BILL ANALYSIS Ó
SB 1010
Page 1
Date of Hearing: June 21, 2016
ASSEMBLY COMMITTEE ON HEALTH
Jim Wood, Chair
SB
1010 (Hernandez) - As Amended May 31, 2016
SENATE VOTE: 25-10
SUBJECT: Health care: prescription drug costs.
SUMMARY: Requires health care service plans (health plans) and
health insurers (collectively carriers) that report rate
information to also include information regarding covered
prescription drugs, as specified. Requires the Department of
Managed Health Care (DMHC) and the California Department of
Insurance (CDI) to compile and report this data in an aggregated
report to demonstrate the overall impact of drug costs on health
care premiums. Requires any manufacturer of a prescription
drug, who sells to or is reimbursed by a state purchaser, health
plan, health insurer, or pharmacy benefit manager (PBM), to
provide notice describing a price increase, as specified.
Requires the Legislature to conduct an annual public hearing on
aggregate trends in prescription drug pricing. Specifically,
this bill:
Health Plan and Insurer Requirements
1)Requires carriers that report rate information through
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existing group and individual 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 all covered
prescription drugs, including generic, brand name, 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 in
spending.
2)Requires the DMHC and CDI to compile this information in a
report for the public and the Legislature to demonstrate the
overall impact of drug costs on health care premiums.
Requires the data in the report to be aggregated and prohibits
information specific to individual carriers.
3)Defines specialty drug as one that exceeds the threshold for a
specialty drug under the Medicare Part D program.
4)Requires the DMHC and CDI to publish on its Internet Website
the report by October 1 of each year.
5)Requires the information provided to the DMHC and CDI, except
for the report in 2) above, to remain confidential and exempt
from disclosure under the California Public Records Act (PRA).
6)Requires carriers, as part of large group rate review, to
disclose the following information for covered drugs,
including: a) generic drugs (except specialty generic drugs);
b) brand name drugs (except specialty drugs); and, c)
specialty drugs dispensed at a pharmacy, network pharmacy, or
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mail order pharmacy for outpatient use:
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;
c) The year-over-year increase in per member, per month
costs for drug prices compared to other components of the
health care premium; and,
d) The specialty tier formulary list.
7)Requires the carrier to include 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.
Prescription Drug Pricing for Purchasers
8)Applies to any manufacturer of a prescription drug that is
purchased by or reimbursed by a state purchaser in California,
as specified, a health plan, a health insurer, or PBM, as
defined.
9)Requires a prescription drug manufacturer to provide
notification to each state purchaser, health plan, health
insurer, or PBM:
a) If a brand name prescription drug manufacturer is
increasing the wholesale acquisition cost (WAC) of a
prescription drug by more than 10% or by more than $10,000
during any 12-month period; and,
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b) For a generic prescription drug manufacturer with a
generic drug of a WAC of $100 or more per month supply or
if it is increasing the WAC of the generic prescription
drug by more than 25% during a 12-month period.
10)Requires the price increase notification in 9) above to be
provided in writing at least 60 days before the planned
effective date of the increase. Requires a 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.
11)Requires, within 30 days of the price increase notification
in 9) above, the prescription drug manufacturer to report all
of the following information to each state purchaser, health
plan, health insurer, or PBM:
a) A justification of the proposed price increase in which
the manufacturer may limit the information in the
justification to that which is publicly available;
b) The previous year's marketing budget for the drug;
c) The date and price of acquisition if the drug was not
developed by the manufacturer; and,
d) A schedule of price increases for the drug for the
previous five years.
12)Requires a prescription drug manufacturer to notify in
writing to each state purchaser, health plan, health insurer,
or PBM if it is introducing a new prescription drug to market
at a WAC of $10,000 or more annually or per course of
treatment. Requires the notification to be provided in
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writing within three days of the federal Food and Drug
Administration (FDA) approval. Requires a notification 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.
a) Requires, within 30 days of the price notification of a
new drug under 12) above, the prescription drug
manufacturer to report all of the following information to
each state purchaser, health plan, health insurer, or PBM:
i) A justification for the introductory price in which
the manufacturer may limit the information in the
justification to that which is publicly available;
ii) The expected marketing budget for the drug; and,
iii) The date and price of acquisition if the drug was
not developed by the manufacturer.
b) States that failure to report required information
pursuant to 11) and 12) above will result in a civil
penalty of $1,000 per day for every day after the 30-day
notification period.
c) Requires the Legislature to conduct an annual public
hearing on aggregate drugs in prescription drug pricing.
Requires the hearing to provide for public discussion of
overall price increases, emerging trends, decreases in drug
spending, and the impact of prescription drug spending on
health care affordability and premiums. Requires the
Legislature, except for the hearing, to keep confidential
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all of the information provided to the Legislature pursuant
to this section and exempt from PRA.
EXISTING LAW:
1)Establishes the DMHC to regulate health plans and the CDI to
regulate health insurers.
2)Requires carriers to file specified rate information with DMHC
or CDI, as applicable, for health plan contracts or health
insurance policies in the individual or small group markets
and in the large group market.
3)Requires, for large group health plan contracts and health
insurance policies, carriers to file with DMHC or CDI the
weighted average rate increase for all large group benefit
designs during the 12-month period ending January 1 of the
following calendar year, and to also disclose specified
information for the aggregate rate information for the large
group market.
4)Requires carriers, for the small group and individual markets,
to file with DMHC and CDI, at least 60 days prior to
implementing any rate change, specified rate information so
that the DMHC and CDI can review the information for
unreasonable rate increases.
5)Requires DMHC and CDI to accept and post to their Internet
Websites any public comment on a rate increase submitted to
the DMHC and CDI during the 60-day period.
6)Under federal law, requires drug manufacturers to obtain
approval of new drugs from the FDA.
7)Establishes the Sherman Law, administered by the Department of
Public Health (DPH), which, among other things, regulates the
packaging, labeling, and advertising of drugs and medical
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devices in California.
8)Prohibits, in the Sherman Law, the sale, delivery, or giving
away of any new drug or new device unless it is either:
a) A new drug, and a new drug application that has been
approved by the FDA, pursuant to federal law, or it is a
new device for which a premarket approval application has
been approved, and that approval has not been withdrawn,
terminated, or suspended under the FDA; or,
b) A new drug or new device for which DPH has approved a
new drug or device application, and has not withdrawn,
terminated, or suspended that approval.
9)Requires DPH to adopt regulations to establish the application
form and set the fee for licensure and renewal of a drug or
device license.
FISCAL EFFECT: 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). These costs include contract costs to study the
economic impact of drug prices on health care costs.
2)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).
3)Unknown costs for enforcement of the reporting requirement on
drug manufacturers by the Office of Statewide Health Planning
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and Development (OSHPD) (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 OSHPD. However, OSHPD indicates that
this bill, as drafted, does not give the OSHPD legal authority
to enforce this reporting requirement.
COMMENTS:
1)PURPOSE OF THIS BILL. According to the author, the
introduction of new and innovative drugs is vital to our
health care system, but these often high-priced treatments
come with a multitude of challenges. Drugs priced in excess
of $10,000 are becoming common-place with little transparency
for these astronomical price tags. This high-priced trend is
a costly burden for patients, state programs, employers, and
other payers, making it crucial that we understand what's
behind the exploding prices. The public and policymakers need
greater insight that will allow us to identify strategies to
ensure prices do not threaten access to life-saving
treatments. Additionally, data suggest that publically
accessible price information in other sectors of the health
care market encourage providers to offer more competitive
pricing and thereby reduce excess health spending.
Transparency-focused policies, like those implemented by the
federal Patient Protection and Affordable Care Act, have led
to rules requiring hospitals in California to provide
information on pricing for common surgeries, health plans to
submit detailed data regarding premium changes, and doctors to
report more information to the federal government. But, drug
makers have been granted an exception to this forward-thinking
trend. This bill will bring prescription drugs in line with
the rest of the health care sector by shedding light on those
drugs that are having the greatest impact on our health care
dollar. This change is absolutely necessary in an environment
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where more than 900 drugs are sporting price-tags at or above
$10,000 and new drugs with record-breaking prices are being
released to address diseases that impact millions, including
hundreds of thousands of patients in public programs like
Medi-Cal.
2)BACKGROUND.
a) The Rising Costs of Drugs. According to the Centers for
Medicare and Medicaid Services (CMS), prescription drug
spending increased 12.2% to $297.7 billion in 2014, faster
than the 2.4% growth in 2013. A study published in Health
Affairs in December 2015 found that drug spending is
growing faster than other health care spending in the U.S.
- increasing 12.2% between 2013 and 2014. A Kaiser Family
Foundation (KFF) analysis of data from the CMS and Truven
Health Analytics shows that while drugs account for 10% of
U.S. health spending, it represents 19% of the cost of
employer insurance benefits. Some speculate that this
disparity exists because the $3 trillion in U.S. health
spending is a broad catchall which includes hospital care,
physician services, drugs, research, administrative costs,
public health activities, and long-term care.
Additionally, some of the people served by Medicare and
Medicaid (whose spending is counted in the national totals)
require many services not typically used by those covered
by employer health plans. According to an analysis by the
CEO of the KFF, even that 19% figure is understated because
while it includes prescriptions that patients fill at
pharmacies, it does not include many of the expensive drugs
administered in physicians' offices or hospitals. In
Medicare, for example, retail prescription drugs represent
13% of overall spending while drugs administered mainly by
physicians add an additional 6%.
According to the June 2016 California HealthCare Foundation's
(CHCF) Issue Brief, in 2015, the total U.S. expenditure on
prescription medicines was $425 billion, a 12.2% increase
over 2014 total expenditure or an 8.5% increase when
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adjusted for net expenditures. CHCF states that U.S.
pharmaceutical prices are among the highest worldwide, and
escalating costs have been a concern for many years,
presenting challenges for federal, state, and private
purchasers.
CHCF reports California efforts to impact the drug pricing
environment in Medi-Cal, proposed laws, Covered California,
and the California Technology Assessment Forum (CTAF).
CHCF states that the Department of Health Care Services
(DHCS), administrator of the Medi-Cal program, reports the
total savings from drug rebates, however, it cannot make
public the individual rebates provided by manufacturers per
federal and state law. While DHCS must make available
nearly all FDA-approved drugs to its beneficiaries, its
contract drug list helps direct providers to use more
cost-effective alternatives by allowing them to forgo
submission of Treatment Authorization Requests.
Additionally, CHCF notes that Covered California,
California's state based exchange, has drafted into
contracts with its qualified health plans disclosure
language about health plans' actions concerning drug
assessments and pricing. This information is meant to set
a baseline for future consideration of efforts to bring
consistency, quality, and affordability to Covered
California patients. According to the CHCF, CTAF is now
under the auspices of the nonprofit Institute for Clinical
and Economic Review (ICER) and uses the ICER Evidence
Rating Matrix for rating Comparable Clinical Effectiveness,
a multistep assessment for calculating the net health
benefit for patients of new or existing drugs or other
medical interventions. ICER then applies a method for
assessing cost-effectiveness as well as an evaluation of
the impact on state or national budgets. ICER recently
received a five-year grant to expand its work on
prescription drugs, and while these results do not carry
the authority to set formulary or pricing limits, this
process has been lauded by others working on the drug
pricing issue.
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b) Drug pricing. Federal regulations prohibit the U.S.
government from setting the price of pharmaceuticals, and
patents on drugs, in effect, prohibiting competition, at
least initially. Countries without these restrictions
generally buy drugs for a fraction of the U.S. price.
Pharmaceutical companies argue that high drug prices are
justified because of the enormous cost and risk associated
with bringing a drug to market and that payment for current
drugs fund future innovation. Developing a new drug costs
an average of $1.2 billion and takes 10 to 15 years. When
a new drug provides a cure for a disease, as opposed to
only treating symptoms, drug companies claim that a high
upfront cost is mitigated by not having to treat symptoms
indefinitely. However, critics point to numerous examples
of drug companies charging high prices for drugs with only
marginal improvements over cheaper alternatives, or
astounding increases in pricing for drugs that have been on
the market for years.
c) Price Benchmarks. Knowing how much a drug costs is
difficult; there are many different prices for each drug
and different ways of expressing those prices. In the
U.S., the two most common ways of stating drug prices are
the WAC and average wholesale price (AWP). Neither one,
though, is the actual price paid by a payer. Rather, they
are standardized ways of expressing a price, thus allowing
comparisons to be made from one drug to another. AWP is a
benchmark that has been used for over 40 years for pricing
and reimbursement of prescription drugs for both government
and private payers. Initially, the AWP was intended to
represent the average price that wholesalers used to sell
medications to providers, such as physicians, pharmacies,
and other customers. However, the AWP is not a true
representation of actual market prices for either generic
or brand drug products. AWP has often been compared to the
"list price" or "sticker price," meaning it is an elevated
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drug price that is rarely what is actually paid. AWP is
not a government-regulated figure, does not include buyer
volume discounts or rebates often involved in prescription
drug sales. As such, the AWP, while used throughout the
industry, can be a controversial pricing benchmark.
The WAC price of a drug on the market, as originally
announced by the company is also rarely the price paid by a
payer. The actual price paid by any one payer is
proprietary information, complicating discussions of value
and cost to consumers. Drug companies negotiate with
payers - Medicare, Medicaid, carriers, and PBMs - to set an
initial gross sales price. Drug manufacturers pay rebates
back to government entities, creating a difference between
gross sales for a drug and net sales. The rebates are not
publicly available, and vary highly among payers and for
different drugs. Estimates put them between 2% for
innovative new drugs all the way to 60% for drugs that have
several competitors or generics on the market.
The Medicaid Drug Rebate Program ensures that Medicaid
receives a net price lower than the "best price" paid to
manufacturers by any private-sector purchaser for a
particular drug. This "best price" amount is used to
calculate the federal Medicaid basic rebate required of
manufacturers. In exchange, state Medicaid programs must
generally cover a participating manufacturer's drugs. In
addition to the federal basis rebate, states may also
receive supplemental rebates for drugs placed on their
Medicaid preferred drug list. Private purchasers are
precluded from negotiating a price that is lower than the
Medicaid "best price," which includes all rebates,
discounts, or other adjustments. According to DHCS, drug
manufacturers are required to pay a Medi-Cal rebate for all
outpatient drugs that are dispensed and paid for by the
Medi-Cal program. In addition, some manufacturers have
agreed to pay supplemental Medi-Cal rebates above the
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standard rebate. Federal law requires rebates for
prescriptions offered through the AIDS Drug Assistance
Program (ADAP), in part because of the high cost of
HIV/AIDS medications. According to the KFF, drug
manufacturer rebates account for 40% of the annual ADAP
budget.
d) Impact on state finances. Medi-Cal provides health care
coverage for nearly one-third of Californians. Combined
with the California Public Employees' Retirement System
(CalPERS), ADAP, state hospitals, and corrections, taxpayer
liability for increasing drug costs is significant.
According to a December 2015 report published by the U.S.
Senate Committee on Finance, Medi-Cal's fee-for-service
(FFS) system alone spent nearly $25 million treating
roughly 340 patients with Sovaldi and Harvoni in 2014.
However, Medi-Cal FFS is only a fraction of the Medi-Cal
population. According to DHCS, private health plans
invoiced the state an additional $387.5 million for Sovaldi
and Harvoni treatments for Medi-Cal managed care enrollees
between July 2014 and November 2015 (for 3,624 patients).
Additionally, as a direct result of Sovaldi and Harvoni
pricing, the 2015-16 California State Budget allocated $228
million just for high cost drugs to DHCS and the California
Department of Corrections and Rehabilitation. In December
2015, it was reported that CalPERS spent $438 million on
specialty drugs, an increase of 32% from the previous year.
This represents one quarter of the total drug costs paid
by CalPERS, while only 1% of the prescriptions filled.
3)STATE INITIATIVE. The California Drug Price Relief Act
Initiative (Initiative) prohibits the State of California or
any state entity from entering into any agreement with a drug
manufacturer for the purchase of a prescribed drug unless the
net cost of the drug is the same as or less than the lowest
price paid for the same drug by the U.S. Department of
Veterans Affairs. The Initiative may be on the California
ballot this Fall.
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4)SUPPORT. California Labor Federation, AFL-CIO (CLF), a
cosponsor of this bill, states this bill requires transparency
from pharmaceutical companies and from health plans and
insurers that purchase prescription drugs for consumers. CLF
writes that this two-prong approach will push purchasers to
negotiate for better prices and will give policy makers better
data on price increases that impact consumers, employers, and
taxpayers. Health Access California, a cosponsor of this
bill, states that notice and disclosure are important tools to
provide transparency in health care and there is a strong
public policy interest to get basic information on
prescription drug prices. 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 Teamsters Public Affairs Council (Teamsters) states
that prescription drug costs for outpatient drugs are almost
20% of the premium dollar so these price increases are
directly driving increases in health care costs for their
trust funds. The Teamsters state that this bill provides
transparency of prescription drug costs by giving notice to
public and private purchasers, including the PBMs, such as
those their trust funds use to manage the pharmacy benefit.
Anthem Blue Cross states that there needs to be accountability
on all stakeholders in the industry to ensure drugs are priced
appropriately. Molina Healthcare of California notes that by
focusing on high priced medication and price increases, this
bill would take a step toward more understanding of the drugs
driving the rapid escalation in costs, and whether price
increases are justified.
5)OPPOSITION. The Pharmaceutical Research and Manufacturers of
America (PhRMA) contends that the 60 day notice requirement of
a price increase on an existing drug will lead to stockpiling
and will put patient access to medicine at risk. PhRMA also
states that this bill does not present a complete picture of
drug costs since there is no provision to disclose - even in
the aggregate - the significant discounts and rebates
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pharmaceutical manufacturers agree to for both public and
private purchasers nor is there any reporting attributable to
the downstream savings from health care cost avoidance.
Additionally, PhRMA notes that branded drug manufacturers and
generic manufacturers are not treated equally under this bill
due to the different reporting percentage. According to
PhRMA, nearly 90% of all drugs dispensed are generic.
Finally, PhRMA contends that PBMs have been added as
recipients of drug manufacturers' information; however, this
bill does not require PBMs to disclose discounts and whether
they are passing those discounts to patients and payers. The
Biotechnology Innovation Organization (BIO) contends that this
bill does not address the value that an innovative therapy can
have to an individual patient, especially one who may have no
other recourse. Additionally, BIO notes that this bill
requires manufacturers to publicly report a compilation of
individual proprietary data points on the costs to market an
innovative therapy when certain criteria is triggered.
6)RELATED LEGISLATION.
a) AB 2436 (Roger Hernández) of 2016 would have required
carriers to provide at the time that a prescription drug is
delivered or within 30 days of purchase, specified
information related to the cost of the prescription drug.
AB 2436 died on the Assembly Floor.
b) AB 2711 (Chiu) of 2016 would have reinstated a
previously repealed requirement for the Department of
General Services to report to the Legislature on its
prescription drug bulk purchasing program. AB 2711 was
held on the Assembly Appropriations Committee suspense
file.
c) AB 463 (Chiu) of 2015 would have required pharmaceutical
companies to file an annual report with OSHPD containing
specified information regarding the development and pricing
of prescription drugs. The Assembly Health Committee
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hearing was canceled at the request of the author.
d) AB 339 (Gordon), Chapter 619, Statutes of 2015, requires
carriers that provide coverage for outpatient prescription
drugs to have formularies that do not discourage the
enrollment of individuals with health conditions, and
requires combination antiretroviral drug treatment coverage
of a single-tablet that is as effective as a multitablet
regimen for treatment of HIV/AIDS, as specified. AB 339
places in state law, federal requirements related to
pharmacy and therapeutics committees, access to in-network
retail pharmacies, standardized formulary requirements,
formulary tier requirements similar to those required of
health plans and insurers participating in Covered
California and copayment caps of $250 and $500 for a supply
of up to 30 days for an individual prescription, as
specified.
7)PREVIOUS LEGISLATION. SB 1052 (Torres), Chapter 575, Statutes
of 2014, requires health plans and insurers to use a standard
drug formulary template to display their drug formularies and
to post their formularies on their Internet Websites and
requires Covered California to provide links to the
formularies.
REGISTERED SUPPORT / OPPOSITION:
Support
California Labor Federation, AFL-CIO (cosponsor)
Health Access California (cosponsor)
AIDS Healthcare Foundation
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AARP
America's Health Insurance Plans
Anthem Blue Cross
Association of California Life and Health Insurance Companies
Blue Shield of California
California Alliance for Retired Americans
California Association of Health Plans
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
California Medical Association
California Nurses Association
California Optometric Association
California Pan-Ethnic Health Network
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California Pharmacists Association
California Professional Firefighters
California School Employees Association, AFL-CIO
California State Council of Service Employees International
Union
California Teachers Association
California Teamsters Public Affairs Council
CalPERS
CALPIRG
Carson Chamber of Commerce
Central Labor Council of Contra Costa County
Congress of California Seniors
Consumers Union
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Courage Campaign
Engineers and Scientists of California, IFPTE Local 20, AFL-CIO
Fresno Chamber of Commerce
Greater Riverside Chamber of Commerce
Industry Manufactures Council
International Longshore and Warehouse Union
Kaiser Permanente
Kaiser Permanente Marin Sonoma Area
League of California Cities
LIUNA Locals 777 & 792
Molina Healthcare of California
National Multiple Sclerosis Society - CA Action Network
North Bay Labor Council, AFL-CIO
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Oakland Metropolitan Chamber of Commerce
Ontario Chamber of Commerce
Pacific Business Group on Health
Pharmaceutical Care Management Association
Professional and Technical Engineers, IFPTE Local 21, AFL-CIO
Project Inform
Redondo Chamber of Commerce
Sacramento Metropolitan Chamber of Commerce
San Jose Silicon Valley Chamber of Commerce
San Mateo County Central Labor Council
San Ramon Chamber of Commerce
Silicon Valley Employers Forum
Small Business Majority
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State Building and Construction Trades Council
South Bay Association of Chambers of Commerce
United Nurses Association of California/Union of Health Care
Professionals
UNITE-HERE, AFL-CIO
Utility Workers Union of America
Valley Industry and Commerce Association
Opposition
Biocom
Biotechnology Innovation Organization
California Life Sciences Association
California Manufacturers and Technology Association (previous
version)
California Senior Advocates League
California Taxpayers Association (previous version)
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Council on State Taxation (previous version)
Generic Pharmaceutical Association
Mylan Inc.
Pharmaceutical Research and Manufacturers of America
Analysis Prepared by:Kristene Mapile / HEALTH / (916)
319-2097