Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law imposes various requirements on contracts and policies that cover prescription drug benefits.

This bill would require a health care service plan contract or a policy of health insurance that is issued, amended, or renewed on or after January 1, 2017, and that provides coverage for prescription drug benefits to notify the enrollee or insured, at the time that a prescription drug is delivered or within 30 days of purchase, of specified information related to the cost of the prescription drug. The bill would require a health care service plan or a health insurer, in contracting with a pharmaceutical manufacturer for the purchase of a prescription drug, to require the manufacturer to disclose to the plan or insurer the cost of the prescription drug in United States dollars in Canada, Germany, and Mexico. The bill would require the Department of Managed Health Care to adopt regulations relating to these requirements, as specified. The bill would make related legislative findings and declarations. Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law imposes various requirements on contracts and policies that cover prescription drug benefits.

This bill would require a health care service plan contract or a policy of health insurance that is issued, amended, or renewed on or after January 1, 2017, and that provides coverage for prescription drug benefits to notify the enrollee or insured insured, at the time that a prescription drug is delivered or within 30 days of purchase, of specified information related to the cost of a the prescription drug at the time that the drug is purchased or delivered. drug. The bill would require a health care service plan or a health insurer, in contracting with a pharmaceutical manufacturer for the purchase of a prescription drug, to require the manufacturer to disclose to the plan or insurer the cost of the prescription drug in United States dollars in Canada, Germany, and Mexico. The bill would make related legislative findings and declarations. Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Existing law, the Knox-Keene Health Care Service Plan Act of 1975, provides for the licensure and regulation of health care service plans by the Department of Managed Health Care and makes a willful violation of the act a crime. Existing law also provides for the regulation of health insurers by the Department of Insurance. Existing law imposes various requirements on contracts and policies that cover prescription drug benefits.

This bill would require a health care service plan contract or a policy of health insurance that is issued, amended, or renewed on or after January 1, 2017, and that provides coverage for prescription drug benefits to notify the enrollee or insured of specified information related to the cost of a prescription drug at the time that the drug is purchased or delivered. Because a willful violation of the bills requirements by a health care service plan would be a crime, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

ASSEMBLY THIRD READING

ATR Bill Id:AB 2436

Author:(Roger Hernández)

As Amended Ver:April 27, 2016

Majority vote

SUMMARY: Requires a health care service plan (health plan) contract or health insurance policy issued, amended, or renewed on or after January 1, 2017, that provides coverage for prescription drug benefits to notify the enrollee or insured of the following at the time of delivery of a prescription drug or within 30 days of purchase:

1. The enrollee's share of the cost for the prescription drug, including any copayment, coinsurance, or other cost sharing, and the accumulation of that cost sharing to the enrollee's deductible, if any, or out-of-pocket maximum; and,
2. The publicly available, nonproprietary wholesale acquisition cost of a prescription drug.

This bill also requires the Department of Managed Health Care (DMHC) to adopt regulations regarding the manner in which health plans will implement these requirements by January 1, 2018.

FISCAL EFFECT: This bill will result in regulatory costs to both DMHC and the California Department of Insurance (CDI), to implement and establish a standardized process and notice requirements.

1. Costs to CDI of $40,000-$50,000 in Fiscal Year (FY) 2016-17 and $40,000-$50,000 in FY 2017-18.
2. Costs to the DMHC's Office of Legal Services (OLS) of around $65,000 in FY 2016-17, $68,000 in FY 2017-18, and $65,000 in FY 2018-19.

COMMENTS: The author states that this bill takes an important step, by requiring transparency on prescription drug pricing for consumers. The high price of some prescription drugs has raised questions about their affordability, whether their cost is worth the clinical benefits they provide, and the financial model of the current healthcare system. The rising costs of prescription drugs are placing an increasing burden on payers, employers, and patients. Notably, new Hepatitis C virus treatment options that cure the underlying disease with remarkable efficiency offer a drastic improvement over previous therapies. Payment systems have been significantly impacted by the cost of these drugs since their arrival on the market, but many argue that patients and payers will benefit in the long run by the avoided downstream costs to cancer treatment and liver transplants. Other high priced drugs offer striking therapeutic advances for a range of very serious conditions, including cancer, rheumatoid arthritis, multiple sclerosis, and many others. Policymakers are faced with balancing the need to reward pharmaceutical breakthroughs in order to ensure the innovation of future cures with the fact that payers and patients have limited resources to afford very high prices.

Health Access California, the sponsor of this bill, states that this bill would inform consumers about the costs of their prescription medications, including consumer cost sharing and cost of the drug to the health plan or health insurer. Asian Law Alliance (ALA) states that the soaring cost of prescription drugs ranks at the top of the problems consumers have with the health care system and United States prescription drug costs are far higher than in Europe or nearby countries like Canada and Mexico. ALA also contends that prescription drugs are the health service most commonly used by consumers. Doctors for America states that consumers deserve to know how much their medication will cost them, how much their insurance will pay, and be able to compare this price to the price for the same drug in other countries. The California School Employees Association, AFL-CIO, states that this bill will unveil some of the secrecy in prescription drug costs and maybe through disclosure of this data we can rein in, or at least understand, the costs of prescription drugs.

Kaiser Permanente states that this bill will not encourage the lowering of drug prices and instead will increase costs for businesses and consumers. The Association of California Life and Health Insurance Companies states that this bill only provides the final cost of purchase between seller and buyer without addressing the underlying, and still mysterious, costs used by the seller to determine the sales price.

Blue Shield of California (BSC) states that this bill imposes duplicative requirements on health plans to disclose information to members since the standardized benefit design and the retail prescription drug price cap provide consumers with useful information about their cost sharing responsibility, rendering most of the requirement of this bill useless. BSC also states that the accumulation of cost sharing is an unworkable requirement as health plans do not always know in real-time when services have been rendered and what an enrollee has paid toward their share of cost and that this requirement would be both costly and impossible to implement at a time when plans are being pressured to keep administrative costs low. Finally, BSC contends that the onus should be placed on drug manufacturers to provide pricing information to consumers and more importantly, to be part of the quest for sustainably affordable healthcare for all consumers.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0003011

Date of Hearing: May 18, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2436

Author:(Roger Hernández) – As Amended Ver:April 27, 2016

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill requires health plans and insurers that provide coverage for prescription drug benefits to notify an enrollee of the following information at the time of delivery or within 30 days of purchase of a prescription drug:

1. The enrollee’s share of the cost for the prescription drug, including any copayment, coinsurance, or other cost sharing, and the accumulation of that cost sharing to the enrollee’s deductible, if any, or out-of-pocket maximum.
2. The publicly available, nonproprietary wholesale acquisition cost (WAC) of a prescription drug.

This bill also requires the Department of Managed Health Care (DMHC) to adopt regulations regarding the manner in which plans will implement these requirements by January 1, 2018.

FISCAL EFFECT:

This bill will result in regulatory costs to both DMHC and the California Department of Insurance (CDI), to implement and establish a standardized process and notice requirements.

1. Costs to CDI of $40,000-$50,000 in FY 2016-17 and $40,000-$50,000 in FY 2017-18.

1. Costs to the DMHC’s Office of Legal Services (OLS) of around $65,000 in FY 2016-17, $68,000 in FY 2017-18, and $65,000 in FY 2018-19. 

COMMENTS:

1. Purpose. The author states that this bill takes an important step towards transparency on prescription drug pricing for consumers.
2. Background. Rising prescription drug costs have recently been a subject of intense media scrutiny and public discussion. Gilead's Sovaldi, a breakthrough Hepatitis C treatment gained the moniker "the $1,000 pill." The CEO of Turing Pharmaceuticals, Martin Shkreli, became a household name after the company was widely criticized for raising the price of daraprim, a drug that treats toxoplasmosis in HIV patients, by over 5000% following its acquisition of rights to the drug in 2015.

Health care coverage is a delicate balancing act between providing high-quality care at a cost that is affordable for both consumers and for other payers (generally employers and government). Under current law, health plans and pharmaceutical benefit managers 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. It is also recognized that some pharmaceutical profits are invested in innovation that potentially benefits consumers through new or better drug treatments, and that the development costs and failure rates for new drugs are high.

According to the Organization for Economic Cooperation and Development (OECD), the United States is a clear outlier in pharmaceutical spending, spending significantly more than all other highly developed countries on pharmaceutical drugs, although U.S. drug spending is modest as a percentage of U.S. total health spending. Pharmaceutical costs have recently grown quickly, however. 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. The increase is attributable to, among other factors, price inflation, reduced competition in the generic market, and the introduction of new high-cost specialty drugs.

1. Support. Health Access California, the sponsor of this bill, states that this bill would inform consumers about the costs of their prescription medications. The sponsor states that the United States is unusual among nations in relying on health plans and health insurers to negotiate prices for prescription drugs, and that those prices are far higher than in other countries. This bill is supported by other groups including Western Center on Law and Poverty, SEUI California, California Labor Federation, and Consumers Union.
2. Opposition Health plans and insurers, the California Chamber of Commerce, and the California Life Sciences Association oppose this bill. Blue Shield of California (BSC) states that this bill imposes duplicative requirements on health plans to disclose information to members, and that reporting the accumulation of cost sharing is an unworkable requirement.
3. Related Legislation. SB 1010 (Ed Hernandez), requires health plans and health insurers to file with regulators specified cost information regarding covered prescription drugs and requires notification by manufacturers of drug price increases.
4. Prior Legislation.
   1. AB 463 (Chiu) of 2015 would have required pharmaceutical companies to file an annual report with the Office of Statewide Health Planning and Development containing specified information regarding the development and pricing of prescription drugs. The Assembly Health Committee hearing was canceled at the request of the author.
   2. AB 339 (Gordon), Chapter 619, Statutes of 2015, among other provisions, capped co-payments for prescription drugs.
5. Staff Comment. The fiscal estimate assumes CDI issues regulations, but the bill should be amended to grant CDI the explicit authority needed to issue the regulations.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: April 19, 2016

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 2436

Author:Roger Hernández – As Amended Ver:April 6, 2016

SUBJECT: Health care coverage: disclosures: drug pricing.

SUMMARY: Requires health care service plans (health plans) and health insurers to provide notice of prescription drug cost sharing. Specifically, this bill:

1. Requires a health plan contract issued, amended, or renewed on or after January 1, 2017, that provides coverage for prescription drug benefits to notify the enrollee of the following at the time of delivery of a prescription drug or within 30 days of purchase: 
   1. The enrollee’s share of the cost for the prescription drug, including any copayment, coinsurance, or other cost sharing, and the accumulation of that cost sharing to the enrollee’s deductible, if any, or out-of-pocket maximum;
   2. The cost of the prescription drug to the plan, after applying any discounts, rebates, or other reductions in cost to the plan; and,
   3. The cost of the prescription drug in United States dollars in Canada, Germany, and Mexico.
2. Provides that, in contracting with a pharmaceutical manufacturer, the health plan or its contracting pharmacy benefit manager (PBM), if any, shall require the pharmaceutical manufacturer to provide to the plan the cost of the prescription drug in United States dollars in Canada, Germany, and Mexico. Allows the health plan to consider this in determining whether or on what tier to place the prescription drug if the pharmaceutical manufacturer fails to provide the information.

EXISTING LAW:

1. Regulates health plans under the Knox-Keene Health Care Service Plan Act of 1975 through the Department of Managed Health Care (DMHC) and regulates health insurers under the Insurance Code through the California Department of Insurance (CDI).
2. Imposes various requirements on contracts and policies that cover prescription drug benefits, including that a copayment or percentage coinsurance, not to exceed 50% of the cost to the health plan. Defines “cost to the plan” as the actual cost incurred by the health plan or its contracting provider to acquire and dispense a covered outpatient prescription drug, without subtracting or otherwise considering any copayment or coinsurance amount to be paid by enrollees.
3. Requires a health plan contract or health insurance policy that provides coverage for outpatient prescription drugs to provide coverage for medically necessary prescription drugs, including non-formulary drugs determined to be medically necessary, and, for an insurer, requires copayments, coinsurance, and other cost sharing for outpatient prescription drugs to be reasonable.

FISCAL EFFECT: This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. The author states that this bill takes an important step, by requiring transparency on prescription drug pricing for consumers. It is crucial that as prices for both new and existing drugs continue to rise, we as lawmakers begin to shine a light on the burden United States consumers, employers, and the State of California are carrying in the international prescription drug market. Under the Patient Protection and Affordable Care Act, enrollees were promised health care coverage and affordability. Patients have limited resources to afford very high prices, and deserve information on the current healthcare financial system. The lack of drug pricing transparency has been a detriment to our state and its citizens for too long. It is time for drug manufacturers and other entities to participate in this conversation.”
2. BACKGROUND.
   1. Transparency. According to the sponsor of this bill, Health Access California, prescription drug costs in this country are higher than prescription drug costs in other countries, even more than affluent countries in the European Union. Canada, Germany, and Mexico have a very different approach to drug pricing than the United States. It is important for consumers to understand that the United States relies on commercial health plans and insurers to negotiate prices with pharmaceutical manufacturers. No one tells consumers how much cheaper drugs are in other countries, including North American Free Trade Agreement (NAFTA) partners. Prescription drug prices affect the entire health care marketplace, including enrollee’s premiums, deductibles, and co-payments. This bill seeks to begin sharing information with health care enrollees, on what they pay here in the U.S. for their prescription and how the same drug is priced internationally. Prescription drugs are the health service most commonly used by consumers. Most people go to the doctor only once or twice a year and the hospital even less often. This is while many consumers renew prescriptions and pay their co-pay monthly. Health insurance premiums have tripled in California in the last decade, while deductibles and co-pays have also grown. Prescription drug cost sharing for the average employee in California has climbed, particularly for non-preferred drugs and specialty drugs. ^[1] A national poll from April 2015, found that consumers rate high costs for specialty drugs as the top priority in health care (75%) and government action to reduce prescription drug prices as the second highest priority (61%).^[2]

The high price of some prescription drugs has raised questions about their affordability, whether their cost is worth the clinical benefits they provide, and the financial model of the current healthcare system. The rising costs of prescription drugs are placing an increasing burden on payers, employers, and patients. Notably, new Hepatitis C virus (HCV) treatment options that cure the underlying disease with remarkable efficiency offer a drastic improvement over previous therapies. Payment systems have been significantly impacted by the cost of these drugs since their arrival on the market, but many argue that patients and payers will benefit in the long run by the avoided downstream costs to cancer treatment and liver transplants. Other high priced drugs offer striking therapeutic advances for a range of very serious conditions, including cancer, rheumatoid arthritis, multiple sclerosis, and many others. Policymakers are faced with balancing the need to reward pharmaceutical breakthroughs in order to ensure the innovation of future cures with the fact that payers and patients have limited resources to afford very high prices.

• 1. 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.

In most markets, consumers see a price for a good or service and make a decision to purchase if the benefit of the good or service outweighs the cost. In the prescription-drug market, most patients are enrolled with a third-party plan (government and/or insurance company) that utilizes a PBM to help manage this process. The patient pays the third party in the form of premiums along with a contribution from the government or the patient’s employer as a part of the total work compensation to the PBM. At the point of sale when patients pick up their prescription from the pharmacy, they usually pay a smaller portion of the transaction and the PBM reimburses the pharmacy for the balance. Low copays disguise the actual cost of medications, increasing patients’ demand for prescriptions. This reduction in price helps drive consumer demand for this prescription medication.

• 1. The $1,000 Pill. In December 2013, the federal Food and Drug Administration (FDA) approved a drug produced by Gilead Sciences called Sovaldi for the treatment of HCV. Sovaldi represents a significant advancement in treatment for HCV as it provides a higher cure rate, allows for a shorter duration of treatment, has fewer adverse side effects, and opens up treatment options for individuals with comorbid conditions for which traditional treatments are contraindicated. While the drug has been found to be remarkably effective (curing 90% or more patients over the course of 12 weeks, according to the FDA), Gilead Sciences has come under heavy fire for initially pricing Sovaldi at $1,000 per pill. Critics have raised additional concerns due to variation in costs globally. According to an April 13, 2014 article in the San Francisco Chronicle, Gilead prices the treatment at $57,000 in the United Kingdom, $66,000 in Germany, while in Egypt and other developing countries the treatment costs $900, which is 99% less than the U.S. cost.

After nearly a year of market exclusivity for Sovaldi, in late 2014 Abbvie gained FDA approval to market rival HCV treatment Viekira Pak. PBMs, like ExpressScripts and CVS Caremark quickly signed deals agreeing to exclusive coverage for specific brand drugs on their formulary, in return for a hefty price discount on the drug. At least two more competitor drugs are currently in final stages of clinical trials and could be on the market in the near future; the increased competition in the market is expected to bring costs down significantly. In early 2015, Gilead announced it would be offering rebates of up to 46% on Sovaldi now that multiple rival drugs have entered the market.

Many insurers and government programs have tried to limit their financial exposure by reserving Sovaldi and other new drugs for patients with more advanced liver disease. This has raised concerns among patient advocates that cost-containment measures might force patients to wait until their condition has dangerously worsened before they are deemed eligible for the cure.

1. SUPPORT. Health Access California, the sponsor of this bill, states that this bill would inform consumers about the costs of their prescription medications, including consumer cost sharing, cost of the drug to the health plan or health insurer, and cost of the drug in Canada, Germany, and Mexico. The sponsor states that the United States is unusual among nations in relying on health plans and health insurers to negotiate prices for prescription drugs and prices are far higher than prescription drug prices in other countries, including trading partners such as Canada, Mexico, and Germany. Asian Law Alliance (ALA) states that the soaring cost of prescription drugs ranks at the top of the problems consumers have with the health care system and U.S. prescription drug costs are far higher than in Europe or nearby countries like Canada and Mexico. ALA also contends that prescription drugs are the health service most commonly used by consumers. Doctors for America states that consumers deserve to know how much their medication will cost them, how much their insurance will pay, and be able to compare this price to the price for the same drug in other countries. The California School Employees Association, AFL-CIO, states that this bill will unveil some of the secrecy in prescription drug costs and maybe through disclosure of this data we can rein in, or at least understand, the costs of prescription drugs.
2. OPPOSITION. Kaiser Permanente (Kaiser) states that this bill will not encourage the lowering of drug prices and instead will increase costs for businesses and consumers. Kaiser also states that it does not understand why the burden of reporting drug prices in other countries is placed on the health plans given that currency exchange rates fluctuate and the costs of the drug itself can change often and will differ depending on who is buying and selling it. Finally, Kaiser contends that price disclosure at the point of sale is too late and such disclosures should be disclosed at the front end by the drug maker. California Life Sciences Association states that even with a new data infrastructure in place to accommodate the information sought under this bill, such a system would be imperfect and the new information of little utility to the consumer at the point of sale or delivery.

The Association of California Life and Health Insurance Companies (ACLHIC) states that this bill only provides the final cost of purchase between seller and buyer without addressing the underlying, and still mysterious, costs used by the seller to determine the sales price. Additionally, ACLHIC contends that this bill may actually increase the purchase price of a drug by publicizing the contracted rate which was originally agreed to by the insurer and manufacturer, thereby eliminating market competition and the price negotiation that exists today. Lastly, the reporting requirement related to drug charges and prices in foreign countries is not only logistically impractical, but it’s also unfair since placing the burden of proof to explain cost on the purchaser rather than on the manufacturer is simply unworkable.

Blue Shield of California (BSC) states that this bill imposes duplicative requirements on health plans to disclose information to members since the standardized benefit design and the retail prescription drug price cap provide consumers with useful information about their cost sharing responsibility, rendering most of the requirement of this bill useless. BSC also states that the accumulation of cost sharing is an unworkable requirement as health plans do not always know in real-time when services have been rendered and what an enrollee has paid toward their share of cost and that this requirement would be both costly and impossible to implement at a time when plans are being pressured to keep administrative costs low. Finally, BSC contends that the onus should be placed on drug manufacturers to provide pricing information to consumers and more importantly, to be part of the quest for sustainably affordable healthcare for all consumers.

1. PREVIOUS LEGISLATION.
   1. AB 463 (Chiu) of 2015 would have required pharmaceutical companies to file an annual report with the Office of Statewide Health Planning and Development containing specified information regarding the development and pricing of prescription drugs. The Assembly Health Committee hearing was canceled at the request of the author.
   2. AB 339 (Gordon), Chapter 619, Statutes of 2015, requires health plans and health insurers that provide coverage for outpatient prescription drugs to have formularies that do not discourage the enrollment of individuals with health conditions, and requires combination antiretrovirals drug treatment coverage of a single-tablet that is as effective as a multitablet regimen for treatment of Human immunodeficiency virus infection and acquired immune deficiency syndrome, 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.
   3. 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 Websites and requires Covered California to provide links to the formularies.
2. RELATED LEGISLATION. SB 1010 (Ed Hernandez), would require health plans or health insurers that file rate information to report to DMHC or CDI, on a date no later than the reporting of the rate information, specified cost information regarding covered prescription drugs, including generic drugs, brand name drugs, specialty drugs, and prescription drugs provided in an outpatient setting or sold in a retail setting. The information reported would include, but not be limited to, the 25 most frequently prescribed drugs and the average wholesale price for each drug and the 25 most costly drugs by total plan or insurer spending and the average wholesale price for each drug. DMHC and CDI would be required to compile the reported information into a consumer-friendly report that demonstrates the overall impact of drug costs on health care premiums and publish the reports on their Internet Websites by January 1 of each year. Except for the report, DMHC and CDI would be required to keep confidential all information provided pursuant to these provisions.

SB 1010 would also require a manufacturer of a branded and generic prescription drug to notify state purchasers, health care service plans, health insurers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 10% during any 12-month period or if it intends to introduce to market a prescription drug that has a wholesale acquisition cost of $10,000 or more annually or per course of treatment. SB 1010 would require a manufacturer, within 30 days of notification of a price increase, or of the introduction to market of a prescription drug that has a wholesale acquisition cost of $10,000 or more annually or per course of treatment, to report specified information regarding the drug price to each state purchaser, health care service plan, and health insurer, and would require a manufacturer who fails to provide the required information within the 30 days to be subject to a civil penalty of $1,000 per day. SB 1010 would also require the Legislature to conduct an annual public hearing regarding the price increases and information reported, as prescribed. SB 1010 is pending in Senate Health Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Health Access California (sponsor)

Asian Law Alliance

California Labor Federation

California School Employees Association, AFL-CIO

California Teachers Association

Consumers Union

Doctors for America

SEIU California

Western Center on Law and Poverty

Opposition

Association of California Life and Health Insurance Companies

Biotechnology Innovation Organization

Blue Shield of California

California Association of Health Plans

California Chamber of Commerce

California Life Sciences Association

Kaiser Permanente

Pharmaceutical Care Management Association

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097

1. California HealthCare Foundation Employee benefits survey ↑

2. http://blogs.wsj.com/washwire/2015/09/08/why-higher-drug-costs-are-consumers-biggest-cost-worry/ ↑

Date of Hearing: April 12, 2016

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 2436

Author:Roger Hernández – As Amended Ver:April 6, 2016

SUBJECT: Health care coverage: disclosures: drug pricing.

SUMMARY: Requires health care service plans (health plans) and health insurers to provide notice of prescription drug cost sharing. Specifically, this bill:

1. Requires a health plan contract issued, amended, or renewed on or after January 1, 2017, that provides coverage for prescription drug benefits to notify the enrollee of the following at the time of delivery of a prescription drug or within 30 days of purchase: 
   1. The enrollee’s share of the cost for the prescription drug, including any copayment, coinsurance, or other cost sharing, and the accumulation of that cost sharing to the enrollee’s deductible, if any, or out-of-pocket maximum;
   2. The cost of the prescription drug to the plan, after applying any discounts, rebates, or other reductions in cost to the plan; and,
   3. The cost of the prescription drug in United States dollars in Canada, Germany, and Mexico.
2. Provides that, in contracting with a pharmaceutical manufacturer, the health plan or its contracting pharmacy benefit manager (PBM), if any, shall require the pharmaceutical manufacturer to provide to the plan the cost of the prescription drug in United States dollars in Canada, Germany, and Mexico. Allows the health plan to consider this in determining whether or on what tier to place the prescription drug if the pharmaceutical manufacturer fails to provide the information.

EXISTING LAW:

1. Regulates health plans under the Knox-Keene Health Care Service Plan Act of 1975 through the Department of Managed Health Care (DMHC) and regulates health insurers under the Insurance Code through the California Department of Insurance (CDI).
2. Imposes various requirements on contracts and policies that cover prescription drug benefits, including that a copayment or percentage coinsurance, not to exceed 50% of the cost to the health plan. Defines “cost to the plan” as the actual cost incurred by the health plan or its contracting provider to acquire and dispense a covered outpatient prescription drug, without subtracting or otherwise considering any copayment or coinsurance amount to be paid by enrollees.
3. Requires a health plan contract or health insurance policy that provides coverage for outpatient prescription drugs to provide coverage for medically necessary prescription drugs, including non-formulary drugs determined to be medically necessary, and, for an insurer, requires copayments, coinsurance, and other cost sharing for outpatient prescription drugs to be reasonable.

FISCAL EFFECT: This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. The author states that this bill takes an important step, by requiring transparency on prescription drug pricing for consumers. It is crucial that as prices for both new and existing drugs continue to rise, we as lawmakers begin to shine a light on the burden United States consumers, employers, and the State of California are carrying in the international prescription drug market. Under the Patient Protection and Affordable Care Act, enrollees were promised health care coverage and affordability. Patients have limited resources to afford very high prices, and deserve information on the current healthcare financial system. The lack of drug pricing transparency has been a detriment to our state and its citizens for too long. It is time for drug manufacturers and other entities to participate in this conversation.”
2. BACKGROUND.
   1. Transparency. According to the sponsor of this bill, Health Access California, prescription drug costs in this country are higher than prescription drug costs in other countries, even more than affluent countries in the European Union. Canada, Germany, and Mexico have a very different approach to drug pricing than the United States. It is important for consumers to understand that the United States relies on commercial health plans and insurers to negotiate prices with pharmaceutical manufacturers. No one tells consumers how much cheaper drugs are in other countries, including North American Free Trade Agreement (NAFTA) partners. Prescription drug prices affect the entire health care marketplace, including enrollee’s premiums, deductibles, and co-payments. This bill seeks to begin sharing information with health care enrollees, on what they pay here in the U.S. for their prescription and how the same drug is priced internationally. Prescription drugs are the health service most commonly used by consumers. Most people go to the doctor only once or twice a year and the hospital even less often. This is while many consumers renew prescriptions and pay their co-pay monthly. Health insurance premiums have tripled in California in the last decade, while deductibles and co-pays have also grown. Prescription drug cost sharing for the average employee in California has climbed, particularly for non-preferred drugs and specialty drugs. ^[1] A national poll from April 2015, found that consumers rate high costs for specialty drugs as the top priority in health care (75%) and government action to reduce prescription drug prices as the second highest priority (61%).^[2]

The high price of some prescription drugs has raised questions about their affordability, whether their cost is worth the clinical benefits they provide, and the financial model of the current healthcare system. The rising costs of prescription drugs are placing an increasing burden on payers, employers, and patients. Notably, new Hepatitis C virus (HCV) treatment options that cure the underlying disease with remarkable efficiency offer a drastic improvement over previous therapies. Payment systems have been significantly impacted by the cost of these drugs since their arrival on the market, but many argue that patients and payers will benefit in the long run by the avoided downstream costs to cancer treatment and liver transplants. Other high priced drugs offer striking therapeutic advances for a range of very serious conditions, including cancer, rheumatoid arthritis, multiple sclerosis, and many others. Policymakers are faced with balancing the need to reward pharmaceutical breakthroughs in order to ensure the innovation of future cures with the fact that payers and patients have limited resources to afford very high prices.

• 1. 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.

In most markets, consumers see a price for a good or service and make a decision to purchase if the benefit of the good or service outweighs the cost. In the prescription-drug market, most patients are enrolled with a third-party plan (government and/or insurance company) that utilizes a PBM to help manage this process. The patient pays the third party in the form of premiums along with a contribution from the government or the patient’s employer as a part of the total work compensation to the PBM. At the point of sale when patients pick up their prescription from the pharmacy, they usually pay a smaller portion of the transaction and the PBM reimburses the pharmacy for the balance. Low copays disguise the actual cost of medications, increasing patients’ demand for prescriptions. This reduction in price helps drive consumer demand for this prescription medication.

• 1. The $1,000 Pill. In December 2013, the federal Food and Drug Administration (FDA) approved a drug produced by Gilead Sciences called Sovaldi for the treatment of HCV. Sovaldi represents a significant advancement in treatment for HCV as it provides a higher cure rate, allows for a shorter duration of treatment, has fewer adverse side effects, and opens up treatment options for individuals with comorbid conditions for which traditional treatments are contraindicated. While the drug has been found to be remarkably effective (curing 90% or more patients over the course of 12 weeks, according to the FDA), Gilead Sciences has come under heavy fire for initially pricing Sovaldi at $1,000 per pill. Critics have raised additional concerns due to variation in costs globally. According to an April 13, 2014 article in the San Francisco Chronicle, Gilead prices the treatment at $57,000 in the United Kingdom, $66,000 in Germany, while in Egypt and other developing countries the treatment costs $900, which is 99% less than the U.S. cost.

After nearly a year of market exclusivity for Sovaldi, in late 2014 Abbvie gained FDA approval to market rival HCV treatment Viekira Pak. PBMs, like ExpressScripts and CVS Caremark quickly signed deals agreeing to exclusive coverage for specific brand drugs on their formulary, in return for a hefty price discount on the drug. At least two more competitor drugs are currently in final stages of clinical trials and could be on the market in the near future; the increased competition in the market is expected to bring costs down significantly. In early 2015, Gilead announced it would be offering rebates of up to 46% on Sovaldi now that multiple rival drugs have entered the market.

Many insurers and government programs have tried to limit their financial exposure by reserving Sovaldi and other new drugs for patients with more advanced liver disease. This has raised concerns among patient advocates that cost-containment measures might force patients to wait until their condition has dangerously worsened before they are deemed eligible for the cure.

1. SUPPORT. Health Access California, the sponsor of this bill, states that this bill would inform consumers about the costs of their prescription medications, including consumer cost sharing, cost of the drug to the health plan or health insurer, and cost of the drug in Canada, Germany, and Mexico. The sponsor states that the United States is unusual among nations in relying on health plans and health insurers to negotiate prices for prescription drugs and prices are far higher than prescription drug prices in other countries, including trading partners such as Canada, Mexico, and Germany. Asian Law Alliance (ALA) states that the soaring cost of prescription drugs ranks at the top of the problems consumers have with the health care system and U.S. prescription drug costs are far higher than in Europe or nearby countries like Canada and Mexico. ALA also contends that prescription drugs are the health service most commonly used by consumers. Doctors for America states that consumers deserve to know how much their medication will cost them, how much their insurance will pay, and be able to compare this price to the price for the same drug in other countries. The California School Employees Association, AFL-CIO, states that this bill will unveil some of the secrecy in prescription drug costs and maybe through disclosure of this data we can rein in, or at least understand, the costs of prescription drugs.
2. OPPOSITION. Kaiser Permanente (Kaiser) states that this bill will not encourage the lowering of drug prices and instead will increase costs for businesses and consumers. Kaiser also states that it does not understand why the burden of reporting drug prices in other countries is placed on the health plans given that currency exchange rates fluctuate and the costs of the drug itself can change often and will differ depending on who is buying and selling it. Finally, Kaiser contends that price disclosure at the point of sale is too late and such disclosures should be disclosed at the front end by the drug maker. California Life Sciences Association states that even with a new data infrastructure in place to accommodate the information sought under this bill, such a system would be imperfect and the new information of little utility to the consumer at the point of sale or delivery.

The Association of California Life and Health Insurance Companies (ACLHIC) states that this bill only provides the final cost of purchase between seller and buyer without addressing the underlying, and still mysterious, costs used by the seller to determine the sales price. Additionally, ACLHIC contends that this bill may actually increase the purchase price of a drug by publicizing the contracted rate which was originally agreed to by the insurer and manufacturer, thereby eliminating market competition and the price negotiation that exists today. Lastly, the reporting requirement related to drug charges and prices in foreign countries is not only logistically impractical, but it’s also unfair since placing the burden of proof to explain cost on the purchaser rather than on the manufacturer is simply unworkable.

Blue Shield of California (BSC) states that this bill imposes duplicative requirements on health plans to disclose information to members since the standardized benefit design and the retail prescription drug price cap provide consumers with useful information about their cost sharing responsibility, rendering most of the requirement of this bill useless. BSC also states that the accumulation of cost sharing is an unworkable requirement as health plans do not always know in real-time when services have been rendered and what an enrollee has paid toward their share of cost and that this requirement would be both costly and impossible to implement at a time when plans are being pressured to keep administrative costs low. Finally, BSC contends that the onus should be placed on drug manufacturers to provide pricing information to consumers and more importantly, to be part of the quest for sustainably affordable healthcare for all consumers.

1. PREVIOUS LEGISLATION.
   1. AB 463 (Chiu) of 2015 would have required pharmaceutical companies to file an annual report with the Office of Statewide Health Planning and Development containing specified information regarding the development and pricing of prescription drugs. The Assembly Health Committee hearing was canceled at the request of the author.
   2. AB 339 (Gordon), Chapter 619, Statutes of 2015, requires health plans and health insurers that provide coverage for outpatient prescription drugs to have formularies that do not discourage the enrollment of individuals with health conditions, and requires combination antiretrovirals drug treatment coverage of a single-tablet that is as effective as a multitablet regimen for treatment of Human immunodeficiency virus infection and acquired immune deficiency syndrome, 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.
   3. 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 Websites and requires Covered California to provide links to the formularies.
2. RELATED LEGISLATION. SB 1010 (Hernandez), would require health plans or health insurers that file rate information to report to DMHC or CDI, on a date no later than the reporting of the rate information, specified cost information regarding covered prescription drugs, including generic drugs, brand name drugs, specialty drugs, and prescription drugs provided in an outpatient setting or sold in a retail setting. The information reported would include, but not be limited to, the 25 most frequently prescribed drugs and the average wholesale price for each drug and the 25 most costly drugs by total plan or insurer spending and the average wholesale price for each drug. DMHC and CDI would be required to compile the reported information into a consumer-friendly report that demonstrates the overall impact of drug costs on health care premiums and publish the reports on their Internet Websites by January 1 of each year. Except for the report, DMHC and CDI would be required to keep confidential all information provided pursuant to these provisions.

SB 1010 would also require a manufacturer of a branded and generic prescription drug to notify state purchasers, health care service plans, health insurers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 10% during any 12-month period or if it intends to introduce to market a prescription drug that has a wholesale acquisition cost of $10,000 or more annually or per course of treatment. SB 1010 would require a manufacturer, within 30 days of notification of a price increase, or of the introduction to market of a prescription drug that has a wholesale acquisition cost of $10,000 or more annually or per course of treatment, to report specified information regarding the drug price to each state purchaser, health care service plan, and health insurer, and would require a manufacturer who fails to provide the required information within the 30 days to be subject to a civil penalty of $1,000 per day. SB 1010 would also require the Legislature to conduct an annual public hearing regarding the price increases and information reported, as prescribed. SB 1010 is pending in Senate Health Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Health Access California (sponsor)

Asian Law Alliance

California Labor Federation

California School Employees Association, AFL-CIO

Consumers Union

Doctors for America

SEIU California

Western Center on Law and Poverty

Opposition

Association of California Life and Health Insurance Companies

Blue Shield of California

California Association of Health Plans

California Life Sciences Association

Kaiser Permanente

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097

1. California HealthCare Foundation Employee benefits survey ↑

2. http://blogs.wsj.com/washwire/2015/09/08/why-higher-drug-costs-are-consumers-biggest-cost-worry/ ↑