California’s State Legislature has passed laws allowing payers to establish medical provider networks (MPN) and pharmacy benefit networks (PBN) that claim to reduce medical costs by directing care to network providers. California Senate Bill 899 (April of 2004), requires MPN plans to be filed with and approved by the State and are regulated by the Division of Workers’ Compensation (DWC).   

As well California adopted Labor Code Section 4600.2, subdivision (a), which allows a payer to contract with a pharmacy benefit network (PBN) to provide medicines to employers’ injured workers and direct care to contracted pharmacy providers who can use formularies.   The result is a reduction / non-payment of out-of-network bills based on established material contracts between payers and pharmacies that specify the use of formularies and utilization management.  PBNs do not have to file, be approved and are not specifically regulated by the state, but they can be subject to lien suits by pharmacies and third party billers. 

California Labor Code 4600.2 allows medicines to be provided to injured employees through a contract with a pharmacy benefit network.  Contracts must comply with standards to be adopted by the administrative director, although those standards have yet to  be promulgated for PBNs.  It is anticipated that if standards were adopted for PBNs, they would be similar to those adopted for MPNs.  Until that time, contracts between the payer, employer and pharmacy provider can specify terms of service, pricing and settlements, as long as they are consistent with all other state laws and DWC regulations and guidelines.

Until now, due to a lack of awareness of these laws and regulations, PBNs have not been widely utilized by payers, pharmacy benefit management (PBMs) or third party administrators (TPAs) to manage pharmacy costs in California.

Labor Code section 4600.2

(a) Notwithstanding Section 4600, when a self-insured employer, group of self-insured employers, insurer of an employer, or group of insurers contracts with a pharmacy, group of pharmacies, or pharmacy benefit network to provide medicines and medical supplies required by this article to be provided to injured employees, those injured employees that are subject to the contract shall be provided medicines and medical supplies in the manner prescribed in the contract for as long as medicines or medical supplies are reasonably required to cure or relieve the injured employee from the effects of the injury.   

(b) Nothing in this section shall affect the ability of employee-selected physicians to continue to prescribe and have the employer provide medicines and medical supplies that the physicians deem reasonably required to cure or relieve the injured employee from the effects of the injury.

(c) Each contract described in subdivision (a) shall comply with standards adopted by the administrative director. In adopting those standards, the administrative director shall seek to reduce pharmaceutical costs and may consult any relevant studies or practices in other states. The standards shall provide for access to a pharmacy within a reasonable geographic distance from an injured employee’s residence.