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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