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California just moved a step closer to requiring drug makers to report and justify price hikes.

The state Senate on Wednesday approved legislation that would mandate companies to disclose any increase in the list price of a medicine by more than 10 percent during any 12-month period. And drug makers would also have to explain price hikes for medicines with a list price of more than $10,000 within 30 days of making such a move. If the bill becomes law, the state would have to issue public reports on costs and spending.

The effort is among a wave of legislation across the country designed to get a grip on the rising cost of medicines and force the pharmaceutical industry to explain how it makes pricing decisions. 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 states, however, are trying to take matters into their own hands. Next week, Vermont could become the first state in the country to require drug makers to justify price hikes on their medicines if Vermont Governor Peter Shumlin signs a bill that was recently passed by the state legislature. A spokesman for the governor told us that no decision has been made.

“It’s all about lowering prices,” said California state Senator Ed Hernandez, who introduced the legislation in his state. “I believe transparency does work. The pharmaceutical industry has specific protections thanks to patents. But the mere fact that we can understand the cost drivers will place pressure on them. And if they didn’t object to this, why are they fighting so hard to kill this?”


Previously, the Pharmaceutical Research and Manufacturers of America, the industry trade group, has argued that the reporting requirements in the California bill 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.”

And as we have noted once before, the trade group 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 industry group believes the bill fails because there is no mention of rebates or discounts that drug makers offer payers.

[UPDATE: A PhRMA spokeswoman later sent us this: “It is disappointing that this legislation is moving forward, especially since it will not do anything to help patients afford their medicines.”]

But in a recent analysis of the bill – which has support from insurers, consumer groups, and unions – a California state Senate staffer wrote that “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,” which is the name for the California Medicaid program.

The next step for the California legislation is for the assembly to vote, which must occur by Aug.31, Hernandez said. Unlike a bill introduced in the assembly, which eventually stalled, the Senate bill does not require drug makers to disclose specific costs, such as manufacturing and R&D. He explained this requirement was dropped in hopes of appeasing opposition from the pharmaceutical industry.

This particular requirement has surfaced in bills proposed in other states over the past year. And both President Barack Obama and New York Governor Andrew Cuomo included such language in their budget proposals earlier this year.

  • I can think of a dozen ways to massage a balance sheet to justify a price hike, and few if any legislators would be able to figure it out. We’re talking high priced pharma number crunchers versus legislative bean counters, and this is much more complex than counting beans or monitoring county sewage effluent rates.

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