New California Legislation Governing Health Plans’ Relationships with Pharmacies and Pharmacy Benefit Managers

Last month, California Governor Jerry Brown signed AB 315 into law. AB 315 is California’s version of the growing national trend to regulate pharmacy benefit managers (“PBMs”). PBMs are entities that not only manage prescription drug benefits under health insurance plans, including drug utilization review, drug plan formulary development, selecting pharmacies for prescription drug networks, and determining reimbursements for those pharmacies, but also operate mail order and specialty pharmacies themselves. The new California law defines PBMs,, and subjects them to regulation under the Knox Keene Act and the Business & Professions Code. Notably, there are new duties imposed on PBMs for contracts entered into, amended or renewed on or after January 1, 2019. These duties include a requirement to exercise good faith and fair dealing — a term with special legal significance in the realm of a California insurer’s obligations to insureds — and a registration requirement with the California Department of Managed Health Care (“DMHC”).

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