In the latest effort to push back against drug costs, the California legislature will hold a hearing on Wednesday to review a bill that would require companies to report any move to increase the list price of a medicine by more than 10 percent during any 12-month period. And drug makers would have to justify price hikes for medicines with a list price of more than $10,000 within 30 days of making such a move.
The legislation, which would also require insurers to provide regulators with spending data on prescription medicines, comes amid escalating national anger over the rising cost of drugs. The topic has become a talking point in the presidential campaign. And the Obama administration recently proposed an experiment for lowering the cost of some Medicare drugs.
A growing number of state legislatures, however, are trying to take matters into their own hands. Several have — with varying degrees of success — introduced bills to require drug makers to disclose costs, since the pharmaceutical industry argues pricing is used to recover high R&D costs. California, in fact, is one of the states to have considered such a bill, but that went nowhere twice in the past year.
Massachusetts, meanwhile, earlier today held a hearing to review a bill that requires drug makers to disclose cost and general pricing data. The legislation would also give the state the ability to impose certain price controls. New York Governor Andrew Cuomo included similar language earlier this year in his annual budget proposal.
This latest legislation in California, however, “appears to have more distinct” requirements for reporting price hikes than other state bills, said Richard Cauchi, Health Program Director at the National Conference of State Legislatures.
For this reason, he added, the legislation is likely to be closely watched, especially since California is often seen as a bellwether state for shaping legislative ideas for the rest of the country.
The California bill “will bring prescription drugs in line with the rest of the health care sector by shedding light, for the first time, on those drugs that are having the greatest impact on our health care dollar,” said state Senator Ed Hernandez, a Democrat, in a statement sent to us.
“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,” a California State Senate staffer wrote in an analysis of the bill.
Not surprisingly, the lobbying is already intensifying.
In a letter of support, the California Labor Federation wrote that the bill “can help purchasers and consumers better understand pharmaceutical pricing and give them the tools to fight back against price gouging.” The organization is comprised of more than 1,200 unions, which represent about 2.1 million people who work in various industries.
The data on price hikes would “allow policy makers to identify if pharmaceutical companies are subjecting public purchasers to unreasonable price increases. Since these increases drive up state costs, policy makers may decide that policy interventions are needed.”
The Pharmaceutical Research and Manufacturers of America, the industry trade group, in its own letter opposing the bill, argued that the reporting requirements are “extraordinarily broad” and would potentially apply to many drugs for which the impact of a price hike on insurance premiums would be “essentially” minimal and “would reflect an imperceptible change in the total cost of care.”
The trade group, which has regularly opposed the various bills introduced in each state, also contended that some pricing data is “sensitive, proprietary information,” and that the legislation fails to note that payers do not pay list prices for medicines. For that reason, the trade group believes the bill fails because there is no mention of rebates or discounts that drug makers offer payers.
Other trade groups cited other potential problems. The California Life Sciences Association argued that pricing disclosures may force companies to run afoul of Food and Drug Administration regulations of promotional activities. And BioCom maintained that the bill fails to require payers and pharmacy benefits to similarly disclose their reasons for increasing copayments, deductibles, and out-of-pocket expenses for consumers.
Meanwhile, America’s Health Insurance Plans, the trade group for insurers, sent a letter of support to Hernandez. “With spending on prescription drugs rising at nearly twice the rate as other types of health care services, it is imperative that policy makers have more data as to why this occurring,” wrote Leanne Gassaway, vice president of state affairs for the group.
(This post was updated to include the reaction from the insurance industry trade group and the analysis from the California State Senate).