California continues to be a national leader in healthcare price and transparency initiatives. For the 2017 legislative term, Assembly member Wood introduced legislation (AB 595) that would require insurance companies to receive approval from the Department of Managed Health Care before they can merge or acquire other health plans. In addition, Senator Monning introduced legislation (SB 538) that would prohibit providers and health plans from including certain anticompetitive terms, such as gag clauses and payment rate setting for nonparticipating hospital affiliates, in their contracts. Finally, Senator Hernandez introduced a pharmaceutical price transparency bill (SB 17) which would require public and private purchasers of health care and health care coverage be given advance notice of price increases for the costs of prescription drugs.

In past legislative terms, California legislation sought to provide additional processes and structures to improve healthcare price transparency and, in effect, lower costs. In September 2016, Governor Brown signed a bill that requires health insurers to notify their policyholders when regulators think their price hikes are too high (SB 908), and a bill that protects patients from out-of-network provider “surprise bills” (AB 72). Other proposed legislation sought to reduce healthcare costs by requiring insurance carriers to provide a minimum value of 60%; and by clarifying family and individual family member cost sharing.

Overall, California remains an active participant in the initiative to reduce healthcare costs and improve price transparency. California’s legislation and regulation aligns with similarly active and progressive states by focusing on pharmaceutical costs and stakeholder transparency measures.



Legislative Calendar

California’s current regular legislative session runs from 1/3/2018 – 7/6/2018 and then reconvenes from 8/6/2018 – 8/31/2018. Legislations from the 2017 term have carried over to 2018. The Governor has until 9/30/2018 to sign or veto any bills passed by the California legislature.

Legislative Updates

Healthcare Transparency

2017-2018 SB 17 Prescription Drug Pricing – Notification: This bill would state the intent of the Legislature to enact legislation requiring public and private purchasers of health care and health care coverage be given advance notice of price increases for the costs of prescription drugs in order to further the ability to predict and manage these costs and the public be given information about the justification, if any, for the prices of newly emerging medications and price increases for existing prescription drugs. This bill would include the findings and declarations of the Legislature in support of its intent. Passed – Signed by Governor on 10/9/17.

AB 72


Health care coverage — out of network coverage: This surprise medical bill legislation aims to prevent patients from receiving out-of-network charges after undergoing a procedure or agreeing to services. The law requires insurers to reimburse out-of-network providers at the greater of 125 percent of the rate Medicare pays, or at the insurer’s average contracted rate.


Passed — Chaptered by Secretary of State – Chapter 492, Statutes of 2016.
AB 627 Pharmacy benefit managers – contracting pharmacies: When a pharmacy benefit manager reimburses a contracting pharmacy contracting for a drug, on a maximum allowable cost basis:

1) A pharmacy benefit manager is required to include in any contract initially entered into or renewed, on or after January 15, 2016, with a contracting pharmacy information that identifies national drug price compendia or maximum allowable cost data sources; and

2) A pharmacy benefit manager is required to make available to the contracting pharmacy, upon request, up-to-date maximum allowable cost list(s) relevant to the pharmacy’s patients in a Web-based or comparable format.

A drug may not included on a list of, or reimbursed at, maximum allowable cost unless (1) it is rated “A” or “B” in the FDA’s Orange Book or as “NA,” “NR,” or “Z” in a nationally recognized price reference; (2) the drug is generally available for purchase in the state from a national or regional wholesaler; and (3) the drug is not obsolete.

Pharmacy benefit managers must have an appeals process. The code provides contracting pharmacies with appealable causes of action.

Passed – Chaptered by the Secretary of State on 7/13/15. Amends Sections 4430 and 4432 of, and adds Section 4440 to, the Business and Professions Code, relating to pharmacy benefit managers.
SB 137 Health care coverage – provider directories: In response to deficiencies in provider roles, SB 137 requires health plans and insurers to post accurate health care provider directories on their website. Under previous California law, providers were only required to notify plan participants of providers that have closed practices or are otherwise not accepting new patients upon request. Providers are now required to make weekly updates to their online provider lists, indicate whether in-network physicians are accepting new patients, and include information as to whether the provider or its staff speaks any non-English language. Passed – Chaptered by the Secretary of State on 10/8/15. Adds Section 1367.27 to, and repeals Section 1367.26 of, the Health and Safety Code, and add Section 10133.15 to the Insurance Code, relating to health care coverage.

SB 546



Rate review: Requires additional data collection and review of health insurance rates in the large-group market (generally comprised of purchasers who are large employers or multi-employer trusts). Specifically, this bill:1) Establishes a rate review process for increases to large-group rates that meet specified thresholds (a rate greater than 150% of the aggregate increase for all that plan’s rates, or a rate that will subject the product to a federal excise tax). It requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to determine whether such large-group rate increases are reasonable or unreasonable;2) Modifies aggregated information plans and insurers must file regarding rate changes in the large-group market;

3) Requires DMHC and CDI to conduct a public meeting between November and March each year, regarding aggregate rate changes for each carrier that offers coverage in the large-group market; and

4) Stipulates requirements for specified notices to large-group purchasers about rate increases.

Passed – Chaptered by the Secretary of State on 10/11/15. Amends Section 1374.21 of, and adds Section 1385.045 to, the Health and Safety Code, and amends Section 10199.1 of, and adds Section 10181.45 to, the Insurance Code, relating to health care coverage.


Healthcare Cost

2017- 2018 AB 265 Prescription Drug Coupons:  Raises consumer awareness regarding drug pricing and helps curb rising drug costs by prohibiting drug manufacturing when a lower cost therapeutically equivalent or interchangeable drug is available from offering coupons or discounts to consumers to reduce consumer out of pocket insurance expenses which in the long term increase health care premiums and costs for all health care purchasers including employers by driving consumers to higher cost brand name drugs. Passed  –  Chaptered by the Secretary of State on 10/09/17. Adds Division 114 (commencing with Section 132000) to the Health and Safety Code.
AB 904 Prescription Drugs: This bill would declare the intent of the Legislature to enact legislation that would address high prescription drug costs. Active – May be heard by committee (2/17/2017)
AB 1048 Health care: pain management and Schedule II drug prescriptions: This bill, commencing January 1, 2019, would require a health care service plan and an insurer to prorate an enrollee’s or insured’s cost sharing for a partial fill of a prescription of an oral, solid dosage form prescription drug. The bill would also prohibit a health care service plan or an insurer from considering a prorated cost-sharing payment made to a pharmacist for dispensing a partial fill as an overpayment. Passed – Chaptered by Secretary of State on 10/9/2017. Adds Section 4052.10 to the Business and Professions Code, amends Sections 1254.7 and 1371.1 of, and adds Section 1367.43, to the Health and Safety Code, and amends Section 10123.145 of, and adds Section 10123.203 to, the Insurance Code
AB 1643 Health Care for All Commission: This bill would create the 9-member Health Care for All Commission in the State Department of Health Care Services, for the purpose of investigating and making recommendations on improving health care access and affordability for all Californians. The bill would require the Governor, the Senate Rules Committee, and the Speaker of the Assembly to each appoint 3 members of the commission, and require the commission to elect its chair from among its members. The bill would require the commission to meet quarterly between January 1, 2018, and January 1, 2020, and during that time period investigate issues related to improving health care access and affordability for all Californians. The bill would, following the investigation, require the commission to provide a report and recommendations regarding its findings to the Legislature. The bill would require the State Department of Health Care Services to provide general support and staff assistance to the commission. Active – Held in committee on 5/26/2017.
AB 1860 Health care coverage – cancer treatment: Existing law prohibits, until January 1, 2019, an individual or group health care service plan contract or health insurance policy issued, amended, or renewed on or after January 1, 2015, that provides coverage for prescribed, orally administered anticancer medications used to kill or slow the growth of cancerous cells from requiring an enrollee or insured to pay, notwithstanding any deductible, a total amount of copayments and coinsurance that exceeds $200 for an individual prescription of up to a 30-day supply of a prescribed orally administered anticancer medication, as specified. This bill would extend the duration of prohibition indefinitely. Active – In Committee on Health (1/29/2018)
SB 199 This bill would require the Secretary of California Health and Human Services, in furtherance of the goal of creating the California Health Care Cost, Quality, and Equity Atlas, to convene an advisory committee composed of a broad spectrum of health care stakeholders and experts, as specified. The bill would require the secretary to charge the advisory committee with identifying the type of data, purpose of use, and entities and individuals that are required to report to, or that may have access to, a health care cost, quality, and equity atlas, and with developing a set of recommendations based on specified findings of the March 1, 2017, report. Active – September 1st Hearing; held in committee on 9/1/2017.
SB 562 Californians For A Healthy California Act: This bill would make findings and declarations with regard to the availability and affordability of health care coverage and would state the intent of the Legislature to enact legislation that would establish a comprehensive universal single-payer health care coverage program and a health care cost control system for the benefit of all residents of the state. Active  – In Assembly on 6/01/17.
2015- 2016 AB 248  Minimum value coverage: Prohibits non-grandfathered insurance companies from selling, amending, or renewing any large group plan contracts or insurance policies that provide a minimum value of less than 60%. Passed – Chaptered by the Secretary of State on 10/08/15. Adds Section 1367.010 to the Health and Safety Code, and adds Section 10112.9 to the Insurance Code, relating to health care coverage.
AB 339 Cost sharing – prescription drugs:

1) Prohibits the drug formularies used by health insurers and health plans from discouraging the enrollment of individuals with health conditions and from reducing the generosity of the benefit for enrollees with a particular condition;

2) For combination antiretroviral drugs for the treatment of AIDS/HIV, health insurers and health plans are required to cover a single-tablet regimen unless the multi- tablet regimen is shown to be equally effective and more likely to result in adherence to a drug regimen;

3) Prohibits more than 50% of approved drugs in the same drug class from being assigned to the two highest tiers of a drug formulary;

4) Requires all drug formularies to include at least one drug in the lower cost tiers if all approved drugs would otherwise be in the highest cost tiers and at least three drugs are available in the drug class;

5) Requires that the drug or drugs assigned to the lower tiers be those drugs that were most often prescribed in the preceding year;

6) Limits cost sharing for a 30-day supply of a prescription drug to $250 (or $500 for a bronze level plan and only once the deductible has been satisfied for a high deductible health plan).

7) Specifies the criteria for formulary tiers that must be used by health insurers and health plans that include a fourth or specialty tier;

The above requirements went into effect on July 1, 2016 for group health plans or insurance policies and go into effect on January 1, 2017 for individual market health plans and health insurance policies, and the above requirements do not apply to Medi-Cal managed care plans;

8) Specifies the timelines and procedures for requesting coverage of a non-formulary drug by a prescriber (this modifies an existing requirement on health plans and creates a new requirement on health insurers);

9) Requires carriers to have a pharmacy and therapeutics committee responsible for developing a health insurer’s or health plan’s drug formulary, with specified requirements; and

10) Requires health insurers and health plans to allow enrollees to access prescription drugs at an in-network retail pharmacy unless the drug is subject to federal restrictions on distribution;
Require health insurers and health plans to provide access to drug formularies to the general public and state regulators and require carriers to include information on cost sharing and what tier of a formulary each medication is on.

See Sacramento Business Journal Article.

Passed – Chaptered by the Secretary of State on 10/08/15. Amends Section 1367.205 of, adds Sections 1367.41 and 1367.42 to, and adds and repeal sSection 1342.71 of, the Health and Safety Code, and amends Section 10123.192 of, adds Section 10123.201 to, and adds and repeals Section 10123.193 of, the Insurance Code, relating to health care coverage.
AB 1305 Family coverage cost sharing: requires family health plan/health insurance coverage out-of-pocket expenditure deductibles and limits to include out-of-pocket expenditure deductibles and limits for each individual member of the family that are no more than the amounts allowed for individual coverage. This ensures that an individual on a family insurance plan would not have to pay more out-of-pocket than the ACA individual limit of $6,600 even if the individual is part of a family plan (which the ACA caps at $13,200 out-of-pocket). Passed – Chaptered by the Secretary of State on 10/08/15. Amends Sections 1367.006 and 1367.007 of the Health and Safety Code, and amends Sections 10112.28 and 10112.29 of the Insurance Code, relating to health care coverage.
SB 908 Health care coverage: premium rate change: notice: other health coverage: Requires insurers to notify patients of premium rate changes deemed unreasonable by state regulators. Passed Chaptered by Secretary of State on 9/23/2016.



Healthcare Markets

2017-2018 AB 595 Health care service plan mergers: This bill would require specified entities that intend to merge with, consolidate, acquire, purchase, or control, directly or indirectly, a health care service plan doing business in this state to give notice to, and secure the prior approval from, the Director of the Department of Managed Health Care. The bill would require that entity to apply for licensure as a health care service plan. The bill also would require the department, prior to approval, conditional approval, or denial of the proposed agreement or transaction, to hold a public hearing on the proposal and make specified findings. The bill would require the department to prepare an independent health care impact statement if the director determines that a material amount of the health care service plan’s assets are subject to merger, consolidation, acquisition, purchase, or control, as specified. The bill would authorize the director to give conditional approval for a transaction or agreement as described in the bill, under specified circumstances. Active – In Committee on Health (6/15/2017).
AB 1785 MediCal eligibility – assets: This bill would exclude the principal and interest of a 529 college savings plan, as defined, from consideration for purposes of any asset or resources test to determine eligibility for Medi-Cal benefits with respect to an applicant or beneficiary whose eligibility is not determined using MAGI-based financial methods, as specified. Active – In Committee on Health (1/22/2018).
SB 538 Hospital Contracts: This bill would prohibit contracts between hospitals and contracting agents or health care service plans from containing certain provisions, including, but not limited to, setting payment rates or other terms for nonparticipating affiliates of the hospital, requiring the contracting agent or plan to keep the contract’s payment rates secret from any payor, as defined, that is or may become financially responsible for the payment, and requiring the contracting agent or plan to submit to arbitration, or any other alternative dispute resolution program, any claims or causes of action that arise under state or federal antitrust laws after those claims or causes of action arise, except as provided. The bill would make any prohibited contract provision void and unenforceable. The bill would define “contracting agent” for those purposes. The bill would provide that its provisions are severable. Active – In Senate – awaiting committee assignment (1/29/2018).
SB 687 Health facilities: emergency services: Attorney General: This bill would apply the notice and consent requirements to a nonprofit corporation, without regard to whether it is currently operating or providing health care services or has a suspended license, prior to agreeing to sell, transfer, lease, exchange, option, convey, or otherwise dispose of the assets resulting from the reduction or elimination of emergency medical services provided at a licensed emergency center after the Attorney General gives a specified consent or conditional consent. The bill would require the Attorney General to review and consent to the sale, transfer, lease, exchange, option, conveyance, or disposal of any assets resulting from a qualifying nonprofit corporation’s reduction or elimination of emergency medical services that occurred on or after January 1, 2016.

The bill would also require any nonprofit corporation, as defined, that operates or controls a health facility or operates or controls a facility that provides similar health care and that provides emergency medical services at a licensed emergency center to provide written notice to, and obtain written consent of, the Attorney General prior to a reduction of the level of emergency medical services provided or the elimination of those services. This bill would require the written notice to contain the information that the Attorney General determines is required to make a decision in the public interest.

This bill would prohibit the State Department of Public Health from licensing a stand-alone emergency room, freestanding emergency department, or freestanding emergency center that is not part of a general acute care hospital facility providing 24-hour inpatient care with basic services. The bill would require the above-described notice to also be given to the agency in charge of the provision of health services.

Active – In Senate – considering Governor’s veto (10/14/2017).
2015-2016 SB 125 Adoption of FTE counting method to determine small group market eligibility: extends the sunset date of the California Essential Benefit Review Program to June 30, 2017; extends the annual market enrollment period to November 1 through January 31; and revises the definition of “small employer,” for plans commencing after January 1, 2016, to require the use of the full-time equivalent (FTE) counting method for determining size of employer under the ACA. Passed – Chaptered by the Secretary of State on 6/17/15. Amends Sections 1357.500, 1399.849, 127660, 127662, and 127664 of, and repeals and adds Section 127665 of, the Health and Safety Code. Also amends Section 10753 and 10965.3 of the Insurance Code, relating to health care coverage.


Key Statutes

We compile state statutes relate to healthcare price and competition, including healthcare transparency, markets, and costs. For a complete listing of all health related statutes visit the State Health Practice Database for Research.

Healthcare Transparency

  • Health & Safety Code § 1367.49: Prohibits contracts by or on behalf of a health care service plan and a provider or supplier that restrict the ability of the health care service plan to furnish consumers or purchasers information concerning any of the following: (1) The cost range of a procedure or a full course of treatment, including, but not limited to, facility, professional, and diagnostic services, prescription drugs, durable medical equipment, and other items and services related to the treatment; (2) The quality of services performed by the provider or supplier.


  • Health & Safety Code § 1367.50: Prohibits contracts between an insurer and a provider that restrict disclosure of claims data related to healthcare services provided to consumers.  The law helps to increase price transparency in the state because it requires disclosure of claims data to “qualified entities,” but does not require disclosure to the public at large. This law was known as SB 1196 prior to being chaptered, which also amended § 10117.52 of the Insurance Code, which likewise requires claims disclosure.


  • Health & Safety Code §§ 1339.50-59: Also known as the Payers’ Bill of Rights, seeks to prevent hospitals from “gouging patients” and to help inform patients of the cost of healthcare procedures. It requires each hospital to make available to the public and disclose its average billed charges for the twenty-five most common inpatient and outpatient procedures to the Office of Statewide Health Planning and Development (OSHPD) for publication on a website. The Payers’ Bill of Rights also requires hospitals to make its chargemaster, a list of the hospital’s gross billed charges, for the specific services or items publicly available (which may vary significantly from contracted rates).


  • Health & Safety Code § 128735: Requires health care facilities to submit a statement detailing patient revenue by payer and hospital discharge data to OSHPD.


Healthcare Markets

  • Health & Safety Code § 1340, et seq: The Knox-Keene Health Care Service Plan Act of 1975, as amended, is the set of laws passed by the State Legislature to regulate HMOs within the State. These statutes set rules for mandatory basic services, financial stability, availability and accessibility of providers, review of provider contracts, and consumer disclosures and grievance requirements.


  • State antitrust provisions: California has a number of state antitrust provisions under which (often in addition to federal statutes), the state or private persons may bring claims. These include: Cal. Bus. Code 16600 – 173365; Cal Bus. Code § 16770; Cal. Health & Safety Code § 1342.6; and Cal. Bus. Code § 17200 (class actions).



November 2016

  • Proposition 52 – Passed. State Fees on Hospitals. Federal Medi-Cal Matching Funds. Initiative Statutory and Constitutional Amendment. (1613): Increases required vote to two-thirds for the Legislature to amend a certain existing law that imposes fees on hospitals (for purpose of obtaining federal Medi-Cal matching funds) and that directs those fees and federal matching funds to hospital- provided Medi-Cal health care services, to uncompensated care provided by hospitals to uninsured patients, and to children’s health coverage. Eliminates law’s ending date. Declares that law’s fee proceeds shall not be considered revenues for purposes of applying state spending limit or determining required education funding.
  • Proposition 61 – Failed. State Prescription Drug Purchases. Pricing Standard. Initiative Statute. (1672): Prohibits state agencies from paying more for a prescription drug than the lowest price paid for the same drug by the United States Department of Veterans Affairs. Applies to any program where the state is the ultimate payer for a drug, even if the state does not purchase the drug directly. Exempts certain purchases of prescription drugs funded through Medi-Cal. Fiscal impact: It is the opinion of the Legislative Analyst and Director of Finance that the measure, if adopted, may result in a substantial net change in state or local finances. For more information on Prop 61, watch this video explaining the law from Professor Rob Schwartz, a nationally recognized expert on bioethics, health law, and healthcare decision making.



California’s fiscal year runs from July 1 through June 30. After its introduction, the legislature has until June 15 to pass the budget. To view California’s Department of Health and Human Services FY 2018 Budget, visit page 23.



Narrow Networks

  • Anthem Blue Cross Affordable Care Act Cases, JCCP 4805 (Cal. Super. Ct.)Four combined lawsuits were filed in state court in 2014 by Anthem Blue Cross plan enrollees against the insurer in connection with changes Anthem made to narrow networks. The enrollees alleged that Anthem intentionally concealed the change to narrow networks to increase profits. The case settled in August 2016, with Anthem paying $15 million to reimburse 712,000 California enrollees who paid too much for care because Anthem’s provider directories were inaccurate. You can read the motion in support of the settlement here.


Hospital Pricing

  • California Children’s Hosp. Cent. v. Blue Cross of Cal., 226 Cal.App.4th 1260 (Cal. Ct. of App.) In 2014, a California court of appeals ruled that a hospital had to prove its rates were reasonable when billing a non-contracted insurer for services, as opposed to just claiming it was owed chargemaster rates. Read our blog post here, and if you would like more in-depth legal analysis of the case, see our case summary. The California Supreme Court denied review of the case.


Healthcare Markets

  • Prime Healthcare Services v. Kamala D. Harris, 3:16-cv-00778 (S.D. Cal.) Prime Healthcare is suing California Attorney General Kamala Harris in federal court, alleging corruption in connection with the Attorney General’s ties to a healthcare workers union that affected her decision to subject Prime’s acquisition of six Daughters of Charity hospitals to burdensome conditions. The Attorney General has filed a motion to dismiss, the court heard on September 30, 2106, and is currently awaiting decision. Read the complaint filed in September 2015. In February, Prime declined to go through with the $843M purchase in light of the conditions imposed by the Attorney General . Read our blog post for details on the original deal and approval conditions.


  • UFCW & Employers Benefit Trust v. Sutter Health, No. CGC 14 538451 (Cal. Super. Ct.) This class action was filed in state court against Sutter Health, the largest provider in Northern California, by a union. The union alleges that Sutter has violated California’s antitrust law, the Cartwright Act, and engaged in other unfair business practices. We have been closely following the case on the blog. The most recent big news on the case was the superior court’s decision denying Sutter’s demurer (a motion to dismiss). The complaint in the case was filed in April 2014.


  • Sidibe v. Sutter Health, No. C 12-04854 LB (N.D. Cal. June 3, 2013) – As discussed in the Source Blog, on June 20, 2014, a federal district court dismissed the 2012 putative antitrust class action with prejudice, after giving plaintiffs two tries to correctly plead relevant geographic markets.


  • California was one of 16 states to file an amicus brief supporting the FTC’s winning position in the Ninth Circuit appeal of St. Luke’s Health Care Sys. v. FTC, decided February 10, 2015. The States’ brief stated that the acceleration of health care costs due to the growth of large health care provider systems had become a matter of grave concern.



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