California Legislature Passes Several Healthcare Bills as Session Concludes

Key Takeaways

• California's legislature passed healthcare AI legislation that prohibits facilities from using AI to independently perform clinical functions requiring professional judgment, while still allowing AI for documentation and communication tasks.
• The legislature passed new prior authorization requirements that extend approved authorizations to at least one year and establish a 30-day approval timeline for rare disease drugs with no FDA-approved alternatives.
• Companion bills AB 1949 and SB 944 would expand Medi-Cal coverage to include acupuncture visits and extend fluoride coverage eligibility from age 17 to 21.
• The legislature authorized the state to negotiate pricing for GLP-1 medications through its CALRx program, aiming to secure costs at or below 2025 Medi-Cal rates while addressing supply shortages.
• Other enrolled bills require coverage of medically necessary treatments for HIV prevention and Alzheimer's disease without step therapy.

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California's legislature closed its regular session on August 31, enrolling several significant pieces of healthcare legislation. These bills impact several issues, including artificial intelligence (AI) in clinical care, utilization management practices, and expanded coverage within private plans and Medi-Cal. The following analysis provides an overview of key legislation within these categories, identifying notable provisions for healthcare providers, payers, suppliers, and organizations.

Artificial Intelligence in Clinical Care and Health Chatbots

The first subset of bills encompasses how healthcare providers and AI developers may use or design AI for clinical decision-making and health chatbots, and includes the following:

• AB 1979 prohibits health care facilities from using AI to independently perform clinical functions that a licensed professional must perform and requires facilities to ensure clinical decisions are made with professional judgment. Notably, the bill still allows AI to perform documentation and communication that does not require professional judgment, such as sending health record updates to patients, and deems a business offering a healthcare chatbot a healthcare provider subject to the Confidentiality of Medical Information Act.
• SB 903 also requires professional judgment to supplement AI use. The bill prohibits AI from unilaterally offering psychotherapy services and restricts using AI to transcribe therapy communications, advertise psychotherapy services using companion chatbots, and have AI directly interact with patients or make therapeutic decisions, recommendations, or results.
• AB 2575 limits clinical decision support systems developers', modifiers', selectors', or deployers' arguments against liability for when an AI recommendation leads to patient injury.
• SB 503 requires developers and deployers to make reasonable efforts to identify AI systems that pose a risk of biased healthcare decision-making.

Changes to Prior Authorization and Step Therapy Requirements

California's legislature enrolled several pieces of legislation impacting prior authorization and step therapy practices for private and public payors. Notable bills within this category include:

• AB 539 extends the validity of an approved prior authorization for a health care service requested by an in-network provider to at least one year or a shorter period specified by the provider.
• AB 1887 requires health plans and insurers to complete prior authorization of medically necessary rare disease drugs within 30 days if requested by a specialist for a condition with no alternative FDA-approved treatment. The bill also prohibits step therapy requirements for these drugs and takes effect on January 1, 2027.
• SB 1094 authorizes health plans and insurers to require patients to try lower-net-cost biosimilars or interchangeable biological products in place of a prescribed drug if they give 60 days' advance notice. Additionally, SB 1094 authorizes pharmacists to substitute biosimilars and interchangeable biological products for prescribed drugs, and requires health plans and insurers to include these lower-cost substitutes as covered benefits starting January 1, 2027.
• AB 1843 exempts medically necessary direct-acting antiviral drugs that treat Hepatitis C from prior authorization.
• SB 964 authorizes providers to request that health plans and health insurers adjust a drug's dose or frequency without further utilization management and establishes a 72-hour response and approval deadline for certain requests covering serious chronic conditions or excluding opioids, scheduled controlled substances, and repeatedly adjusted drugs.

Expansion of Covered Benefits and Drug Access

The legislature took further action impacting private and public payors with legislation to expand access to drugs and services. The following bills either expand covered benefits under private health plans or Medi-Cal, or take steps to lower drug costs through state-run discount programs.

• SB 1089 expands access to glucagon-like peptide-1 (GLP-1) medications under CALRx, the state's drug purchasing program. The bill authorizes the California Health and Human Services Agency to partner with drug manufacturers to increase competition, negotiate lower prices, and address supply shortages for at least one FDA-approved anti-obesity GLP-1 medication. Notably, SB 1089 directs the agency to negotiate GLP-1 pricing at or below the cost to Medi-Cal beneficiaries in 2025.
• AB 1949 and SB 944 expand Medi-Cal coverage to include acupuncture visits and extend the age limits on fluoride coverage for Medi-Cal beneficiaries from 17 to 21 years of age. These bills incorporate each other's provisions, which are contingent on both being enacted into law.
• SB 331 requires large group service plans and health insurers to cover medically necessary hearing aids for enrollees under 21 years old and services provided by an audiologist with experience with children. Additionally, the bill exempts hearing aid coverage from deductibles, caps coinsurance at 10%, and authorizes insurers to cap benefits at $3000.
• SB 1023 mandates private insurance coverage for medically necessary drugs, devices, and products used to prevent HIV/AIDS without prior authorization or step therapy.
• SB 950 requires health plans and insurers to cover medically necessary FDA-approved treatments and drugs for Alzheimer's and other memory conditions without step therapy, unless one antiamyloid therapy is already covered without it.

Historically, California has served as a blueprint for state consumer privacy, insurance coverage, and Medicaid laws. Thus, these bills may preview upcoming state legislative action on healthcare during 2027 sessions.

Track Health Care Policy

The ever-evolving state health policy landscape will continue to influence how health care organizations make business decisions. MultiState's team pulls from decades of expertise to help you effectively navigate and engage. MultiState's team understands the issues, knows the key players and organizations, and we harness that expertise to help our clients effectively navigate and engage on their policy priorities. We offer customized strategic solutions to help you develop and execute a proactive multistate agenda focused on your company's goals. Learn more about our Health Care Policy Practice.

Defining Key Terms

Step Therapy

Step therapy is a utilization management practice where health insurers require patients to try lower-cost medications before approving coverage for more expensive alternatives. This protocol mandates that patients "step through" a sequence of treatments, typically starting with generic or less costly options, before the insurer will authorize payment for the originally prescribed medication. Several of California's newly enrolled bills eliminate step therapy requirements for specific conditions and treatments.

Prior Authorization

Prior authorization is a cost-control process requiring healthcare providers to obtain approval from a patient's insurance company before delivering specific services, procedures, or medications. The insurer reviews the medical necessity of the proposed treatment and determines whether it will be covered under the patient's plan. California's recent legislation extends authorization validity periods and establishes faster approval timelines for certain medications.

Frequently Asked Questions

What are California's new AI restrictions for healthcare providers?

California AB 1979 prohibits healthcare facilities from using AI to independently perform clinical functions that require a licensed professional, mandating that clinical decisions involve professional judgment. The bill still allows AI to handle documentation and patient communication that don't require professional judgment. SB 903 similarly restricts AI in psychotherapy, prohibiting AI from unilaterally offering therapy services, transcribing therapy communications, or making therapeutic decisions.

How long does a prior authorization approval last under California AB 539?

AB 539 extends the validity of an approved prior authorization for a health care service requested by an in-network provider to at least one year, or a shorter period if specified by the provider.

How would California's SB 1089 affect GLP-1 medication prices?

SB 1089 authorizes the California Health and Human Services Agency to partner with drug manufacturers to negotiate lower prices for at least one FDA-approved anti-obesity GLP-1 medication through CALRx, the state's drug purchasing program. The bill directs the agency to negotiate pricing at or below the cost to Medi-Cal beneficiaries in 2025, and also aims to increase competition and address supply shortages.

What drugs are exempt from prior authorization under new California legislation?

AB 1843 exempts medically necessary direct-acting antiviral drugs that treat Hepatitis C from prior authorization requirements. Additionally, SB 1023 requires private insurance coverage for medically necessary drugs, devices, and products used to prevent HIV/AIDS without prior authorization or step therapy.

When do California's new biosimilar substitution rules take effect?

SB 1094's provisions authorizing pharmacists to substitute biosimilars and interchangeable biological products for prescribed drugs, and requiring health plans to cover these lower-cost substitutes, take effect on January 1, 2027. The bill also allows health plans to require patients to try lower-net-cost biosimilars with 60 days' advance notice.