BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: SB 1010
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|AUTHOR: |Hernandez |
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|VERSION: |March 30, 2016 |
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|HEARING DATE: |April 13, 2016 | | |
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|CONSULTANT: |Melanie Moreno |
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SUBJECT : Health care: prescription drug costs
SUMMARY :1) Requires health plans and insurers that report rate
information through the existing large and small group rate
review process to also report specified information related to
prescription drug pricing to Department of Managed Health Care
(DMHC) and California Department of Insurance (CDI). Requires
DMHC and CDI to compile specified reported information into a
consumer-friendly report that demonstrates the overall impact of
drug costs on health care premiums. Requires drug manufacturers
to notify specified state purchasers, health plans, and health
insurers, in writing at least 60 days prior to the planned
effective date, if it is increasing the wholesale acquisition
cost of a prescription 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 (WAC) of $10,000 or
more annually or per course of treatment. Requires drug
manufacturers, within 30 days of notification of a price
increase or of the introduction to market of a prescription drug
that has a WAC of $10,000 or more annually or per course of
treatment, to provide specified information to purchasers,
including a justification for the pricing.
Existing law:
1)Establishes the DMHC to regulate health care service plans
(health plans) and the CDI to regulate insurers, including
health insurers.
2)Requires health care service plans and health insurers to file
specified rate information with DMHC or CDI, as applicable,
for health care service plan contracts or health insurance
policies in the individual or small group markets and for
health care service plan contracts and health insurance
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policies in the large group market.
3)Requires, for large group health plan contracts and health
insurance policies, plans and insurers to file with DMHC or
CDI the weighted average rate increase for all large group
benefit designs during the 12-month period ending January 1 of
the following calendar year, and to also disclose specified
information for the aggregate rate information for the large
group market.
4)Requires health plans and health insurers, for the small group
and individual markets, to file with DMHC and CDI, at least 60
days prior to implementing any rate change, specified rate
information so that the departments can review the information
for unreasonable rate increases.
5)Requires DMHC and CDI to accept and post to their Internet Web
sites any public comment on a rate increase submitted to the
departments during the 60-day period.
6)Under federal law, requires drug manufacturers to obtain
approval of new drugs from the federal Food and Drug
Administration (FDA).
7)Establishes the Sherman Law, administered by Department of
Public Health (DPH), which, among other things, regulates the
packaging, labeling, and advertising of drugs and medical
devices in California.
8)Prohibits, in the Sherman Law, the sale, delivery, or giving
away of any new drug or new device unless it is either:
a) A new drug, and a new drug application has
been approved for it by the FDA, pursuant to federal
law, or it is a new device for which a premarket
approval application has been approved, and that
approval has not been withdrawn, terminated, or
suspended under the FDA; or
b) A new drug or new device for which DPH has
approved a new drug or device application, and has not
withdrawn, terminated, or suspended that approval.
9)Requires DPH to adopt regulations to establish the application
form and set the fee for licensure and renewal of a drug or
device license.
SB 1010 (Hernandez) Page 3 of ?
This bill:
Reporting of drug prices by health plans and insurers
1)Requires health plans and insurers that report rate
information through the existing large and small group rate
review process to also report to DMHC and CDI, on a date no
later than it reports the rate information, the information in
a) through c) below for or all 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:
a) The 25 most frequently prescribed drugs and
the average wholesale price (AWP) for each drug;
b) The 25 most costly drugs by total plan
spending and the AWP for each drug; and,
c) The 25 drugs with the highest year-over-year
increase and the AWP for each drug.
2)Requires DMHC and CDI to compile the reported information into
a consumer-friendly report that demonstrates the overall
impact of drug costs on health care premiums. Requires the
data in the report to be aggregated and not reveal information
specific to individual health care service plans. Requires
DMHC and CDI to publish the report on its Internet Web site by
January 1 of each year.
3)Requires DMHC and CDI to include the published report as part
of the public meeting required under the existing large group
rate review law.
4)Requires DMHC and CDI, except for the report required under 2)
above, to keep confidential all of the information provided,
and exempts that information from disclosure under the
California Public Records Act.
5)Requires health plans and insurers, as part of reporting for
large group rate review, to disclose the following information
for covered prescription drugs, including generic drugs, brand
name drugs excluding specialty drugs, and specialty drugs
dispensed at a plan pharmacy, network pharmacy, or mail order
pharmacy for outpatient use all of the following:
a) The percentage of the premium attributable to
prescription drug costs for the prior year for each
category of prescription drugs;
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b) The year-over-year increase in the percentage
of the premium attributable to each category of
prescription drugs;
c) The year-over-year increase in per member, per
month costs for drug prices compared to other
components of the health care premium;
d) The specialty tier formulary list; and,
e) The percentage of the premium attributable to
prescription drugs administered in a doctor's office
that are part of the medical benefit as separate from
the pharmacy benefit, if available.
Reporting of price increases and expensive pricing by drug
manufacturers:
6)Requires drug manufacturers of a branded prescription drug, or
of a generic prescription drug with a price of $100 or more
per 30-day supply, to notify each state purchaser, health care
service plan, or health insurer if it is increasing the
wholesale acquisition cost of a prescription drug by more than
10% during any 12-month period or if it intends to introduce
to market a prescription drug that has a WAC of $10,000 or
more annually or per course of treatment.
7)Requires the notice to be provided in writing at least 60 days
prior to the planned effective date of the increase, and a
copy of the notice to be provided concurrently to the Chairs
of the Senate Committee on Appropriations, the Senate
Committee on Budget and Fiscal Review, the Assembly Committee
on Appropriations, and the Assembly Committee on Budget.
8)Specifies that a "state purchaser," for purposes of this bill
includes, but is not limited to, the California Public
Employees' Retirement System, the Department of Health Care
Services (DHCS), the Department of General Services, and the
California Department of Corrections and Rehabilitation
(CDCR), or entity acting on behalf of a state purchaser.
9)Requires drug manufacturers, within 30 days of notification of
a price increase, or of the introduction to market of a
prescription drug that has a WAC of $10,000 or more annually
or per course of treatment, to report all of the following
information to each state purchaser, health plan, or health
insurer:
a) A justification for the proposed increase in
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the price of the drug, including all information and
supporting documentation as to why the increase is
justified.
b) The total dollar amount of public funding
received by the manufacturer for the development and
marketing, including, but not limited to, state and
federal tax credits, grants, and all other public
subsidies;
c) The expected marketing budget for the drug;
d) The date the drug was purchased if it was not
developed by the manufacturer; and,
e) A schedule of past price increases for the
drug.
10)Requires a fine of $1,000 per day for every day after the
30-day notification period to be levied on manufacturers for
failure to report the information in 9) above.
11)Requires the Legislature to conduct an annual public hearing
regarding the price increases and information reported under
6) and 9) above. Requires the hearing to provide for public
discussion of the reasons for the price increases, emerging
trends, decreases in drug prices, and the impact on health
care affordability and premiums.
12)Prohibits this bill from restricting the legal ability of a
drug manufacturer to change prices as permitted under federal
law.
FISCAL
EFFECT : This bill has not been analyzed by a fiscal committee.
COMMENTS :
1)Author's statement. According to the author, the introduction
of new and innovative drugs is vital to our health care
system, but these often high-priced treatments come with a
multitude of challenges. Drugs priced in excess of $10,000 are
becoming common-place with little transparency for these
astronomical price tags. This high-priced trend is a costly
burden for patients, state programs, employers, and other
payers, making it crucial that we understand what's behind the
exploding prices. The public and policymakers need greater
insight that will allow us to identify strategies to ensure
prices do not threaten access to life-saving treatments.
Additionally, data suggests that publically accessible price
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information in other sectors of the health care market
encourage providers to offer more competitive pricing and
thereby reduce excess health spending. Transparency-focused
policies, like those implemented by the Affordable Care Act
(ACA), have led to rules requiring hospitals in California to
provide information on pricing for common surgeries, health
plans to submit detailed data regarding premium changes, and
doctors to report more information to the federal government.
But, drug makers have been granted an exception to this
forward-thinking trend. SB 1010 will bring prescription drugs
in line with the rest of the health care sector by shedding
light on those drugs that are having the greatest impact on
our health care dollar. This change is absolutely necessary in
an environment where more than 900 drugs are sporting
price-tags at or above $10,000 and new drugs with
record-breaking prices are being released to address diseases
that impact millions, including hundreds of thousands of
patients in public programs like Medi-Cal.
2)Health care costs. Health care accounts for more than 17% of
the U.S. Gross Domestic Product ($3 trillion, or $9,523 per
person) and health care costs continue to consume
significantly large percentages of federal, state and personal
budgets. Health care continues to grow at higher rates than
inflation. In 2013, the U.S. spent far more on health care
than other high-income countries. Higher spending is due to
multiple factors including greater use of medical technology
and higher health care prices, not necessarily more frequent
doctor visits or hospital admissions.
3)Drug costs. A study published in Health Affairs in December
2015 found that drug spending is growing faster than other
health care spending in the U.S. - increasing 12.2% between
2013 and 2014. A Kaiser Family Foundation analysis of data
from the Centers for Medicare and Medicaid Services and Truven
Health Analytics shows that while drugs account for 10% of
U.S. health spending, it represents 19% of the cost of
employer insurance benefits. Some speculate that this
disparity exists because the $3 trillion in U.S. health
spending is a broad catchall with includes hospital care,
physician services, drugs, research, administrative costs,
public health activities, and long-term care. Additionally,
some of the people served by Medicare and Medicaid (whose
spending is counted in the national totals) require many
services not typically used by those covered by employer
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health plans. According to an analysis by the CEO of the
Kaiser Family Foundation, even that 19% figure is understated
because while it includes prescriptions that patients fill at
pharmacies, it does not include many of the expensive drugs
administered in physicians' offices or hospitals. In Medicare,
for example, retail prescription drugs represent 13% of
overall spending while drugs administered mainly by physicians
add an additional 6%.
4)Drug pricing. Federal regulations prohibit the U.S. government
from setting the price of pharmaceuticals, and patents on
drugs, in effect, prohibit competition, at least initially.
Countries without these restrictions generally buy drugs for a
fraction of the U.S. price. Pharmaceutical companies argue
that high drug prices are justified because of the enormous
cost and risk associated with bringing a drug to market and
that payment for current drugs fund future innovation.
Developing a new drug costs an average of $1.2 billion and
takes 10 to 15 years. When a new drug provides a cure for a
disease, as opposed to only treating symptoms, drug companies
claim that a high upfront cost is mitigated by not having to
treat symptoms indefinitely. However, critics point to
numerous examples of drug companies charging high prices for
drugs with only marginal improvements over cheaper
alternatives, or astounding increases in pricing for drugs
that have been on the market for years.
5)Price Benchmarks. Knowing how much a drug costs is difficult;
there are many different prices for each drug and different
ways of expressing those prices. In the US, the two most
common ways of stating drug prices are the WAC and average
wholesale price (AWP). Neither one, though, is the actual
price paid by a payer, nor are they what their names imply.
Rather, they're standardized ways of expressing a price, thus
allowing comparisons to be made from one drug to another. AWP
is a benchmark that has been used for over 40 years for
pricing and reimbursement of prescription drugs for both
government and private payers. Initially, the AWP was
intended to represent the average price that wholesalers used
to sell medications to providers, such as physicians,
pharmacies, and other customers. However, the AWP is not a
true representation of actual market prices for either generic
or brand drug products. AWP has often been compared to the
"list price" or "sticker price," meaning it is an elevated
drug price that is rarely what is actually paid. AWP is not a
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government-regulated figure, does not include buyer volume
discounts or rebates often involved in prescription drug
sales. As such, the AWP, while used throughout the industry,
is a controversial pricing benchmark.
The WAC price of a drug on the market, as originally announced
by the company is also rarely the price paid by a payer. The
actual price paid by any one payer is proprietary information,
complicating discussions of value and cost to consumers. Drug
companies negotiate with payers - Medicare, Medicaid,
insurers, and pharmacy benefit plans - to set an initial gross
sales price. Drug manufacturers pay rebates back to
government entities, creating a difference between gross sales
for a drug and net sales. The rebates are not publicly
available, and vary highly among payers and for different
drugs. Estimates put them between 2% for innovative new drugs
all the way to 60% for drugs that have several competitors or
generics on the market.
Federal law requires manufacturers to provide rebates to the
Centers for Medicare and Medicaid Services and state Medicaid
agencies. The program requires a drug manufacturer to enter
into, and have in effect, a national rebate agreement with the
Secretary of the Department of Health and Human Services (HHS)
in exchange for state Medicaid coverage of most of the
manufacturer's drugs. These rebates are paid by drug
manufacturers on a quarterly basis to states and are shared
between the states and the federal government to offset the
overall cost of prescription drugs under the Medicaid program.
According to DHCS, drug manufacturers are required to pay a
Medi-Cal rebate for all outpatient drugs that are dispensed
and paid for by the Medi-Cal program. In addition, some
manufacturers have agreed to pay supplemental Medi-Cal rebates
above the standard rebate. Federal law requires rebates for
prescriptions offered through the AIDS Drug Assistance Program
(ADAP), in part because of the high cost of HIV/AIDS
medications. According to the Kaiser Family Foundation, drug
manufacturer rebates account for 40% of the annual ADAP
budget.
6)Impact on state finances. Medi-Cal provides health care
coverage for nearly one-third of Californians. Combined with
CalPERS, ADAP, state hospitals, and corrections, taxpayer
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liability for increasing drug costs is significant. According
to a December 2015 report published by the U.S. Senate
Committee on Finance, Medi-Cal's fee-for-service system alone
spent nearly $25 million treating roughly 340 patients with
Sovaldi and Harvoni in 2014. However, Medi-Cal
fee-for-service is only a fraction of the Medi-Cal population.
Private health plans invoiced the state an additional $387.5
million for Sovaldi and Harvoni treatments for Medi-Cal
managed care enrollees between July 2014 and November 2015
(for 3,624 patients) according to DHCS. Additionally, as a
direct result of Sovaldi and Harvoni pricing, the 2015-16
California state budget allocated $228 million just for high
cost drugs to DHCS and CDCR. In December 2015, it was
reported that CalPERS spent $438 million on specialty drugs,
an increase of 32% from the previous year. This represents
one quarter of the total drug costs paid by CalPERS, while
only 1% of the prescriptions filled.
7)Support. California Labor Federation, AFL-CIO (CLF), the
sponsor of this bill, states that the drug manufacturer
disclosure required under this bill gives purchasers advance
notice of increases, along with additional information to
discern between reasonable price increases and predatory
pricing. CLF states that pharmaceutical companies produce
lifesaving medications and it is critical that they are able
to conduct research to make ground-breaking discoveries,
however, not all price increases are related to R&D costs, nor
are they based on effectiveness of the drug. CLF states that
purchasers can use this information to better negotiate for
discounts on drugs, or to decide that an unjustified price
increase is grounds for refusing to purchase a drug.
SEIU California writes in support that because the state,
taxpayers, and individuals pay significantly, at the
individual and aggregate levels, this matters to all of us.
SEIU states that the high-cost of specialty drugs creates a
burden on the state budget, as Medi-Cal, CalPERS and other
public programs struggle to cover the costs. CalPERS has
reported that specialty drug spending increased 32% last year
to $438 million annually and Governor Brown's 2015 budget set
aside supplemental funding of $228 million to pay for a
limited number of people who are served by public programs to
receive Harvoni and Sovaldi. SEIU contends that when drugs are
so expensive that it begins to make such a significant impact
on our state budget, the pricing of these drugs also begins to
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raise ethical concerns and questions about how purchasers are
making decisions related to how many sick people can or should
get access to life-saving drugs. The California Alliance for
Retired Americans (CARA) states that prescription drugs make
up 19% of benefit costs in job-based coverage. However, that
figure only captures drugs paid for through the pharmacy
benefit-drugs administered in inpatient settings, like costly
chemotherapy drugs, are paid for through medical benefits, and
account for an even greater percentage of premiums. CARA
writes that California can help purchasers and consumers
better understand pharmaceutical pricing and give them the
tools to fight back against price-gouging. Consumers Union
writes that regulators and other reviewers need as much
information as possible to determine whether a change proposed
to health insurance rates is fair or not and this bill puts
more tools into regulators' toolkits to protect consumers in
the marketplace and makes strides towards empowering consumers
to be more informed participants in the marketplace.
Health Access California (HAC) writes that congressional
investigations have found astronomical increases in drug
prices, even for drugs that have been used for millennia. For
some conditions, such as multiple sclerosis, the drugs used to
manage the condition increase in price with every new drug
entering the market-price competition to increase prices, not
lower them. HAC states that this bill is a modest but
important step forward in providing transparency on
prescription drug costs. The National Multiple Sclerosis
Society - CA Action Network writes that in addressing the
costs of prescription drugs, this bill is a good starting
point because it can be an important tool to help educate
consumers about their health related expenses. American
Association of Retired Persons (AARP) states that at a time
when more and more high-cost drugs are entering the market,
consumers, including many people over age 50, would benefit
from a system that discloses important information about the
pricing of these drugs. AARP believes that increased
transparency in the marketplace will empower consumers and
could provide much-needed clarity and a better understanding
of the pharmaceutical industry's pricing methods. The
California School Employees Association states that they are
often told that prescription drug costs are not the problem,
and this bill will allow them to assess whether or not that is
true and is an important and necessary step in understanding
the costs of prescription drugs and how much of a cost driver
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they are. AIDS Healthcare Foundation writes that because their
patient population is dependent on drugs regardless of the
price, they are committed to solutions that ensure greater
transparency in drug pricing that will lead to prices that can
withstand public scrutiny.
8)Opposition. The Generic Pharmaceutical Association (GPhA)
states that the generic industry's business model is similar
to a commodities market where prices, sometimes at pennies a
dose, fluctuate up and down quickly and that generics provide
so many savings because they operate in this hyper-competitive
marketplace. GPhA asserts that a brand manufacturer patents a
drug and sets the price but in the generic marketplace
multiple manufacturers directly compete with each other and
regularly adjust prices to best react to market conditions
such as changes in supply costs, ingredient shortages, large
orders from wholesalers, and other factors. The California
Life Sciences Association (CLSA) writes that the information
required of biopharmaceutical companies, health plans, and
insurers would create a highly inaccurate picture of how
medicines affect overall healthcare costs, and that this bill
treats medication costs as solely expenditures, not an
investment in more efficient care and better health for
patients. CLSA asserts that this bill ignores all the benefits
to patients, the healthcare system, and the economy that the
life science sector provides, as well as the benefits to
payers and pharmacy benefit managers from oftentimes
significantly reduced, negotiated prices. CLSA further states
that the bill's requirement of advance notices prior to
certain drugs being marketed, being accompanied by a
"justification" with "supporting documentation" and an
"expected marketing budget," appears to violate FDA
restrictions against preapproval marketing or promotion of
investigational drugs, because the law and FDA's subsequent
guidance only clearly allow for the exchange of scientific
information and preclude any form of "commercialization" prior
to a medicine's approval for commercial distribution. The
reporting requirements as established in the bill are
extraordinarily broad and would potentially apply to many
medicines for which the impact on premiums of a price increase
over the threshold of ten percent would be essentially de
minimis and would reflect an imperceptible change in the total
cost of care. The Pharmaceutical Research and Manufacturers of
America (PhRMA) writes that while the information reported by
the third party payers is in the aggregate and protected from
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disclosure by creating specific exceptions to the California
Public Records Act (PRA), the data required to be submitted to
the state by the pharmaceutical industry includes sensitive
proprietary information for specific products that would not
enjoy the same PRA disclosure protections provided to the
payers - presenting both proprietary and federal antitrust
issues. PhRMA furthers states that the requirement for a
60-day advance notice does not appear to be protected
information and could thus be anti-competitive, as disclosure
of planned pricing changes could have unintended consequences
and is generally viewed as extremely disruptive to the
competitive marketplace.
SUPPORT AND OPPOSITION :
Support: California Labor Federation, AFL-CIO (sponsor)
AARP
AIDS Healthcare Foundation
Blue Shield of California
California Alliance for Retired Americans
California Association of Health Plans
California Medical Association
California Nurses Association
California Optometric Association
California School Employees Association
Consumers Union
Health Access California
Kaiser Permanente
LIUNA Locals 777 & 792
National Multiple Sclerosis Society - CA Action
Network
SEIU California
Unite Here
Oppose: California Life Sciences Association
Generic Pharmaceutical Association
Pharmaceutical Research and Manufacturers of America
-- END --
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