BILL ANALYSIS                                                                                                                                                                                                    Ó



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          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