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Gov. Brown Signs Landmark Drug Price Transparency Bill

Gov. Jerry Brown recently signed legislation aimed at making drug prices more transparent. Under Senate Bill 17, pharmaceutical companies would be required to justify price hikes.

Escalating Drug Prices Hurt Consumers

Drug prices have escalated in recent years. In 2016, the Centers for Medicare and Medicaid Services issued a report on the price history of more than 5,000 drugs covered under Medicare Part B drugs (medications administered in doctors' offices and other outpatient settings) and Medicare Part D drugs (medications patients generally administer themselves). According to the report, the average price of all Part D drugs on the market in both 2015 and 2011 increased 83.6 percent. In addition, the prices for many low-cost drugs skyrocketed by more than 1,000 percent.

Many of the price increases involve lifesaving medications. For instance, the average price of new cancer drugs in the U.S. increased five- to tenfold over 15 years, reaching more than $100,000 a year in 2012. When a patient requires a combination of several drugs, the annual cost can reach $300,000.

New Disclosure Requirements Under SB 17

In many cases, pharmaceutical companies raise drug prices because there aren't any regulations that prohibit it. In response, California is one of several states taking action to curb skyrocketing drug prices.

"Californians have a right to know why their medical costs are out of control, especially when pharmaceutical profits are soaring," Gov. Brown said. "This measure is a step at bringing transparency, truth, exposure to a very important part of our lives, that is the cost of prescription drugs."

The pharmaceutical industry strongly opposed the bill, spending $16.8 million to lobby against a package of drug-related bills. "The rich are getting richer. The powerful are getting more powerful," Gov. Brown added. "So this is just another example where the powerful get more power and take more... We've got to point to the evils, and there's a real evil when so many people are suffering so much from rising drug profits."

Under the provisions of SB 17, a manufacturer of a prescription drug with a wholesale acquisition cost of more than $40 for a course of therapy must notify the state and health insurance companies if the increase in the wholesale acquisition cost of a prescription drug is more than 16 percent, including the proposed increase and the cumulative increases that occurred within the previous two calendar years. Notice must be given at least 60 days prior to the planned effective date of the increase.

Starting no earlier than January 1, 2019, drug manufacturers must report the following information for each drug for which the cost increased:

  • A description of the specific financial and nonfinancial factors used to make the decision to increase the wholesale acquisition cost of the drug and the amount of the increase, including, but not limited to, an explanation of how these factors explain the increase in the wholesale acquisition cost of the drug.
  • A schedule of wholesale acquisition cost increases for the drug for the previous five years if the drug was manufactured by the company.

If the drug was acquired by the manufacturer within the previous five years, it must also submit all of the following information, including the cost of the drug at the time of acquisition and at the time it was introduced to the market; the name of the company from which the drug was acquired, the date acquired, and the purchase price; the patent expiration date; a description of the change or improvement in the drug, if any, that necessitates the price increase; and the volume of sales of the manufacturer's drug in the United States for the previous year.

Under SB 17, health plans will also be required to submit an annual report to the state that details certain cost information regarding covered prescription drugs, including generic drugs, brand name drugs, and specialty drugs. The required information includes: the 25 most frequently prescribed drugs; the 25 most costly drugs by total annual plan spending; and the 25 drugs with the highest year-over-year increase in total annual plan spending. Once the data is aggregated, the state must provide a report addressing the overall impact of drug costs on health care premiums.

As San Diego injury lawyers, we applaud Gov. Brown for standing up to the drug lobby and signing the legislation. The new law is a great first step to improving drug cost transparency and will hopefully discourage pharmaceutical companies from arbitrarily raising prices. Patients shouldn't be forced to forego necessary medical treatment simply because it costs more than their mortgage payment, particularly when many drug companies can't justify why the costs of many medications have increased exponentially in recent years.