Key pharma bill brings transparency to prescription drug pricing

SACRAMENTO, CA – On Monday, California Governor Jerry Brown signed SB 17 by Senator Ed Hernandez, nationally important legislation that requires prescription drug companies to provide advance notice and justification for any price hike of more than 16% over two years. Despite a heavy lobbying and media campaign by the pharmaceutical industry opposing the bill, SB 17, strongly backed by a broad coalition of consumer, labor, business, insurer, and other health organizations, was eventually able to win overwhelming bipartisan support with a 66-9 vote in the State Assembly, and a 32-8 vote in the State Senate.

“No longer will pharmaceutical companies get to spike our prescription prices by double digits without advance notice or explanation. While Congress debates cutting coverage and care, this new California law sets national policy, breaking new ground to benefit patients and purchasers against unfair and unjustified prescription drug price hikes,” said Anthony Wright, executive director, Health Access California, the statewide health care consumer advocacy coalition, and a co-sponsor of SB 17 with the California Labor Federation and UNITE HERE. “This law isn’t just transparency for transparency’s sake. It will discourage big price increases that trigger disclosure, provide tangible tools to purchasers to negotiate better rates and rebates with the drug companies, and give policymakers important information to take additional steps in dealing with rising prescription drug prices.”

“This new law, which received strong bipartisan support in the legislature, signals that Big Pharma is beatable. The drug companies’ outrageous pricing and behavior has opened a window of opportunity for reforms at the state and national level,” continued Wright.Today, California sets national policy on prescription drug prices, like we have on car emissions and other issues. We hope policymakers in California, other states, and federally use the information gained from this bill to take additional steps on prescription drug price reform.”

For existing drugs, SB 17 requires advance notice of any price hike over 16% over the prior two years for existing drugs be given to public purchasers like Medi-Cal and CalPERS and private purchasers including health plans and insurers. It also enhances public disclosure of information about drug pricing by requiring drug manufacturers to file information about the rationale for price hikes, increases over the last five years, any improvements in the drug, and other specifics with the Office of Statewide Health Planning and Development. The bill also requires health plans and insurers to disclose information about drug pricing through existing rate review processes at the Department of Managed Health Care and Department of Insurance.

With this law in place:

* Drug companies may think twice about raising prescription drug prices more than 8%/year (or 16%/two years) and triggering the disclosure requirements.

* Drug companies will have to justify and explain why the price of a medication–some of which have been on the market for decades, is suddenly going up.

* Purchasers–like public programs, insurers, employers, and union trusts–will have the better ability to bargain with the drug companies, to use the information provided to push back against justifications that don’t make sense, and to have the 60 day advance notice to negotiate bigger rebates before having to change formularies or otherwise using their purchasing power.

* Policymakers, purchasers, and researchers will have a new central source of information to identify trends and issues in prescription drug prices, to guide future efforts.

Another bill signed into law today is AB 265 (Wood), which prohibit prescription drug manufacturers from offering discounts for name-brand drugs, if a less-expensive equivalent brand is available, preventing the use of higher priced drugs when unnecessary.

Both bills were part of a package of legislation supported by consumer groups on prescription drug prices and will take effect January 1, 2018. Three other bills related to prescription drug prices are pending for next year.

Resources:

Health Access Factsheet: SB 17 (Hernandez) Drug Price Transparency