Life Sciences Blog

Pharmaceutical pricing reform efforts in California: Poking the bear in the "Grizzly State"




It may still be winter, but not all bears are hibernating. In California, Senator Ed Hernandez (D-West Covina), chair of the Senate Committee on Health, has kicked off this legislative session intent on what he refers to as "poking the bear" (i.e. the pharmaceutical industry) in an attempt to continue to draw attention to pharmaceutical prices.  Having introduced and then withdrawn SB-1010 last year, a bill which would have required manufacturers to give notice to payers of impending price increases, the Senator got in early this session with introduction of SB-17 in December, a bill stating the intent to enact legislation achieving the same goals.

The fate of any forthcoming legislation will likely hinge on the reporting threshold above which notifications of price increases become mandatory and any requirement for manufacturers to provide written justifications of these increases. Amendments made to SB-1010 by the Assembly Appropriations Committee raising the threshold from 10% to 25% during any 12-month period, and reversing the requirement for the justification thereof, played a role in Hernandez’s decision to ultimately withdraw the bill last year due to his belief that the legislation in this form would no longer achieve the goal of price transparency.

The “price notification” push comes on the heels of the approval of S.216 in Vermont this past summer, when Governor Peter Shumlin approved legislation requiring state regulators to annually draw up a list of up to 15 drugs with the steepest price increases. Manufacturers of drugs whose wholesale acquisition prices have risen by more than 50% over five years or 15% in a single year and which place a significant cost burden on the state must now justify the price increases to the Attorney General's Office.

California’s trailblazing status at stake?

California, a heavily blue state, likes to think of itself as a trailblazer when it comes to reform of hot-button issues such as healthcare. Vermont’s eclipsing of the state in the price notification drive is all the more noteworthy given the defeat of Prop 61 on the November ballot. The Drug Price Standards Initiative, championed by Bernie Sanders as an opportunity for voters to send a signal to Washington that broader reform is needed, would have prohibited state agencies from paying more than the Department of Veterans Affairs for prescription drugs. The “no” vote prevailed by 53.2% to 46.8%, in part reflecting concerns amongst voters that the move could backfire by raising costs for veterans. 

However, in addition to SB-17, the country’s most populous state has also seen Assembly Health Committee Chair Jim Wood (D-Healdsburg) kick off this year’s session with two bills of his own and a hearing on the subject of pharmaceutical pricing. AB-315 seeks to put pharmacy benefit managers (PBMs) under the authority of the California State Board of Pharmacy and require them to report, at aggregate level, price concessions granted by manufacturers and passed on to payers. This initiative is in alignment with statements issued by the pharmaceutical industry itself, which has met criticisms over pricing with calls for greater PBM transparency, arguing that concessions made by industry are often not passed along the chain to the end user.  

Meanwhile, AB-265 wades into the co-pay assistance debate and would prohibit manufacturers from offering Californians any reduction in out-of-pocket expenses (i.e. via discounts, rebates, product vouchers, etc.) wherever a lower cost alternative “therapeutically equivalent to, or interchangeable with,” the drug being prescribed exists. The co-pay assistance debate has been going on for a number of years, with concerns that manufacturer subsidies – either direct or via third-party charities – may violate anti-kickback rules.

Massachusetts was the last state to allow such programmes when it lifted a ban on them in 2012. While a study was supposed to be undertaken to determine the impact of these programmes on healthcare spending, the study was never performed, and the sunset clause that allows for reinstatement of the ban may be retired before July 2017, when the ban is set to come back into effect.

Thus, California may yet have the chance to poke the bear at a time when the current Administration’s intentions with regards to pharmaceutical pricing policy remain elusive.  Certainly while the national “repeal and replace” debate over Obamacare dominates discussions of healthcare reform in the US, observers should not forget that, even if at a more local level, pharmaceutical pricing remains on the radar.

With an initiative similar to Prop 61 set to appear on the Ohio ballot this coming November, whether it is California or another state, there is every possibility that more voters and/or state lawmakers will send another signal to Washington before the year is over.

Cameron Lockwood is the manager of the life sciences EMEA consulting team for IHS Markit

Posted 10 March 2017

About The Author

Cameron Lockwood manages the EMEA consulting and multi-client study team. He has a background in the life sciences and specialises in market access and pricing and reimbursement issues.