California Becomes the Latest State to Enact Drug Pricing Legislation

On Monday, Democratic California Governor Jerry Brown signed into law SB 17, a law that seeks to generate greater transparency concerning drug pricing.

Sponsored by State Senator Ed Hernandez, a Democrat, the law requires health plans to provide cost information related to prescription drugs to the Department of Managed Healthcare and the Department of Insurance. The 2 departments will be required to publish the aggregated information online by the first of each year. Additionally, drug makers who market prescription drugs that cost $40 or more for a 30-day supply will be required to provide to purchasers with 60-day advanced notices when they increase prices by a margin greater than 16%. These notices must include the rationale for the company’s decision to increase a drug’s price.

Brown hailed the bill, saying that “Californians have a right to know why their medical costs are out of control, especially when pharmaceutical profits are soaring.”

However, pharmaceutical manufacturers have said that providing more information about drug pricing does little to help patients access affordable drugs. According to the Pharmaceutical Research and Manufacturers of America (PhRMA) California’s law does not offer improvements on medication access, affordability, or coverage.

"Rather, it calls for mounds of red tape and government reports that look only at the list price of a prescription drug rather than considering actual patient spending after negotiated discounts and rebates," wrote Priscilla VanderVeer, desputy vice president of public affairs at PhRMA, in a blog post.

Industry dissatisfaction is unlikely to stop at statements opposing the new law; other states that have enacted similar legislation have faced legal challenges from PhRMA and the Biotechnology Innovation Organization. In September, the groups sued Nevada's Republican governor, Brian Sandoval, along with the director of the state’s department for health and human services, over a law similar to California’s. The Nevada legislation is narrower in focus, targeting only treatments for diabetes, but also requires drug makers to explain price increases. Additionally, Nevada’s law allows the state to impose daily fines on manufacturers who do not provide such information.

The industry groups said in their complaint that the law was “unprecedented and unconstitutional,” and that it “Interferes with the federal patent and trade-secret laws, deprives manufacturers of their property interest in their trade secrets, and improperly overrides the regulatory choices of every other state.” A District Court judge declined to impose the groups’ requested restraining order that would force the state to stop implementation of the law.

Similarly, the Association for Accessible Medicines (AAM) sought a federal injunction against a recent Maryland law that also targets drug pricing. AAM calls the law, which authorizes circuit courts to impose penalties on manufacturers who make substantial price increases to off-patent or generic drugs “an unconstitutional overreach.” A decision in the suit is forthcoming.

While much of the attention paid to California’s new drug pricing legislation this week has focused on SB 17, Brown also signed into law a second bill, AB 256, sponsored by Democratic Assemblyman Jim Wood, which prohibits drug manufacturers from offering discounts to consumers on branded drugs if cheaper generic options are available. This practice, Wood told the Los Angeles Times, was “purely profit-driven,” and contributed to higher overall costs for insurance coverage. The bill may have been subject to less fanfare than the controversial transparency law, but it could have far-reaching implications in driving down drug spending by encouraging the use of lower-cost options.