A service of the California Health Care Foundation

Expensive Drugs in 2016 Crosshairs

Costly drugs are on all kinds of agendas in 2016. For several years, national and state legislators, insurers, insurance purchasers and consumer advocates have been noting and worrying about rising prices for prescription drugs. All that attention may turn into action this year.

“I anticipate a fairly healthy discussion about drug pricing this year — both nationally and in California,” said California Assembly member Richard Gordon (D-Menlo Park).

“We’re kind of at the tip of the iceberg in terms of what happens next,” Gordon said. “I think California will provide a testing round for at least one of the components of dealing with skyrocketing drug prices.”

Gordon’s bill (AB 339), which calls for a cap on consumer out-of-pocket costs for prescription medications, was signed into law by Gov. Jerry Brown (D) in October. The new law, which goes into effect in 2017, will place limits on how much health plans can charge enrollees for outpatient prescriptions and will require insurers to use specific formulary tiers.

“I know this legislation has gotten a lot of attention nationally and I’m sure the rest of the country will be keeping an eye on what California does in 2016,” Gordon said.

High drug prices are the focus of at least two other efforts in California this year — a statewide ballot initiative calling for price controls on drugs the state purchases and a bill (AB 463) in the state Legislature calling for pharmaceutical manufacturers to provide detailed justification for high prices.

Issue Before California Voters, Legislature in 2016

At a congressional hearing last month, Senators from both sides of the aisle expressed concern over rising drug prices, but what exactly might happen in Congress because of that concern is not so clear.

“With a clearly conflicted Congress during an election year, you probably won’t see a lot of action there,” Gordon said. “Hilary (Clinton) is talking about it in her campaign and I’m sure it will be a topic in the presidential election.” He added, “Whatever happens on the national stage, I’m fairly certain the issue will get a lot of attention in California this year.”

In November, California voters will have a chance to weigh in. The California Drug Price Relief Act, which qualified for the statewide ballot last month, would impose price controls on prescription drug purchases funded directly and indirectly by the state.

The initiative calls for the state to pay the same or less than the rates paid by the Department of Veterans Affairs for prescription drugs. California pays billions of dollars for prescription drugs every year — both directly, such as in the prison health care system and indirectly through Medi-Cal and CalPERS. Medi-Cal is California’s Medicaid program.

With the initiative waiting as backdrop in the fall, the state Legislature will debate a revised proposal from Assembly member David Chiu (D-San Francisco). Chiu’s bill (AB 463) requiring pharmaceutical manufacturers to explain high prices was shelved last year when it became clear the proposal wouldn’t get the 10-vote minimum needed in the Assembly Committee on Health. Chiu said he plans to bring a revised version back to the Legislature this month.

Thought to be the first of its kind in the country, Chiu’s bill in its original version would have required drugmakers to report profits and production expenses for any drug or course of treatment costing $10,000 or more. It would have asked drugmakers to divulge costs and revenue related to several steps of the drug making and selling process, including research and regulatory costs, marketing, advertising and profits.

The pharmaceutical industry opposed Chiu’s bill last year and is circling the wagons to oppose the statewide ballot proposition.

Relief for Consumers Spurs Action

Gordon’s bill limiting consumers’ costs for drugs, as well as similar rules adopted by Covered California last year, cleared legislative and bureaucratic hurdles because they provided relief for consumers, Gordon said.

“Having worked in this arena for two years and seeing also what Covered California implemented, I think this kind of approach is important to provide immediate relief for consumers,” Gordon said.

In May of last year, Covered California’s board of directors unanimously voted to impose a cap on out-of-pocket costs for specialty prescription drugs for consumers who purchase 2016 health plans through the exchange. Californians with silver and platinum plans through Covered California will pay no more than $150 to $250 per month for specialty drugs. The cap will be $500 per month for bronze plans.

Starting next year under Gordon’s bill, all Californians with policies similar to silver and platinum plans will have to pay no more than $250 for specialty drugs. For those in bronze-like coverage, the limit will be $500.

“The approach we took — and were successful with — was aimed at getting immediate relief for consumers,” Gordon said. “There are certainly other ways to address the issue, but we felt this was the right approach at this time.”

“I do think this kind of approach puts pressure on insurance companies to go back and renegotiate prices with drug manufacturers,” Gordon said.

Categories: Covered California, Health Care Costs, Health Industry, Insight

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