AB 1887 removes routine utilization management for prescription drugs used to treat rare diseases by preventing plans and insurers from imposing prior authorization, step therapy, or other utilization review when a prescribing clinician has determined a drug is medically necessary. The bill targets state‑regulated health care service plans and health insurers and reserves a narrow exception when a biosimilar, interchangeable biologic, or generic is available.
The change is designed to reduce administrative delay and clinical friction for people with rare conditions. For payers and policy teams, it alters the balance between clinician judgment and utilization management and creates a new compliance check for plan design and pharmacy benefit administration.
At a Glance
What It Does
The bill adds parallel provisions to the Health and Safety Code and Insurance Code that prohibit prior authorization, step therapy, and other utilization reviews for FDA‑approved drugs prescribed to treat rare diseases, unless an approved biosimilar, interchangeable biologic, or generic exists. The restriction applies to contracts and policies issued, amended, or renewed on or after January 1, 2027.
Who It Affects
State‑regulated health care service plans (Department of Managed Health Care oversight) and health insurers (Department of Insurance oversight) will need to change utilization‑management rules and PBM contracts. The measure does not reach federally governed, self‑insured (ERISA) employer plans and explicitly excludes Medi‑Cal managed care contracts.
Why It Matters
This is a targeted carve‑out from routine utilization controls that could speed access to high‑cost orphan drugs but also raise short‑term drug spending. Compliance teams, formulary managers, PBMs, and benefits lawyers should reassess authorization policies, appeals workflows, and vendor agreements ahead of the 2027 effective date.
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What This Bill Actually Does
AB 1887 inserts new, nearly identical provisions into California’s Health and Safety Code and Insurance Code to limit a payer’s ability to require utilization management for drugs treating rare diseases. The law uses a clinician‑centered trigger: if the prescribing health care professional determines a drug is medically necessary, the plan or insurer may not demand prior authorization, force step therapy, or perform other utilization review for that drug.
The text circumscribes that rule with a single exception — it does not apply when a biosimilar, an interchangeable biologic, or a generic version of the drug is available.
The bill defines “rare disease” by reference to the U.S. population threshold — fewer than 200,000 people in the country — rather than an administrative list, which delegates identification of qualifying indications to prescribers and insurers to operationalize. The statutory language is written “notwithstanding any other law,” signaling an intent to supersede conflicting state rules and to make the prescriber’s medical‑necessity determination the default gatekeeper for access.Practically, plans and insurers will need to change prior authorization and step‑therapy rules, update PBM and specialty‑pharmacy contracts, and create processes to recognize prescriber determinations.
The measure becomes effective for contracts and policies issued, amended, or renewed on or after January 1, 2027, so operational work must begin well before that date. The bill also excludes Medi‑Cal managed care contracts from the new rule, which preserves the state’s negotiated utilization controls in Medicaid programs.The statutory placement matters for enforcement.
Adding the provision to the Health and Safety Code places health plans under the Knox‑Keene framework, where willful violations can carry criminal penalties; similar language in the Insurance Code brings insurers under Department of Insurance enforcement. The combination raises questions about sanctions, monitoring, and how regulators will reconcile clinician determinations with payer evidence standards and cost containment obligations.
The Five Things You Need to Know
The bill adds Section 1342.76 to the Health and Safety Code and Section 10123.1936 to the Insurance Code.
It defines a rare disease as one that affects fewer than 200,000 people in the United States.
Plans and insurers may not impose prior authorization, step therapy, or other utilization review for an FDA‑approved prescription drug used to treat a rare disease when the prescribing clinician finds it medically necessary, except when a biosimilar, interchangeable biologic, or generic is available.
Medi‑Cal managed care contracts are explicitly excluded from the new prohibition.
The rule applies to contracts and policies issued, amended, or renewed on or after January 1, 2027.
Section-by-Section Breakdown
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Ban on utilization review for rare‑disease drugs in health care service plans
This section bars health care service plans regulated under Knox‑Keene from demanding prior authorization, step therapy, or other utilization review for FDA‑approved drugs when a prescriber determines medical necessity, with an exception for available biosimilars or generics. Because it sits inside the Health and Safety Code, enforcement follows the DMHC’s statutory tools and interacts with existing criminal provisions for willful Knox‑Keene violations — a point that could expose plans to heightened enforcement risk if regulators find intentional noncompliance.
Parallel prohibition for insurers
This provision mirrors the Health and Safety Code language for entities regulated by the Department of Insurance. It creates a symmetrical obligation across the two main state insurance regulatory regimes so that insurer‑issued policies cannot impose the same utilization controls for qualifying rare‑disease prescriptions. Administrative enforcement mechanisms will be those normally available to the Department of Insurance rather than the DMHC, which means remedies will be largely administrative or civil under the Insurance Code framework.
How the bill identifies qualifying drugs and patients
Rather than listing specific diseases or drugs, the bill adopts a population‑based definition of rare disease (fewer than 200,000 people in the U.S.) and ties applicability to FDA‑approved prescription drugs indicated for treatment of such diseases. That approach delegates operational judgment to clinicians and payers to determine whether a prescription meets the statutory standard, but it also raises practical questions about documentation, verification, and whether off‑label use for rare conditions is covered.
Timing, Medi‑Cal carve‑out, and contract language
The prohibition only affects contracts or policies issued, amended, or renewed on or after January 1, 2027. The statute expressly does not apply to Medi‑Cal managed care contracts, preserving the state’s ability to manage Medicaid‑level utilization controls. That split creates differential access paths depending on coverage source and may produce coverage gaps or inequities.
Enforcement exposure and budget language
The bill’s digest notes that adding this provision to Knox‑Keene may create criminal liability for willful violations by plans and triggers a state‑mandated local program analysis; the statute then states no state reimbursement is required because the only costs involve criminal‑law changes. In practice, regulators will need to clarify monitoring, evidence standards, and sanctioning approaches for both plans and insurers.
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Explore Healthcare in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- People with rare diseases — Faster, less bureaucratic access to prescribed orphan and specialty drugs when their clinician deems them medically necessary, reducing delay and administrative appeals.
- Prescribing clinicians — Greater deference to clinical judgment; fewer administrative hurdles when choosing therapies for rare conditions.
- Manufacturers of brand orphan drugs — Reduced payer gatekeeping may accelerate uptake and shorten time to therapy initiation for high‑cost, single‑source treatments.
- Specialty pharmacies and some community dispense points — Potentially higher dispensing volumes for rare‑disease therapies, improving revenue predictability for specialty distribution channels.
Who Bears the Cost
- Health care service plans and health insurers — Loss of a utilization‑management tool for high‑cost rare‑disease drugs could increase pharmacy spend and require redesigns of prior authorization workflows and PBM contracts.
- Employers (in fully insured markets) and premiums — Insurers may pass higher drug costs into premiums or cost‑sharing structures, affecting employers and enrollees.
- Pharmacy benefit managers — Limits on step therapy and prior authorization reduce PBM leverage to negotiate substitutes or manage utilization, pressuring rebate and negotiation strategies.
- State regulators and compliance teams — Agencies must interpret ‘medical necessity,’ resolve disputes over biosimilar availability, and oversee compliance, increasing regulatory complexity and enforcement workload.
Key Issues
The Core Tension
The bill pits immediate access to lifesaving, often single‑source therapies against the payers’ responsibility to manage costs and clinical appropriateness — and forces a choice about who gets the final say: the treating clinician or the insurer. Prioritizing clinician discretion eases access but risks higher spending, weaker population‑level oversight, and disputes over what counts as an appropriate exception (notably whether a biosimilar is truly “available”).
The bill trades one set of problems for another. Giving prescribers default authority to bypass utilization management reduces treatment delays but weakens payers’ ability to ensure evidence‑based use, manage safety protocols, and contain cost.
The statute’s single exception — when a biosimilar, interchangeable biologic, or generic is available — is clean in concept but messy in practice. Does “available” mean FDA approval, commercial launch, formulary placement, or local distribution?
Disputes over that trigger are likely, and the statute provides no verification mechanism or timeline for resolving availability contests.
Federal preemption and carve‑outs complicate the operational picture. ERISA‑governed, self‑insured employer plans are not addressed by the bill and will continue to use existing utilization tools, creating a patchwork of access across enrollees.
The Medi‑Cal exclusion further fragments coverage rules and may shift costs between commercial markets and Medicaid. Finally, embedding the prohibition in Knox‑Keene raises enforcement stakes because willful violations can carry criminal penalties under existing law; that consequence could incentivize defensive behavior by plans (for example, rescissions, tightened medical necessity documentation, or contract changes with vendors) and create litigation risk unless regulators issue clear guidance.
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