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<ns0:Id>20250AB__200098AMD</ns0:Id>
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<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-17</ns0:ActionDate>
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<ns0:ActionText>AMENDED_ASSEMBLY</ns0:ActionText>
<ns0:ActionDate>2026-03-09</ns0:ActionDate>
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<ns0:SessionYear>2025</ns0:SessionYear>
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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Assembly Member Aguiar-Curry</ns0:AuthorText>
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<ns0:Legislator>
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<ns0:House>ASSEMBLY</ns0:House>
<ns0:Name>Aguiar-Curry</ns0:Name>
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<ns0:Title>An act to add Section 1367.208 to the Health and Safety Code, and to add Section 10123.2041 to the Insurance Code, relating to health care coverage.</ns0:Title>
<ns0:RelatingClause>health care coverage</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Drug formularies. </ns0:Subject>
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<html:p>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 provides for the regulation of health insurers by the Department of Insurance. Existing law requires a health care service plan or health insurer that provides prescription drug benefits and maintains one or more drug formularies to meet certain criteria for its formularies and the placement of drugs on formularies.</html:p>
<html:p>This bill would prohibit a health care service plan or health insurer that provides prescription drug benefits and maintains one or more drug formularies from making changes to a formulary during a plan or policy
year, except in specified circumstances. The bill would require a plan or insurer, or its pharmacy benefit manager, to report to the appropriate department any changes made to a formulary during a plan or policy year within 30 days of the change being made. The bill would authorize the departments to impose administrative penalties, as specified, for a violation of these provisions. The bill would authorize the departments to conduct audits related to these provisions. Because a willful violation of the bill’s provisions by a health care service plan would be a crime, the bill would impose a state-mandated local program.</html:p>
<html:p>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.</html:p>
<html:p>This bill would provide that no reimbursement is required by this act for a
specified reason.</html:p>
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<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
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<ns0:Num>SECTION 1.</ns0:Num>
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Section 1367.208 is added to the
<ns0:DocName>Health and Safety Code</ns0:DocName>
, to read:
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<ns0:Num>1367.208.</ns0:Num>
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(a)
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A health care service plan that provides prescription drug benefits and maintains one or more drug formularies shall not make changes to a formulary during a plan year, including removing a drug from a formulary, moving a drug to a higher cost tier, or imposing new utilization management requirements on a drug.
</html:p>
<html:p>
(b)
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Notwithstanding subdivision (a), a health care service plan may make changes to a formulary for any of the following reasons:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
To add a newly approved drug. If a generic drug is newly approved, the cost sharing for the newly approved generic drug shall be lower than the brand name drug, but brand name drug coverage shall not be removed until the end of the
plan year.
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<html:p>
(2)
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To remove a drug due to safety concerns from the United States Food and Drug Administration.
</html:p>
<html:p>
(3)
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To move a specified drug to a lower formulary tier or otherwise modify its formulary placement in a manner that reduces enrollee cost sharing.
</html:p>
<html:p>
(4)
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To remove utilization management or prior authorization requirements for a covered drug.
</html:p>
<html:p>
(c)
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(1)
<html:span class="EnSpace"/>
A health care service plan or its pharmacy benefit manager shall report to the department any changes made to a formulary during a plan year within 30 days of the change being made.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
A health care service plan shall authorize appeals for coverage denials based on formulary changes through its existing internal and
external appeals processes.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
The department may impose an administrative penalty for a violation of this section of not less than five hundred dollars ($500) per 1,000 enrollees and up to five thousand dollars ($5,000) per 1,000 enrollees.
</html:p>
<html:p>
(2)
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When assessing administrative penalties against a health care service plan pursuant to paragraph (1), the department shall determine the appropriate penalty amount for each violation based on one or more factors as applicable, including the factors outlined in subdivision (d) of Section 1386.
</html:p>
<html:p>
(3)
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Beginning January 1, 2030, and every five years thereafter, the penalty amounts specified in paragraph (1) shall be adjusted based on the average rate of change in premium rates for the individual and small group markets, and weighted by enrollment, since
the previous adjustment.
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<html:p>
(4)
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Penalties levied by the department on a plan pursuant to this subdivision shall be paid by the plan and shall not be paid by the provider, subscriber, or enrollee.
</html:p>
<html:p>
(e)
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The department may conduct audits that relate to this section and are not based on an enrollee’s complaint.
</html:p>
<html:p>
(f)
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For purposes of this section, “formulary” has the same meaning as in Section 1367.205.
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<ns0:Num>SEC. 2.</ns0:Num>
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Section 10123.2041 is added to the
<ns0:DocName>Insurance Code</ns0:DocName>
,
<ns0:Positioning>immediately following Section 10123.204</ns0:Positioning>
, to read:
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<ns0:LawSection id="id_083C0826-3B7E-4219-98BC-0DFE52276CB0">
<ns0:Num>10123.2041.</ns0:Num>
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<html:p>
(a)
<html:span class="EnSpace"/>
A health insurer that provides prescription drug benefits and maintains one or more drug formularies shall not make changes to a formulary during a policy year, including removing a drug from a formulary, moving a drug to a higher cost tier, or imposing new utilization management requirements on a drug.
</html:p>
<html:p>
(b)
<html:span class="EnSpace"/>
Notwithstanding subdivision (a), a health insurer may make changes to a formulary for any of the following reasons:
</html:p>
<html:p>
(1)
<html:span class="EnSpace"/>
To add a newly approved drug. If a generic drug is newly approved, the cost sharing for the newly approved generic drug shall be lower than the brand name drug, but brand name drug coverage shall not be removed until the end of the policy year.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
To remove a drug due to safety concerns from the United States Food and Drug Administration.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
To move a specified drug to a lower formulary tier or otherwise modify its formulary placement in a manner that reduces insured cost sharing.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
To remove utilization management or prior authorization requirements for a covered drug.
</html:p>
<html:p>
(c)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
A health insurer or its pharmacy benefit manager shall report to the department any changes made to a formulary during a policy year within 30 days of the change being made.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
A health insurer shall authorize appeals for coverage denials based on formulary changes through its existing internal and external appeals processes.
</html:p>
<html:p>
(d)
<html:span class="EnSpace"/>
(1)
<html:span class="EnSpace"/>
The department may impose an administrative penalty for a violation of this section of not less than five hundred dollars ($500) per 1,000 insureds and up to five thousand dollars ($5,000) per 1,000 insureds.
</html:p>
<html:p>
(2)
<html:span class="EnSpace"/>
When assessing administrative penalties against a health insurer pursuant to paragraph (1), the department shall determine the appropriate penalty amount for each violation based on one or more factors as applicable, including all of the following factors:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
The nature, scope, and gravity of the violation.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
The good or bad faith of the insurer.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
The insurer’s history of violations.
</html:p>
<html:p>
(D)
<html:span class="EnSpace"/>
The willfulness of the violation.
</html:p>
<html:p>
(E)
<html:span class="EnSpace"/>
The nature and extent to which the insurer cooperated with the department’s investigation.
</html:p>
<html:p>
(F)
<html:span class="EnSpace"/>
The nature and extent to which the insurer aggravated or mitigated any injury or damage caused by the violation.
</html:p>
<html:p>
(G)
<html:span class="EnSpace"/>
The nature and extent to which the insurer has taken corrective action to ensure the violation will not recur.
</html:p>
<html:p>
(H)
<html:span class="EnSpace"/>
The financial status of the insurer, including reserves, financial solvency, revenues in excess of expenditures and other factors relating to the financial status of the domestic corporation and any parent company, subsidiary, affiliate, or other financially connected entity, if any.
</html:p>
<html:p>
(I)
<html:span class="EnSpace"/>
The financial cost of the
formulary changes to insureds, including whether the penalty is commensurate with or exceeds the avoided cost based on the number of insureds estimated to be affected.
</html:p>
<html:p>
(J)
<html:span class="EnSpace"/>
Whether the violation is an isolated incident.
</html:p>
<html:p>
(3)
<html:span class="EnSpace"/>
In addition to paragraph (2), the amount of the penalty shall also take into account one or more of the following, as applicable:
</html:p>
<html:p>
(A)
<html:span class="EnSpace"/>
The number of insureds estimated to be affected.
</html:p>
<html:p>
(B)
<html:span class="EnSpace"/>
The frequency of the violation based on the number of days for a continuous violation or the estimated number of incidents with potential harm to insureds.
</html:p>
<html:p>
(C)
<html:span class="EnSpace"/>
The severity of the potential harm in terms of loss of life, loss of health, or financial harm to the insured.
</html:p>
<html:p>
(D)
<html:span class="EnSpace"/>
The amount of the penalty necessary to deter similar violations in the future.
</html:p>
<html:p>
(4)
<html:span class="EnSpace"/>
Beginning January 1, 2030, and every five years thereafter, the penalty amounts specified in paragraph (1) shall be adjusted based on the average rate of change in premium rates for the individual and small group markets, and weighted by enrollment, since the previous adjustment.
</html:p>
<html:p>
(5)
<html:span class="EnSpace"/>
Penalties levied by the department on an insurer pursuant to this subdivision shall be paid by the insurer and shall not be paid by the provider, subscriber, or insured.
</html:p>
<html:p>
(e)
<html:span class="EnSpace"/>
The department may conduct audits that relate to this section and are not based on an insured’s complaint.
</html:p>
<html:p>
(f)
<html:span class="EnSpace"/>
For purposes of this section, “formulary”
has the same meaning as in Section 10123.192.
</html:p>
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<ns0:BillSection id="id_33F51126-7B62-46D6-8698-54537C6312BE">
<ns0:Num>SEC. 3.</ns0:Num>
<ns0:Content>
<html:p>
No reimbursement is required by this act pursuant to Section 6 of Article XIII
<html:span class="ThinSpace"/>
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
<html:span class="ThinSpace"/>
B of the California Constitution.
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