Ambitious New Bill Adds Transparency to California Drug Pricing

California Governor Jerry Brown recently signed a bill that aims to increase transparency around prescription drug price increases. Read this article to learn more.

In October of 2017, California Governor Jerry Brown signed State Bill 17 (SB-17) into law. The bill requires drug manufacturers to release information about medication price increases to the public. Experts say it is the most comprehensive drug price transparency bill in the nation, and it could serve as an example for other states looking to pass similar legislation.

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

About State Bill 17

State Bill 17 will require drug companies to notify private insurers and Medi-Cal if they plan to increase the price by more than 16% over two years on any drug that costs $40 or more wholesale. The companies will have to release this information at least 60 days ahead of the effective date of the increase.

The bill doesn’t prohibit price increases, but it does create an unprecedented level of transparency in the pharmaceutical industry, and it also calls for civil penalties if companies fail to report price increases adequately and on time. It also requires pharmaceutical companies to justify these substantial increases and asks insurers to report on how drug prices are impacting premiums.

The Drug Lobby

Pharmaceutical companies and their lobbying arms have strongly opposed the new bill, spending nearly $17 million to fight it while arguing that actual drug prices are not the same as the figures that insurance companies initially negotiate.

According to Priscilla VanderVeer, deputy vice president at Pharmaceutical Research and Manufacturers of America, SB-17 won’t help mitigate costs for patients and consumers in California.

“There is no evidence that SB-17 will lower drug costs for patients,” VanderVeer said in an email statement. “Nothing in SB-17 will help patients get the benefits of the savings that insurance companies are getting.”

The Bigger Picture

The United States Congress has repeatedly failed to pass meaningful legislation that would control pharmaceutical costs, and as a result, individual states are now ramping up their own efforts to do so. Earlier this year, Maryland passed a law that allows the state attorney general to challenge “unconscionable” drug price hikes. And now that California has successfully passed SB-17, it’s likely that many other states will follow suit and try to establish cost transparency measures that apply to the pharmaceutical industry.

“Although this state legislation was passed in California, it’s a monumental achievement for the entire nation,” said Ed Hernandez, the Democratic state senator from West Covina who authored the bill. “SB-17 will set national health care policy, having impact for consumers and providers in other states.”

How This Impacts You

Lawmakers in California and elsewhere hope that by lifting the veil that covers the pharmaceutical industry’s pricing maneuvers, they’ll deter drug companies from making exorbitant price increases.

This move matters for all healthcare consumers; as prescription prices have drastically increased over the last decade, so too have premiums for healthcare plans. Maintaining the cost of pharmaceutical drugs — or at least keeping them from swelling without cause or justification — should likewise help to keep insurance premiums down.

Opponents argue that the bill is only targeting one link in the overall supply chain, but as the manufacturers set the initial prices for these drugs and receive most of the money consumers pay toward their medications, it follows that starting at the source is a logical first step toward broader reform and fairer pricing. 

Canopy Health Believes in Transparency in Care and Coverage

At Canopy Health, we advocate tirelessly for increased transparency in patient health care and the healthcare industry as a whole. We are committed to mitigating price increases wherever possible and passing those savings to our members.

If Canopy Health sounds like the sort of HMO alliance you would like to feature in your portfolio, please contact our director of business development, Denise Vance-Rodrigues, by calling (415) 966-0806.

References:
Dembosky, A. (2017, October 10). California governor signs law to make drug pricing more transparent. NPR. Retrieved from http://www.npr.org/sections/health-shots/2017/10/10/556896668/california-governor-signs-law-to-make-drug-pricing-more-transparent

Leonard, K. (2017, October 9). California to pass drug price transparency bill. Washington Examiner. Retrieved from http://www.washingtonexaminer.com/california-to-pass-drug-price-transparency-bill/article/2636919