California Passes Two Drug Pricing Transparency Laws

Last month, California Governor Jerry Brown signed two new bills aimed at curtailing rising prescription drug costs, joining other states like Maryland and New York that have recently passed drug pricing transparency laws.

Limitations on Copay Assistance Limitations

Assembly Bill 265 (AB-265) is intended to prevent manufacturers from incentivizing patients to continue using high cost drugs when lower cost generic alternatives are available. Specifically, the bill prohibits prescription drug manufacturers from offering in California any form of discount (including repayments, vouchers, or other costs reductions) on a patient's out-of-pocket costs associated with health insurance, health care service plan, or other health coverage if either: (i) the patient's coverage includes a therapeutically equivalent generic on a lower cost-sharing tier; or (ii) if the drug's active ingredient is available without a prescription for a lower cost. There are a number of exceptions to the prohibition, including situations where the individual has completed any applicable step therapy or prior authorization for the prescription drug as mandated by the individual’s health coverage, offering a drug free of cost to both the patient and his or her insurer, health care service plan, or other health coverage. In addition, the prohibition on offering a discount when a generic equivalent is available does not apply to branded products that have been available for less than three calendar months.

Notably, it is not clear whether the language "offering in California" will be interpreted to apply to coupons applied by out-of-state pharmacies filling prescriptions for a California patient or only to discounts of coupons offered at pharmacies located in California.

AB-265 will add a new Division 114 to the California Health & Safety Code and will be effective on January 1, 2018.

Senate Bill 17: Prescription Drug Pricing

Senate Bill 17 (SB-17) imposes reporting obligations on manufacturers and health plans related to prescription drug pricing. Key provisions are summarized below:

• Beginning January 1, 2018, manufacturers of prescription drugs with a wholesale acquisition cost (WAC) of more than $40 for a course of therapy will be required to provide drug purchasers (state agencies, health care service plans, health insurers, and pharmacy benefit managers) with 60 days prior written notice of any increase to the WAC that is greater than 16 percent. The report must include the proposed increase and the cumulative increases that occurred within the previous two calendar years. “Course of therapy” is defined as the recommended daily dosage units of a prescription drug, pursuant to its FDA-approved label, for a normal course of treatment that is less than or equal to 30 days. In addition, the notice must include the date of the proposed increase, the current WAC of the drug, and the dollar amount of the future increase in the WAC. Manufacturers must also include a statement regarding whether a change or improvement in the drug necessitates the price increase. If so, the change or improvement must be described by the manufacturer.

• Beginning in 2019, on a quarterly basis, for each drug subject to a 16 percent or greater WAC price increase, manufacturers will be required to report and explain the factors (financial and nonfinancial) that were used in making the decision to increase the WAC and the amount of the increase. Manufacturers will also be required to provide historical WAC pricing for the drug and, for generic drugs, the change or improvement to the drug, if any, that justify the price increases.

• Manufacturers will also be required to provide notice to the state if a new drug is being introduced to the market with a WAC that exceeds the threshold set for specialty drugs under Medicare Part D. Thirty days after this initial notification, an additional report must be provided with, among other things, a description of the marketing and pricing plans used to launch the new drug and the estimated volume of patients that may be prescribed the drug. 

• Starting October 1, 2018, for all covered drugs dispensed a plan pharmacy, network pharmacy, or mail order pharmacy, including generic, specialty, and brand drugs, health plans. and insurers will be required to report 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. Plans will also be required document how much drug spending factored into their annual premium calculations. This information will be reported to the public and state legislators to demonstrate "the overall impact of drug costs on health care premiums." Notably, the data shared with the public and legislators will not reveal information specific to health plans.

Forthcoming regulations are expected to address the desired format of the reporting requirements, and provide clarification about how price change notifications should be sent to insurers and state agencies.

For more information, contact Simone Colgan Dunlap at (602) 229-5510/simone.colgandunlap@quarles.com; Nicholas H. Meza at (602) 229-5439/nicholas.meza@quarles.com; Laura D. Pone at (312) 715-5090/laura.pone@quarles.com; or your Quarles & Brady attorney.