Fate of controversial California drug price bill up in air
A closely watched California bill could soon become the nation’s most comprehensive law aimed at shining a light on prescription drug prices. Senate Bill 17’s goal of moving toward “transparency” in drug prices would enable health insurers to negotiate lower prices for drugs or, in many cases, replace those drugs with cheaper alternatives, its supporters say. 

SACRAMENTO — A closely watched California bill could soon become the nation’s most comprehensive law aimed at shining a light on prescription drug prices.

Senate Bill 17’s goal of moving toward “transparency” in drug prices would enable health insurers to negotiate lower prices for drugs or, in many cases, replace those drugs with cheaper alternatives, its supporters say. They argue that the measure could make a huge difference because when California has required cost transparency in other areas of the health care industry, prices have stabilized or even decreased.

The bill is furiously opposed by the pharmaceutical industry, which has deployed legions of lobbyists and paid for full-page newspaper ads as the Legislature gets ready to take final votes on the measure, partially out of fear that SB 17 could become a national model and the first major step toward price controls.

“It’s a big deal,” said Anthony Wright, executive director of Health Access California, a consumer advocacy group. “We have never come so close to having prescription drug price reform in my 15 years of doing this.’’

SB 17 requires pharmaceutical companies to notify health insurers and government health plans like Medi-Cal at least 60 days before scheduled prescription drug price hikes that would exceed 16 percent over a two-year period. It would also force drug companies to explain the reasons behind those increases.

The bill, which passed the Senate 28-10 in May, is set for a vote on the Assembly floor as early as Monday. The Assembly vote is expected to be much closer than the Senate vote.

Transparent or misleading?

The uproar over stratospheric drug costs has been building in the past few years, spurred by headlines over things such as the $600-plus retail price for a two-pack of EpiPens, the lifesaving auto-injector.

Under SB 17, whose main author is Sen. Ed Hernandez, D-West Covina, health insurers also would have to annually report the 25 most frequently prescribed drugs, the 25 most costly drugs, the 25 drugs with the highest year-over-year increase in total annual spending and the proportion of premiums spent on prescription drugs.

Getting those numbers, Hernandez said, should help health insurers and the public get a better sense of which drugs are driving up the cost of health care.

“There is a level of frustration with the black box of drug pricing and the uncertainty of price increases and the ability of states to balance their budgets,’’ said Trish Riley, executive director of the National Academy for State Health Policy. “It’s the perfect confluence of circumstances that gives states the impetus to act.’’

But pharmaceutical companies call SB 17 misleading because the list prices set by drug makers — like those set by car manufacturers — aren’t what most health plans pay after negotiating discounts, or what consumers actually shell out after they use rebates and coupons.

“The bill, which claims to be about price transparency, is not going to do what it claims to do,’’ said Priscilla VanderVeer, spokeswoman for the Washington, D.C.-based Pharmaceutical Research and Manufacturers of America, a trade group that represents 37 drug companies.

“When you are not having a conversation about the actual facts on the ground in the marketplace, then what is your legislation going to help accomplish?’’ asked VanderVeer, who said her group has tried to work with Hernandez on solutions, “but he is not going to talk to us anymore.’’

Hernandez disputes that characterization.

“We have been trying to work with the opponents,’’ said Hernandez, an optometrist who is chairman of the Senate Health Committee and is a candidate for lieutenant governor. “It doesn’t matter what we do. They’re always opposed to this bill because they don’t like being told what to do. What they want is to do nothing.’’

More support

The impact of SB 17, health industry experts say, could very well lead to other states adopting California’s template if Gov. Jerry Brown signs the bill into law.

At least three states — Vermont, Maryland, Nevada — have similar laws. But California’s is considered the most comprehensive, in part because it covers generic as well as brand drugs.

Hernandez introduced a similar bill last year, but he pulled the measure at the last minute after it was watered down with amendments.

He said he learned from the experience, went back and changed some parts of the bill.

The new bill has a lot more support than last year. Backers now include a handful of Republican legislators, the California Hospital Association, as well as more businesses and chambers of commerce. Billionaire environmental activist Tom Steyer, of San Francisco, also has signed on as a financial backer, alongside labor unions and insurers.

But most importantly, Hernandez said, he has the public on his side.

A poll conducted in April by the Kaiser Family Foundation found that most Americans favor tough government actions to lower drug costs. Eighty-six percent said drug companies should be required to publicly release information on how prices are set.

“One thing economists agree on is that we provide monopoly power to the drug industry when we give them patents for their discoveries,’’ said David Chiu, a San Francisco assemblyman who co-authored the bill. “What we don’t know is whether the billions of dollars earned by those companies are a fair rate of return, or price gouging in return for that monopoly power.’’

Cost of drugs

A drug made by Foster City-based Gilead Sciences has become another flashpoint in the debate over drug prices. Sovaldi, which cures Hepatitis C, surfaced in 2014 with a list price of $84,000 for a 12-week course of treatment.

When Gilead introduced Sovaldi, the state had to budget $340 million more for its Medi-Cal recipients in fiscal year 2014, Hernandez said.

“If we would control costs, even just slightly, the money could be used to pay for things like increased (Medi-Cal) provider fees, dental care restored for the poor and a lot of social services,” he said.

But drug manufacturers say the cost to develop drugs — 90 percent of which never get approval from the U.S. Food and Drug Administration — means the profits from those medications that do succeed must subsidize the failures.

Moreover, they say, the way Americans pay for medications is much more complex than most consumers realize. Many of them don’t understand that drug manufacturers routinely offer significant price concessions to insurers and consumers, according to the California Life Sciences Association, which represents at least 300 biopharmaceutical companies in the Golden State.

In 2015, the group said, discounts, rebates and other price concessions offset the price increase of brand name drugs by roughly 80 percent.

“It’s discouraging that California is moving forward with something like SB 17 that really just looks at the drug maker’s list prices,’’ said Brett Johnson, the trade association’s senior director of policy and regulatory affairs. “I don’t think that will help consumers or insurers or the public — or really help anyone understand the actual costs.”