Cal. Welfare and Institutions Code § 14053.5

For the purposes of the Medi-Cal Act, the terms “prescribed drug” and “prescription drug” shall not include any drug which, because of differing prices charged by the manufacturer on a discriminatory basis or discriminatory refusal to sell by the manufacturer, or both, is not available on the same terms and conditions to all providers of prescription services, or any drug which is found to be overpriced in comparison to another drug which has an equivalent therapeutic effect, unless the director determines that the drug is vital to the program and no acceptable substitute is available. Before the director determines that any drug has an equivalent therapeutic effect in comparison to another drug, or is vital to the program and no acceptable substitute is available, he must have received a report to that effect from the Medi-Cal Contract Drug Advisory Committee. Nothing in this section shall be construed to apply to quantity or other nondiscriminatory discounts available on the same terms and conditions to all providers of prescription services, to sales by competitive bidding to federal, state or local governmental agencies, or to sales to wholesalers so long as the manufacturer does not require or induce the wholesalers to make the drug available other than on the same terms and conditions to all providers of prescription services. This section shall not be construed to deny reimbursement to hospitals for prescribed drugs furnished to inpatients or, unless the regulations provide to the contrary, to registered outpatients.