California Passes Controversial Drug Pricing Bill

As rising drug costs come under increased public scrutiny, lawmakers are attempting keep medication affordable. California is the latest state to pass laws related to keeping drug prices low, but will their attempt actually help?

California governor Jerry Brown signed SB 17 into law Monday, a law aimed at curbing price increases and increasing price transparency. The law requires drug manufacturers to give 60-day notice if wholesale drug prices are raised more than 16% over a 2-year period. Drug companies would also be required to explain the reasoning behind those price increases, and are required to file annual reports detailing the effect of drug costs on health-care premiums in California.

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Supporters of the bill are hopeful that it will have a significant impact in the state. Paul Markovich, President and CEO of Blue Shield California, said that “Blue Shield of California applauds the Governor and Legislature for enacting a new state law that provides much-needed transparency to prescription drug pricing in California. Drug pricing remains a significant threat to affordability. Blue Shield believes Senate Bill 17 takes an important step toward informing consumers why drug prices go up and determining if these price increases are reasonable.”

The bill’s author, Senator Ed Hernandez, called the bill “will set national health-care policy, having impact for consumers and providers in other states … [the bill is] one of the most transformative pieces of health legislation in the country.” But just how transformative will it be?

Drug manufacturers have been largely against the bill. In a statement provided to Drug Topics, Priscilla VanderVeer, the Deputy Vice President of Public Affairs at PhRMA, said that “There is no evidence that SB 17 will lower drug costs for patients because it does not shed light on the large rebates and discounts insurance companies and pharmacy benefit managers are receiving that are not being passed on to patients. Nothing in SB 17 will help patients get the benefits of the savings that insurance companies are getting.”

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According to VanderVeer, the bill also overestimates the impact drug prices have on the overall cost of health care. A recent Health Affairsarticle-written by an Ian Spatz, who represents a number of drug manufacturers-said that it is unclear if any new data will actually show that drug prices are the primary reason for rising health-care costs.

Critics also point to the fact that the bill only covers wholesale acquisition costs. Those prices are already made available, and is not the price generally paid at the pharmacy after PBMs and insurers are involved. According to Spatz, the bill will not require companies to report anything that is not already in the public domain, rendering the transparency requirement.

“It’s time to move beyond creating new, costly bureaucratic programs that don’t make a dent in patients’ costs for medicines,” said VanderVeer.