BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session SB 1010 (Hernandez) - Health care: prescription drug costs ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: March 30, 2016 |Policy Vote: HEALTH 7 - 2 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: Yes | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 2, 2016 |Consultant: Brendan McCarthy | | | | ----------------------------------------------------------------- This bill meets the criteria for referral to the Suspense File. Bill Summary: SB 1010 would require health plans and health insurers that report information on premium rates to their regulator to also include specified information relating to prescription drug spending. The bill would require drug manufacturers to report to state purchasers of health care services when drug prices are going to increase by more than 10% or when new drugs costing more than $10,000 per course of treatment are going to be introduced to the market. Fiscal Impact: One-time costs of $220,000 and ongoing costs of $250,000 per year for review of drug pricing information submitted by health plans and to report to the Legislature by the Department of Managed Health Care (Managed Care Fund). The costs above include contract costs to study the economic impact of drug prices on health care costs. Likely ongoing costs in the low hundreds of thousands per year SB 1010 (Hernandez) Page 1 of ? for review of drug pricing information submitted by health insurers and to report to the Legislature by the Department of Insurance (Insurance Fund). Unknown costs for enforcement of the reporting requirement on drug manufacturers by the Office of Statewide Health Planning and Development (California Health Data and Planning Fund). The bill places a requirement on drug manufacturers to report information on prices to state health care purchasers. The bill places this provision within the body of law overseen by the Office. However, the Office indicates that the bill, as drafted, does not give the Office legal authority to enforce this reporting requirement. Background: Under current law, proposed rate increases in the individual market and small group markets are reviewed by either the Department of Insurance or Department of Managed Health Care to determine whether they are reasonable. Neither department has the authority to regulate proposed rates, even if they are found to be unreasonable. Also, in the large group market, health plans and health insurers are required to file specified aggregate information about proposed rate increases. Proposed Law: SB 1010 would require health plans and health insurers that report information on premium rates to their regulator to also include specified information relating to prescription drug spending. The bill would require drug manufacturers to report to state purchasers of health care services when drug prices are going to increase by more than 10% or when new drugs costing more than $10,000 per course of treatment are going to be introduced to the market. Specific provisions of the bill would: Require health plans and health insurers that report information to their regulator regarding rate increases in the individual and small group markets to also include information on prescription drug spending; Require the information for the individual and small group market to include information on the 25 most frequently prescribed drugs and their average wholesale price, the 25 most costly drugs and their average wholesale price, and the 25 drugs with the highest increase in cost SB 1010 (Hernandez) Page 2 of ? and their average wholesale price; Require the Department of Insurance and the Department of Managed Health Care to compile the above information and report on the overall impact of drug prices on health care premiums; Require the Department of Insurance and the Department of Managed Health Care to keep the information provided under the bill confidential; Require health plans and health insurers in the large group market that report on premium rate increases to include information on the share of premiums attributable to drug prices, increases in premiums attributable to drug prices, and information on the specialty drug tier formulary list; Require manufacturers of branded prescription drugs to notify state health care purchasers, health plans, and health insurers if the wholesale acquisition cost of a drug will increase by more than 10% in a year or if a new drug is coming to market with a wholesale acquisition cost over $10,000 per course of treatment; Require manufacturers of generic prescription drugs to report if the cost of a drug with a price over $100 will go up by more than 10%; Impose a civil penalty of $1,000 per day for failure to report the required information to state purchasers; Require the Legislature to hold an annual hearing on drug prices. Related Legislation: SB 908 (Hernandez) would require health plans and health insurers to notify contract holders if a proposed premium rate increase has been found to be unreasonable by the appropriate regulatory agency. That bill is on this committee's Suspense File. Staff Comments: As noted above, the intent of the bill is to enact an enforceable requirement that drug manufacturers report specified information to state health purchasers, health insurers, and health plans. According to the Office of Statewide Health Planning and Development, the bill does not give the Office sufficient legal authority to impose the civil penalties on drug SB 1010 (Hernandez) Page 3 of ? manufacturers for non-compliance with this requirement. The bill requires additional disclosure of the impacts of prescription drug prices to state regulators and purchasers. In doing so, the bill will give the state and the public better information on the impact of drug pricing on overall health care costs. However, it is not likely that the requirement to provide this information to the state will provide a sufficient incentive for drug companies to actually reduce prices. Therefore, it is unlikely that the bill will result in reduced health care spending on prescription drugs. The only costs that may be incurred by a local agency relate to crimes and infractions. Under the California Constitution, such costs are not reimbursable by the state. -- END --