On October 9, 2017, California Governor Jerry Brown signed SB 17.  This law requires pharmaceutical companies to give notice before raising prices.  It protects consumers from greedy pharmaceutical companies that choose to raise the price of their drugs for no good reason.  SB 17 makes it easier for the people of California to be able to continue to afford the medications that they need.

The information on the Governor of California’s official website says:

“Californians have a right to know why their medication costs are out of control, especially when pharmaceutical profits are soaring,” said Governor Brown.

SB 17 requires manufacturers to provide a 60-day notice if prices are raised more than 16 percent in a two-year period. The bill applies to drugs that have a wholesale price of more than $40 for a 30-day supply. SB 17 also requires health plans and insurers to file annual reports outlining how drug costs impact health care premiums in California.

SB 17 amended sections of an existing Health and Safety code.  In other words, it is not a brand new law – it is an improvement upon the previously existing Health and Safety code.  The section is very long, and many parts were amended by SB 17.  Rather than list everything that changed, I will focus on some of the most significant portions of the amended Health and Safety Code.

Chapter 9. Prescription Drug Pricing for Purchasers
127675. (a) This chapter shall apply to a manufacturer of a prescription drug that is purchased or reimbursed by any of the following:

(1) A state purchaser in California, including, but not limited to, the Public Employees’ Retirement System, the State Department of Health Care Services, the Department of General Services, and the Department of Corrections and Rehabilitation, or an entity acting on behalf of a state purchaser.

(2) A licensed health care service plan.
(3) A health insurer holding valid outstanding certificate of authority from the Insurance Commissioner.
(4) A pharmacy benefit manager as defined in subdivision (j) of Section 4430 of the Business and Professions Code.
(b) for the purposes of this chapter, the term “office” shall mean the Office of Statewide Health Planning and Development.

127676. (a) The Legislature finds and declares that the State of California has a substantial public interest in the price and cost of prescription drugs.  California is a major purchaser through the Public Employees’ Retirement System, the State Department of Health Care Services, the Department of General Services, the Department of Corrections and Rehabilitation, and other entities acting on behalf of a state purchaser.  California also provides major tax expenditures through the tax exclusion of employer sponsored coverage and tax deductibility of coverage purchased by individuals, as well as tax deductibility of excess health care costs for individuals and families.

(b) (1) It is the intent of the Legislature in enacting this chapter to provide notice and disclosure of information relating to the cost and pricing of prescription drugs in order to provide accountability to the state for prescription drug pricing.

(2) It is further the intent of the Legislature to permit a manufacturer of a prescription drug to voluntarily make pricing decisions regarding a prescription drug, including any price increases.  It is further the intent of the Legislation to permit purchasers, both public and private, as well as pharmacy benefit managers, to negotiate discounts and rebates consistent with existing state and federal laws.

127.677. (a) A manufacturer of a prescription drug with a wholesale acquisition cost of more than forty dollars ($40) for a course of therapy shall notify each purchaser described in Section 127675 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 prior to the current year.  For purposes of this section, a “course of therapy” is defined as either of the following:

(1) The recommended daily dosage units of a prescription drug pursuant to its prescribing label as approved by the federal Food and Drug Administration for 30 days.

(2) The recommended daily dosage units of a prescription drug pursuant to its prescribing label as approved by the federal Food and Drug Administration for a normal course of treatment that is less than 30 days.

(b) The notice required by subdivision (a) shall be provided in writing at least 60 days prior to the planned effective date of the increase.

(c) (1) The notice required by subdivision (a) shall include the date of the increase, the current wholesale acquisition cost of the prescription drug, and the dollar amount of the future increase in the wholesale acquisition cost of the prescription drug.

(2) The notice required by subdivision (a) shall include a statement regarding whether a change or improvement in the drug necessitates the price increase.  If so, the manufacturer shall describe the change or improvement.

(d) The notice required by subdivision (a) shall be provided to each state purchaser described in paragraphs (2) to (4), inclusive, of subdivision (a) of Section 127675 if a purchaser registers with the office for the purpose of this notification.  The office shall make available to manufacturers a list of registered purchasers for the purpose of this notification.

(e) If a pharmacy benefit manager receives a notice of an increase in wholesale acquisition cost consistent with subdivision (a), it shall notify its large contracting public and private purchasers of the increase.  For the purposes of this section, a “large purchaser” means a purchaser that provides coverage to more than 500 covered lives.

127679. (a) On a quarterly basis at a time prescribed by the office and in a format prescribed by the office, commencing no earlier than January 1, 2019, a manufacturer shall report to the office all of the following information for each drug for which an increase in wholesale acquisition cost is described in Section 127677:

(1) A description of the specific financial and non financial 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.

(2) A schedule of wholesale acquisition cost increases for the drug for the previous five years if the drug was manufactured by the company.

(A) The wholesale acquisition cost of the drug at the time of acquisition and in the calendar year prior to acquisition.

(B) The name of the company from which the drug was acquired, the date acquired, and the purchase price.

(C) The year the drug was introduced to market and the wholesale acquisition cost of the drug at the time of introduction.

(4) The patent expiration date of the drug if it is under patent.

(5) If the drug is a multiple source drug, an innovator multiple source drug, a non innovator multiple source drug, or a single source drug, as defined in subparagraph (A) of paragraph (7) of subdivision (k) of Section 1396r-8 of Title 42 of the United States Code.

(6) A description of the change or improvement in the drug, if any, that necessitates the price increase.

(7) Volume of sales of the manufacturer’s drug in the United States for the previous year.

(b) The manufacturer may limit the information reported pursuant to subdivision (a) to that which is otherwise in the public domain or publicly available.

(c) The office shall publish the information provided to it pursuant to this section on its Internet Web site on no less than a quarterly basis. The information shall be published within 60 days of receipt from a manufacturer. The information shall be published in a manner that identifies the information that is disclosed on a per-drug basis and shall not be aggregated in a manner that would not allow identification of the drug.

(d) The office shall be responsible for the enforcement of this section.

(e) A manufacturer of a prescription drug subject to this chapter that does not report the required pursuant to this section is liable for a civil penalty of one thousand dollars ($1,000) per day for every day after the reporting period described in this section that the required information is not reported.

(f) A civil penalty shall be assessed and recovered in a civil action brought by the office in the name of the people of the State of California.  Assessment of a civil penalty may, at the request of the manufacturer of a prescription drug subject to this section, be reviewed on appeal, and the penalty may be reduced or waived for good cause.

(g) Any money received by the office pursuant to this section shall be paid into the Managed Care Fund.

(Skipping ahead a bit here…)

127686. (a) By January 1, 2022, the California Research Bureau shall report to the Legislature on the implementation of this chapter, including, but not limited to, this chapter’s effectiveness in addressing the following goals:

(1) Promoting transparency in pharmaceutical pricing for the state and other payers.

(2) Enhancing understanding about pharmaceutical spending trends.

(3) Assisting the state and other payers in management of pharmaceutical drug costs.

(Skipping ahead a bit here…)

10123.205. (a) (1) A health insurer that reports rate information pursuant to (certain sections of the legislation) shall report the information described in paragraph (2) to the department no later than October 1 of each year, beginning with October 1, 2018.

(2) For all covered prescription drugs, including generic drugs, brand name drugs, and specialty drugs dispensed at a plan pharmacy, network pharmacy, or mail order pharmacy for outpatient use, all of the following shall be reported:

(A) The 25 most frequently prescribed drugs.

(B) The 25 most costly drugs by total annual plan spending.

(C) The 25 drugs with the highest year-over-year increase in total annual plan spending.

(b) The department shall compile the information reported pursuant to subdivision (a) into a report for the public and legislators that demonstrates the overall impact of drug costs on health care premiums. The data shall be aggregated and shall not reveal information specific to individual health insurers.

(c) For the purpose of this section, a “specialty drug” is one that exceeds the threshold for a specialty drug under the Medicare Part D program (Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173)).

(d) By January 1 of each year, beginning January 1, 2018, the department shall publish on its Internet Web site the report required pursuant to subdivision (b).

(e) After the report required in subdivision (b) is released, the department shall include the report as part of the public meeting required pursuant to subdivision (b) of Section 10181.45.

(f) Except for the report required pursuant to subdivision (b), the department shall keep confidential all of the information provided to the department pursuant to this section, and the information shall be protected from public disclosure.

(Skipping ahead a bit here…)

(4) (A) For covered prescription generic drugs excluding specialty generic drugs, prescription brand name drugs excluding specialty drugs, and prescription brand name and generic specialty drugs dispensed at a pharmacy, network pharmacy, or mail order pharmacy for outpatient use, all of the following shall be disclosed:

(i) The percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs as defined in this subparagraph.

(ii) The year-over-year increase, as a percentage, in per-member, per-month total health insurer spending for each category of prescription drugs as defined in this subparagraph.

(iii) The year-over-year increase in per-member, per-month costs for drug prices compared to other components of the health care premium.

(iv) The specialty tier formulary list.

(B) The insurer shall include the percentage of the premium attributable to prescription drugs administered in a doctor’s office that are covered under the medical benefit as separate from the pharmacy benefit, if available.

(C) (i) The insurer shall include information on its use of a pharmacy benefit manager, if any, including which components of the prescription drug coverage described in subparagraphs (A) and (B) are managed by the pharmacy benefit manager.

(ii) The insurer shall also include the name or names of the pharmacy benefit manager, or managers if the insurer uses more than one.

What Does This Mean in “Plain English”?

The Hill reported the following on October 9, 2017, in an article titled “California governor signs drug pricing transparency measure”:

…The new law requires drug manufacturers to notify insurers before they raise the price of a prescription drug by more than 16 percent over a two-year period.   Drug companies would also have to explain why the price is increasing.

The LA Times reported the following on October 9, 2017, in an article titled “Californians will get more information on what’s driving prescription drug prices law signed by governor”:

Gov. Jerry Brown approved a measure Monday to increase disclosure on prescription drug prices, the focal point of growing efforts to clamp down on climbing pharmaceutical costs.

Supporters call the law the nation’s most sweeping effort to make prescription drug pricing more transparent.  The measure would require drugmakers to provide notice to health plans and other purchasers 60 days in advance of a planned price hike if the increase exceeds certain thresholds.

The measure, SB 17 by state Sen. Ed Hernandez (D-Azusa), will also require health plans to submit an annual report to the state that details the most frequently prescribed drugs, those that are most expensive and those that have been subject to the greatest year-to-year price increase….

…This disclosure, backers say, would help shed light on how prescription drugs are contributing to overall health care costs.

Los Angeles Daily News reported the following on October 12, 2017, in an article titled “New California state law challenges Pharma giants’ profits”

California Gov. Jerry Brown defied the drug industry by signing a sweeping drug price transparency bill that will force drugmakers to publicly justify big price hikes….

…The new law will require drug companies to give 60 days’ notice to state agencies and health insurers anytime they plan to raise the price of a drug by 16 percent or more over two years on drugs with a wholesale cost of $40 or higher. They must also explain why the increases are necessary.

The advance notification provisions take effect Jan. 1, while the other reporting requirements don’t kick in until 2019.

Brown said the bill is part of a larger effort to correct growing income inequality in the United States.  He called on top pharmaceutical leaders to consider doing business in a way that helps Americans who are spending large sums of money for lifesaving medications.

“The rich are getting richer. The powerful are getting more powerful.” he said.  “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.”…

…The bill drew support from a diverse coalition, including labor and consumer groups, the hospital industry and even health insurers, who agreed to share some of their own data. Under the new law, they will have to report what percentage of premium increases is related to drug prices….

The Sacramento Bee reported the following on October 9, 2017, in an article titled: “Why are prescription drugs so expensive? Californians may find out.”

California Gov. Jerry Brown moved to shed light on escalating prescription drug prices on Monday, signing heavily lobbied legislation requiring insurers to break down and provide drug costs to the state.

Senate Bill 17, which drew millions in opposition spending from the powerful pharmaceutical industry, is designed to arm the state with data on the percentage of health insurance premiums and premium increases that can be attributed to prescription drug costs.

Brown, in a signing ceremony in his office, said Californians have a right to know why their medical costs are “out of control, especially when pharmaceutical profits are soaring.”

“That’s the takeaway message,” Brown said, lamenting the growing inequities in California and throughout the country….

…SB 17 was viewed as a test of drug company influence at the state Capitol, yet it drew on a larger, more diverse list of supporters – from Health Access California, to the California Labor Federation, and business groups to key health care providers like Kaiser Permanente.

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Pharmaceutical Companies Must Give Notice Before Raising Prices is a post written by Jen Thorpe on Book of Jen and is not allowed to be copied to other sites.

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