## Health and Safety Code - HSC ## DIVISION 2. LICENSING PROVISIONS [1200 - 1796.88] ( Division 2 enacted by Stats. 1939, Ch. 60. ) ## CHAPTER 2.2. Health Care Service Plans [1340 - 1399.874] ( Chapter 2.2 added by Stats. 1975, Ch. 941. ) ## ARTICLE 6.1. Pharmacy Benefit Managers [1385.001 - 1385.009] ( Heading of Article 6.1 amended by Stats. 2025, Ch. 21, Sec. 9. ) ## 1385.001. For the purposes of this article: (a) “Affiliated entity” means any of the following: (1) An applicable group purchasing organization, drug manufacturer, distributor, wholesaler, rebate aggregator or other purchasing entity designed to aggregate rebates, or associated third party. (2) A subsidiary, parent, affiliate, or subcontractor of a health care service plan or health insurer, an entity that provides pharmacy benefit management services on behalf of a health care service plan or health insurer, or an entity described in paragraph (1). (3) Any other entity as designated by the department. (b) “Affiliated pharmacy” means a contract pharmacy that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with a pharmacy benefit manager. (c) “Claim” means a request for payment for administering, filling, or refilling a drug or for providing a pharmacy service or a medical supply or device to an enrollee or insured. (d) “Contract pharmacy” means a pharmacy that contracts directly or through a pharmacy services administration organization with a pharmacy benefit manager. (e) “Department” means the Department of Managed Health Care. (f) “Director” means the Director of the Department of Managed Health Care. (g) “Drug” has the same meaning as defined in Section 4025 of the Business and Professions Code. (h) “Group purchasing organization” means a third party or affiliated person, including an out-of-state or international organization, employed by, contracted with, affiliated with, under common ownership or control by, or otherwise utilized by an entity that provides pharmacy benefit management services or by a pharmacy benefit manager to negotiate, obtain, or otherwise procure rebates from drug manufacturers or wholesalers. (i) “Health insurer” means an entity licensed to provide health insurance, as defined in Section 106 of the Insurance Code. (j) “Manufacturer” has the same meaning as defined in Section 4033 of the Business and Professions Code. (k) “Nonaffiliated pharmacy” means a contract pharmacy that directly, or indirectly through one or more intermediaries, does not control, is not controlled by, and is not under common control with a pharmacy benefit manager. (l) “Passthrough pricing model” means a payment model used by a pharmacy benefit manager in which the payments made by the health care service plan or health insurer client to the pharmacy benefit manager for the covered outpatient drugs are both of the following: (1) Equivalent to the payments the pharmacy benefit manager makes to a pharmacy or provider for those drugs, including any contracted professional dispensing fee between the pharmacy benefit manager and its network of pharmacies. That dispensing fee would be paid if the health care service plan or health insurer was making the payments directly. (2) Passed through in their entirety by the health care service plan or health insurer client or by the pharmacy benefit manager to the pharmacy or provider that dispenses the drugs, and the payments are made in a manner that is not offset by any reconciliation. (m) “Payer” means a health care service plan licensed by the department or a health insurer licensed by the Department of Insurance. (n) “Person” has the same meaning as defined in Section 4035 of the Business and Professions Code. (o) “Personal representative” means an individual who has authority to make a health care decision on behalf of another individual pursuant to Division 4.7 (commencing with Section 4600) of the Probate Code. (p) “Pharmacist” has the same meaning as defined in Section 4036 of the Business and Professions Code. (q) “Pharmacist services” means products, goods, and services, or any combination of products, goods, and services, provided as a part of the practice of pharmacy. (r) “Pharmacy” has the same meaning as defined in Section 4037 of the Business and Professions Code. (s) “Pharmacy benefit management fee” means a flat, defined, dollar-amount fee that covers the cost of providing one or more pharmacy benefit management services and that does not exceed the bona fide value of the itemized service or services actually performed by the pharmacy benefit manager on behalf of the payer, that the payer would otherwise perform or contract for in the absence of the service arrangement, whether or not the payer takes title to the prescription drug. The value of the service or services shall be based on the value to the health insurer or health care service plan. A pharmacy benefit management fee may not directly or indirectly be based on or contingent upon any of the following: (1) The price of prescription drugs, including direct or indirect rebates, discounts, wholesale acquisition cost, drug benchmark price, such as average wholesale price, or other price concessions. (2) The amount of savings, rebates, or other fees charged, realized, or collected by, or generated based on the activity of, the pharmacy benefit manager or its affiliated entities, that is retained by the pharmacy benefit manager or its affiliated entities. (3) The amount of premiums, deductibles, or other cost sharing or fees charged, realized, or collected by the pharmacy benefit manager or its affiliated entities from patients or other persons on behalf of a patient. (4) Coverage or formulary placement decisions or the volume or value of any referrals or business generated between the parties to the arrangement. (5) Any other amounts or methodologies as defined by the director. (t) (1) “Pharmacy benefit manager” means a person, business, or other entity that, either directly or through an intermediary, affiliate, or both, acts as a price negotiator or group purchaser on behalf of a payer, or manages the prescription drug coverage provided by the payer, including, but not limited to, the processing and payment of claims for prescription drugs, the performance of drug utilization review, the processing of drug prior authorization requests, the adjudication of appeals or grievances related to prescription drug coverage, contracting with network pharmacies, or controlling the cost of covered prescription drugs. (2) “Pharmacy benefit manager” includes an entity performing the duties specified in paragraph (1) that is under common ownership with, or control by, a payer. (3) “Pharmacy benefit manager” does not include any of the following: (A) An entity providing services pursuant to a contract authorized by Section 4600.2 of the Labor Code. (B) A fully self-insured employee welfare benefit plan under the Employee Retirement Income Security Act of 1974 (Public Law 93-406), as amended (29 U.S.C. Sec. 1001 et seq.). (C) A health care service plan licensed pursuant to this chapter or an individual employee of a health care service plan. (D) A health insurer licensed to provide health insurance, as defined in Section 106 of the Insurance Code, or an individual employee of a health insurer. (E) A city or county that develops or manages drug coverage programs for uninsured patients for which no reimbursement is received. (F) An entity exclusively providing services to patients covered by Part 418 (commencing with Section 418.1) of Subchapter B of Chapter IV of Title 42 of the Code of Federal Regulations. (G) The State Department of Health Care Services, including any contracts between the State Department of Health Care Services and another entity related to the negotiation and collection of drug or medical supply rebates. (u) “Plan participant” means an individual who is enrolled in health care coverage provided by a payer. (v) (1) “Rebates” means compensation or remuneration of any kind received or recovered from a pharmaceutical manufacturer by a pharmacy benefit manager, affiliated entity, or subcontractor, including a group purchasing organization, directly or indirectly, regardless of how the compensation or remuneration is categorized, including incentive rebates, credits, market share incentives, promotional allowances, commissions, educational grants, market share of utilization, drug pullthrough programs, implementation allowances, clinical detailing, rebate submission fees, and administrative or management fees. (2) “Rebates” also includes fees, including manufacturer administrative fees or corporate fees, that a pharmacy benefit manager, affiliated entity, or subcontractor, including a group purchasing organization, receives from a pharmaceutical manufacturer. (3) “Rebates” does not include pharmacy purchase discounts and related service fees a pharmacy benefit manager, affiliated entity, or subcontractor receives from pharmaceutical companies that are attributable to or based on the purchase of product to stock, or the dispensing of products from a pharmacy benefit manager’s affiliated mail order and specialty drug pharmacies. “Rebates” does not include a pharmacy benefit management fee. (w) “Spread pricing” means the model of prescription drug pricing in which a pharmacy benefit manager charges a health care service plan or health insurer a contracted price for prescription drugs, and the contracted price for the prescription drugs differs from the amount the pharmacy benefit manager directly or indirectly pays the pharmacist or pharmacy. (x) “Third party” means a person that is not a plan participant or pharmacy benefit manager. (Amended (as added by Stats. 2025, Ch. 21, Sec. 11) by Stats. 2025, Ch. 605, Sec. 3. (SB 41) Effective January 1, 2026.)
