BILL ANALYSIS Ó
SB 1010
Page 1
Date of Hearing: August 10, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
SB 1010
(Hernandez) - As Amended August 2, 2016
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill establishes disclosure on prescription drug spending,
as well as a 30-day prior notification for prescription drug
price increases that meet a certain threshold. Specifically,
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this bill:
Health Plan/Insurer Disclosure on Drug Spending
1)Requires health plans and insurers to report confidentially to
Department of Managed Health Care (DMHC) and California
Department of Insurance (CDI) on prescription drug spending,
including the most frequently prescribed drugs, the most
costly drugs, and the drugs with the highest year-over-year
increase in spending.
2)Requires the DMHC and CDI to compile this information in an
annual public report that demonstrates the impact of drug
costs to health care premiums.
3)Adds information about the contribution of prescription drugs
to overall health spending, the percentage of the premium
attributable to prescription drugs administered in a doctor's
office that are covered under the medical benefit, and the
plans' use of a pharmaceutical benefit manager (PBM), to
existing rate information reported to DMHC and CDI.
Drug Pricing Notification for Purchasers
4)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.
5)Requires a prescription drug manufacturer to provide
notification, 30 days prior to a planned price increase, to
each state purchaser, health plan or insurer, and PBM:
a) If a brand-name prescription drug manufacturer plans to
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increase the wholesale acquisition cost (WAC) of a drug by
more than 10% or by more than $10,000 during any 12-month
period; and,
b) If a generic prescription drug manufacturer, of a
generic drug with a WAC of $100 or more per month supply,
plans to increase the WAC of the drug by more than 25%
during a 12-month period.
6)Requires additional reporting to purchasers on justification
for price increases, marketing budgets, acquisition date and
price if the drug was not developed by the manufacturer, and a
schedule of price increases for the drug for the previous five
years.
7)Requires manufacturers to notify purchasers if a new
prescription drug is being introduced to market at a WAC of
$10,000 or more annually or per course of treatment, within
three days of the federal Food and Drug Administration (FDA)
approval. Requires justification, acquisition, and marketing
information, similar to (6).
8)States that failure of manufacturers to report required
information results in a civil penalty of $1,000 per day for
every day after the 30-day notification period.
FISCAL EFFECT:
1)Costs to the DMHC in the range of $270,000 ongoing, and minor
costs to CDI, not likely to exceed $25,000 ongoing, to review,
compile, and report on new rate filing information (Insurance
Fund).
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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).
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.
COMMENTS:
1)Purpose. 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. The author contends high-priced drugs are a
costly burden for patients, state programs, employers, and
other payers, and that 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.
2)Background. Prescription drug spending is estimated to
account for around 10% of overall health care costs, yet
spending has been growing rapidly. Public and policymaker
interest in addressing high and growing costs has been piqued
in recent years both by the introduction of new, innovative
drugs at spectacular prices, such as the $84,000 breakthrough
Hepatitis C drug Sovaldi, as well as opportunistic price
increases of generic drugs, such as a 5,000% price increase in
a decades-old drug called Daraprim.
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Branded drugs have a period of market exclusivity in order to
reward innovation, whereas generic drugs operate in a
competitive marketplace and may have more than one
manufacturer. Pricing and spending concerns in both markets
have been noted. In the branded market, the main issues are
the high and increasing cost of new "specialty" drugs, and
steadily increasing growth in overall costs that exceed the
growth rate in other market segments. In the generic market,
overall price trends are generally downward, but there are
concerns about short-term market manipulation and exploitation
that leads to seemingly arbitrary, excessive price spikes.
There is a high level of government intervention in the
pharmaceutical market. Through state and federal laws, the
government limits competition through patent protection,
restricts the provision of drugs to those approved by the Food
and Drug Administration (FDA) and prescribed by licensed
professionals, finances drugs through government programs and
subsidies, licenses manufacturers and pharmacies, requires
tracking of drugs through the supply chain, requires medically
necessary drugs to be provided by health plans and insurance,
and caps the patient cost share for prescription drugs.
The prescription drug supply chain- how drugs physically get
from manufacturers to patients- is quite complicated and has
many intermediate players with different roles, including
wholesalers, distributors, pharmacies, and health care
providers. There are also a number of entities involved in
negotiating the terms and prices under which drugs will be
supplied-manufacturers may negotiate terms with payers like
government agencies, labor trusts, and employers; purchasers
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like health plans and insurers; and in some cases,
subcontractors like PBMs that manage drug benefits on behalf
of numerous payers and purchasers.
As mentioned above, outpatient prescription drug coverage is a
required benefit in the individual and small-group market
under the federal Affordable Care Act, and is also provided by
most large employer plans and through government health care
programs. Under current law, health plans and PBMs attempt to
meet patient needs for medication in a way that minimizes drug
costs through negotiations with manufacturers, while meeting
clinical standards of appropriate care. Formularies and
different patient cost-sharing levels are used to drive
utilization toward lower-cost drugs where possible.
Finally, it should be noted proposed policy solutions to
increasing drug prices have been cognizant of the need for
continued investment in research and development to ensure a
pipeline of new, beneficial drugs that may be lifesaving or
improve quality of life for consumers. It is generally
recognized that some level of pharmaceutical profits are
invested in such innovation, and that the development costs
and failure rates for new drugs are high. There is also the
recognition that prescription drugs can substitute for more
costly health care services, offering a good value for the
improvements they offer for a patient's health status, in
spite of high sticker prices.
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3)Support. This bill has support from numerous payers and
purchasers, including labor groups and trusts, health plans
and insurers, business groups, PBMs, and CalPERS. Health care
providers and health consumer advocates also support this
bill. California Labor Federation, AFL-CIO (CLF) and Health
Access California are cosponsors of this bill, who maintain
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.
A labor trust, the San Francisco Culinary, Bartenders, and
Service Employees Welfare Fund, explains the advance price
notification will help their trust fund to do the following:
make changes to formularies; find alternatives to costly
drugs; hold third-party purchasers accountable for prices and
rebates; negotiate larger rebates and discounts, prevent
unnecessarily high payment for drugs, such as those with
short-term price hikes where an alternative formulation can
achieve the same result; and budget for price increases.
4)Opposition. Drug manufacturers oppose this bill, contending
the reporting is burdensome and the WAC does not reflect the
ultimate price paid after discounts. The Pharmaceutical
Research and Manufacturers of America (PhRMA) contends the
notice requirement for 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 ignores
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. The Biotechnology
Innovation Organization (BIO) contends that this bill does not
address the value that an innovative therapy can have to an
individual patient. The California Life Sciences Association
indicates concerns that the requirements to provide
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justification and marketing information may conflict with
federal FDA requirements.
5)Related Legislation.
a) AB 2436 (Roger Hernández) of 2016 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 463 (Chiu) of 2015 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 hearing
was canceled at the request of the author.
6)Prior Legislation.
a) AB 339 (Gordon), Chapter 619, Statutes of 2015, contains
a variety of requirements about formularies and access to
prescription drugs, and caps copayments for most health
plans at $250 for a supply of up to 30 days for an
individual prescription, as specified.
b) 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.
1)Suggested technical amendment. If the author wishes to
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clarify enforcement authority for the manufacturer price
reporting, the section describing civil penalties should be
changed to explicitly identify the Office of Statewide Health
Planning and Development as the enforcement authority.
Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081