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 ----------------------------------------------------------------- |Policy |Health |Vote:|12 - 4 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- 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, SB 1010 Page 2 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 SB 1010 Page 3 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). SB 1010 Page 4 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. SB 1010 Page 5 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 SB 1010 Page 6 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. SB 1010 Page 7 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 SB 1010 Page 8 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 SB 1010 Page 9 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