Governor Jerry Brown signed SB 17, state legislation requiring drug companies to report certain price hikes for prescription medicines in a move that could set a model for other states to follow.
The law, which aims to provide more transparency around pharmaceutical and biotech company pricing methods for their medicines, requires drug manufacturers to give a 60-day notice if prices are raised more than 16 percent over a two-year period.
It also requires drug manufacturers to notify state purchasers (CalPERS, Medi-Cal, Department of Corrections and Rehabilitation, and Department of General Services), health plans and insurers, and PBMs at least 90 days prior to the planned effective date, of an increase in the WAC of a prescription drug, as specified.
The law also requires health plans and insurers to file annual reports outlining how drug costs affect healthcare premiums in California. Health plans and insurers that report rate information in the small and large group markets, beginning October 1, 2018, for example must annually report to regulators
– the 25 most frequently prescribed drugs,
– the 25 most costly drugs by total annual spending; and,
– the 25 drugs with the highest year-over-year increase in total annual spending.
And health plans that report as part of the large group process among other things must report
– the percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs;
– the year-over-year increase, as a percentage, in per-member, per-month total health plan spending for each category of prescription drugs;
– the year-over-year increase in per-member, per-month costs for drug prices compared to other components of the health care premium;
– the specialty tier formulary list; the percentage of the premium attributable to prescription drugs administered in a doctor’s office that are covered under the medical benefit as separate from the pharmacy benefit, if available;
– and, information on its use of a pharmacy benefit manager (PBM), if any, including its name and which components of the prescription drug coverage are managed by the PBM.
The bill has been opposed by drugmakers, who argue that wholesale price increases do not reflect the actual prices paid for medicines after discounts and rebates.
Biotechnology Innovation Organization (BIO), the leading biotech industry trade group, issued a statement condemning the bill and arguing that it would not serve its intended purpose. “This law will neither provide meaningful information to patients nor lower prescription drug costs,” the group said, adding that the law “seriously jeopardizes the future of California’s leadership in this innovative industry.” California is home to hundreds of biotechnology companies.
PhRMA condemned the law in a press release that claimed “California’s latest bill falls short of offering patients, providers or policymakers any meaningful improvements on medicine access, affordability or coverage. Rather, it calls for mounds of red tape and government reports that look only at the list price of a prescription drug rather than considering actual patient spending after negotiated discounts and rebates.”
Pharmaceutical companies have so far dodged stricter federal oversight despite growing public and political outrage over pricing practices for both branded and some generic medicines.
But states, struggling to cover rising healthcare costs, have been addressing the issue rather than wait for federal help. At least 176 bills on pharmaceutical pricing and payment have been introduced this year in 36 states, according to the National Conference of State Legislatures.
A new Maryland law takes aims at egregious price hikes on generic versions of older off-patent drugs that are supposed to be far cheaper than the original branded medicines after some companies took massive increases on generic drugs not facing competition from other distributors.
Amid the furor some drugmakers, including Allergan Plc and AbbVie Inc, have voluntarily pledged one annual price increase of under 10 percent on branded prescription medicines. It had been common industry practice to raise prices twice a year, often by double-digit percentages.
However, even annual price hikes of 9 percent over a two-year period would put a company in the crosshairs of the new California legislation.