply with applicable federal Medicaid requirements or that federal financial participation is not available with respect to any rate of reimbursement described in this section, the director retains the discretion not to implement that rate and may revise the rate as necessary to comply with federal Medicaid requirements.
(g) The director shall seek any necessary federal approvals for the implementation of this section.
(h) Adjustments to pharmacy drug product payments pursuant to Section 14105.192 shall no longer apply when the department determines that the average acquisition cost methodology has been fully implemented.
(i) Prior to implementation of this section, the department shall provide the appropriate fiscal and policy committees of the Legislature with information on the department’s plan for implementation of the average acquisition cost methodology pursuant to this section.

SEC. 3.

 Section 14105.451 of the Welfare and Institutions Code is amended to read:

14105.451.
 (a) (1) The Legislature finds and declares all of the following:
(A) The United States Department of Health and Human Services has identified the critical need for state Medicaid agencies to establish pharmacy reimbursement rates based on a pricing benchmark that reflects actual acquisition costs.
(B) The Medi-Cal program currently uses a methodology based on average wholesale price (AWP).
(C) Investigations by the federal Office of Inspector General have found that average wholesale price is inflated relative to average acquisition cost.
(2) Therefore, it is the intent of the Legislature to enact legislation by August 1, 2011, that provides for development of a new reimbursement methodology that will enable the department to achieve savings while continuing to reimburse pharmacy providers in compliance with federal law.
(b) The department may only require providers, manufacturers, and wholesalers to submit information that is permitted pursuant to Section 14105.45 in preparing for the transition from a methodology based on average wholesale price to a methodology based on actual acquisition cost. The department may require manufacturers to submit any data the director determines necessary or useful in preparing for the transition from a methodology based on average wholesale price to a methodology based on actual acquisition cost.
(c) If the AWP ceases to be updated and current by the department’s primary price reference source vendor, the department may direct the fiscal intermediary to establish a process with the primary price reference source vendor to temporarily report the AWP consistent with the definition of AWP in Section 14105.45 and shall make the AWPs readily available to pharmacy providers. If this process is established, it shall be limited in scope and duration, and shall cease when the department has fully implemented the average acquisition cost methodology pursuant to Section 14105.45.

SEC. 4.

 Section 14105.455 of the Welfare and Institutions Code is amended to read:

14105.455.
 (a) Pharmacy providers shall submit their usual and customary charge when billing the Medi-Cal program for prescribed drugs.
(b) “Usual and customary charge” means the lowest price routinely offered to any segment of the general public.
(c) Pharmacy providers shall keep and maintain records of their usual and customary charges for a period of three years from the date the service was rendered.
(d) Payment to pharmacy providers shall be the lower of the pharmacy’s usual and customary charge or the reimbursement rate pursuant to subdivision (b) of Section 14105.45.
(e) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, the department may implement this section by means of a provider bulletin or notice, policy letter, or other similar instructions, without taking regulatory action.