BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 1010 (Hernandez) - Health care:  prescription drug costs
          
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          |Version: March 30, 2016         |Policy Vote: HEALTH 7 - 2       |
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          |Urgency: No                     |Mandate: Yes                    |
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          |Hearing Date: May 2, 2016       |Consultant: Brendan McCarthy    |
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          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  







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            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  








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               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  








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          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.




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