BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1010|
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THIRD READING
Bill No: SB 1010
Author: Hernandez (D)
Amended: 5/31/16
Vote: 21
SENATE HEALTH COMMITTEE: 7-2, 4/13/16
AYES: Hernandez, Hall, Mitchell, Monning, Pan, Roth, Wolk
NOES: Nguyen, Nielsen
SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/27/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates, Nielsen
SUBJECT: Health care: prescription drug costs
SOURCE: California Labor Federation, AFL-CIO
Health Access California
DIGEST: This bill requires health plans and insurers to report
specified information about prescription drug pricing to
Department of Managed Health Care (DMHC) and California
Department of Insurance (CDI). This bill requires DMHC and CDI
to compile reported information to demonstrate the overall
impact of drug costs on health care premiums. This bill
requires drug manufacturers to notify specified purchasers if it
is increasing the wholesale acquisition cost (WAC) of a
prescription drug by more than 10% or $10,000 during a 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, as specified. This bill requires drug manufacturers,
within 30 days of that notification, to provide specified
information to purchasers, including a justification for the
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pricing.
ANALYSIS:
Existing law:
1) Requires, under federal law, drug manufacturers to obtain
approval of new drugs from the federal Food and Drug
Administration (FDA).
2) Establishes the DMHC to regulate health plans and CDI to
regulate health insurers. Requires health plans and insurers
to file specified rate information with DMHC or CDI for plan
contracts or insurance policies in the individual, small
group, and large group markets.
3) 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.
This bill:
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 following
information for or all covered prescription drugs, including
generic drugs, brand name drugs, and specialty drugs provided
in an outpatient setting:
a) The 25 most frequently prescribed drugs;
b) The 25 most costly drugs by total plan spending; and,
c) The 25 drugs with the highest year-over-year increase
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in spending.
2) Requires DMHC and CDI to compile this information into a
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 plans or insurers. Requires DMHC and CDI to publish
the report on its Internet Web site by October 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 (PRA).
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 excluding specialty 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;
b) The year-over-year increase, as a percentage, in total
spending for each category of prescription drugs, as
specified;
c) The year-over-year increase in per member, per month
costs for drug prices compared to other components of the
health care premium;
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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 covered under the medical benefit as separate from the
pharmacy benefit, if available.
6) Requires manufacturers of a branded prescription drug to
notify each state purchaser, pharmacy benefit manager, health
plan, or health insurer if it is increasing the WAC of a
prescription drug by more than 10% or by $10,000 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. Requires manufacturers of a
generic prescription drug with a WAC of $100 or more per
month supply to notify a state purchaser, health care service
plan, pharmacy benefit manager, or health insurer if it is
increasing the WAC by more than 25%t during a 12-month
period.
7) Requires the price increase notice in 6) above to be
provided in writing at least 60 days prior to the planned
effective date of the increase. Requires the notice of a new
drug costing $10,000 or more per course of treatment to be
provided within three days of FDA approval of the drug.
8) Requires 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.
9) 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, the Department of General Services, and the
California Department of Corrections and Rehabilitation, or
entity acting on behalf of a state purchaser.
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10)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 the price
of the drug, including all information and supporting
documentation as to why the increase is justified. Permits
the manufacturer to limit the contents of the
justification to publicly available information;
b) For existing drugs, the previous year's marketing
budget for the drug. For new drugs, the expected
marketing budget for the drug;
c) The date and price of acquisition if the drug was not
developed by the manufacturer; and,
d) For existing drugs, a schedule of past price increases
for the drug.
11)Levies a fine of $1,000 per day for every day after the
30-day notification period on manufacturers for failure to
report the information in 9) above.
12)Requires the Legislature to conduct an annual public hearing
on aggregate trends in prescription drug pricing. Requires
the hearing to provide for public discussion of the reasons
for overall price increases, emerging trends, decreases in
drug spending, and the impact of prescription drug spending
on health care affordability and premiums.
13)Requires all of the information to be kept confidential,
except for the hearing required under 12) above. Exempt the
information provided under this bill from disclosure under
the PRA.
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14)Prohibits this bill from restricting the legal ability of a
drug manufacturer to change prices as permitted under federal
law.
Comments
NOTE: See the Senate Health Committee analysis for more detailed
information on this bill.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
According to the Senate Appropriations Committee:
1)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 DMHC (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
for review of drug pricing information submitted by health
insurers and to report to the Legislature by CDI (Insurance
Fund).
2)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).
This bill places a requirement on drug manufacturers to report
information on prices to state health care purchasers. This
bill places this provision within the body of law overseen by
the Office. However, the Office indicates that this bill, as
drafted, does not give the Office legal authority to enforce
this reporting requirement.
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SUPPORT: (Verified 5/31/16)
California Labor Federation, AFL-CIO (co-source)
Health Access California (co-source)
AARP
AIDS Healthcare Foundation
America's Health Insurance Plans
Association of California Life and Health Insurance Companies
Blue Shield of California
California Alliance for Retired Americans
California Association of Health Plans
California Medical Association
California Nurses Association
California Optometric Association
California Pharmacists Association
California Professional Firefighters
California School Employees Association
CALPIRG
Central Labor Council of Contra Costa County
Cigna
Consumers Union
Fresno Chamber of Commerce
Industry Manufacturers Council
Kaiser Permanente
League of California Cities
LIUNA Locals 777 & 792
Los Angeles Area Chamber of Commerce
Molina Healthcare of California
National Multiple Sclerosis Society - California Action Network
North Bay Labor Council, AFL-CIO
Oakland Metropolitan Chamber of Commerce
Pharmaceutical Care Management Association
Sacramento Metropolitan Chamber of Commerce
San Jose Silicon Valley Chamber of Commerce
San Mateo County Central Labor Council
San Ramon Chamber of Commerce
SEIU California
Small Business Majority
State Building and Construction Trades Council of California
UNITE HERE!
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Valley Industry and Commerce Association
OPPOSITION: (Verified5/31/16)
Biocom
Biotechnology Innovation Organization
California Life Sciences Association
Generic Pharmaceutical Association
Mylan
Pharmaceutical Research and Manufacturers of America
ARGUMENTS IN 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 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
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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 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
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ARGUMENTS IN 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 disclosure by
creating specific exceptions to the 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
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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.
Prepared by:Melanie Moreno/ HEALTH /
5/31/16 22:28:29
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