Last month, California Governor signed the most comprehensive drug pricing transparency bill in the nation. SB-17 is intended to promote transparency in drug pricing, reduce overall healthcare spending, and shine light on how drugs are priced. Under the new law, drug manufacturers, PBMs, health plans, and insurers operating in California are required to report drug price increases and their effects on the premiums. For example, drug manufacturers must provide a 60-days’ notice to state agencies, plans, insurers, and PBMs of any planned drug increase in a drug’s wholesale acquisition cost (WAC) of 16% or more over a two-year period, if the drug’s WAC is over $40. The manufacturers must also justify the increase. After receiving the notice, a PBM must notify its clients (plans), if the plan has 500 or more beneficiaries.
Beginning January 1, 2019, a manufacturer must also provide certain information to the Office of Statewide Health Planning and Development (OSHPD). Such information includes a schedule of WAC increases, the justification for such increases, the volume of U.S. sales and some additional information addressing the increase. Extra reporting requirements exist for certain specialty drugs. A manufacturer that fails to comply with these reporting requirements could face a civil penalty of $1,000 per day.
The bill also applies to certain plans and insurers. For example, beginning October 1, 2018, plans and insurers that are regulated by the California Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) must report its 25 most frequently prescribed drugs, 25 most costly drugs, and 25 drugs with the highest year-to-year increases. The DMHC and the CDI will compile this information into a public report demonstrating the overall impact of drug costs on premiums.
Naturally, manufacturers fiercely opposed the bill. NPR reported that the industry hired 45 firms to defeat the new law and spent $16.8 million on lobbying against it.
While there are many supporters of the law, some argue that the bill would not serve its intended purpose. For example, Biotechnology Innovation Organization, the leading biotech industry trade group, issued a statement condemning the bill, arguing that it would not provide meaningful information to the public nor lower prescription drug costs. In addition, the group argues that the law “seriously jeopardizes the future of California’s leadership in this innovative industry” – Reuters reports.
California Association of Health Plans – on the other hand – supported the bill and has declared that its members would cooperate by providing the information on the increases. The Association believes that the bill will provide valuable information that will help the public and the industry to prepare for and address “the unrelenting price increases.”