Drug Price Transparency Bill Clears Key Hurdle in California Legislature

Michelle Sherman

August 17, 2016

By Ana B. Ibarra August 12, 2016

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Controversial California legislation requiring drug companies to justify treatment costs and price hikes jumped one more hurdle Thursday, just a few weeks before the end of the legislative session.

The bill was approved by the Assembly’s Appropriations Committee Thursday and will be debated again by the entire Assembly later this month. The bill was approved by the Senate in June.

The measure, authored by Sen. Ed Hernandez (D-West Covina), would require that drug manufacturers give insurance companies and state agencies a heads up on new drugs that will cost $10,000 or more per year or per course of treatment, and justify those costs. Drugmakers would also have to notify state officials when they planned to raise drug prices by more than a certain percentage.

The proposal also requires that health insurers disclose how much they spend on prescription drugs.

“The public is tired of drug cost increases year after year, often with no warning and no apparent reason,” Hernandez said in a statement. “Look no further than the broad coalition supporting this bill to see that consumers are pleading for more information.”

The bill is backed by health care providers, insurers, patient and labor groups, and a number of business groups. But the pharmaceutical industry has argued that the bill won’t lead to cost savings.

Hernandez has referred to the bill as a “common sense approach” in battling rising health care costs. Allowing insurers and state purchasers to know the cost of drugs at least 30 days in advance enables them to better negotiate prices, supporters say. Key state drug purchasers include the California Public Retirement System and Medi-Cal, the state’s version of the Medicaid program for low-income people.

Prescription drug spending is estimated to make up about 10 percent of overall health care costs. The issue of rising drug costs was catapulted into the public eye last year when Turing Pharmaceuticals bought Daraprim, a 62-year-old drug used to treat an infection that attacks people with compromised immune systems, and jacked up its price by more than 5,000 percent — from about $13 to $750 for a single pill.

Opponents of the bill, primarily pharmaceutical companies, have said it places the responsibility solely on drug companies, ignoring that other organizations also affect drug prices, including wholesalers, distributors, health plans and other purchasers.

California is among roughly a dozen states that have debated drug price transparency measures this year.

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