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ARIZONA STATE SENATE
Fifty-Seventh Legislature, First Regular Session
pharmacy benefits; prescribing; exemption
Purpose
Prohibits a pharmacy benefit manager (PBM) from limiting or excluding coverage of a prescription drug for any covered individual who is on a specific prescription drug and outlined conditions are met. Prescribes formulary change notification requirements and establishes a formulary prescription drug exception process.
Background
The Department of Insurance and Financial Institutions (DIFI) regulates and monitors insurance companies and professionals operating in Arizona to protect the public and help ensure that these entities follow Arizona and federal law (Ariz. Const. art. 15 § 5). Beginning January 1, 2025, PBMs must apply and pay a fee to DIFI for a valid certificate of authority to operate as a PBM who performs services for a health plan subject to state jurisdiction (A.R.S. § 20-3333).
A PBM is a person, business or entity that, either directly or through an intermediary, manages the prescription drug coverage provided by a contracted insurer or other third-party payor, including 1) the processing and payment of claims for prescription drugs; 2) the performance of drug utilization review; 3) the processing of drug prior authorization requests; 4) the adjudication of appeals or grievances related to prescription drug coverage; 5) contracting with network pharmacies; and 6) controlling the cost of covered prescription drugs (A.R.S. § 20-3321).
PBMs are charged with: 1) updating price and drug information for each list that the PBM maintains; 2) making the sources used to determine maximum allowable cost pricing available to each network pharmacy at the beginning of a contract or upon renewal; 3) establishing a process for network pharmacies to appeal its reimbursement for any drug subject to maximum allowable cost pricing; and 4) allowing a contracted pharmacy services organization to file an appeal of a drug on behalf of the organization's contracted pharmacies (A.R.S. § 20-3331).
If the outlined prescription drug coverage and formulary exception requirements increase costs to the state employee health plan, there may be a fiscal impact to the state General Fund.
Provisions
Limitations and Exclusions of Prescription Drug Coverage
1. Prohibits a PBM that enters into an agreement with a health care insurer (insurer) to provide PBM services from limiting or excluding coverage of a prescription drug for any covered individual who is on a specific prescription drug, if the:
a) drug was previously approved for coverage by the PBM or insurer for the covered individual; and
b) covered individual continues to be an insured, enrollee or subscriber of the insurer that the PBM has contracted with to provide PBM services.
2. Requires a PBM who limits or excludes coverage of a prescription drug to continue coverage of the drug through the last day of the plan year for any covered individuals using the drug.
3. Prohibits PBMs and insurers from changing a covered individual from a previously covered prescription drug if the individual's prescribing health care provider provides electronic or written notice that the individual will continue on the current prescription drug.
4. Requires a PBM or insurer that makes a formulary change that limits or excludes coverage of a prescription drug to provide electronic or written notice to each impacted covered individual and their prescribing health care provider at least 60 days before the formulary change.
5. Requires PBM and insurer notices of prescription drug limitations or exclusions to:
a) describe the process by which a covered individual's health care provider may notify the PBM or insurer of the continued use of the nonformulary prescription drugs; and
b) notify the prescribing health care provider that, if the health care provider provides notice of the enrollee's or subscriber's continued use of the drug for the remainder of the plan year, the provider will need to apply for a formulary exception for the continued use of the nonformulary prescription drug upon renewal of the health care plan.
Formulary Exceptions
6. Requires insurers, PBMs and utilization review agents, upon renewal of a health care plan, to provide a covered individual and prescribing health care provider with access to a clear and convenient process to request a formulary exception process.
7. Authorizes insurers, PBMs and utilization review agents to use existing formulary exception processes to satisfy exception requirements if the medical exceptions process is consistent with statutory requirements.
8. Requires insurers, PBMs and utilization review agents to respond to a formulary exception request within 72 hours after receiving the request and relevant clinical documentation.
9. Allows a covered individual or the individual's prescribing health care provider to request an expedited review in cases where exigent circumstances exist, in which case the insurer, PBM or utilization review agent must respond to the request within 24 hours after receiving the request and relevant clinical documentation.
10. Requires insurers, PBMs and utilization review agents to approve formulary exceptions for any covered individual who renews the same health care plan if the covered individual has been previously approved to receive the nonformulary prescription drug under the same health care plan and the prescribing health care provider uses the formulary exception process and provides relevant clinical documentation to certify:
a) the covered individual has tried an ineffective formulary equivalent prescription drug that was part of the individual's prescription drug benefit at the time of trial and the health care provider specifies the contraindication or adverse harmful reaction in the individual;
b) the covered individual has experienced a positive therapeutic outcome on the requested drug for more than 90 days; and
c) formulary equivalent prescription drugs are contraindicated or will likely cause a serious adverse reaction.
11. Authorizes a covered individual who does not qualify for a formulary exception by way of a health plan renewal to apply for a formulary exception using the insurer's, PBM's or utilization review agent's formulary exception process.
12. Requires insurers, PBMs and utilization agents, when evaluating whether a covered individual qualifies for a formulary exception, to consider whether the:
a) covered individual has experienced a positive therapeutic outcome on the previously approved drug;
b) formulary drug is not in the best interest of the covered individual based on medical necessity because the covered individual's use of the formulary prescription drug is expected to cause a negative impact on the individual's comorbid condition or a clinically predictable negative drug interaction; and
c) formulary prescription drug is contraindicated or will likely cause a severe reaction.
13. Requires a notice of denial of coverage by an insurer or PBM for a nonformulary prescription drug to be made in writing to the covered individual by a licensed pharmacist or medical director, and include:
a) the medical or pharmacological reasons why the authorization was denied;
b) the signature of the licensed pharmacist or medical director who made the decision to deny coverage; and
c) the process by which a covered individual may appeal the denial.
15. Requires insurers, PBMs and utilization review agents to maintain copies of all formulary prescription drug exception denials and to make the copies available to DIFI for inspection.
16. Allows a covered individual or the individual's authorized representative to appeal any formulary prescription drug exception denial.
17. Specifies that any approved formulary exception for a covered individual is in effect through the end of the individual's plan year.
18. Requires approvals of formulary exceptions to be delivered, in writing, to the covered individual and the individual's treating health care provider.
Miscellaneous
19. Specifies that requirements for prescription drug coverage and formulary exceptions do not:
a) prevent a health care provider from prescribing another covered prescription drug if the provider deems the drug medically necessary for the covered individual; or
b) prevent an insurer or PBM from:
i. adding a prescription drug to its formulary;
ii. removing a formulary prescription drug that has been removed for sale in the United States by the drug manufacturer;
iii. making any formulary changes for patients who are not on a previously approved prescription drug; or
iv. setting the cost sharing for nonformulary prescription drugs.
20. Applies the requirements related to prescription drug limitations, exclusions and formulary drug exceptions only to PBMs that are certified by DIFI.
21. Allows the Director of DIFI to take enforcement action, as authorized by, against a PBM, insurer or utilization review agent in violation of requirements relating to drug limitations or exclusions or formulary drug exceptions.
22. Specifies that a policy that is issued or renewed by a disability insurer does not include a policy that provides limited benefit coverage.
23. Defines terms.
24. Applies the newly established drug coverage and formulary exception process requirements to contracts entered into, amended, extended or renewed beginning January 1, 2026.
25. Becomes effective on the general effective date.
Prepared by Senate Research
January 27, 2025
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