The trade group representing U.S. drugmakers said it has a filed a lawsuit to stop California from implementing a law aimed at reining in prescription drug prices.The Pharmaceutical Research and Manufacturers of America (PhRMA) initiated litigation in the United States District Court for the Eastern District of California challenging SB 17, which it alleges is an unprecedented and unconstitutional California law.

SB 17, Hernandez which was signed into law this year, requires pharmaceutical companies to notify health insurers and government health plans at least 60 days before scheduled prescription drug price hikes that would exceed 16 percent over a two-year period and to explain the reasons behind those increases.

In its federal complaint, filed last week, PhRMA argues that SB 17 attempts to dictate national health care policy related to drug prices in violation of the United States Constitution, singles out drug manufacturers as the sole determinant of drug costs despite the significant role many other entities play in the costs patients pay, and will cause market distortions such as drug stockpiling and reduced competition.

PhRMA seeks a declaration from the Court that certain provisions of SB 17 violate the United States Constitution and requests that the Court permanently enjoin the State from implementing or enforcing those provisions of the law. Specifically, the complaint alleges that SB 17 violates:

– the Commerce Clause, which prohibits California from regulating drug pricing beyond the State’s borders;
– the First Amendment, by compelling speech by manufacturers justifying their price changes; and
– the Fourteenth Amendment’s due process clause because the law is unconstitutionally vague.

SB 17 provides that if a manufacturer has increased certain products’ federally defined nationwide list price (wholesale acquisition cost, or WAC) by 16 percent or more cumulatively over the prior two to three calendar years, then that company may not increase the WAC in the current calendar year unless the company first provides registered purchasers and State purchasers with 60 days’ advance notice of the price increase. The WAC is a publicly available national price, not a price specific to California.

PhRMA claims that this law, therefore, expressly saddles the entire country with California’s “misguided drug pricing policy” by imposing restrictions on the national list price of manufacturers’ medicines.

It also alleges that the law also does not address the large rebates and discounts insurance companies and pharmacy benefit managers (PBMs) are receiving and that are not always passed on to patients. Further, the advance notice requirement could incentivize prescription-drug arbitrage by effectively creating a “buying window” for selected entities to stockpile products before price increases go into effect, which in turn could create substantial market distortions.

PhRMA says it recognizes that people have important questions about their medicine costs. That is why PhRMA says it has been convening a conversation called Let’s Talk About Cost that takes a broad look at this complex issue, exploring the slowdown in medicine cost growth, the rising cost of chronic disease, insurance coverage of medicine, the role of middlemen, and what our industry can do to make medicine more affordable for patients.

“In this time of great innovation and advancement in therapies, we understand how important it is for patients to have affordable access to the medicines they need, but SB 17 is not only poorly conceived, it also misses the mark with its myopic focus on manufacturers and provisions that are in clear violation of the Constitution,” said James C. Stansel, PhRMA Executive Vice President and General Counsel. “The law creates bureaucracy, thwarts private market competition, and ignores the role of insurers, pharmacy benefit managers and hospitals in what patients pay for their medicines.”