June 17, 2016

State Assembly Committee on Health

State Capitol, Room 6005

Sacramento, California 95814

Dear Assembly Member,

On June 1, 2016, the California State Senate passed SB1010. The legislation has been referred to the State Assembly Committee on Health. The supposed purpose of the bill is to provide transparency in prescription drug pricing that will ultimately lead to lower costs and more access. Unfortunately, the exact opposite will happen; costs could likely increase, which would harm patients. On behalf of the more than 226,470 members and supporters of the Council for Citizens Against Government Waste (CCAGW) in California, I ask that you reject this ill-advised legislation in committee and not allow it to reach the floor.

Among the several transparency requirements, the bill would require a branded drug manufacturer to notify state purchasers, healthcare insurers, healthcare service plans, and pharmacy benefit managers (PBMs) if it plans to increase the wholesale acquisition cost (WAC) of a prescription drug by more than 10 percent or by more than $10,000 during any 12-month period. A generic drug manufacturer would also have to notify the aforementioned healthcare purchasers and providers if it plans to increase the WAC of a drug by more than 25 percent that is currently priced at $100 or more per month’s supply. Both types of manufacturers would be required to provide notice of the price increase in writing at least 60 days prior to the planned effective date of the increase. Both manufacturers would also have to provide, within 30 days of the proposed price increase, information on the justification for raising the price, the previous year’s marketing budget for the drug, a schedule of price increases for the drug in the previous five years, and the acquisition price of the drug if it was not developed by the manufacturer selling the drug.

However, information about a range of drug prices, including the WAC, Average Wholesale Price (AWP), and Average Sales Price (ASP) is already published in various drug price compendia and available to commercial health insurers and state purchasers.

The reporting requirements under SB1010 are burdensome, useless fishing expeditions that will do nothing to lower costs. Manufacturers will be forced to transfer budget dollars to hire accountants and lawyers while spending less on valuable research or developing a generic version of a branded drug. Furthermore, since generic drugs represent nearly 90 percent of all prescriptions in the U.S. and their products behave more like commodities where prices fluctuate in a highly competitive marketplace on a regular basis, it would be extremely difficult to produce such reams of data.

The bill would also require brand name companies to notify the aforementioned purchasers and providers in writing if it is introducing a new prescription drug to the market with a WAC of $10,000 or more annually or per cost of treatment within three days of approval by the Food and Drug Administration (FDA). This requirement would likely force brand name companies to violate 21 CFR 312.7, “Promotion of Investigational Drugs.” The pertinent text states, “A sponsor or investigator, or any person acting on behalf of a sponsor or investigator, shall not represent in a promotional context that an investigational new drug is safe or effective for the purposes for which it is under investigation or otherwise promote the drug ... [the intent of this provision] is to restrict promotional claims of safety or effectiveness of the drug for a use for which it is under investigation and to preclude commercialization of the drug before it is approved for commercial distribution.”

The bill also focuses on wholesale prices and does not take into consideration the intense negotiations that occur between the pharmaceutical companies and payers, including PBMs, which lower prices through discounts and rebates. It also ignores the value and benefit that pharmaceuticals bring to healthcare by keeping people out of the hospital and doctors’ offices, saving healthcare dollars and enabling them to stay healthy and lead productive lives.

SB1010 requires the Department of Insurance and the Department of Managed Health Care to aggregate the drug pricing information and report on the overall impact of drug prices on healthcare premiums. While the raw data is supposed to be kept confidential, the federal and local governments have proven time and again they are incapable of doing so.

Furthermore, the Senate Committee on Appropriations has estimated that the fiscal impact of the legislation would be a one-time cost of $220,000 and an ongoing cost of $250,000 per year. CCAGW believes these costs are highly optimistic considering the amount of data the state agencies will be collecting on a routine basis that they must quantify and examine. All governments, and California is no exception, are notorious for cost overruns and the effects of this bill will certainly cost taxpayers far more than anticipated. More importantly, the staff of the Senate Appropriations Committee reports, “it is not likely that the requirement to provide this information to the state will provide a sufficient incentive for drug companies to actually reduce prices. Therefore, it is unlikely that the bill will result in reduced health care spending on prescription drugs.”

It is understandable that legislators, government officials, and consumers are concerned about high drug prices, but an environment that fosters competition is the better approach to lowering prices than inserting the government into drug pricing. Since it takes 10 to 12 years to get a new drug through FDA approval process and costs about $2.6 billion to do so, the U.S. House of Representatives has proposed new ways to modernize and speed-up clinical trials, such as utilizing biomarkers and real-world evidence, through the 21st Century Cures Act. And Congress is holding the FDA’s feet to the fire to reduce the backlog of more than 4,000 generic drug applications.

In light of the ample evidence that SB1010 will create burdensome and unnecessary paperwork and costs for healthcare providers, and fail to reduce the cost of prescription drugs, we urge the State Assembly Committee on Health not to move the legislation to the floor. Instead, members of the State Assembly should prod California representatives and senators to get the 21st Century Cures Act passed and agree to stay away from micromanaging the pharmaceutical marketplace.

Sincerely, 

Thomas Schatz