BILL ANALYSIS                                                                                                                                                                                                    Ó






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          Date of Hearing:   April 19, 2016


                            ASSEMBLY COMMITTEE ON HEALTH


                                   Jim Wood, Chair


          AB 2436  
          Roger Hernández - As Amended April 6, 2016


          SUBJECT:  Health care coverage: disclosures: drug pricing.


          SUMMARY:  Requires health care service plans (health plans) and  
          health insurers to provide notice of prescription drug cost  
          sharing.  Specifically, this bill:  


          1)Requires a health plan contract issued, amended, or renewed on  
            or after January 1, 2017, that provides coverage for  
            prescription drug benefits to notify the enrollee of the  
            following at the time of delivery of a prescription drug or  
            within 30 days of purchase: 





             a)   The enrollee's share of the cost for the prescription  
               drug, including any copayment, coinsurance, or other cost  
               sharing, and the accumulation of that cost sharing to the  
               enrollee's deductible, if any, or out-of-pocket maximum;















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             b)   The cost of the prescription drug to the plan, after  
               applying any discounts, rebates, or other reductions in  
               cost to the plan; and,





             c)   The cost of the prescription drug in United States  
               dollars in Canada, Germany, and Mexico.  





          2)Provides that, in contracting with a pharmaceutical  
            manufacturer, the health plan or its contracting pharmacy  
            benefit manager (PBM), if any, shall require the  
            pharmaceutical manufacturer to provide to the plan the cost of  
            the prescription drug in United States dollars in Canada,  
            Germany, and Mexico.  Allows the health plan to consider this  
            in determining whether or on what tier to place the  
            prescription drug if the pharmaceutical manufacturer fails to  
            provide the information.


          EXISTING LAW:  


          1)Regulates health plans under the Knox-Keene Health Care  
            Service Plan Act of 1975 through the Department of Managed  
            Health Care (DMHC) and regulates health insurers under the  
            Insurance Code through the California Department of Insurance  
            (CDI).

          2)Imposes various requirements on contracts and policies that  
            cover prescription drug benefits, including that a copayment  
            or percentage coinsurance, not to exceed 50% of the cost to  











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            the health plan.  Defines "cost to the plan" as the actual  
            cost incurred by the health plan or its contracting provider  
            to acquire and dispense a covered outpatient prescription  
            drug, without subtracting or otherwise considering any  
            copayment or coinsurance amount to be paid by enrollees.  



          3)Requires a health plan contract or health insurance policy  
            that provides coverage for outpatient prescription drugs to  
            provide coverage for medically necessary prescription drugs,  
            including non-formulary drugs determined to be medically  
            necessary, and, for an insurer, requires copayments,  
            coinsurance, and other cost sharing for outpatient  
            prescription drugs to be reasonable.
          FISCAL EFFECT:  This bill has not been analyzed by a fiscal  
          committee. 


          COMMENTS:  


          1)PURPOSE OF THIS BILL.  The author states that this bill takes  
            an important step, by requiring transparency on prescription  
            drug pricing for consumers.  It is crucial that as prices for  
            both new and existing drugs continue to rise, we as lawmakers  
            begin to shine a light on the burden United States consumers,  
            employers, and the State of California are carrying in the  
            international prescription drug market.  Under the Patient  
            Protection and Affordable Care Act, enrollees were promised  
            health care coverage and affordability. Patients have limited  
            resources to afford very high prices, and deserve information  
            on the current healthcare financial system.  The lack of drug  
            pricing transparency has been a detriment to our state and its  
            citizens for too long.  It is time for drug manufacturers and  
            other entities to participate in this conversation." 


          2)BACKGROUND.  











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             a)   Transparency.  According to the sponsor of this bill,  
               Health Access California, prescription drug costs in this  
               country are higher than prescription drug costs in other  
               countries, even more than affluent countries in the  
               European Union.  Canada, Germany, and Mexico have a very  
               different approach to drug pricing than the United States.   
               It is important for consumers to understand that the United  
               States relies on commercial health plans and insurers to  
               negotiate prices with pharmaceutical manufacturers.  No one  
               tells consumers how much cheaper drugs are in other  
               countries, including North American Free Trade Agreement  
               (NAFTA) partners. Prescription drug prices affect the  
               entire health care marketplace, including enrollee's  
               premiums, deductibles, and co-payments.  This bill seeks to  
               begin sharing information with health care enrollees, on  
               what they pay here in the U.S. for their prescription and  
               how the same drug is priced internationally.  Prescription  
               drugs are the health service most commonly used by  
               consumers.  Most people go to the doctor only once or twice  
               a year and the hospital even less often. This is while many  
               consumers renew prescriptions and pay their co-pay monthly.  
                Health insurance premiums have tripled in California in  
               the last decade, while deductibles and co-pays have also  
               grown. Prescription drug cost sharing for the average  
               employee in California has climbed, particularly for  
               non-preferred drugs and specialty drugs. <1>  A national  
               poll from April 2015, found that consumers rate high costs  
               for specialty drugs as the top priority in health care  
               (75%) and government action to reduce prescription drug  
               prices as the second highest priority (61%).<2> 

               The high price of some prescription drugs has raised  
               questions about their affordability, whether their cost is  
               -------------------------
          <1> California HealthCare Foundation Employee benefits survey
          <2>  
           http://blogs.wsj.com/washwire/2015/09/08/why-higher-drug-costs-ar 
          e-consumers-biggest-cost-worry/  











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               worth the clinical benefits they provide, and the financial  
               model of the current healthcare system.  The rising costs  
               of prescription drugs are placing an increasing burden on  
               payers, employers, and patients.  Notably, new Hepatitis C  
               virus (HCV) treatment options that cure the underlying  
               disease with remarkable efficiency offer a drastic  
               improvement over previous therapies.  Payment systems have  
               been significantly impacted by the cost of these drugs  
               since their arrival on the market, but many argue that  
               patients and payers will benefit in the long run by the  
               avoided downstream costs to cancer treatment and liver  
               transplants.  Other high priced drugs offer striking  
               therapeutic advances for a range of very serious  
               conditions, including cancer, rheumatoid arthritis,  
               multiple sclerosis, and many others.  Policymakers are  
               faced with balancing the need to reward pharmaceutical  
               breakthroughs in order to ensure the innovation of future  
               cures with the fact that payers and patients have limited  
               resources to afford very high prices.

             b)   The Rising Costs of Drugs.  According to the Centers for  
               Medicare and Medicaid Services (CMS), prescription drug  
               spending increased 12.2% to $297.7 billion in 2014, faster  
               than the 2.4% growth in 2013.

          In most markets, consumers see a price for a good or service and  
          make a decision to purchase if the benefit of the good or  
          service outweighs the cost. In the prescription-drug market,  
          most patients are enrolled with a third-party plan (government  
          and/or insurance company) that utilizes a PBM to help manage  
          this process. The patient pays the third party in the form of  
          premiums along with a contribution from the government or the  
          patient's employer as a part of the total work compensation to  
          the PBM. At the point of sale when patients pick up their  
          prescription from the pharmacy, they usually pay a smaller  
          portion of the transaction and the PBM reimburses the pharmacy  
          for the balance.  Low copays disguise the actual cost of  
          medications, increasing patients' demand for prescriptions.   
          This reduction in price helps drive consumer demand for this  











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          prescription medication.

             c)   The $1,000 Pill.  In December 2013, the federal Food and  
               Drug Administration (FDA) approved a drug produced by  
               Gilead Sciences called Sovaldi for the treatment of HCV.   
               Sovaldi represents a significant advancement in treatment  
               for HCV as it provides a higher cure rate, allows for a  
               shorter duration of treatment, has fewer adverse side  
               effects, and opens up treatment options for individuals  
               with comorbid conditions for which traditional treatments  
               are contraindicated.  While the drug has been found to be  
               remarkably effective (curing 90% or more patients over the  
               course of 12 weeks, according to the FDA), Gilead Sciences  
               has come under heavy fire for initially pricing Sovaldi at  
               $1,000 per pill.  Critics have raised additional concerns  
               due to variation in costs globally.  According to an April  
               13, 2014 article in the San Francisco Chronicle, Gilead  
               prices the treatment at $57,000 in the United Kingdom,  
               $66,000 in Germany, while in Egypt and other developing  
               countries the treatment costs $900, which is 99% less than  
               the U.S. cost. 
                 


          After nearly a year of market exclusivity for Sovaldi, in late  
          2014 Abbvie gained FDA approval to market rival HCV treatment  
          Viekira Pak.  PBMs, like ExpressScripts and CVS Caremark quickly  
          signed deals agreeing to exclusive coverage for specific brand  
          drugs on their formulary, in return for a hefty price discount  
          on the drug.  At least two more competitor drugs are currently  
          in final stages of clinical trials and could be on the market in  
          the near future; the increased competition in the market is  
          expected to bring costs down significantly.  In early 2015,  
          Gilead announced it would be offering rebates of up to 46% on  
          Sovaldi now that multiple rival drugs have entered the market. 















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          Many insurers and government programs have tried to limit their  
          financial exposure by reserving Sovaldi and other new drugs for  
          patients with more advanced liver disease.  This has raised  
          concerns among patient advocates that cost-containment measures  
          might force patients to wait until their condition has  
          dangerously worsened before they are deemed eligible for the  
          cure.


          3)SUPPORT.  Health Access California, the sponsor of this bill,  
            states that this bill would inform consumers about the costs  
            of their prescription medications, including consumer cost  
            sharing, cost of the drug to the health plan or health  
            insurer, and cost of the drug in Canada, Germany, and Mexico.   
            The sponsor states that the United States is unusual among  
            nations in relying on health plans and health insurers to  
            negotiate prices for prescription drugs and prices are far  
            higher than prescription drug prices in other countries,  
            including trading partners such as Canada, Mexico, and  
            Germany.  Asian Law Alliance (ALA) states that the soaring  
            cost of prescription drugs ranks at the top of the problems  
            consumers have with the health care system and U.S.  
            prescription drug costs are far higher than in Europe or  
            nearby countries like Canada and Mexico.  ALA also contends  
            that prescription drugs are the health service most commonly  
            used by consumers.  Doctors for America states that consumers  
            deserve to know how much their medication will cost them, how  
            much their insurance will pay, and be able to compare this  
            price to the price for the same drug in other countries.  The  
            California School Employees Association, AFL-CIO, states that  
            this bill will unveil some of the secrecy in prescription drug  
            costs and maybe through disclosure of this data we can rein  
            in, or at least understand, the costs of prescription drugs.  


          4)OPPOSITION.  Kaiser Permanente (Kaiser) states that this bill  
            will not encourage the lowering of drug prices and instead  
            will increase costs for businesses and consumers.  Kaiser also  











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            states that it does not understand why the burden of reporting  
            drug prices in other countries is placed on the health plans  
            given that currency exchange rates fluctuate and the costs of  
            the drug itself can change often and will differ depending on  
            who is buying and selling it.  Finally, Kaiser contends that  
            price disclosure at the point of sale is too late and such  
            disclosures should be disclosed at the front end by the drug  
            maker.  California Life Sciences Association states that even  
            with a new data infrastructure in place to accommodate the  
            information sought under this bill, such a system would be  
            imperfect and the new information of little utility to the  
            consumer at the point of sale or delivery.  


            The Association of California Life and Health Insurance  
            Companies (ACLHIC) states that this bill only provides the  
            final cost of purchase between seller and buyer without  
            addressing the underlying, and still mysterious, costs used by  
            the seller to determine the sales price.  Additionally, ACLHIC  
            contends that this bill may actually increase the purchase  
            price of a drug by publicizing the contracted rate which was  
            originally agreed to by the insurer and manufacturer, thereby  
            eliminating market competition and the price negotiation that  
            exists today.  Lastly, the reporting requirement related to  
            drug charges and prices in foreign countries is not only  
            logistically impractical, but it's also unfair since placing  
            the burden of proof to explain cost on the purchaser rather  
            than on the manufacturer is simply unworkable.  


            Blue Shield of California (BSC) states that this bill imposes  
            duplicative requirements on health plans to disclose  
            information to members since the standardized benefit design  
            and the retail prescription drug price cap provide consumers  
            with useful information about their cost sharing  
            responsibility, rendering most of the requirement of this bill  
            useless.  BSC also states that the accumulation of cost  
            sharing is an unworkable requirement as health plans do not  
            always know in real-time when services have been rendered and  











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            what an enrollee has paid toward their share of cost and that  
            this requirement would be both costly and impossible to  
            implement at a time when plans are being pressured to keep  
            administrative costs low.  Finally, BSC contends that the onus  
            should be placed on drug manufacturers to provide pricing  
            information to consumers and more importantly, to be part of  
            the quest for sustainably affordable healthcare for all  
            consumers. 

          5)PREVIOUS LEGISLATION.  


             a)   AB 463 (Chiu) of 2015 would have required pharmaceutical  
               companies to file an annual report with the Office of  
               Statewide Health Planning and Development containing  
               specified information regarding the development and pricing  
               of prescription drugs.  The Assembly Health Committee  
               hearing was canceled at the request of the author.  


             b)   AB 339 (Gordon), Chapter 619, Statutes of 2015, requires  
               health plans and health insurers that provide coverage for  
               outpatient prescription drugs to have formularies that do  
               not discourage the enrollment of individuals with health  
               conditions, and requires combination antiretrovirals drug  
               treatment coverage of a single-tablet that is as effective  
               as a multitablet regimen for treatment of Human  
               immunodeficiency virus infection and acquired immune  
               deficiency syndrome, as specified.  AB 339 places in state  
               law, federal requirements related to pharmacy and  
               therapeutics committees, access to in-network retail  
               pharmacies, standardized formulary requirements, formulary  
               tier requirements similar to those required of health plans  
               and insurers participating in Covered California and  
               copayment caps of $250 and $500 for a supply of up to 30  
               days for an individual prescription, as specified. 


             c)   SB 1052 (Torres), Chapter 575, Statutes of 2014,  











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               requires health plans and insurers to use a standard drug  
               formulary template to display their drug formularies and to  
               post their formularies on their Websites and requires  
               Covered California to provide links to the formularies.


          6)RELATED LEGISLATION.  SB 1010 (Ed Hernandez), would require  
            health plans or health insurers that file rate information to  
            report to DMHC or CDI, on a date no later than the reporting  
            of the rate information, specified cost information regarding  
            covered prescription drugs, including generic drugs, brand  
            name drugs, specialty drugs, and prescription drugs provided  
            in an outpatient setting or sold in a retail setting. The  
            information reported would include, but not be limited to, the  
            25 most frequently prescribed drugs and the average wholesale  
            price for each drug and the 25 most costly drugs by total plan  
            or insurer spending and the average wholesale price for each  
            drug. DMHC and CDI would be required to compile the reported  
            information into a consumer-friendly report that demonstrates  
            the overall impact of drug costs on health care premiums and  
            publish the reports on their Internet Websites by January 1 of  
            each year. Except for the report, DMHC and CDI would be  
            required to keep confidential all information provided  
            pursuant to these provisions. 


            SB 1010 would also require a manufacturer of a branded and  
            generic prescription drug to notify state purchasers, health  
            care service plans, health insurers, and the chairs of  
            specified Senate and Assembly committees if it is increasing  
            the wholesale acquisition cost of the drug by more than 10%  
            during any 12-month period or if it intends to introduce to  
            market a prescription drug that has a wholesale acquisition  
            cost of $10,000 or more annually or per course of treatment.  
            SB 1010 would require a manufacturer, within 30 days of  
            notification of a price increase, or of the introduction to  
            market of a prescription drug that has a wholesale acquisition  
            cost of $10,000 or more annually or per course of treatment,  
            to report specified information regarding the drug price to  











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            each state purchaser, health care service plan, and health  
            insurer, and would require a manufacturer who fails to provide  
            the required information within the 30 days to be subject to a  
            civil penalty of $1,000 per day. SB 1010 would also require  
            the Legislature to conduct an annual public hearing regarding  
            the price increases and information reported, as prescribed.   
            SB 1010 is pending in Senate Health Committee.  


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Health Access California (sponsor)


          Asian Law Alliance


          California Labor Federation


          California School Employees Association, AFL-CIO


          California Teachers Association


          Consumers Union


          Doctors for America


          SEIU California











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          Western Center on Law and Poverty




          Opposition


          Association of California Life and Health Insurance Companies


          Biotechnology Innovation Organization


          Blue Shield of California


          California Association of Health Plans


          California Chamber of Commerce


          California Life Sciences Association 


          Kaiser Permanente


          Pharmaceutical Care Management Association




          Analysis Prepared by:Kristene Mapile / HEALTH / (916) 319-2097













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