BILL ANALYSIS                                                                                                                                                                                                    Ó






           ----------------------------------------------------------------- 
          |SENATE RULES COMMITTEE            |                       SB 1010|
          |Office of Senate Floor Analyses   |                              |
          |(916) 651-1520    Fax: (916)      |                              |
          |327-4478                          |                              |
           ----------------------------------------------------------------- 


                                   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  








                                                                    SB 1010  
                                                                    Page  2


          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  







                                                                    SB 1010  
                                                                    Page  3


                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;








                                                                    SB 1010  
                                                                    Page  4


              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.









                                                                    SB 1010  
                                                                    Page  5


           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.









                                                                    SB 1010  
                                                                    Page  6


           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.








                                                                    SB 1010  
                                                                    Page  7





          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!







                                                                    SB 1010  
                                                                    Page  8


          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  







                                                                    SB 1010  
                                                                    Page  9


          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









                                                                    SB 1010  
                                                                    Page  10


          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  







                                                                    SB 1010  
                                                                    Page  11


          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


                                   ****  END  ****