First SB 17 report suggests 8% annual increase in wholesale drug costs

At the end of September, the Office of Statewide Health Planning and Development (OSHPD) released its first quarterly report on wholesale prescription drug cost information. OSHPD released the report as a result of SB 17 – California’s 2017 drug price transparency legislation.

The bill requires drug manufacturers to provide OSHPD with pricing data for price increases over 16% in a 2-year period, and requires them to give purchasers advance notice on increases.

 

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The first report reveals that the 3-year median increase for the wholesale cost for all reports was 25.8%. This equates to about an 8% annual increase in wholesale costs, while the annual inflation rate during that period was 2%. 

OSHPD notes that the least expensive drugs (with wholesale costs less than $100) had the largest 3-year median increase at 37.6%. Drugs with wholesale costs larger than $10,000 experienced an average 23.3% 3-year increase.

Modern Healthcare compiled a list of the most expensive drugs and largest price increases using data in the report. Ativan, an anti-anxiety and anti-seizure medication, was the most expensive drug on the list with a list price of $32,336.20 and a 370.34% price change since 2014. Xenazine, the next most expensive drug on the list, has a list price of $28,198.58 and a 155.57% price increases since 2014.

SB 17 also requires drug manufacturers to report on the financial and nonfinancial factors that justify the price increases. In the first quarterly report, over two-thirds of reporting manufacturers did not include their justification, and left this section of the report blank.

“This is big for consumers who for the first time ever get a closer look into Big Pharma’s pricing tactics. Unfortunately, this report also reveals something we have long suspected – the drug manufacturers, for the most part, cannot justify their egregious cost increases that drive up the cost of health care for all,” said the bill’s author, former Senator Ed Hernandez in a press release from RunawayRx. “They’ve long attributed their eye-popping price increases to research and development or to overhead costs, but the limited justification information provided in the report released by OSHPD this week shows us that’s simply not the case. The work to hold pharmaceutical manufacturers accountable must continue.”

Pharmaceutical Research and Manufacturers of America (PhRMA), a trade group representing companies in the pharmaceutical industry, is currently suing OSHPD to stop the law and block the release of this information. The lawsuit alleges that the law interferes with interstate commerce, imposes an unconstitutional burden on drug manufacturers, and “singles [drug makers] out for public condemnation.”

The lawsuit states: “SB 17 conflicts with key tenets of a free market economy, in particular, that market participants should not have to justify their pricing to the government or be compelled to make controversial public statements about their pricing.”

After PhRMA’s initial lawsuit was dismissed in August 2018, a U.S. District Court Judge recently ruled that an amended lawsuit can proceed. While the lawsuit plays out in court, the law remains intact.