AMENDED IN ASSEMBLY APRIL 16, 2026
AMENDED IN ASSEMBLY MARCH 9, 2026
CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION
97
Introduced by Assembly Member Aguiar-Curry
February 17, 2026
An act to add Section 1367.208 to amend Section 1367.24 of, and to add Section 1367.208 to, the Health and Safety Code, and to add Section 10123.2041 to the Insurance Code, relating to health care coverage.
Vote: majority Appropriation: no Fiscal committee: yes Local program: yes
LEGISLATIVE COUNSEL’S DIGEST
Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law provides for the regulation of health insurers by the Department of Insurance. Existing law requires a health care service plan or health insurer that provides prescription drug benefits and maintains one or more drug formularies to meet certain criteria for its formularies and the placement of drugs on formularies.
This bill would prohibit a health care service plan or health insurer that provides prescription drug benefits and maintains one or more drug formularies from making changes to a formulary during a plan or policy year, except in specified circumstances.
If a plan or insurer implements a formulary change requiring an enrollee or insured to change to a different drug in the same drug class during the plan year, the bill would authorize the individual to remain on the previously covered drug for the rest of the plan year if the drug was previously approved for coverage for the individual’s medical condition, is appropriately prescribed, and is considered safe and effective for treating that condition, and would require the plan or insurer to notify the individual and their provider no less than 90 days before the change is implemented. The bill would require a plan or insurer, or its pharmacy benefit manager, to report to the appropriate department any changes made to a formulary during a plan or policy year within 30 days of the change being made. The bill would authorize the departments to impose
investigate and take enforcement action against a plan or insurer for noncompliance with the above-described requirements and to impose, after notice and the opportunity for a hearing, administrative penalties, as specified, for a violation of these provisions. The bill would authorize the departments to conduct audits related to these provisions. Because a willful violation of the bill’s provisions by a health care service plan would be a crime, the bill would impose a state-mandated local program.
Existing law requires a health care service plan that provides prescription drug benefits to maintain an expeditious process by which prescribing providers may obtain authorization for a medically necessary nonformulary prescription drug.
This bill would define “expeditious process” for the above-described purpose to require a plan to approve authorization within 72 hours for nonurgent requests, or within 24 hours if exigent circumstances exist, of a request for approval of a drug prescription. If the plan fails to meet those requirements, the bill would authorize an enrollee to request, and would require the plan to provide, 90 days of transitional coverage to the enrollee for the previously covered drug. The bill would require the Department of Managed Health Care to utilize existing data and its existing authority to collect data from plans and annually publish on its internet website and submit to the Legislature an aggregated report on information related to requests for approval of a nonformulary drug as described above.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The people of the State of California do enact as follows:
SECTION 1.
Section 1367.208 is added to the Health and Safety Code, to read:
1367.208.
(a) A Except as described in subdivision (b), a health care service plan that provides prescription drug benefits and maintains one or more drug formularies shall not make changes to a formulary during a plan year, including removing a drug from a formulary, moving a drug to a higher cost tier, or imposing new utilization management requirements on a drug. moving a drug to a higher cost tier.
(b) Notwithstanding subdivision (a), a health care service plan may make changes to a formulary for any of the following reasons:
(1) To add a newly approved drug. If a generic drug is newly approved, the cost sharing for the newly approved generic drug shall be lower than the brand name drug, but brand name drug coverage shall not be removed until the end of the
plan year. an additional drug to the formulary.
(2) (A) To replace a covered drug on the formulary with another drug in the same drug class. The enrollee’s cost sharing for the newly covered drug during the plan year shall be the same as or lower than the cost-sharing amount for the previously covered drug.
(B) To replace a covered brand name drug on the formulary with a generic drug of the same drug class. The enrollee’s cost sharing for the newly covered drug during the plan year shall be lower than the cost-sharing amount for the previously covered drug.
(C) To replace a covered brand name drug on the formulary with a generic drug of the same drug. The enrollee’s cost sharing for the newly covered drug during the plan year shall be lower than the cost-sharing amount for the previously covered drug.
(3) To add a biosimilar or interchangeable biologic product that is the same or similar to a previously covered drug or reference product if the net cost to the plan and the amount of the enrollee’s cost sharing is the same as or lower than the net cost to the plan and the cost-sharing amount for the previously covered drug or reference product.
(4) To remove a drug due to safety concerns from the United States Food and Drug Administration.
(5) To move a specified drug to a lower formulary tier or otherwise modify its formulary placement in a manner that reduces enrollee cost sharing.
(6) To remove utilization management or prior authorization requirements for a covered drug.
(c) (1) If the plan implements a formulary change requiring an enrollee to change to a different drug in the same drug class during the plan year, the enrollee may remain on the previously covered drug for the rest of the plan year if all of the following conditions are met:
(A) The drug was previously approved for coverage by the plan for a medical condition of the enrollee.
(B) The drug is appropriately prescribed to the enrollee.
(C) The drug is considered safe and effective for treating the enrollee’s medical condition.
(2) If the plan requires an enrollee to change to a different drug as described in paragraph (1), the plan shall notify the enrollee and their prescribing provider no less than 90 days before the formulary change is implemented. The notification shall include information about existing requirements for continuity of coverage for previously covered drugs as described in Section 1367.22.
(3) This subdivision does not prohibit the prescribing provider from prescribing a different drug that is covered by the plan that is medically appropriate for the enrollee.
(4) This subdivision does not prohibit the prescribing provider from prescribing a generic drug substitution as described in Section 4073 of the Business and Professions Code.
(d) (1) A health care service plan or its pharmacy benefit manager shall report to the department any changes made to a formulary during a plan year within 30 days of the change being made.
(2) A health care service plan shall authorize appeals for coverage denials based on formulary changes through its existing internal and external appeals processes.
(e) (1) (A) The director may investigate and take enforcement action against a plan for noncompliance with the requirements of this section.
(B) The director may, by order, assess administrative penalties of not less than five hundred dollars ($500) per 1,000 enrollees and up to five thousand dollars ($5,000) per 1,000 enrollees, subject to appropriate notice of, and the opportunity for, a hearing in accordance with Section 1397.
(2) When assessing administrative penalties against a health care service plan pursuant to paragraph (1), the department shall determine the appropriate penalty amount for each violation based on one or more factors as applicable, including the factors outlined in subdivision (d) of Section 1386.
(3) The plan may provide to the director, and the director may consider for the purposes of the determination described in paragraph (2), information regarding the plan’s overall compliance with the requirements of this section.
(4) Beginning January 1, 2030, and every five years thereafter, the penalty amounts specified in paragraph (1) shall be adjusted based on the average rate of change in premium rates for the individual and small group markets, and weighted by enrollment, since the previous adjustment.
(5) Penalties levied by the department on a plan pursuant to this subdivision shall be paid by the plan and shall not be paid by the provider, subscriber, or enrollee.
(f) The department may conduct audits that relate to this section and are not based on an enrollee’s complaint.
(g) For purposes of this section, “formulary” has the same meaning as defined in Section 1367.205.
SEC. 2.
Section 1367.24 of the Health and Safety Code is amended to read:
1367.24.
(a) Every (1) A health care service plan that provides prescription drug benefits shall maintain an expeditious process by which prescribing providers may obtain authorization for a medically necessary nonformulary prescription drug. On or before July 1, 1999, every
a
health care service plan that provides prescription drug benefits shall file with the department a description of its process, including timelines, for responding to authorization requests for nonformulary drugs. Any changes to this process shall be filed with the department pursuant to Section 1352. Each A plan shall provide a written description of its most current process, including timelines, to its prescribing providers. For purposes of this section, a prescribing provider shall include includes a provider authorized to write a prescription, pursuant to subdivision (a) of Section 4040 of the Business and
Professions Code, to treat a medical condition of an enrollee.
(2) For the purposes of this section, “expeditious process” means the plan shall approve authorization within 72 hours for nonurgent requests, or within 24 hours if exigent circumstances exist, upon receipt of a request for approval of a drug prescription as described in paragraph (1).
(3) If the plan fails to meet the requirements described in paragraph (2), an enrollee may request, and the plan shall provide, 90 days of transitional coverage to the enrollee for the previously covered drug.
(b) Any A
plan that disapproves a request made pursuant to subdivision (a) by a prescribing provider to obtain authorization for a nonformulary drug shall provide the reasons for the disapproval in a notice provided to the enrollee. The notice shall indicate that the enrollee may file a grievance with the plan if the enrollee objects to the disapproval, including any alternative drug or treatment offered by the plan. The notice shall comply with subdivision (b) of Section 1368.02. Any health plan that is required to maintain an external exception request review process pursuant to subdivision (k) shall indicate in the notice required under this subdivision that the enrollee may file a grievance seeking an external exception request review.
(c) The process described in subdivision (a) by which prescribing providers may obtain authorization for medically necessary nonformulary drugs shall not apply to a nonformulary drug that has been prescribed for an enrollee in conformance with the provisions of Section 1367.22.
(d) The process described in subdivision (a) by which enrollees may obtain medically necessary nonformulary drugs, including specified timelines for responding to prescribing provider authorization requests, shall be described in evidence of coverage and disclosure forms, as required by subdivisions (a) and (b) of Section 1363, issued on or after July 1, 1999.
(e) Every A health care service plan that provides prescription drug benefits shall maintain, as part of its books and records under Section 1381, all of the following information, which shall be made available to the director upon request:
(1) The complete drug formulary or formularies of the plan, if the plan maintains a formulary, including a list of the prescription drugs on the formulary of the plan by major therapeutic category with an indication of whether any drugs are preferred over other drugs.
(2) Records developed by the pharmacy and therapeutic committee of the plan, or by others responsible for developing, modifying, and overseeing formularies, including medical groups, individual practice associations, and contracting pharmaceutical benefit management companies, used to guide the drugs prescribed for the enrollees of the plan, that fully describe the reasoning behind formulary decisions.
(3) Any plan arrangements with prescribing providers, medical groups, individual practice associations, pharmacists, contracting pharmaceutical benefit management companies, or other entities that are associated with activities of the plan to encourage formulary compliance or otherwise manage prescription drug benefits.
(f) If a plan provides prescription drug benefits, the department shall, as part of its periodic onsite medical survey of each plan undertaken pursuant to Section 1380, review the performance of the plan in providing those benefits, including, but not limited to, a review of the procedures and information maintained pursuant to this section, and describe the performance of the plan as part of its report issued pursuant to Section 1380.
(g) The director shall not publicly disclose any information reviewed pursuant to this section that is determined by the director to be confidential pursuant to state law.
(h) For purposes of this section, “authorization” means approval by the health care service plan to provide payment for the prescription drug.
(i) Nonformulary prescription drugs shall include any drug for which an enrollee’s copayment or out-of-pocket costs are different than the copayment for a formulary prescription drug, except as otherwise provided by law or regulation or in cases in which the drug has been excluded in the plan contract pursuant to Section 1342.7.
(j) Nothing in this section shall be construed to This section does not restrict or impair the application of any other provision of this chapter, including, but not limited to, Section 1367, which includes among its requirements that a health care service plan
furnish services in a manner providing continuity of care and demonstrate that medical decisions are rendered by qualified medical providers unhindered by fiscal and administrative management.
(k) For any an individual, small group, or large health plan contracts, contract, a health care service plan’s process described in subdivision (a) shall comply with the request for exception and external exception request review processes described in subdivision (c) of Section 156.122 of Title 45 of the Code of Federal Regulations. This subdivision shall
does not apply to Medi-Cal managed care health care service plan contracts as described in subdivision (l).
(l) “Medi-Cal managed care health care service plan contract” means any
an entity that enters into a contract with the State Department of Health Care Services pursuant to Chapter 7 (commencing with Section 14000), Chapter 8 (commencing with Section 14200), or Chapter 8.75 (commencing with Section 14591) of Part 3 of Division 9 of the Welfare and Institutions Code.
(m) Nothing in this section shall be construed to This section does not affect an enrollee’s or subscriber’s eligibility to submit a grievance to the department for review under Section 1368 or to apply to the department for an independent medical review under Section 1370.4, or Article 5.55 (commencing with Section 1374.30) of this chapter.
(n) (1) The department shall utilize existing data and the authority granted pursuant to this chapter to collect data from plans and annually publish on its internet website an aggregated report on all of the following:
(A) The number of requests made by an enrollee pursuant to subdivision (a).
(B) The number of requests made by an enrollee pursuant to subdivision (a) that were approved.
(C) The number of requests made by an enrollee pursuant to subdivision (a) that were denied.
(D) The number of requests made by an enrollee pursuant to subdivision (a) that were appealed and the outcome of those appeals.
(E) The number of requests made by an enrollee pursuant to subdivision (a) that resulted in an independent medical review pursuant to Section 1374.30.
(2) (A) The department shall annually submit the report described in paragraph (1) to the Legislature.
(B) A report submitted pursuant to this subdivision shall be submitted in compliance with Section 9795 of the Government Code.
SEC. 2.SEC. 3.
Section 10123.2041 is added to the Insurance Code, immediately following Section 10123.204, to read:
10123.2041.
(a) A Except as described in subdivision (b), a health insurer that provides prescription drug benefits and maintains one or more drug formularies shall not make changes to a formulary during a policy year, including removing a drug from a formulary, moving a drug to a higher cost tier, or imposing new utilization management requirements on a drug. moving a drug to a higher cost tier.
(b) Notwithstanding subdivision (a), a health insurer may make changes to a formulary for any of the following reasons:
(1) To add a newly approved drug. If a generic drug is newly approved, the cost sharing for the newly approved generic drug shall be lower than the brand name drug, but brand name
drug coverage shall not be removed until the end of the policy year. an additional drug to the formulary.
(2) (A) To replace a covered drug on the formulary with another drug in the same drug class. The insured’s cost sharing for the newly covered drug during the plan year shall be the same as or lower than the cost-sharing amount for the previously covered drug.
(B) To replace a covered brand name drug on the formulary with a generic drug of the same drug class. The insured’s cost sharing for the newly covered drug during the plan year shall be lower than the cost-sharing amount for the previously covered drug.
(C) To replace a covered brand name drug on the formulary with a generic drug of the same drug. The insured’s cost sharing for the newly covered drug during the plan year shall be lower than the cost-sharing amount for the previously covered drug.
(3) To add a biosimilar or interchangeable biologic product that is the same or similar to a previously covered drug or reference product if the net cost to the plan and the amount of the insured’s cost sharing is the same as or lower than the net cost to the plan and the cost-sharing amount for the previously covered drug or reference product.
(4) To remove a drug due to safety concerns from the United States Food and Drug Administration.
(5) To move a specified drug to a lower formulary tier or otherwise modify its formulary placement in a manner that reduces insured cost sharing.
(6) To remove utilization management or prior authorization requirements for a covered drug.
(c) (1) If the insurer implements a formulary change requiring an insured to change to a different drug in the same drug class during the policy year, the insured may remain on the previously covered drug for the rest of the policy year if all of the following conditions are met:
(A) The drug was previously approved for coverage by the insurer for a medical condition of the insured.
(B) The drug is appropriately prescribed to the insured.
(C) The drug is considered safe and effective for treating the insured’s medical condition.
(2) If the insurer requires an insured to change to a different drug as described in paragraph (1), the insurer shall notify the insured and their prescribing provider no less than 90 days before the formulary change is implemented. The notification shall include information about existing requirements for continuity of coverage for previously covered drugs.
(3) This subdivision does not prohibit the prescribing provider from prescribing a different drug that is covered by the insurer that is medically appropriate for the insured.
(4) This subdivision does not prohibit the prescribing provider from prescribing a generic drug substitution as described in Section 4073 of the Business and Professions Code.
(d) (1) A health insurer or its pharmacy benefit manager shall report to the department any changes made to a formulary during a policy year within 30 days of the change being made.
(2) A health insurer shall authorize appeals for coverage denials based on formulary changes through its existing internal and external appeals processes.
(e) (1) (A) The commissioner may investigate and take enforcement action against an insurer for noncompliance with the requirements of this section.
(B) The commissioner may, by order, assess administrative penalties of not less than five hundred dollars ($500) per 1,000 insureds and up to five thousand dollars ($5,000) per 1,000 insureds, subject to appropriate notice of, and the opportunity for, a hearing in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), and the commissioner shall have all of the powers granted under the act.
(2) When assessing administrative penalties against a health insurer pursuant to paragraph (1), the department shall determine the appropriate penalty amount for each violation based on one or more factors as applicable, including all of the following factors:
(A) The nature, scope, and gravity of the violation.
(B) The good or bad faith of the insurer.
(C) The insurer’s history of violations.
(D) The willfulness of the violation.
(E) The nature and extent to which the insurer cooperated with the department’s investigation.
(F) The nature and extent to which the insurer aggravated or mitigated any injury or damage caused by the violation.
(G) The nature and extent to which the insurer has taken corrective action to ensure the violation will not recur.
(H) The financial status of the insurer, including reserves, financial solvency, revenues in excess of expenditures and other factors relating to the financial status of the domestic corporation and any parent company, subsidiary, affiliate, or other financially connected entity, if any.
(I) The financial cost of the formulary changes to insureds, including whether the penalty is commensurate with or exceeds the avoided cost based on the number of insureds estimated to be affected.
(J) Whether the violation is an isolated incident.
(3) The insurer may provide to the commissioner, and the commissioner may consider for the purposes of the determination described in paragraph (2), information regarding the insurer’s overall compliance with the requirements of this section.
(4) In addition to paragraph (2), the amount of the penalty determined to be appropriate pursuant to paragraphs (2) and (3), the amount of the
penalty shall also take into account one or more of the following, as applicable:
(A) The number of insureds estimated to be affected.
(B) The frequency of the violation based on the number of days for a continuous violation or the estimated number of incidents with potential harm to insureds.
(C) The severity of the potential harm in terms of loss of life, loss of health, or financial harm to the insured.
(D) The amount of the penalty necessary to deter similar violations in the future.
(5) Beginning January 1, 2030, and every five years thereafter, the penalty amounts specified in paragraph (1) shall be adjusted based on the average rate of change in premium rates for the individual and small group markets, and weighted by enrollment, since the previous adjustment.
(6) Penalties levied by the department on an insurer pursuant to this subdivision shall be paid by the insurer and shall not be paid by the provider, subscriber, or insured.
(f) The department may conduct audits that relate to this section and are not based on an insured’s complaint.
(g) For purposes of this section, “formulary” has the same meaning as defined in Section 10123.192.
SEC. 3.SEC. 4.
No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.