California Drug Price Bill Sweeping In Scope, Lacking In Muscle

A California bill headed to the governor’s desk may be the most sweeping effort in the nation to shine a light on drug pricing, but it lacks the muscle being applied in other states to directly hold those prices down.

The idea behind the law is that if everyone knows when and why prices are rising, political leaders eventually will be more empowered to challenge those increases.

“Transparency is a longer-term play. It’s about building political will, getting more information and helping build the case for the changes that we need” in order to have more sustainable drug prices, said Ted Lee, a senior fellow at Yale University’s Global Health Justice Partnership, which recently released a report on steps states can take to reduce drug prices.

Some experts have said transparency alone is not enough to bring down drug prices, and more extensive changes are needed.

“We need really far-reaching reforms that say ‘sorry, pharma, we’ve had enough. We’re not going to do it your way. We’re going to do it our way,’” said Peter Maybarduk, director of the Global Access to Medicines Program at Public Citizen, a consumer watchdog group. The group wants sweeping changes at the federal level that would reduce spending on drugs, such as allowing Medicare to negotiate prices with drug companies and limiting market exclusivity on certain pharmaceuticals.

The California measure would put a spotlight on drug prices from different angles, imposing reporting obligations on both insurers and drug manufacturers.

The campaign for the bill brought together some unlikely political allies in the California State Capitol this year: Consumer advocates, insurers, employer groups, labor unions and even a prominent billionaire environmentalist shared the same platforms at press conferences, urging legislators to force drug manufacturers to disclose and justify their high prices.

Gov. Jerry Brown has about a month to decide whether to sign the bill. Brown rarely comments publicly about legislation before he takes action, but a spokesman, Brian Ferguson, said the governor’s office had worked closely with legislative staff on the bill.

The pharmaceutical industry remains fiercely opposed to the legislation and has vowed to lobby the governor against it.

The measure “will not improve the accessibility or affordability of medicines for patients,” Priscilla VanderVeer, deputy vice president of public affairs for the Pharmaceutical Research and Manufacturers of America (PhRMA), said in an email.

Under the proposed law, pharmaceutical companies would be required to give state agencies and insurers 60 days’ notice if they planned a price increase of more than 16 percent over two years on drugs with a wholesale cost of $40 or higher. And they would have to explain the reasons for the increase.

Manufacturers would also have to report the introduction of certain high-priced drugs to market, explain their marketing plans for the product and say if it is an improvement on drugs that are already available.

Health plans would be obliged to report to state regulators on the drugs with the highest annual cost increases and document how much drug spending factored into their premiums.

Yale’s Lee said both price control and transparency laws play important roles in regulating prescription drug costs. Ellen Albritton, a senior policy analyst at Families USA, said transparency measures such as California’s bill are a “key part” of what is needed for the U.S. to get drug prices under control. She said various actions by states, taken together, build the case for federal action.

This year, at least two states have passed laws that tackle high drug prices head-on and may have a more immediate effect on consumer costs than the California measure, Lee said.

Maryland and New York, for example, passed laws this year that use a variety of legal levers to impose financial penalties or require discounts if prices are too high.

Maryland’s law empowers the state’s attorney general to take legal action if it determines drugmakers are “price gouging” on generic drugs. A violation by the company could trigger refunds to consumers and a fine for the manufacturer.

The New York law introduces a drug price cap in the state’s Medicaid program and would require rebates on drugs that exceed their limits, according to a Yale University analysis.

The California bill’s author, Sen. Ed Hernandez (D-Covina), said he didn’t believe price controls were the right approach. “I still believe in the basic tenet of free enterprise,” he said. “The market should play itself out.”

But California’s bill is more comprehensive in some ways than other states’ laws. It requires new reporting in the private and public insurance markets and encompasses generic, brand-name and specialty pharmaceuticals. Other state laws affect only one payer, as in New York, or one subset of drugs, as in Maryland.

Vermont has a transparency measure, passed last year, that mandates reporting on a narrower subset of drugs than California’s proposal. Nevada’s recently passed drug price law requires disclosures from insulin makers.

Hernandez, who chairs the state Senate’s health committee, said the California bill could be a national model for drug price policy because transparency works to bring costs down. Consumers across state lines will benefit from California’s law, he said.

“I encourage the federal government, especially California’s representatives in the U.S. House and Senate, to consider similar legislation as we continue this discussion at a national level,” Hernandez said.

He said industry opposition to his bill has been fierce, with “legions” of lobbyists clogging Capitol hallways and full-page ads in local newspapers during the final days of the legislative session, which ended Friday.

Despite the industry’s resistance, Hernandez said, the effort to address high drug costs had bipartisan support and rallied players who are usually at odds on other matters.

“It has become a huge coalition because it’s impacting everybody,” he said.