The California state Senate’s Committee on Health Wednesday put its stamp of approval on legislation that would oblige prescription drug manufacturers to give advance notice and written justification for significant price increases.
The bill, authored by Sen. Ed Hernandez (D-West Covina), would require pharmaceutical companies to provide 60 days’ notice for planned price increases of 10 percent or more in any 12-month period. They would have to send the notice to state purchasers — including Medi-Cal and the California Public Employees’ Retirement System — as well as private health plans and some lawmakers.
Within 30 days of such notice, the manufacturers would need to justify the price hike in writing.
Drugmakers would also be required to give 30 days’ notice before selling a new prescription medicine with a price tag of $10,000 or more per course of treatment.
Hernandez, who has made transparency in health care one of his priorities, said that since the Affordable Care Act now requires most people to purchase coverage, it is the job of legislators to help keep costs down.
“We need to have transparency in the market,” he said. “Some drugs are lifesaving; the concern I have is when the market is manipulated.”
Supporters of the bill, including labor unions, the California Association of Health Plans and consumer advocacy groups, said prior notification would give purchasers time to negotiate prices and seek rebates or alternatives.
The bill’s opponents, including the pharmaceutical industry and an advocacy organization for scientific innovation, said it would be almost impossible for drug manufacturers to comply with a 60-day notification period.
The bill doesn’t only target drugmakers. It would also require health plans to disclose the percentage of premiums they spend on prescription drugs.
Sara Flocks, policy coordinator at the California Labor Federation, a sponsor of the bill, said in an interview that the proposed law is not meant to establish price controls. It simply adds transparency, she said.
The Labor Federation represents 2.1 million union members in various sectors of the economy and negotiates their health coverage, Flock said. She estimated that 19 percent of health care spending by employers and unions goes to pharmaceutical companies.
“Every dollar that is going toward this cost is a dollar that is not going into [union members’] pockets,” Flocks said.
Hernandez noted that under current law, health plans must provide 60 days’ notice when they plan to raise premiums. This bill would bring the drug companies in line with that requirement, he said.
A representative of the Generic Pharmaceutical Association argued that the proposed notice period would put manufacturers in an unfeasible position because they don’t always know about their own price increases 60 days in advance.
The head of the California Life Sciences Association, which advocates for biotechnology, pharmaceutical and medical device companies, said the bill fails to present a true picture of how much it costs to produce prescription drugs.
“A new medicine can cost $2.6 billion and take more than 15 years to develop,” Sara Radcliffe, president of the association, said in a written statement.
Radcliffe said the bill only considers sticker prices, not the actual prices paid, and that it neglects the role of pharmacy benefit managers in establishing those prices. It also overlooks the health care dollars saved by drugs that eliminate the need for other costly interventions, she said.
Several proponents of the bill told lawmakers that drug companies typically give very little justification for their price increases, and that this is particularly troublesome in the case of medications that have been around for decades.
Between 2004 and 2014, Medicare’s drug spending rose from $193 billion to $298 billion, according to an article published earlier this month in the Journal of the American Medical Association. Prices for many specialty drugs are higher in the U.S. than in most other developed countries, the article said.
Most notoriously, Martin Shkreli, founder and then-CEO of Turing Pharmaceuticals, made headlines last year when his company acquired Daraprim —a 62-year-old drug used to treat an infection that attacks people with compromised immune systems — and jacked up its price by more than 5,000 percent. The cost of a single pill rose from $13.50 to $750, and Shkreli acknowledged that most of the increase went straight to the company’s bottom line.
Sovaldi, a drug used to cure Hepatitis C, has also come under intense public scrutiny and was cited in Wednesday’s hearing by supporters of the Hernandez bill. A single Sovaldi pill costs an estimated $1,000, which amounts to about $86,000 for a full course of treatment.
The bill approved by the health committee Wednesday is not the only political action in the state being aimed at prescription drugmakers. In November, voters will weigh in on the California Drug Price Relief Act, a ballot initiative that would prohibit state agencies that run health care programs from paying more for a prescription drug than the lowest price paid by the U.S. Department of Veterans Affairs.
Next week, the Assembly’s Committee on Health will consider another bill addressing transparency in drug prices. It would require health insurers to provide information about their enrollees’ share of the cost for prescription drugs and how the prices compare to prices in three other countries — Germany, Canada and Mexico.