Existing law, the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care (DMHC) 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 (DOI). Existing law requires health care service plans and health insurers to file specified rate information with DMHC or DOI, as applicable, for health care service plan contracts or health insurance policies in the individual or small group markets and for health care service plan contracts and health insurance policies in the large group market.

This bill would require health care service plans or health insurers that file the above-described rate information to report to DMHC or DOI, 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, and specialty drugs provided in an outpatient setting. dispensed as provided. The information reported would include, but not be limited to, the 25 most frequently prescribed drugs and the 25 most costly drugs by total plan or insurer spending. DMHC and DOI would be required to compile the reported information into a report for the public and legislators that demonstrates the overall impact of drug costs on health care premiums and publish the reports on their Internet Web sites by October 1 of each year. Except for the report, DMHC and DOI would be required to keep confidential all information provided pursuant to these provisions.

Because a willful violation of the Knox-Keene Act is a crime, this bill would impose a state-mandated local program.

This bill, effective January 1, 2018, except as provided, would require a manufacturer of a branded prescription drug to notify in writing state purchasers, health care service plans, health insurers, and pharmacy benefit managers, and the chairs of specified Senate and Assembly committees managers if it is increasing the wholesale acquisition cost of the drug by more than 10% or by more than $10,000 during any 12-month period. The bill, except as provided, would require a manufacturer of a generic prescription drug, as defined, with a specified wholesale acquisition cost to notify state purchasers, health care service plans, health insurers, pharmacy benefit managers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 25% during any 12-month period. The bill during any 12-month period by 25% or more based upon the wholesale acquisition cost of the drug and pursuant to a specified schedule, or by more than $10,000. The bill, effective January 1, 2018, would require a manufacturer of a prescription drug to notify in writing, within 3 days of approval by the federal Food and Drug Administration, writing, 3 days before the commercial availability of the drug, state purchasers, health care service plans, health insurers, and pharmacy benefit managers, and the chairs of specified Senate and Assembly committees managers if it is introducing a new prescription drug to market at a wholesale acquisition cost of $10,000 or more annually or per course of treatment. The bill would require a manufacturer, within 30 days of notification of a price increase, or notification 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, health insurer, or pharmacy benefit manager the Office of Statewide Health Planning and Development and would require a manufacturer who fails to provide the required information within the 30 days to be subject to a civil an administrative penalty of $1,000 per day. day for every day after the 30-day notification period. The bill would also require a pharmacy benefit manager that receives notice of a price increase consistent with these provisions to provide notice of the price increase to its contracting public and private purchasers, as provided. The Legislature would be required to keep confidential all information provided pursuant to these provisions. The bill would define pricing information, as specified, would deem it to be confidential information, as specified, would provide that the information is exempt from disclosure under the California Public Records Act, and would require or authorize, as specified, other entities to disclose the information under a certain condition. The bill would make the Office of Statewide Health Planning and Development the entity charged with implementing and enforcing these provisions and would require that office to publish specified information collected pursuant to these provisions on its Internet Website. The bill would repeal these provisions by January 1, 2022.

Existing law requires, for large group health care service plan contracts and health insurance policies, each health care service plan or health insurer to file with DMHC or DOI the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year, and to also disclose specified information for the aggregate rate information for the large group market.

This bill would add to that disclosure of information for the aggregate rate information for the large group market, the requirement for health care service plans or health insurers to disclose specified information regarding the cost of covered prescription drugs, including generic drugs but excluding generic specialty drugs, brand name drugs drugs, excluding brand name specialty drugs, and brand name and generic specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use and regarding the use of a pharmacy benefit manager, as prescribed.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

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 (Knox-Keene Act), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care (DMHC) 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 (DOI). Existing law requires health care service plans and health insurers to file specified rate information with DMHC or DOI, as applicable, for health care service plan contracts or health insurance policies in the individual or small group markets and for health care service plan contracts and health insurance policies in the large group market.

This bill would require health care service plans or health insurers that file the above-described rate information to report to DMHC or DOI, 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, and specialty drugs provided in an outpatient setting. The information reported would include, but not be limited to, the 25 most frequently prescribed drugs and the 25 most costly drugs by total plan or insurer spending. DMHC and DOI would be required to compile the reported information into a report for the public and legislators that demonstrates the overall impact of drug costs on health care premiums and publish the reports on their Internet Web sites by October 1 of each year. Except for the report, DMHC and DOI would be required to keep confidential all information provided pursuant to these provisions.

Because a willful violation of the Knox-Keene Act is a crime, this bill would impose a state-mandated local program.

This bill bill, except as provided, would require a manufacturer of a branded prescription drug to notify in writing state purchasers, health care service plans, health insurers, pharmacy benefit managers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 10% or by more than $10,000 during any 12-month period. The bill bill, except as provided, would require a manufacturer of a generic prescription drug drug, as defined, with a specified wholesale acquisition cost to notify state purchasers, health care service plans, health insurers, pharmacy benefit managers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 25% during any 12-month period. The bill would require a manufacturer of a prescription drug to notify in writing, within 3 days of approval by the federal Food and Drug Administration, state purchasers, health care service plans, health insurers, pharmacy benefit managers, and the chairs of specified Senate and Assembly committees if it is introducing a new prescription drug to market at a wholesale acquisition cost of $10,000 or more annually or per course of treatment. The bill would require a manufacturer, within 30 days of notification of a price increase, or notification 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, health insurer, or pharmacy benefit manager 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. The bill would also require the Legislature to conduct an annual public hearing regarding the aggregate trends in prescription drug pricing, as prescribed. Except for the hearing, the The bill would also require a pharmacy benefit manager that receives notice of a price increase consistent with these provisions to provide notice of the price increase to its contracting public and private purchasers, as provided. The Legislature would be required to keep confidential all information provided pursuant to these provisions.

Existing law requires, for large group health care service plan contracts and health insurance policies, each health care service plan or health insurer to file with DMHC or DOI the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year, and to also disclose specified information for the aggregate rate information for the large group market.

This bill would add to that disclosure of information for the aggregate rate information for the large group market, the requirement for health care service plans or health insurers to disclose specified cost information regarding the cost of covered prescription drugs, including generic drugs but excluding generic specialty drugs, brand name drugs excluding specialty drugs, and specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use. use and regarding the use of a pharmacy benefit manager, as prescribed.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

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 (Knox-Keene Act), provides for the licensure and regulation of health care service plans by the Department of Managed Health Care (DMHC) 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 (DOI). Existing law requires health care service plans and health insurers to file specified rate information with DMHC or DOI, as applicable, for health care service plan contracts or health insurance policies in the individual or small group markets and for health care service plan contracts and health insurance policies in the large group market.

This bill would require health care service plans or health insurers that file the above-described rate information to report to DMHC or DOI, 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 and specialty drugs provided in an outpatient 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. and the 25 most costly drugs by total plan or insurer spending. DMHC and DOI would be required to compile the reported information into a consumer-friendly report report for the public and legislators that demonstrates the overall impact of drug costs on health care premiums and publish the reports on their Internet Web sites by January 1 October 1 of each year. Except for the report, DMHC and DOI would be required to keep confidential all information provided pursuant to these provisions.

Because a willful violation of the Knox-Keene Act is a crime, this bill would impose a state-mandated local program.

This bill would require a manufacturer of a branded prescription drug to notify in writing state purchasers, health care service plans, health insurers, pharmacy benefit managers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 10% or by more than $10,000 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. period. The bill would require a manufacturer of a generic prescription drug with a specified price wholesale acquisition cost to notify state purchasers, health care service plans, health insurers, pharmacy benefit managers, and the chairs of specified Senate and Assembly committees if it is increasing the wholesale acquisition cost of the drug by more than 10% 25% during any 12-month period. The bill would require a manufacturer of a prescription drug to notify in writing, within 3 days of approval by the federal Food and Drug Administration, state purchasers, health care service plans, health insurers, pharmacy benefit managers, and the chairs of specified Senate and Assembly committees if it is introducing a new prescription drug to market at a wholesale acquisition cost of $10,000 or more annually or per course of treatment. The bill would require a manufacturer, within 30 days of notification of a price increase, or notification 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, or pharmacy benefit manager 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. The bill would also require the Legislature to conduct an annual public hearing regarding the price increases and information reported, aggregate trends in prescription drug pricing, as prescribed. Except for the hearing, the Legislature would be required to keep confidential all information provided pursuant to these provisions.

Existing law requires, for large group health care service plan contracts and health insurance policies, each health care service plan or health insurer to file with DMHC or DOI the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year, and to also disclose specified information for the aggregate rate information for the large group market.

This bill would add to that disclosure of information for the aggregate rate information for the large group market, the requirement for health care service plans or health insurers to disclose specified cost information regarding covered prescription drugs, including generic drugs, drugs but excluding generic specialty drugs, brand name drugs excluding specialty drugs, and specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

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 (DMHC) 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 (DOI). Existing law requires health care service plans and health insurers to file specified rate information with DMHC or DOI, as applicable, at least 60 days prior to implementing a rate change for individual or small group health care service plan contracts or health insurance policies. Existing law requires a plan or insurer to disclose as part of the filing, among other things, specified information by aggregate benefit category, such as physician services, ancillary services, and prescription drugs.

This bill would add as aggregate benefit categories other medical professional services and other medical devices and therapies. 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.

SENATE THIRD READING

STR Bill Id:SB 1010

Author:(Hernandez)

As Amended Ver:

Majority vote

SENATE VOTE: 25-10

SUMMARY: Requires health care service plans (health plans) and health insurers (collectively carriers) that report rate information to also include information regarding covered prescription drugs, as specified. Requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to compile and report this data in an aggregated report to demonstrate the overall impact of drug costs on health care premiums. Requires any manufacturer of a prescription drug, who sells to or is reimbursed by a state purchaser, health plan, health insurer, or pharmacy benefit manager (PBM), to provide notice describing a price increase, as specified. Specifically, this bill:

Health Plan and Insurer Requirements

1. Requires carriers that report rate information through existing group and individual rate review process to also report to DMHC and CDI, on a date no later than it reports the rate information, the following information for all covered prescription drugs, including generic, brand name, and specialty drugs dispensed at a health plan pharmacy, network pharmacy or mail order pharmacy for outpatient use:
   1. The 25 most frequently prescribed drugs;
   2. The 25 most costly drugs by total plan spending; and,
   3. The 25 drugs with the highest year-over-year increase in spending.
2. Requires the DMHC and CDI to compile this information in a report for the public and the Legislature to demonstrate the overall impact of drug costs on health care premiums. Requires the data in the report to be aggregated and prohibits information specific to individual carriers. Requires the report to compare, for the large group market, aggregate prescription drug spending amount carriers that use a PBM with aggregate prescription drug spending among carriers that do not use a PBM.
3. Defines specialty drug as one that exceeds the threshold for a specialty drug under the Medicare Part D program.
4. Requires the DMHC and CDI to publish on its Internet Website the report by October 1 of each year.
5. Requires the information provided to the DMHC and CDI, except for the report in 2) above, to remain confidential and exempt from disclosure under the California Public Records Act (PRA).
6. Requires carriers, as part of large group rate review, to disclose the following information for covered drugs, including: a) generic drugs (except specialty generic drugs); b) brand name drugs (except specialty drugs); and, c) brand name and generic specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use:
   1. The percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs;
   2. The year-over-year increase, as a percentage, in total spending for each category of prescription drugs;
   3. The year-over-year increase in per member, per month costs for drug prices compared to other components of the health care premium; and,
   4. The specialty tier formulary list.
7. Requires the carrier to include the percentage of the premium attributable to prescription drugs administered in a doctor's office that are covered under the medical benefit as separate from the pharmacy benefit, if available.
8. Requires the carrier to include information on its use of a PBM, if any, including the prescription drug coverage components described in 6) and 7) above, that are managed by the PBM. Requires the carrier to include the name of the PBM.
9. Requires the carrier to provide the above information to the DMHC and CDI on or before October 1, 2017, and on or before October 1 annually thereafter.

Prescription Drug Pricing for Purchasers

1. 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, as defined.
2. Requires, effective January 1, 2018, a prescription drug manufacturer with a wholesale acquisition cost (WAC) per month supply or per a course of treatment that lasts less than a month that comes within the schedule set forth in 13) below, to notify each state purchaser, health plan, health insurer, or PBM if it is increasing the WAC of a prescription drug during any 12 month period by 25% of more, or by more than $10,000.
3. Requires the notice to be provided in writing at least 30 days prior to the planned effective date of the increase.
4. Requires a manufacturer to provide the notice in 11) above, if the prescription WAC per month supply or per a course of treatment that lasts less than a month is within the following amounts:
   1. For the 2018 calendar year, $100 or more;
   2. For the 2019 calendar year, $105 or more;
   3. For the 2020 calendar year, $110 or more; and,
   4. On or after July 21, 2021, $116 or more.
5. Requires a manufacturer, within 30 days of notification of a price increase under 11) above, to report all of the following information to the Office of Statewide Health Planning and Development (OSHPD):
   1. The previous year's marketing budget for the drug. Permits the manufacturer to limit the information to that which is publicly available;
   2. The date and price of the acquisition if the drug was not developed by the manufacturer; and,
   3. A schedule of price increases for the drug for the previous five years if it was manufactured by the company, or if the drug was acquired by the manufacturer within the previous five years, the drug price at the time of the acquisition and in the calendar year prior to the acquisition.
6. Requires OSHPD to publicly publish data collected in 14) above, on its Internet Website no less than quarterly.
7. Requires, effective January 1, 2018, a prescription drug manufacturer to notify each state purchaser, health plan, health insurer, or PBM if it is introducing a new prescription drug to market at a WAC of $10,000 or more annually or per course of treatment. Requires the notice to be in writing three days before the commercial availability of a drug approved by the Food and Drug Administration (FDA). Permits a manufacturer to provide notice pending FDA approval in order to ensure approved drugs are commercially available without delay in cases in which the commercial availability is expected within three days of FDA approval. Permits the notice to be provided as soon as practicable but no later than three days after FDA approval if any other law prohibits that notification.
8. Requires a manufacturer, within 30 days of the notification of a new drug under 16) above, to report both of the following information to OSHPD:
   1. The expected marketing budget for the drug; and,
   2. The date and price of acquisition if the drug was not developed by the manufacturer.
9. Requires OSHPD to publicly publish data collected pursuant to 17) above, on its Internet Web site no less than quarterly.
10. Specifies that notice is not required for a prescription drug that is not already purchased or reimbursed by a purchaser described in 10) above.
11. Permits OSHPD to adopt regulations or issue guidance for the implementation of this bill.
12. Permits OSHPD to consult with DMHC, CDI, the California State Board of Pharmacy, or any state purchaser of prescription drugs, or entity acting on behalf of a state purchaser, in issuing guidance under 20) above, in adopting necessary regulations, in posting information on its Internet Web site, and in taking any other action for the purpose of this bill.
13. Requires OSHPD to be responsible for enforcing the provisions of this bill, as specified.
14. Requires a prescription drug manufacturer to comply with the provisions of this bill.
15. Specifies that a prescription drug manufacturer that fail to report information required in this bill is liable for an administrative penalty of $1,000 a day for every day after the 30 day notification period.
16. Requires OSHPD to assess the administrative penalty and permits OSHPD to order the penalty to be paid after appropriate notice and an opportunity for a hearing.
17. Specifies that this bill does not restrict the legal ability of a manufacturer to change prices as permitted under federal law.
18. Defines pricing information as advanced notification of a price increase pursuant to 11) above, or advanced notification of the price of a new drug pursuant to 16) above.
19. Specifies that pricing information is deemed confidential information and exempt from California PRA disclosure until the effective date of the increase, as specified.
20. Sunsets on January 1, 2022, unless a later enacted statute extends this date.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. Costs to the DMHC in the range of $300,000 ongoing, and costs to CDI, not likely to exceed $50,000 ongoing, to review, compile, and report on new rate filing information (Insurance Fund).
2. Unknown costs for enforcement of the reporting requirement on drug manufacturers by OSHPD (California Health Data and Planning Fund). Costs would depend on compliance, level of enforcement effort, and appeals.
3. Unknown potential information technology and staff costs for OSHPD to collect and collate additional data reports for publication on its web site (California Health Data and Planning Fund).
4. Unknown potential revenue from administrative penalties for noncompliance.

COMMENTS: 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. Drugs priced in excess of $10,000 are becoming common-place with little transparency for these astronomical price tags. This high-priced trend is a costly burden for patients, state programs, employers, and other payers, making it crucial that we understand what’s behind the exploding prices. 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. Additionally, data suggest that publically accessible price information in other sectors of the health care market encourage providers to offer more competitive pricing and thereby reduce excess health spending. Transparency-focused policies, like those implemented by the federal Patient Protection and Affordable Care Act, have led to rules requiring hospitals in California to provide information on pricing for common surgeries, health plans to submit detailed data regarding premium changes, and doctors to report more information to the federal government. But, drug makers have been granted an exception to this forward-thinking trend. This bill will bring prescription drugs in line with the rest of the health care sector by shedding light on those drugs that are having the greatest impact on our health care dollar. This change is absolutely necessary in an environment where more than 900 drugs are sporting price-tags at or above $10,000 and new drugs with record-breaking prices are being released to address diseases that impact millions, including hundreds of thousands of patients in public programs like Medi-Cal.

According to the June 2016 California HealthCare Foundation's (CHCF) Issue Brief, in 2015, the total United States (U.S.) expenditure on prescription medicines was $425 billion, a 12.2% increase over 2014 total expenditure or an 8.5% increase when adjusted for net expenditures. CHCF states that U.S. pharmaceutical prices are among the highest worldwide, and escalating costs have been a concern for many years, presenting challenges for federal, state, and private purchasers.

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 piqued in recent years both by the introduction of new, innovative drugs at spectacular prices, such as the $84,000 Hepatitis C drug Sovaldi, as well as price increases of generic drugs, such as a 5,000% price increase in a decades-old drug called Daraprim.

Analysis Prepared by: Kristene Mapile / HEALTH / (916) 319-2097 FN: 0004372

Date of Hearing: August 10, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 1010

Author:(Hernandez) – As Amended Ver:August 2, 2016

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

1. 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.
2. 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:
   1. If a brand-name prescription drug manufacturer plans to 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,
   2. 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.
3. 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.
4. 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).
5. 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).
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.

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 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.

1. 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.

1. 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 justification and marketing information may conflict with federal FDA requirements.
2. Related Legislation.
   1. 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.
   2. 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.
3. Prior Legislation.
4. 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.
5. 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.
6. Suggested technical amendment. If the author wishes to 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

Date of Hearing: June 28, 2016

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

SBPCA Bill Id:SB 1010

Author:(Hernandez) – As Amended Ver:May 31, 2016

SENATE VOTE: 25-10

SUBJECT: Health care: prescription drug costs.

SUMMARY: Requires health care service plans (health plans) and health insurers (collectively carriers) that report rate information to also include information regarding covered prescription drugs, as specified. Requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to compile and report this data in an aggregated report to demonstrate the overall impact of drug costs on health care premiums. Requires any manufacturer of a prescription drug, who sells to or is reimbursed by a state purchaser, health plan, health insurer, or pharmacy benefit manager (PBM), to provide notice describing a price increase, as specified. Requires the Legislature to conduct an annual public hearing on aggregate trends in prescription drug pricing. Specifically, this bill:

Health Plan and Insurer Requirements

1. Requires carriers that report rate information through existing group and individual rate review process to also report to DMHC and CDI, on a date no later than it reports the rate information, the following information for all covered prescription drugs, including generic, brand name, and specialty drugs provided in an outpatient setting:
   1. The 25 most frequently prescribed drugs;
   2. The 25 most costly drugs by total plan spending; and,
   3. The 25 drugs with the highest year-over-year increase in spending.
2. Requires the DMHC and CDI to compile this information in a report for the public and the Legislature to demonstrate the overall impact of drug costs on health care premiums. Requires the data in the report to be aggregated and prohibits information specific to individual carriers.
3. Defines specialty drug as one that exceeds the threshold for a specialty drug under the Medicare Part D program.
4. Requires the DMHC and CDI to publish on its Internet Website the report by October 1 of each year.
5. Requires the information provided to the DMHC and CDI, except for the report in 2) above, to remain confidential and exempt from disclosure under the California Public Records Act (PRA).
6. Requires carriers, as part of large group rate review, to disclose the following information for covered drugs, including: a) generic drugs (except specialty generic drugs); b) brand name drugs (except specialty drugs); and, c) specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use:
   1. The percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs;
   2. The year-over-year increase, as a percentage, in total spending for each category of prescription drugs;
   3. The year-over-year increase in per member, per month costs for drug prices compared to other components of the health care premium; and,
   4. The specialty tier formulary list.
7. Requires the carrier to include the percentage of the premium attributable to prescription drugs administered in a doctor’s office that are covered under the medical benefit as separate from the pharmacy benefit, if available.

Prescription Drug Pricing for Purchasers

1. 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, as defined.
2. Requires a prescription drug manufacturer to provide notification to each state purchaser, health plan, health insurer, or PBM:
   1. If a brand name prescription drug manufacturer is increasing the wholesale acquisition cost (WAC) of a prescription drug by more than 10% or by more than $10,000 during any 12-month period; and,
   2. For a generic prescription drug manufacturer with a generic drug of a WAC of $100 or more per month supply or if it is increasing the WAC of the generic prescription drug by more than 25% during a 12-month period.
3. Requires the price increase notification in 9) above to be provided in writing at least 60 days before the planned effective date of the increase. Requires a notice to be provided concurrently to the Chairs of the Senate Committee on Appropriations, the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Appropriations, and the Assembly Committee on Budget.
4. Requires, within 30 days of the price increase notification in 9) above, the prescription drug manufacturer to report all of the following information to each state purchaser, health plan, health insurer, or PBM:
   1. A justification of the proposed price increase in which the manufacturer may limit the information in the justification to that which is publicly available;
   2. The previous year’s marketing budget for the drug;
   3. The date and price of acquisition if the drug was not developed by the manufacturer; and,
   4. A schedule of price increases for the drug for the previous five years.
5. Requires a prescription drug manufacturer to notify in writing to each state purchaser, health plan, health insurer, or PBM if it is introducing a new prescription drug to market at a WAC of $10,000 or more annually or per course of treatment. Requires the notification to be provided in writing within three days of the federal Food and Drug Administration (FDA) approval. Requires a notification to be provided concurrently to the Chairs of the Senate Committee on Appropriations, the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Appropriations, and the Assembly Committee on Budget.
   1. Requires, within 30 days of the price notification of a new drug under 12) above, the prescription drug manufacturer to report all of the following information to each state purchaser, health plan, health insurer, or PBM:
      1. A justification for the introductory price in which the manufacturer may limit the information in the justification to that which is publicly available;
      2. The expected marketing budget for the drug; and,
      3. The date and price of acquisition if the drug was not developed by the manufacturer.
   2. States that failure to report required information pursuant to 11) and 12) above will result in a civil penalty of $1,000 per day for every day after the 30-day notification period.
   3. Requires the Legislature to conduct an annual public hearing on aggregate drugs in prescription drug pricing. Requires the hearing to provide for public discussion of overall price increases, emerging trends, decreases in drug spending, and the impact of prescription drug spending on health care affordability and premiums. Requires the Legislature, except for the hearing, to keep confidential all of the information provided to the Legislature pursuant to this section and exempt from PRA.

EXISTING LAW:

1. Establishes the DMHC to regulate health plans and the CDI to regulate health insurers.
   
2. Requires carriers to file specified rate information with DMHC or CDI, as applicable, for health plan contracts or health insurance policies in the individual or small group markets and in the large group market.
3. Requires, for large group health plan contracts and health insurance policies, carriers to file with DMHC or CDI the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year, and to also disclose specified information for the aggregate rate information for the large group market.
4. Requires carriers, for the small group and individual markets, to file with DMHC and CDI, at least 60 days prior to implementing any rate change, specified rate information so that the DMHC and CDI can review the information for unreasonable rate increases.
5. Requires DMHC and CDI to accept and post to their Internet Websites any public comment on a rate increase submitted to the DMHC and CDI during the 60-day period.
6. Under federal law, requires drug manufacturers to obtain approval of new drugs from the FDA.
7. Establishes the Sherman Law, administered by the Department of Public Health (DPH), which, among other things, regulates the packaging, labeling, and advertising of drugs and medical devices in California.
8. Prohibits, in the Sherman Law, the sale, delivery, or giving away of any new drug or new device unless it is either:
   1. A new drug, and a new drug application that has been approved by the FDA, pursuant to federal law, or it is a new device for which a premarket approval application has been approved, and that approval has not been withdrawn, terminated, or suspended under the FDA; or,
   2. A new drug or new device for which DPH has approved a new drug or device application, and has not withdrawn, terminated, or suspended that approval.
9. Requires DPH to adopt regulations to establish the application form and set the fee for licensure and renewal of a drug or device license.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. One-time costs of $220,000 and ongoing costs of $250,000 per year for review of drug pricing information submitted by health plans and to report to the Legislature by DMHC (Managed Care Fund). These costs include contract costs to study the economic impact of drug prices on health care costs.
2. Likely ongoing costs in the low hundreds of thousands per year for review of drug pricing information submitted by health insurers and to report to the Legislature by CDI (Insurance Fund).
3. Unknown costs for enforcement of the reporting requirement on drug manufacturers by the Office of Statewide Health Planning and Development (OSHPD) (California Health Data and Planning Fund). This bill places a requirement on drug manufacturers to report information on prices to state health care purchasers. This bill places this provision within the body of law overseen by the OSHPD. However, OSHPD indicates that this bill, as drafted, does not give the OSHPD legal authority to enforce this reporting requirement.

COMMENTS:

1. PURPOSE OF THIS BILL. 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. Drugs priced in excess of $10,000 are becoming common-place with little transparency for these astronomical price tags. This high-priced trend is a costly burden for patients, state programs, employers, and other payers, making it crucial that we understand what’s behind the exploding prices. 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. Additionally, data suggest that publically accessible price information in other sectors of the health care market encourage providers to offer more competitive pricing and thereby reduce excess health spending. Transparency-focused policies, like those implemented by the federal Patient Protection and Affordable Care Act, have led to rules requiring hospitals in California to provide information on pricing for common surgeries, health plans to submit detailed data regarding premium changes, and doctors to report more information to the federal government. But, drug makers have been granted an exception to this forward-thinking trend. This bill will bring prescription drugs in line with the rest of the health care sector by shedding light on those drugs that are having the greatest impact on our health care dollar. This change is absolutely necessary in an environment where more than 900 drugs are sporting price-tags at or above $10,000 and new drugs with record-breaking prices are being released to address diseases that impact millions, including hundreds of thousands of patients in public programs like Medi-Cal.
   
2. BACKGROUND.
   
   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. A study published in Health Affairs in December 2015 found that drug spending is growing faster than other health care spending in the U.S. – increasing 12.2% between 2013 and 2014. A Kaiser Family Foundation (KFF) analysis of data from the CMS and Truven Health Analytics shows that while drugs account for 10% of U.S. health spending, it represents 19% of the cost of employer insurance benefits. Some speculate that this disparity exists because the $3 trillion in U.S. health spending is a broad catchall which includes hospital care, physician services, drugs, research, administrative costs, public health activities, and long-term care. Additionally, some of the people served by Medicare and Medicaid (whose spending is counted in the national totals) require many services not typically used by those covered by employer health plans. According to an analysis by the CEO of the KFF, even that 19% figure is understated because while it includes prescriptions that patients fill at pharmacies, it does not include many of the expensive drugs administered in physicians’ offices or hospitals. In Medicare, for example, retail prescription drugs represent 13% of overall spending while drugs administered mainly by physicians add an additional 6%.
      
      According to the June 2016 California HealthCare Foundation’s (CHCF) Issue Brief, in 2015, the total U.S. expenditure on prescription medicines was $425 billion, a 12.2% increase over 2014 total expenditure or an 8.5% increase when adjusted for net expenditures. CHCF states that U.S. pharmaceutical prices are among the highest worldwide, and escalating costs have been a concern for many years, presenting challenges for federal, state, and private purchasers.
      
      CHCF reports California efforts to impact the drug pricing environment in Medi-Cal, proposed laws, Covered California, and the California Technology Assessment Forum (CTAF). CHCF states that the Department of Health Care Services (DHCS), administrator of the Medi-Cal program, reports the total savings from drug rebates, however, it cannot make public the individual rebates provided by manufacturers per federal and state law. While DHCS must make available nearly all FDA-approved drugs to its beneficiaries, its contract drug list helps direct providers to use more cost-effective alternatives by allowing them to forgo submission of Treatment Authorization Requests. Additionally, CHCF notes that Covered California, California’s state based exchange, has drafted into contracts with its qualified health plans disclosure language about health plans’ actions concerning drug assessments and pricing. This information is meant to set a baseline for future consideration of efforts to bring consistency, quality, and affordability to Covered California patients. According to the CHCF, CTAF is now under the auspices of the nonprofit Institute for Clinical and Economic Review (ICER) and uses the ICER Evidence Rating Matrix for rating Comparable Clinical Effectiveness, a multistep assessment for calculating the net health benefit for patients of new or existing drugs or other medical interventions. ICER then applies a method for assessing cost-effectiveness as well as an evaluation of the impact on state or national budgets. ICER recently received a five-year grant to expand its work on prescription drugs, and while these results do not carry the authority to set formulary or pricing limits, this process has been lauded by others working on the drug pricing issue.
      
   2. Drug pricing. Federal regulations prohibit the U.S. government from setting the price of pharmaceuticals, and patents on drugs, in effect, prohibiting competition, at least initially. Countries without these restrictions generally buy drugs for a fraction of the U.S. price. Pharmaceutical companies argue that high drug prices are justified because of the enormous cost and risk associated with bringing a drug to market and that payment for current drugs fund future innovation. Developing a new drug costs an average of $1.2 billion and takes 10 to 15 years. When a new drug provides a cure for a disease, as opposed to only treating symptoms, drug companies claim that a high upfront cost is mitigated by not having to treat symptoms indefinitely. However, critics point to numerous examples of drug companies charging high prices for drugs with only marginal improvements over cheaper alternatives, or astounding increases in pricing for drugs that have been on the market for years.
      
   3. Price Benchmarks. Knowing how much a drug costs is difficult; there are many different prices for each drug and different ways of expressing those prices. In the U.S., the two most common ways of stating drug prices are the WAC and average wholesale price (AWP). Neither one, though, is the actual price paid by a payer. Rather, they are standardized ways of expressing a price, thus allowing comparisons to be made from one drug to another. AWP is a benchmark that has been used for over 40 years for pricing and reimbursement of prescription drugs for both government and private payers. Initially, the AWP was intended to represent the average price that wholesalers used to sell medications to providers, such as physicians, pharmacies, and other customers. However, the AWP is not a true representation of actual market prices for either generic or brand drug products. AWP has often been compared to the “list price” or “sticker price,” meaning it is an elevated drug price that is rarely what is actually paid. AWP is not a government-regulated figure, does not include buyer volume discounts or rebates often involved in prescription drug sales. As such, the AWP, while used throughout the industry, can be a controversial pricing benchmark.
      
      The WAC price of a drug on the market, as originally announced by the company is also rarely the price paid by a payer. The actual price paid by any one payer is proprietary information, complicating discussions of value and cost to consumers. Drug companies negotiate with payers – Medicare, Medicaid, carriers, and PBMs – to set an initial gross sales price. Drug manufacturers pay rebates back to government entities, creating a difference between gross sales for a drug and net sales. The rebates are not publicly available, and vary highly among payers and for different drugs. Estimates put them between 2% for innovative new drugs all the way to 60% for drugs that have several competitors or generics on the market.
      
      The Medicaid Drug Rebate Program ensures that Medicaid receives a net price lower than the “best price” paid to manufacturers by any private-sector purchaser for a particular drug. This “best price” amount is used to calculate the federal Medicaid basic rebate required of manufacturers. In exchange, state Medicaid programs must generally cover a participating manufacturer’s drugs. In addition to the federal basis rebate, states may also receive supplemental rebates for drugs placed on their Medicaid preferred drug list. Private purchasers are precluded from negotiating a price that is lower than the Medicaid “best price,” which includes all rebates, discounts, or other adjustments. According to DHCS, drug manufacturers are required to pay a Medi-Cal rebate for all outpatient drugs that are dispensed and paid for by the Medi-Cal program. In addition, some manufacturers have agreed to pay supplemental Medi-Cal rebates above the standard rebate. Federal law requires rebates for prescriptions offered through the AIDS Drug Assistance Program (ADAP), in part because of the high cost of HIV/AIDS medications. According to the KFF, drug manufacturer rebates account for 40% of the annual ADAP budget.
      
   4. Impact on state finances. Medi-Cal provides health care coverage for nearly one-third of Californians. Combined with the California Public Employees' Retirement System (CalPERS), ADAP, state hospitals, and corrections, taxpayer liability for increasing drug costs is significant. According to a December 2015 report published by the U.S. Senate Committee on Finance, Medi-Cal’s fee-for-service (FFS) system alone spent nearly $25 million treating roughly 340 patients with Sovaldi and Harvoni in 2014. However, Medi-Cal FFS is only a fraction of the Medi-Cal population. According to DHCS, private health plans invoiced the state an additional $387.5 million for Sovaldi and Harvoni treatments for Medi-Cal managed care enrollees between July 2014 and November 2015 (for 3,624 patients). Additionally, as a direct result of Sovaldi and Harvoni pricing, the 2015-16 California State Budget allocated $228 million just for high cost drugs to DHCS and the California Department of Corrections and Rehabilitation. In December 2015, it was reported that CalPERS spent $438 million on specialty drugs, an increase of 32% from the previous year. This represents one quarter of the total drug costs paid by CalPERS, while only 1% of the prescriptions filled.
      
3. STATE INITIATIVE. The California Drug Price Relief Act Initiative (Initiative) prohibits the State of California or any state entity from entering into any agreement with a drug manufacturer for the purchase of a prescribed drug unless the net cost of the drug is the same as or less than the lowest price paid for the same drug by the U.S. Department of Veterans Affairs. The Initiative may be on the California ballot this Fall.
4. SUPPORT. California Labor Federation, AFL-CIO (CLF), a cosponsor of this bill, states this bill requires transparency from pharmaceutical companies and from health plans and insurers that purchase prescription drugs for consumers. CLF writes that this two-prong approach will push purchasers to negotiate for better prices and will give policy makers better data on price increases that impact consumers, employers, and taxpayers. Health Access California, a cosponsor of this bill, states that 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. AARP believes that increased transparency in the marketplace will empower consumers and could provide much-needed clarity and a better understanding of the pharmaceutical industry’s pricing methods. The California Teamsters Public Affairs Council (Teamsters) states that prescription drug costs for outpatient drugs are almost 20% of the premium dollar so these price increases are directly driving increases in health care costs for their trust funds. The Teamsters state that this bill provides transparency of prescription drug costs by giving notice to public and private purchasers, including the PBMs, such as those their trust funds use to manage the pharmacy benefit. Anthem Blue Cross states that there needs to be accountability on all stakeholders in the industry to ensure drugs are priced appropriately. Molina Healthcare of California notes that by focusing on high priced medication and price increases, this bill would take a step toward more understanding of the drugs driving the rapid escalation in costs, and whether price increases are justified.
5. OPPOSITION. The Pharmaceutical Research and Manufacturers of America (PhRMA) contends that the 60 day notice requirement of 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 does not present a complete picture of drug costs since there is no provision to disclose – even in the aggregate - the significant discounts and rebates pharmaceutical manufacturers agree to for both public and private purchasers nor is there any reporting attributable to the 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. According to PhRMA, nearly 90% of all drugs dispensed are generic. Finally, PhRMA contends that PBMs have been added as recipients of drug manufacturers’ information; however, this bill does not require PBMs to disclose discounts and whether they are passing those discounts to patients and payers. The Biotechnology Innovation Organization (BIO) contends that this bill does not address the value that an innovative therapy can have to an individual patient, especially one who may have no other recourse. Additionally, BIO notes that this bill requires manufacturers to publicly report a compilation of individual proprietary data points on the costs to market an innovative therapy when certain criteria is triggered.
6. RELATED LEGISLATION.
   1. AB 2436 (Roger Hernández) of 2016 would have 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.
   2. AB 2711 (Chiu) of 2016 would have reinstated a previously repealed requirement for the Department of General Services to report to the Legislature on its prescription drug bulk purchasing program. AB 2711 was held on the Assembly Appropriations Committee suspense file.
   3. AB 463 (Chiu) of 2015 would have 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.
   4. AB 339 (Gordon), Chapter 619, Statutes of 2015, requires carriers that provide coverage for outpatient prescription drugs to have formularies that do not discourage the enrollment of individuals with health conditions, and requires combination antiretroviral drug treatment coverage of a single-tablet that is as effective as a multitablet regimen for treatment of HIV/AIDS, 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.
7. PREVIOUS LEGISLATION. 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.

REGISTERED SUPPORT / OPPOSITION:

Support

California Labor Federation, AFL-CIO (cosponsor)

Health Access California (cosponsor)

AIDS Healthcare Foundation

AARP

America’s Health Insurance Plans

Anthem Blue Cross

Association of California Life and Health Insurance Companies

Association of California State Supervisors

Blue Shield of California

California Alliance for Retired Americans

California Association of Health Plans

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Medical Association

California Nurses Association

California Optometric Association

California Pan-Ethnic Health Network

California Pharmacists Association

California Professional Firefighters

California School Employees Association, AFL-CIO

California State Council of Service Employees International Union

California State Retirees

California Teachers Association

California Teamsters Public Affairs Council

CalPERS

CALPIRG

Carson Chamber of Commerce

Central Labor Council of Contra Costa County

Cigna

Congress of California Seniors

Consumers Union

Courage Campaign

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Fresno Chamber of Commerce

Greater Riverside Chamber of Commerce

Hunger Action Los Angeles

Industry Manufactures Council

International Longshore and Warehouse Union

Kaiser Permanente

Kaiser Permanente Marin Sonoma Area

League of California Cities

LIUNA Locals 777 & 792

Los Angeles Area Chamber of Commerce

Molina Healthcare of California

National Multiple Sclerosis Society – CA Action Network

North Bay Labor Council, AFL-CIO

Oakland Metropolitan Chamber of Commerce

Ontario Chamber of Commerce

Pacific Business Group on Health

Pharmaceutical Care Management Association

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

Project Inform

Redondo Chamber of Commerce

Sacramento Metropolitan Chamber of Commerce

San Jose Silicon Valley Chamber of Commerce

San Mateo County Central Labor Council

San Ramon Chamber of Commerce

School Employers Association of California

Silicon Valley Employers Forum

Small Business Majority
Small School Districts Association
South Bay Association of Chambers of Commerce

State Building and Construction Trades Council

United Nurses Association of California/Union of Health Care Professionals

UNITE-HERE, AFL-CIO

Utility Workers Union of America

Valley Industry and Commerce Association

Opposition

Biocom

Biotechnology Innovation Organization

California Life Sciences Association

California Hepatitis C Task Force

California Manufacturers and Technology Association (previous version)

California Senior Advocates League

California Taxpayers Association (previous version)

Citizens Against Government Waste

Council on State Taxation (previous version)

Generic Pharmaceutical Association

Lupus Foundation of Southern California

Mylan Inc.

Pharmaceutical Research and Manufacturers of America

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

Date of Hearing: June 21, 2016

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

SBPCA Bill Id:SB 1010

Author:(Hernandez) – As Amended Ver:May 31, 2016

SENATE VOTE: 25-10

SUBJECT: Health care: prescription drug costs.

SUMMARY: Requires health care service plans (health plans) and health insurers (collectively carriers) that report rate information to also include information regarding covered prescription drugs, as specified. Requires the Department of Managed Health Care (DMHC) and the California Department of Insurance (CDI) to compile and report this data in an aggregated report to demonstrate the overall impact of drug costs on health care premiums. Requires any manufacturer of a prescription drug, who sells to or is reimbursed by a state purchaser, health plan, health insurer, or pharmacy benefit manager (PBM), to provide notice describing a price increase, as specified. Requires the Legislature to conduct an annual public hearing on aggregate trends in prescription drug pricing. Specifically, this bill:

Health Plan and Insurer Requirements

1. Requires carriers that report rate information through existing group and individual rate review process to also report to DMHC and CDI, on a date no later than it reports the rate information, the following information for all covered prescription drugs, including generic, brand name, and specialty drugs provided in an outpatient setting:
   1. The 25 most frequently prescribed drugs;
   2. The 25 most costly drugs by total plan spending; and,
   3. The 25 drugs with the highest year-over-year increase in spending.
2. Requires the DMHC and CDI to compile this information in a report for the public and the Legislature to demonstrate the overall impact of drug costs on health care premiums. Requires the data in the report to be aggregated and prohibits information specific to individual carriers.
3. Defines specialty drug as one that exceeds the threshold for a specialty drug under the Medicare Part D program.
4. Requires the DMHC and CDI to publish on its Internet Website the report by October 1 of each year.
5. Requires the information provided to the DMHC and CDI, except for the report in 2) above, to remain confidential and exempt from disclosure under the California Public Records Act (PRA).
6. Requires carriers, as part of large group rate review, to disclose the following information for covered drugs, including: a) generic drugs (except specialty generic drugs); b) brand name drugs (except specialty drugs); and, c) specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use:
   1. The percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs;
   2. The year-over-year increase, as a percentage, in total spending for each category of prescription drugs;
   3. The year-over-year increase in per member, per month costs for drug prices compared to other components of the health care premium; and,
   4. The specialty tier formulary list.
7. Requires the carrier to include the percentage of the premium attributable to prescription drugs administered in a doctor’s office that are covered under the medical benefit as separate from the pharmacy benefit, if available.

Prescription Drug Pricing for Purchasers

1. 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, as defined.
2. Requires a prescription drug manufacturer to provide notification to each state purchaser, health plan, health insurer, or PBM:
   1. If a brand name prescription drug manufacturer is increasing the wholesale acquisition cost (WAC) of a prescription drug by more than 10% or by more than $10,000 during any 12-month period; and,
   2. For a generic prescription drug manufacturer with a generic drug of a WAC of $100 or more per month supply or if it is increasing the WAC of the generic prescription drug by more than 25% during a 12-month period.
3. Requires the price increase notification in 9) above to be provided in writing at least 60 days before the planned effective date of the increase. Requires a notice to be provided concurrently to the Chairs of the Senate Committee on Appropriations, the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Appropriations, and the Assembly Committee on Budget.
4. Requires, within 30 days of the price increase notification in 9) above, the prescription drug manufacturer to report all of the following information to each state purchaser, health plan, health insurer, or PBM:
   1. A justification of the proposed price increase in which the manufacturer may limit the information in the justification to that which is publicly available;
   2. The previous year’s marketing budget for the drug;
   3. The date and price of acquisition if the drug was not developed by the manufacturer; and,
   4. A schedule of price increases for the drug for the previous five years.
5. Requires a prescription drug manufacturer to notify in writing to each state purchaser, health plan, health insurer, or PBM if it is introducing a new prescription drug to market at a WAC of $10,000 or more annually or per course of treatment. Requires the notification to be provided in writing within three days of the federal Food and Drug Administration (FDA) approval. Requires a notification to be provided concurrently to the Chairs of the Senate Committee on Appropriations, the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Appropriations, and the Assembly Committee on Budget.
   1. Requires, within 30 days of the price notification of a new drug under 12) above, the prescription drug manufacturer to report all of the following information to each state purchaser, health plan, health insurer, or PBM:
      1. A justification for the introductory price in which the manufacturer may limit the information in the justification to that which is publicly available;
      2. The expected marketing budget for the drug; and,
      3. The date and price of acquisition if the drug was not developed by the manufacturer.
   2. States that failure to report required information pursuant to 11) and 12) above will result in a civil penalty of $1,000 per day for every day after the 30-day notification period.
   3. Requires the Legislature to conduct an annual public hearing on aggregate drugs in prescription drug pricing. Requires the hearing to provide for public discussion of overall price increases, emerging trends, decreases in drug spending, and the impact of prescription drug spending on health care affordability and premiums. Requires the Legislature, except for the hearing, to keep confidential all of the information provided to the Legislature pursuant to this section and exempt from PRA.

EXISTING LAW:

1. Establishes the DMHC to regulate health plans and the CDI to regulate health insurers.
   
2. Requires carriers to file specified rate information with DMHC or CDI, as applicable, for health plan contracts or health insurance policies in the individual or small group markets and in the large group market.
3. Requires, for large group health plan contracts and health insurance policies, carriers to file with DMHC or CDI the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year, and to also disclose specified information for the aggregate rate information for the large group market.
4. Requires carriers, for the small group and individual markets, to file with DMHC and CDI, at least 60 days prior to implementing any rate change, specified rate information so that the DMHC and CDI can review the information for unreasonable rate increases.
5. Requires DMHC and CDI to accept and post to their Internet Websites any public comment on a rate increase submitted to the DMHC and CDI during the 60-day period.
6. Under federal law, requires drug manufacturers to obtain approval of new drugs from the FDA.
7. Establishes the Sherman Law, administered by the Department of Public Health (DPH), which, among other things, regulates the packaging, labeling, and advertising of drugs and medical devices in California.
8. Prohibits, in the Sherman Law, the sale, delivery, or giving away of any new drug or new device unless it is either:
   1. A new drug, and a new drug application that has been approved by the FDA, pursuant to federal law, or it is a new device for which a premarket approval application has been approved, and that approval has not been withdrawn, terminated, or suspended under the FDA; or,
   2. A new drug or new device for which DPH has approved a new drug or device application, and has not withdrawn, terminated, or suspended that approval.
9. Requires DPH to adopt regulations to establish the application form and set the fee for licensure and renewal of a drug or device license.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. One-time costs of $220,000 and ongoing costs of $250,000 per year for review of drug pricing information submitted by health plans and to report to the Legislature by DMHC (Managed Care Fund). These costs include contract costs to study the economic impact of drug prices on health care costs.
2. Likely ongoing costs in the low hundreds of thousands per year for review of drug pricing information submitted by health insurers and to report to the Legislature by CDI (Insurance Fund).
3. Unknown costs for enforcement of the reporting requirement on drug manufacturers by the Office of Statewide Health Planning and Development (OSHPD) (California Health Data and Planning Fund). This bill places a requirement on drug manufacturers to report information on prices to state health care purchasers. This bill places this provision within the body of law overseen by the OSHPD. However, OSHPD indicates that this bill, as drafted, does not give the OSHPD legal authority to enforce this reporting requirement.

COMMENTS:

1. PURPOSE OF THIS BILL. 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. Drugs priced in excess of $10,000 are becoming common-place with little transparency for these astronomical price tags. This high-priced trend is a costly burden for patients, state programs, employers, and other payers, making it crucial that we understand what’s behind the exploding prices. 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. Additionally, data suggest that publically accessible price information in other sectors of the health care market encourage providers to offer more competitive pricing and thereby reduce excess health spending. Transparency-focused policies, like those implemented by the federal Patient Protection and Affordable Care Act, have led to rules requiring hospitals in California to provide information on pricing for common surgeries, health plans to submit detailed data regarding premium changes, and doctors to report more information to the federal government. But, drug makers have been granted an exception to this forward-thinking trend. This bill will bring prescription drugs in line with the rest of the health care sector by shedding light on those drugs that are having the greatest impact on our health care dollar. This change is absolutely necessary in an environment where more than 900 drugs are sporting price-tags at or above $10,000 and new drugs with record-breaking prices are being released to address diseases that impact millions, including hundreds of thousands of patients in public programs like Medi-Cal.
   
2. BACKGROUND.
   
   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. A study published in Health Affairs in December 2015 found that drug spending is growing faster than other health care spending in the U.S. – increasing 12.2% between 2013 and 2014. A Kaiser Family Foundation (KFF) analysis of data from the CMS and Truven Health Analytics shows that while drugs account for 10% of U.S. health spending, it represents 19% of the cost of employer insurance benefits. Some speculate that this disparity exists because the $3 trillion in U.S. health spending is a broad catchall which includes hospital care, physician services, drugs, research, administrative costs, public health activities, and long-term care. Additionally, some of the people served by Medicare and Medicaid (whose spending is counted in the national totals) require many services not typically used by those covered by employer health plans. According to an analysis by the CEO of the KFF, even that 19% figure is understated because while it includes prescriptions that patients fill at pharmacies, it does not include many of the expensive drugs administered in physicians’ offices or hospitals. In Medicare, for example, retail prescription drugs represent 13% of overall spending while drugs administered mainly by physicians add an additional 6%.
      
      According to the June 2016 California HealthCare Foundation’s (CHCF) Issue Brief, in 2015, the total U.S. expenditure on prescription medicines was $425 billion, a 12.2% increase over 2014 total expenditure or an 8.5% increase when adjusted for net expenditures. CHCF states that U.S. pharmaceutical prices are among the highest worldwide, and escalating costs have been a concern for many years, presenting challenges for federal, state, and private purchasers.
      
      CHCF reports California efforts to impact the drug pricing environment in Medi-Cal, proposed laws, Covered California, and the California Technology Assessment Forum (CTAF). CHCF states that the Department of Health Care Services (DHCS), administrator of the Medi-Cal program, reports the total savings from drug rebates, however, it cannot make public the individual rebates provided by manufacturers per federal and state law. While DHCS must make available nearly all FDA-approved drugs to its beneficiaries, its contract drug list helps direct providers to use more cost-effective alternatives by allowing them to forgo submission of Treatment Authorization Requests. Additionally, CHCF notes that Covered California, California’s state based exchange, has drafted into contracts with its qualified health plans disclosure language about health plans’ actions concerning drug assessments and pricing. This information is meant to set a baseline for future consideration of efforts to bring consistency, quality, and affordability to Covered California patients. According to the CHCF, CTAF is now under the auspices of the nonprofit Institute for Clinical and Economic Review (ICER) and uses the ICER Evidence Rating Matrix for rating Comparable Clinical Effectiveness, a multistep assessment for calculating the net health benefit for patients of new or existing drugs or other medical interventions. ICER then applies a method for assessing cost-effectiveness as well as an evaluation of the impact on state or national budgets. ICER recently received a five-year grant to expand its work on prescription drugs, and while these results do not carry the authority to set formulary or pricing limits, this process has been lauded by others working on the drug pricing issue.
      
   2. Drug pricing. Federal regulations prohibit the U.S. government from setting the price of pharmaceuticals, and patents on drugs, in effect, prohibiting competition, at least initially. Countries without these restrictions generally buy drugs for a fraction of the U.S. price. Pharmaceutical companies argue that high drug prices are justified because of the enormous cost and risk associated with bringing a drug to market and that payment for current drugs fund future innovation. Developing a new drug costs an average of $1.2 billion and takes 10 to 15 years. When a new drug provides a cure for a disease, as opposed to only treating symptoms, drug companies claim that a high upfront cost is mitigated by not having to treat symptoms indefinitely. However, critics point to numerous examples of drug companies charging high prices for drugs with only marginal improvements over cheaper alternatives, or astounding increases in pricing for drugs that have been on the market for years.
      
   3. Price Benchmarks. Knowing how much a drug costs is difficult; there are many different prices for each drug and different ways of expressing those prices. In the U.S., the two most common ways of stating drug prices are the WAC and average wholesale price (AWP). Neither one, though, is the actual price paid by a payer. Rather, they are standardized ways of expressing a price, thus allowing comparisons to be made from one drug to another. AWP is a benchmark that has been used for over 40 years for pricing and reimbursement of prescription drugs for both government and private payers. Initially, the AWP was intended to represent the average price that wholesalers used to sell medications to providers, such as physicians, pharmacies, and other customers. However, the AWP is not a true representation of actual market prices for either generic or brand drug products. AWP has often been compared to the “list price” or “sticker price,” meaning it is an elevated drug price that is rarely what is actually paid. AWP is not a government-regulated figure, does not include buyer volume discounts or rebates often involved in prescription drug sales. As such, the AWP, while used throughout the industry, can be a controversial pricing benchmark.
      
      The WAC price of a drug on the market, as originally announced by the company is also rarely the price paid by a payer. The actual price paid by any one payer is proprietary information, complicating discussions of value and cost to consumers. Drug companies negotiate with payers – Medicare, Medicaid, carriers, and PBMs – to set an initial gross sales price. Drug manufacturers pay rebates back to government entities, creating a difference between gross sales for a drug and net sales. The rebates are not publicly available, and vary highly among payers and for different drugs. Estimates put them between 2% for innovative new drugs all the way to 60% for drugs that have several competitors or generics on the market.
      
      The Medicaid Drug Rebate Program ensures that Medicaid receives a net price lower than the “best price” paid to manufacturers by any private-sector purchaser for a particular drug. This “best price” amount is used to calculate the federal Medicaid basic rebate required of manufacturers. In exchange, state Medicaid programs must generally cover a participating manufacturer’s drugs. In addition to the federal basis rebate, states may also receive supplemental rebates for drugs placed on their Medicaid preferred drug list. Private purchasers are precluded from negotiating a price that is lower than the Medicaid “best price,” which includes all rebates, discounts, or other adjustments. According to DHCS, drug manufacturers are required to pay a Medi-Cal rebate for all outpatient drugs that are dispensed and paid for by the Medi-Cal program. In addition, some manufacturers have agreed to pay supplemental Medi-Cal rebates above the standard rebate. Federal law requires rebates for prescriptions offered through the AIDS Drug Assistance Program (ADAP), in part because of the high cost of HIV/AIDS medications. According to the KFF, drug manufacturer rebates account for 40% of the annual ADAP budget.
      
   4. Impact on state finances. Medi-Cal provides health care coverage for nearly one-third of Californians. Combined with the California Public Employees' Retirement System (CalPERS), ADAP, state hospitals, and corrections, taxpayer liability for increasing drug costs is significant. According to a December 2015 report published by the U.S. Senate Committee on Finance, Medi-Cal’s fee-for-service (FFS) system alone spent nearly $25 million treating roughly 340 patients with Sovaldi and Harvoni in 2014. However, Medi-Cal FFS is only a fraction of the Medi-Cal population. According to DHCS, private health plans invoiced the state an additional $387.5 million for Sovaldi and Harvoni treatments for Medi-Cal managed care enrollees between July 2014 and November 2015 (for 3,624 patients). Additionally, as a direct result of Sovaldi and Harvoni pricing, the 2015-16 California State Budget allocated $228 million just for high cost drugs to DHCS and the California Department of Corrections and Rehabilitation. In December 2015, it was reported that CalPERS spent $438 million on specialty drugs, an increase of 32% from the previous year. This represents one quarter of the total drug costs paid by CalPERS, while only 1% of the prescriptions filled.
      
3. STATE INITIATIVE. The California Drug Price Relief Act Initiative (Initiative) prohibits the State of California or any state entity from entering into any agreement with a drug manufacturer for the purchase of a prescribed drug unless the net cost of the drug is the same as or less than the lowest price paid for the same drug by the U.S. Department of Veterans Affairs. The Initiative may be on the California ballot this Fall.
4. SUPPORT. California Labor Federation, AFL-CIO (CLF), a cosponsor of this bill, states this bill requires transparency from pharmaceutical companies and from health plans and insurers that purchase prescription drugs for consumers. CLF writes that this two-prong approach will push purchasers to negotiate for better prices and will give policy makers better data on price increases that impact consumers, employers, and taxpayers. Health Access California, a cosponsor of this bill, states that 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. AARP believes that increased transparency in the marketplace will empower consumers and could provide much-needed clarity and a better understanding of the pharmaceutical industry’s pricing methods. The California Teamsters Public Affairs Council (Teamsters) states that prescription drug costs for outpatient drugs are almost 20% of the premium dollar so these price increases are directly driving increases in health care costs for their trust funds. The Teamsters state that this bill provides transparency of prescription drug costs by giving notice to public and private purchasers, including the PBMs, such as those their trust funds use to manage the pharmacy benefit. Anthem Blue Cross states that there needs to be accountability on all stakeholders in the industry to ensure drugs are priced appropriately. Molina Healthcare of California notes that by focusing on high priced medication and price increases, this bill would take a step toward more understanding of the drugs driving the rapid escalation in costs, and whether price increases are justified.
5. OPPOSITION. The Pharmaceutical Research and Manufacturers of America (PhRMA) contends that the 60 day notice requirement of 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 does not present a complete picture of drug costs since there is no provision to disclose – even in the aggregate - the significant discounts and rebates pharmaceutical manufacturers agree to for both public and private purchasers nor is there any reporting attributable to the 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. According to PhRMA, nearly 90% of all drugs dispensed are generic. Finally, PhRMA contends that PBMs have been added as recipients of drug manufacturers’ information; however, this bill does not require PBMs to disclose discounts and whether they are passing those discounts to patients and payers. The Biotechnology Innovation Organization (BIO) contends that this bill does not address the value that an innovative therapy can have to an individual patient, especially one who may have no other recourse. Additionally, BIO notes that this bill requires manufacturers to publicly report a compilation of individual proprietary data points on the costs to market an innovative therapy when certain criteria is triggered.
6. RELATED LEGISLATION.
   1. AB 2436 (Roger Hernández) of 2016 would have 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.
   2. AB 2711 (Chiu) of 2016 would have reinstated a previously repealed requirement for the Department of General Services to report to the Legislature on its prescription drug bulk purchasing program. AB 2711 was held on the Assembly Appropriations Committee suspense file.
   3. AB 463 (Chiu) of 2015 would have 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.
   4. AB 339 (Gordon), Chapter 619, Statutes of 2015, requires carriers that provide coverage for outpatient prescription drugs to have formularies that do not discourage the enrollment of individuals with health conditions, and requires combination antiretroviral drug treatment coverage of a single-tablet that is as effective as a multitablet regimen for treatment of HIV/AIDS, 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.
7. PREVIOUS LEGISLATION. 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.

REGISTERED SUPPORT / OPPOSITION:

Support

California Labor Federation, AFL-CIO (cosponsor)

Health Access California (cosponsor)

AIDS Healthcare Foundation

AARP

America’s Health Insurance Plans

Anthem Blue Cross

Association of California Life and Health Insurance Companies

Blue Shield of California

California Alliance for Retired Americans

California Association of Health Plans

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Medical Association

California Nurses Association

California Optometric Association

California Pan-Ethnic Health Network

California Pharmacists Association

California Professional Firefighters

California School Employees Association, AFL-CIO

California State Council of Service Employees International Union

California Teachers Association

California Teamsters Public Affairs Council

CalPERS

CALPIRG

Carson Chamber of Commerce

Central Labor Council of Contra Costa County

Congress of California Seniors

Consumers Union

Courage Campaign

Engineers and Scientists of California, IFPTE Local 20, AFL-CIO

Fresno Chamber of Commerce

Greater Riverside Chamber of Commerce

Industry Manufactures Council

International Longshore and Warehouse Union

Kaiser Permanente

Kaiser Permanente Marin Sonoma Area

League of California Cities

LIUNA Locals 777 & 792

Molina Healthcare of California

National Multiple Sclerosis Society – CA Action Network

North Bay Labor Council, AFL-CIO

Oakland Metropolitan Chamber of Commerce

Ontario Chamber of Commerce

Pacific Business Group on Health

Pharmaceutical Care Management Association

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

Project Inform

Redondo Chamber of Commerce

Sacramento Metropolitan Chamber of Commerce

San Jose Silicon Valley Chamber of Commerce

San Mateo County Central Labor Council

San Ramon Chamber of Commerce

Silicon Valley Employers Forum

Small Business Majority

State Building and Construction Trades Council

South Bay Association of Chambers of Commerce

United Nurses Association of California/Union of Health Care Professionals

UNITE-HERE, AFL-CIO

Utility Workers Union of America

Valley Industry and Commerce Association

Opposition

Biocom

Biotechnology Innovation Organization

California Life Sciences Association

California Manufacturers and Technology Association (previous version)

California Senior Advocates League

California Taxpayers Association (previous version)

Council on State Taxation (previous version)

Generic Pharmaceutical Association

Mylan Inc.

Pharmaceutical Research and Manufacturers of America

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

 THIRD READING  

Bill No: SB 1010

Author:

: 5/31/16

Vote:

SENATE HEALTH COMMITTEE: 7-2, 4/13/16

AYES: Hernandez, Hall, Mitchell, Monning, Pan, Roth, Wolk

NOES: Nguyen, Nielsen

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/27/16

AYES: Lara, Beall, Hill, McGuire, Mendoza

NOES: Bates, Nielsen

SUBJECT:

SOURCE: California Labor Federation, AFL-CIO

Health Access California

DIGEST: This bill requires health plans and insurers to report specified information about prescription drug pricing to Department of Managed Health Care (DMHC) and California Department of Insurance (CDI). This bill requires DMHC and CDI to compile reported information to demonstrate the overall impact of drug costs on health care premiums. This bill requires drug manufacturers to notify specified purchasers if it is increasing the wholesale acquisition cost (WAC) of a prescription drug by more than 10% or $10,000 during a 12-month period or if it intends to introduce to market a prescription drug that has a WAC of $10,000 or more annually or per course of treatment, as specified. This bill requires drug manufacturers, within 30 days of that notification, to provide specified information to purchasers, including a justification for the pricing.

ANALYSIS:

Existing law:

1. Requires, under federal law, drug manufacturers to obtain approval of new drugs from the federal Food and Drug Administration (FDA).
2. Establishes the DMHC to regulate health plans and CDI to regulate health insurers. Requires health plans and insurers to file specified rate information with DMHC or CDI for plan contracts or insurance policies in the individual, small group, and large group markets.
3. Establishes the Sherman Law, administered by Department of Public Health (DPH), which, among other things, regulates the packaging, labeling, and advertising of drugs and medical devices in California.

This bill:

1. Requires health plans and insurers that report rate information through the existing large and small group rate review process to also report to DMHC and CDI, on a date no later than it reports the rate information, the following information for or all covered prescription drugs, including generic drugs, brand name drugs, and specialty drugs provided in an outpatient setting:
   1. The 25 most frequently prescribed drugs;
   2. The 25 most costly drugs by total plan spending; and,
   3. The 25 drugs with the highest year-over-year increase in spending.
2. Requires DMHC and CDI to compile this information into a report that demonstrates the overall impact of drug costs on health care premiums. Requires the data in the report to be aggregated and not reveal information specific to individual health plans or insurers. Requires DMHC and CDI to publish the report on its Internet Web site by October 1 of each year.
3. Requires DMHC and CDI to include the published report as part of the public meeting required under the existing large group rate review law.
4. Requires DMHC and CDI, except for the report required under 2) above, to keep confidential all of the information provided, and exempts that information from disclosure under the California Public Records Act (PRA).
5. Requires health plans and insurers, as part of reporting for large group rate review, to disclose the following information for covered prescription drugs, including generic drugs excluding specialty drugs brand name drugs excluding specialty drugs, and specialty drugs dispensed at a plan pharmacy, network pharmacy, or mail order pharmacy for outpatient use all of the following:
   1. The percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs;
   2. The year-over-year increase, as a percentage, in total spending for each category of prescription drugs, as specified;
   3. The year-over-year increase in per member, per month costs for drug prices compared to other components of the health care premium;
   4. The specialty tier formulary list; and,
   5. The percentage of the premium attributable to prescription drugs administered in a doctor’s office that are covered under the medical benefit as separate from the pharmacy benefit, if available.
6. Requires manufacturers of a branded prescription drug to notify each state purchaser, pharmacy benefit manager, health plan, or health insurer if it is increasing the WAC of a prescription drug by more than 10% or by $10,000 during any 12-month period or if it intends to introduce to market a prescription drug that has a WAC of $10,000 or more annually or per course of treatment. Requires manufacturers of a generic prescription drug with a WAC of $100 or more per month supply to notify a state purchaser, health care service plan, pharmacy benefit manager, or health insurer if it is increasing the WAC by more than 25%t during a 12-month period.
7. Requires the price increase notice in 6) above to be provided in writing at least 60 days prior to the planned effective date of the increase. Requires the notice of a new drug costing $10,000 or more per course of treatment to be provided within three days of FDA approval of the drug.
8. Requires a copy of the notice to be provided concurrently to the Chairs of the Senate Committee on Appropriations, the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Appropriations, and the Assembly Committee on Budget.
9. Specifies that a “state purchaser,” for purposes of this bill includes, but is not limited to, the California Public Employees’ Retirement System, the Department of Health Care Services, the Department of General Services, and the California Department of Corrections and Rehabilitation, or entity acting on behalf of a state purchaser.
10. Requires drug manufacturers, within 30 days of notification of a price increase, or of the introduction to market of a prescription drug that has a WAC of $10,000 or more annually or per course of treatment, to report all of the following information to each state purchaser, health plan, or health insurer:
    1. A justification for the proposed increase in the price of the drug, including all information and supporting documentation as to why the increase is justified. Permits the manufacturer to limit the contents of the justification to publicly available information;
    2. For existing drugs, the previous year’s marketing budget for the drug. For new drugs, the expected marketing budget for the drug;
    3. The date and price of acquisition if the drug was not developed by the manufacturer; and,
    4. For existing drugs, a schedule of past price increases for the drug.
11. Levies a fine of $1,000 per day for every day after the 30-day notification period on manufacturers for failure to report the information in 9) above.
12. Requires the Legislature to conduct an annual public hearing on aggregate trends in prescription drug pricing. Requires the hearing to provide for public discussion of the reasons for overall price increases, emerging trends, decreases in drug spending, and the impact of prescription drug spending on health care affordability and premiums.
13. Requires all of the information to be kept confidential, except for the hearing required under 12) above. Exempt the information provided under this bill from disclosure under the PRA.
14. Prohibits this bill from restricting the legal ability of a drug manufacturer to change prices as permitted under federal law.

Comments

NOTE: See the Senate Health Committee analysis for more detailed information on this bill.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee:

1. One-time costs of $220,000 and ongoing costs of $250,000 per year for review of drug pricing information submitted by health plans and to report to the Legislature by DMHC (Managed Care Fund). The costs above include contract costs to study the economic impact of drug prices on health care costs. Likely ongoing costs in the low hundreds of thousands per year for review of drug pricing information submitted by health insurers and to report to the Legislature by CDI (Insurance Fund).
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). This bill places a requirement on drug manufacturers to report information on prices to state health care purchasers. This bill places this provision within the body of law overseen by the Office. However, the Office indicates that this bill, as drafted, does not give the Office legal authority to enforce this reporting requirement.

SUPPORT: (Verified 5/31/16)

California Labor Federation, AFL-CIO (co-source)

Health Access California (co-source)

AARP

AIDS Healthcare Foundation

America’s Health Insurance Plans

Association of California Life and Health Insurance Companies

Blue Shield of California

California Alliance for Retired Americans

California Association of Health Plans

California Medical Association

California Nurses Association

California Optometric Association

California Pharmacists Association

California Professional Firefighters

California School Employees Association

CALPIRG

Central Labor Council of Contra Costa County

Cigna

Consumers Union

Fresno Chamber of Commerce

Industry Manufacturers Council

Kaiser Permanente

League of California Cities

LIUNA Locals 777 & 792

Los Angeles Area Chamber of Commerce

Molina Healthcare of California

National Multiple Sclerosis Society – California Action Network

North Bay Labor Council, AFL-CIO

Oakland Metropolitan Chamber of Commerce

Pharmaceutical Care Management Association

Sacramento Metropolitan Chamber of Commerce

San Jose Silicon Valley Chamber of Commerce

San Mateo County Central Labor Council

San Ramon Chamber of Commerce

SEIU California

Small Business Majority

State Building and Construction Trades Council of California

UNITE HERE!

Valley Industry and Commerce Association

OPPOSITION: (Verified 5/31/16)

Biocom

Biotechnology Innovation Organization

California Life Sciences Association

Generic Pharmaceutical Association

Mylan

Pharmaceutical Research and Manufacturers of America

ARGUMENTS IN SUPPORT: California Labor Federation, AFL-CIO (CLF), the sponsor of this bill, states that the drug manufacturer disclosure required under this bill gives purchasers advance notice of increases, along with additional information to discern between reasonable price increases and predatory pricing. CLF states that pharmaceutical companies produce lifesaving medications and it is critical that they are able to conduct research to make ground-breaking discoveries, however, not all price increases are related to R&D costs, nor are they based on effectiveness of the drug. CLF states that purchasers can use this information to better negotiate for discounts on drugs, or to decide that an unjustified price increase is grounds for refusing to purchase a drug. SEIU California writes in support that because the state, taxpayers, and individuals pay significantly, at the individual and aggregate levels, this matters to all of us. SEIU states that the high-cost of specialty drugs creates a burden on the state budget, as Medi-Cal, CalPERS and other public programs struggle to cover the costs. CalPERS has reported that specialty drug spending increased 32% last year to $438 million annually and Governor Brown’s 2015 Budget set aside supplemental funding of $228 million to pay for a limited number of people who are served by public programs to receive Harvoni and Sovaldi. SEIU contends that when drugs are so expensive that it begins to make such a significant impact on our state budget, the pricing of these drugs also begins to raise ethical concerns and questions about how purchasers are making decisions related to how many sick people can or should get access to life-saving drugs. The California Alliance for Retired Americans (CARA) states that prescription drugs make up 19% of benefit costs in job-based coverage. However, that figure only captures drugs paid for through the pharmacy benefit—drugs administered in inpatient settings, like costly chemotherapy drugs, are paid for through medical benefits, and account for an even greater percentage of premiums. CARA writes that California can help purchasers and consumers better understand pharmaceutical pricing and give them the tools to fight back against price-gouging. Consumers Union writes that regulators and other reviewers need as much information as possible to determine whether a change proposed to health insurance rates is fair or not and this bill puts more tools into regulators’ toolkits to protect consumers in the marketplace and makes strides towards empowering consumers to be more informed participants in the marketplace. Health Access California (HAC) writes that congressional investigations have found astronomical increases in drug prices, even for drugs that have been used for millennia. For some conditions, such as multiple sclerosis, the drugs used to manage the condition increase in price with every new drug entering the market—price competition to increase prices, not lower them. HAC states that this bill is a modest but important step forward in providing transparency on prescription drug costs. The National Multiple Sclerosis Society – CA Action Network writes that in addressing the costs of prescription drugs, this bill is a good starting point because it can be an important tool to help educate consumers about their health related expenses. American Association of Retired Persons (AARP) states that at a time when more and more high-cost drugs are entering the market, consumers, including many people over age 50, would benefit from a system that discloses important information about the pricing of these drugs. AARP believes that increased transparency in the marketplace will empower consumers and could provide much-needed clarity and a better understanding of the pharmaceutical industry’s pricing methods. The California School Employees Association states that they are often told that prescription drug costs are not the problem, and this bill will allow them to assess whether or not that is true and is an important and necessary step in understanding the costs of prescription drugs and how much of a cost driver they are. AIDS Healthcare Foundation writes that because their patient population is dependent on drugs regardless of the price, they are committed to solutions that ensure greater transparency in drug pricing that will lead to prices that can withstand public scrutiny

ARGUMENTS IN OPPOSITION: The Generic Pharmaceutical Association (GPhA) states that the generic industry’s business model is similar to a commodities market where prices, sometimes at pennies a dose, fluctuate up and down quickly and that generics provide so many savings because they operate in this hyper-competitive marketplace. GPhA asserts that a brand manufacturer patents a drug and sets the price but in the generic marketplace multiple manufacturers directly compete with each other and regularly adjust prices to best react to market conditions such as changes in supply costs, ingredient shortages, large orders from wholesalers, and other factors.  The California Life Sciences Association (CLSA) writes that the information required of biopharmaceutical companies, health plans, and insurers would create a highly inaccurate picture of how medicines affect overall healthcare costs, and that this bill treats medication costs as solely expenditures, not an investment in more efficient care and better health for patients. CLSA asserts that this bill ignores all the benefits to patients, the healthcare system, and the economy that the life science sector provides, as well as the benefits to payers and pharmacy benefit managers from oftentimes significantly reduced, negotiated prices. CLSA further states that the bill’s requirement of advance notices prior to certain drugs being marketed, being accompanied by a “justification” with “supporting documentation” and an “expected marketing budget,” appears to violate FDA restrictions against preapproval marketing or promotion of investigational drugs, because the law and FDA’s subsequent guidance only clearly allow for the exchange of scientific information and preclude any form of “commercialization” prior to a medicine’s approval for commercial distribution. The reporting requirements as established in the bill are extraordinarily broad and would potentially apply to many medicines for which the impact on premiums of a price increase over the threshold of ten percent would be essentially de minimis and would reflect an imperceptible change in the total cost of care. The Pharmaceutical Research and Manufacturers of America (PhRMA) writes that while the information reported by the third party payers is in the aggregate and protected from disclosure by creating specific exceptions to the PRA, the data required to be submitted to the state by the pharmaceutical industry includes sensitive proprietary information for specific products that would not enjoy the same PRA disclosure protections provided to the payers – presenting both proprietary and federal antitrust issues. PhRMA furthers states that the requirement for a 60-day advance notice does not appear to be protected information and could thus be anti-competitive, as disclosure of planned pricing changes could have unintended consequences and is generally viewed as extremely disruptive to the competitive marketplace.

Prepared by:

5/31/16 22:28:29

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 1010 (Hernandez) - Health care: prescription drug costs

Bill Summary:

SB 1010 would require health plans and health insurers that report information on premium rates to their regulator to also include specified information relating to prescription drug spending. The bill would require drug manufacturers to report to state purchasers of health care services when drug prices are going to increase by more than 10% or when new drugs costing more than $10,000 per course of treatment are going to be introduced to the market.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 27, 2016

Fiscal Impact:

• One-time costs of $220,000 and ongoing costs of $250,000 per year for review of drug pricing information submitted by health plans and to report to the Legislature by the Department of Managed Health Care (Managed Care Fund). The costs above include contract costs to study the economic impact of drug prices on health care costs.
• Likely ongoing costs in the low hundreds of thousands per year for review of drug pricing information submitted by health insurers and to report to the Legislature by the Department of Insurance (Insurance Fund).
• 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.

Author Amendments:

Make a number of changes to the information that must be reported by health plans, health insurers, and drug manufacturer. For example, the amendments eliminate the requirement that drug manufacturers disclose price information before FDA approval, raise the reporting threshold for generic drugs to 25% price increases, and eliminate the requirement for drug manufacturers to disclose information on public subsidies.

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 1010 (Hernandez) - Health care: prescription drug costs

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 1010 would require health plans and health insurers that report information on premium rates to their regulator to also include specified information relating to prescription drug spending. The bill would require drug manufacturers to report to state purchasers of health care services when drug prices are going to increase by more than 10% or when new drugs costing more than $10,000 per course of treatment are going to be introduced to the market.

Fiscal Impact:

• One-time costs of $220,000 and ongoing costs of $250,000 per year for review of drug pricing information submitted by health plans and to report to the Legislature by the Department of Managed Health Care (Managed Care Fund). The costs above include contract costs to study the economic impact of drug prices on health care costs.
• Likely ongoing costs in the low hundreds of thousands per year for review of drug pricing information submitted by health insurers and to report to the Legislature by the Department of Insurance (Insurance Fund).
• 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.

Background:

Under current law, proposed rate increases in the individual market and small group markets are reviewed by either the Department of Insurance or Department of Managed Health Care to determine whether they are reasonable. Neither department has the authority to regulate proposed rates, even if they are found to be unreasonable. Also, in the large group market, health plans and health insurers are required to file specified aggregate information about proposed rate increases.

Proposed Law:

SB 1010 would require health plans and health insurers that report information on premium rates to their regulator to also include specified information relating to prescription drug spending. The bill would require drug manufacturers to report to state purchasers of health care services when drug prices are going to increase by more than 10% or when new drugs costing more than $10,000 per course of treatment are going to be introduced to the market.

Specific provisions of the bill would:

• Require health plans and health insurers that report information to their regulator regarding rate increases in the individual and small group markets to also include information on prescription drug spending;
• Require the information for the individual and small group market to include information on the 25 most frequently prescribed drugs and their average wholesale price, the 25 most costly drugs and their average wholesale price, and the 25 drugs with the highest increase in cost and their average wholesale price;
• Require the Department of Insurance and the Department of Managed Health Care to compile the above information and report on the overall impact of drug prices on health care premiums;
• Require the Department of Insurance and the Department of Managed Health Care to keep the information provided under the bill confidential;
• Require health plans and health insurers in the large group market that report on premium rate increases to include information on the share of premiums attributable to drug prices, increases in premiums attributable to drug prices, and information on the specialty drug tier formulary list;
• Require manufacturers of branded prescription drugs to notify state health care purchasers, health plans, and health insurers if the wholesale acquisition cost of a drug will increase by more than 10% in a year or if a new drug is coming to market with a wholesale acquisition cost over $10,000 per course of treatment;
• Require manufacturers of generic prescription drugs to report if the cost of a drug with a price over $100 will go up by more than 10%;
• Impose a civil penalty of $1,000 per day for failure to report the required information to state purchasers;
• Require the Legislature to hold an annual hearing on drug prices.

Related Legislation:

SB 908 (Hernandez) would require health plans and health insurers to notify contract holders if a proposed premium rate increase has been found to be unreasonable by the appropriate regulatory agency. That bill is on this committee’s Suspense File.

Staff Comments:

As noted above, the intent of the bill is to enact an enforceable requirement that drug manufacturers report specified information to state health purchasers, health insurers, and health plans. According to the Office of Statewide Health Planning and Development, the bill does not give the Office sufficient legal authority to impose the civil penalties on drug manufacturers for non-compliance with this requirement.

The bill requires additional disclosure of the impacts of prescription drug prices to state regulators and purchasers. In doing so, the bill will give the state and the public better information on the impact of drug pricing on overall health care costs. However, it is not likely that the requirement to provide this information to the state will provide a sufficient incentive for drug companies to actually reduce prices. Therefore, it is unlikely that the bill will result in reduced health care spending on prescription drugs.

The only costs that may be incurred by a local agency relate to crimes and infractions. Under the California Constitution, such costs are not reimbursable by the state.

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SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 1010

SUBJECT: Health care: prescription drug costs

SUMMARY:

1. Requires health plans and insurers that report rate information through the existing large and small group rate review process to also report specified information related to prescription drug pricing to Department of Managed Health Care (DMHC) and California Department of Insurance (CDI). Requires DMHC and CDI to compile specified reported information into a consumer-friendly report that demonstrates the overall impact of drug costs on health care premiums. Requires drug manufacturers to notify specified state purchasers, health plans, and health insurers, in writing at least 60 days prior to the planned effective date, if it is increasing the wholesale acquisition cost of a prescription 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 (WAC) of $10,000 or more annually or per course of treatment. Requires drug manufacturers, within 30 days of notification of a price increase or of the introduction to market of a prescription drug that has a WAC of $10,000 or more annually or per course of treatment, to provide specified information to purchasers, including a justification for the pricing.

Existing law:

1. Establishes the DMHC to regulate health care service plans (health plans) and the CDI to regulate insurers, including health insurers.
   
2. Requires health care service plans and health insurers to file specified rate information with DMHC or CDI, as applicable, for health care service plan contracts or health insurance policies in the individual or small group markets and for health care service plan contracts and health insurance policies in the large group market.
3. Requires, for large group health plan contracts and health insurance policies, plans and insurers to file with DMHC or CDI the weighted average rate increase for all large group benefit designs during the 12-month period ending January 1 of the following calendar year, and to also disclose specified information for the aggregate rate information for the large group market.
4. Requires health plans and health insurers, for the small group and individual markets, to file with DMHC and CDI, at least 60 days prior to implementing any rate change, specified rate information so that the departments can review the information for unreasonable rate increases.
5. Requires DMHC and CDI to accept and post to their Internet Web sites any public comment on a rate increase submitted to the departments during the 60-day period.
6. Under federal law, requires drug manufacturers to obtain approval of new drugs from the federal Food and Drug Administration (FDA).
7. Establishes the Sherman Law, administered by Department of Public Health (DPH), which, among other things, regulates the packaging, labeling, and advertising of drugs and medical devices in California.
8. Prohibits, in the Sherman Law, the sale, delivery, or giving away of any new drug or new device unless it is either:
   1. A new drug, and a new drug application has been approved for it by the FDA, pursuant to federal law, or it is a new device for which a premarket approval application has been approved, and that approval has not been withdrawn, terminated, or suspended under the FDA; or
   2. A new drug or new device for which DPH has approved a new drug or device application, and has not withdrawn, terminated, or suspended that approval.
9. Requires DPH to adopt regulations to establish the application form and set the fee for licensure and renewal of a drug or device license.

This bill:

Reporting of drug prices by health plans and insurers

1. Requires health plans and insurers that report rate information through the existing large and small group rate review process to also report to DMHC and CDI, on a date no later than it reports the rate information, the information in a) through c) below for or all 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:
   1. The 25 most frequently prescribed drugs and the average wholesale price (AWP) for each drug;
   2. The 25 most costly drugs by total plan spending and the AWP for each drug; and,
   3. The 25 drugs with the highest year-over-year increase and the AWP for each drug.
2. Requires DMHC and CDI to compile the reported information into a consumer-friendly report that demonstrates the overall impact of drug costs on health care premiums. Requires the data in the report to be aggregated and not reveal information specific to individual health care service plans. Requires DMHC and CDI to publish the report on its Internet Web site by January 1 of each year.
3. Requires DMHC and CDI to include the published report as part of the public meeting required under the existing large group rate review law.
4. Requires DMHC and CDI, except for the report required under 2) above, to keep confidential all of the information provided, and exempts that information from disclosure under the California Public Records Act.
5. Requires health plans and insurers, as part of reporting for large group rate review, to disclose the following information for covered prescription drugs, including generic drugs, brand name drugs excluding specialty drugs, and specialty drugs dispensed at a plan pharmacy, network pharmacy, or mail order pharmacy for outpatient use all of the following:
   1. The percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs;
   2. The year-over-year increase in the percentage of the premium attributable to each category of prescription drugs;
   3. The year-over-year increase in per member, per month costs for drug prices compared to other components of the health care premium;
   4. The specialty tier formulary list; and,
   5. The percentage of the premium attributable to prescription drugs administered in a doctor’s office that are part of the medical benefit as separate from the pharmacy benefit, if available.

Reporting of price increases and expensive pricing by drug manufacturers:

1. Requires drug manufacturers of a branded prescription drug, or of a generic prescription drug with a price of $100 or more per 30-day supply, to notify each state purchaser, health care service plan, or health insurer if it is increasing the wholesale acquisition cost of a prescription drug by more than 10% during any 12-month period or if it intends to introduce to market a prescription drug that has a WAC of $10,000 or more annually or per course of treatment.
2. Requires the notice to be provided in writing at least 60 days prior to the planned effective date of the increase, and a copy of the notice to be provided concurrently to the Chairs of the Senate Committee on Appropriations, the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Appropriations, and the Assembly Committee on Budget.
3. Specifies that a “state purchaser,” for purposes of this bill includes, but is not limited to, the California Public Employees’ Retirement System, the Department of Health Care Services (DHCS), the Department of General Services, and the California Department of Corrections and Rehabilitation (CDCR), or entity acting on behalf of a state purchaser.
4. Requires drug manufacturers, within 30 days of notification of a price increase, or of the introduction to market of a prescription drug that has a WAC of $10,000 or more annually or per course of treatment, to report all of the following information to each state purchaser, health plan, or health insurer:
   1. A justification for the proposed increase in the price of the drug, including all information and supporting documentation as to why the increase is justified.
   2. The total dollar amount of public funding received by the manufacturer for the development and marketing, including, but not limited to, state and federal tax credits, grants, and all other public subsidies;
   3. The expected marketing budget for the drug;
   4. The date the drug was purchased if it was not developed by the manufacturer; and,
   5. A schedule of past price increases for the drug.
5. Requires a fine of $1,000 per day for every day after the 30-day notification period to be levied on manufacturers for failure to report the information in 9) above.
6. Requires the Legislature to conduct an annual public hearing regarding the price increases and information reported under 6) and 9) above. Requires the hearing to provide for public discussion of the reasons for the price increases, emerging trends, decreases in drug prices, and the impact on health care affordability and premiums.
7. Prohibits this bill from restricting the legal ability of a drug manufacturer to change prices as permitted under federal law.

FISCAL EFFECT:

This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. Author’s statement. 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. Drugs priced in excess of $10,000 are becoming common-place with little transparency for these astronomical price tags. This high-priced trend is a costly burden for patients, state programs, employers, and other payers, making it crucial that we understand what’s behind the exploding prices. 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. Additionally, data suggests that publically accessible price information in other sectors of the health care market encourage providers to offer more competitive pricing and thereby reduce excess health spending. Transparency-focused policies, like those implemented by the Affordable Care Act (ACA), have led to rules requiring hospitals in California to provide information on pricing for common surgeries, health plans to submit detailed data regarding premium changes, and doctors to report more information to the federal government. But, drug makers have been granted an exception to this forward-thinking trend. SB 1010 will bring prescription drugs in line with the rest of the health care sector by shedding light on those drugs that are having the greatest impact on our health care dollar. This change is absolutely necessary in an environment where more than 900 drugs are sporting price-tags at or above $10,000 and new drugs with record-breaking prices are being released to address diseases that impact millions, including hundreds of thousands of patients in public programs like Medi-Cal.
2. Health care costs. Health care accounts for more than 17% of the U.S. Gross Domestic Product ($3 trillion, or $9,523 per person) and health care costs continue to consume significantly large percentages of federal, state and personal budgets. Health care continues to grow at higher rates than inflation. In 2013, the U.S. spent far more on health care than other high-income countries. Higher spending is due to multiple factors including greater use of medical technology and higher health care prices, not necessarily more frequent doctor visits or hospital admissions.
3. Drug costs. A study published in Health Affairs in December 2015 found that drug spending is growing faster than other health care spending in the U.S. – increasing 12.2% between 2013 and 2014. A Kaiser Family Foundation analysis of data from the Centers for Medicare and Medicaid Services and Truven Health Analytics shows that while drugs account for 10% of U.S. health spending, it represents 19% of the cost of employer insurance benefits. Some speculate that this disparity exists because the $3 trillion in U.S. health spending is a broad catchall with includes hospital care, physician services, drugs, research, administrative costs, public health activities, and long-term care. Additionally, some of the people served by Medicare and Medicaid (whose spending is counted in the national totals) require many services not typically used by those covered by employer health plans. According to an analysis by the CEO of the Kaiser Family Foundation, even that 19% figure is understated because while it includes prescriptions that patients fill at pharmacies, it does not include many of the expensive drugs administered in physicians’ offices or hospitals. In Medicare, for example, retail prescription drugs represent 13% of overall spending while drugs administered mainly by physicians add an additional 6%.
4. Drug pricing. Federal regulations prohibit the U.S. government from setting the price of pharmaceuticals, and patents on drugs, in effect, prohibit competition, at least initially. Countries without these restrictions generally buy drugs for a fraction of the U.S. price. Pharmaceutical companies argue that high drug prices are justified because of the enormous cost and risk associated with bringing a drug to market and that payment for current drugs fund future innovation. Developing a new drug costs an average of $1.2 billion and takes 10 to 15 years. When a new drug provides a cure for a disease, as opposed to only treating symptoms, drug companies claim that a high upfront cost is mitigated by not having to treat symptoms indefinitely. However, critics point to numerous examples of drug companies charging high prices for drugs with only marginal improvements over cheaper alternatives, or astounding increases in pricing for drugs that have been on the market for years.
5. Price Benchmarks. Knowing how much a drug costs is difficult; there are many different prices for each drug and different ways of expressing those prices. In the US, the two most common ways of stating drug prices are the WAC and average wholesale price (AWP). Neither one, though, is the actual price paid by a payer, nor are they what their names imply. Rather, they're standardized ways of expressing a price, thus allowing comparisons to be made from one drug to another. AWP is a benchmark that has been used for over 40 years for pricing and reimbursement of prescription drugs for both government and private payers. Initially, the AWP was intended to represent the average price that wholesalers used to sell medications to providers, such as physicians, pharmacies, and other customers. However, the AWP is not a true representation of actual market prices for either generic or brand drug products. AWP has often been compared to the “list price” or “sticker price,” meaning it is an elevated drug price that is rarely what is actually paid. AWP is not a government-regulated figure, does not include buyer volume discounts or rebates often involved in prescription drug sales. As such, the AWP, while used throughout the industry, is a controversial pricing benchmark.
   

The WAC price of a drug on the market, as originally announced by the company is also rarely the price paid by a payer. The actual price paid by any one payer is proprietary information, complicating discussions of value and cost to consumers. Drug companies negotiate with payers – Medicare, Medicaid, insurers, and pharmacy benefit plans – to set an initial gross sales price. Drug manufacturers pay rebates back to government entities, creating a difference between gross sales for a drug and net sales. The rebates are not publicly available, and vary highly among payers and for different drugs. Estimates put them between 2% for innovative new drugs all the way to 60% for drugs that have several competitors or generics on the market.

Federal law requires manufacturers to provide rebates to the Centers for Medicare and Medicaid Services and state Medicaid agencies. The program requires a drug manufacturer to enter into, and have in effect, a national rebate agreement with the Secretary of the Department of Health and Human Services (HHS) in exchange for state Medicaid coverage of most of the manufacturer’s drugs. These rebates are paid by drug manufacturers on a quarterly basis to states and are shared between the states and the federal government to offset the overall cost of prescription drugs under the Medicaid program. According to DHCS, drug manufacturers are required to pay a Medi-Cal rebate for all outpatient drugs that are dispensed and paid for by the Medi-Cal program. In addition, some manufacturers have agreed to pay supplemental Medi-Cal rebates above the standard rebate. Federal law requires rebates for prescriptions offered through the AIDS Drug Assistance Program (ADAP), in part because of the high cost of HIV/AIDS medications. According to the Kaiser Family Foundation, drug manufacturer rebates account for 40% of the annual ADAP budget.

1. Impact on state finances. Medi-Cal provides health care coverage for nearly one-third of Californians. Combined with CalPERS, ADAP, state hospitals, and corrections, taxpayer liability for increasing drug costs is significant. According to a December 2015 report published by the U.S. Senate Committee on Finance, Medi-Cal’s fee-for-service system alone spent nearly $25 million treating roughly 340 patients with Sovaldi and Harvoni in 2014. However, Medi-Cal fee-for-service is only a fraction of the Medi-Cal population. Private health plans invoiced the state an additional $387.5 million for Sovaldi and Harvoni treatments for Medi-Cal managed care enrollees between July 2014 and November 2015 (for 3,624 patients) according to DHCS. Additionally, as a direct result of Sovaldi and Harvoni pricing, the 2015-16 California state budget allocated $228 million just for high cost drugs to DHCS and CDCR. In December 2015, it was reported that CalPERS spent $438 million on specialty drugs, an increase of 32% from the previous year. This represents one quarter of the total drug costs paid by CalPERS, while only 1% of the prescriptions filled.
   
2. Support. California Labor Federation, AFL-CIO (CLF), the sponsor of this bill, states that the drug manufacturer disclosure required under this bill gives purchasers advance notice of increases, along with additional information to discern between reasonable price increases and predatory pricing. CLF states that pharmaceutical companies produce lifesaving medications and it is critical that they are able to conduct research to make ground-breaking discoveries, however, not all price increases are related to R&D costs, nor are they based on effectiveness of the drug. CLF states that purchasers can use this information to better negotiate for discounts on drugs, or to decide that an unjustified price increase is grounds for refusing to purchase a drug.

SEIU California writes in support that because the state, taxpayers, and individuals pay significantly, at the individual and aggregate levels, this matters to all of us. SEIU states that the high-cost of specialty drugs creates a burden on the state budget, as Medi-Cal, CalPERS and other public programs struggle to cover the costs. CalPERS has reported that specialty drug spending increased 32% last year to $438 million annually and Governor Brown’s 2015 budget set aside supplemental funding of $228 million to pay for a limited number of people who are served by public programs to receive Harvoni and Sovaldi. SEIU contends that when drugs are so expensive that it begins to make such a significant impact on our state budget, the pricing of these drugs also begins to raise ethical concerns and questions about how purchasers are making decisions related to how many sick people can or should get access to life-saving drugs. The California Alliance for Retired Americans (CARA) states that prescription drugs make up 19% of benefit costs in job-based coverage. However, that figure only captures drugs paid for through the pharmacy benefit—drugs administered in inpatient settings, like costly chemotherapy drugs, are paid for through medical benefits, and account for an even greater percentage of premiums. CARA writes that California can help purchasers and consumers better understand pharmaceutical pricing and give them the tools to fight back against price-gouging. Consumers Union writes that regulators and other reviewers need as much information as possible to determine whether a change proposed to health insurance rates is fair or not and this bill puts more tools into regulators’ toolkits to protect consumers in the marketplace and makes strides towards empowering consumers to be more informed participants in the marketplace.

Health Access California (HAC) writes that congressional investigations have found astronomical increases in drug prices, even for drugs that have been used for millennia. For some conditions, such as multiple sclerosis, the drugs used to manage the condition increase in price with every new drug entering the market—price competition to increase prices, not lower them. HAC states that this bill is a modest but important step forward in providing transparency on prescription drug costs. The National Multiple Sclerosis Society – CA Action Network writes that in addressing the costs of prescription drugs, this bill is a good starting point because it can be an important tool to help educate consumers about their health related expenses. American Association of Retired Persons (AARP) states that at a time when more and more high-cost drugs are entering the market, consumers, including many people over age 50, would benefit from a system that discloses important information about the pricing of these drugs. AARP believes that increased transparency in the marketplace will empower consumers and could provide much-needed clarity and a better understanding of the pharmaceutical industry’s pricing methods. The California School Employees Association states that they are often told that prescription drug costs are not the problem, and this bill will allow them to assess whether or not that is true and is an important and necessary step in understanding the costs of prescription drugs and how much of a cost driver they are. AIDS Healthcare Foundation writes that because their patient population is dependent on drugs regardless of the price, they are committed to solutions that ensure greater transparency in drug pricing that will lead to prices that can withstand public scrutiny.

1. Opposition. The Generic Pharmaceutical Association (GPhA) states that the generic industry’s business model is similar to a commodities market where prices, sometimes at pennies a dose, fluctuate up and down quickly and that generics provide so many savings because they operate in this hyper-competitive marketplace. GPhA asserts that a brand manufacturer patents a drug and sets the price but in the generic marketplace multiple manufacturers directly compete with each other and regularly adjust prices to best react to market conditions such as changes in supply costs, ingredient shortages, large orders from wholesalers, and other factors.  The California Life Sciences Association (CLSA) writes that the information required of biopharmaceutical companies, health plans, and insurers would create a highly inaccurate picture of how medicines affect overall healthcare costs, and that this bill treats medication costs as solely expenditures, not an investment in more efficient care and better health for patients. CLSA asserts that this bill ignores all the benefits to patients, the healthcare system, and the economy that the life science sector provides, as well as the benefits to payers and pharmacy benefit managers from oftentimes significantly reduced, negotiated prices. CLSA further states that the bill’s requirement of advance notices prior to certain drugs being marketed, being accompanied by a “justification” with “supporting documentation” and an “expected marketing budget,” appears to violate FDA restrictions against preapproval marketing or promotion of investigational drugs, because the law and FDA’s subsequent guidance only clearly allow for the exchange of scientific information and preclude any form of “commercialization” prior to a medicine’s approval for commercial distribution. The reporting requirements as established in the bill are extraordinarily broad and would potentially apply to many medicines for which the impact on premiums of a price increase over the threshold of ten percent would be essentially de minimis and would reflect an imperceptible change in the total cost of care. The Pharmaceutical Research and Manufacturers of America (PhRMA) writes that while the information reported by the third party payers is in the aggregate and protected from disclosure by creating specific exceptions to the California Public Records Act (PRA), the data required to be submitted to the state by the pharmaceutical industry includes sensitive proprietary information for specific products that would not enjoy the same PRA disclosure protections provided to the payers – presenting both proprietary and federal antitrust issues. PhRMA furthers states that the requirement for a 60-day advance notice does not appear to be protected information and could thus be anti-competitive, as disclosure of planned pricing changes could have unintended consequences and is generally viewed as extremely disruptive to the competitive marketplace.

SUPPORT AND OPPOSITION:

Support: California Labor Federation, AFL-CIO (sponsor)

AARP

AIDS Healthcare Foundation

Blue Shield of California

California Alliance for Retired Americans

California Association of Health Plans

California Medical Association

California Nurses Association

California Optometric Association

California School Employees Association

Consumers Union

Health Access California

Kaiser Permanente

LIUNA Locals 777 & 792

National Multiple Sclerosis Society – CA Action Network

SEIU California

Unite Here

Oppose: California Life Sciences Association

Generic Pharmaceutical Association

Pharmaceutical Research and Manufacturers of America

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