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 ****