Blog: California Governor Considers Drug Price Reporting Bill and Ban on Discounts and Rebates for Branded Pharmaceutical Products

by Cooley LLP

The California State Legislature sent two new pharmaceutical pricing measures, S.B. 17 and A.B. 265, to Governor Jerry Brown on September 13th. S.B. 17 would impose new reporting requirements on pharmaceutical manufacturers related to certain price increases of some already marketed drugs and the introduction of new drugs onto the market over a threshold price. A.B. 265 would prohibit manufacturers of branded prescription drugs from providing discounts and rebates on their products to Californians in certain circumstances.

S.B. 17

If S.B. 17 is enacted, beginning no earlier than January 1, 2019, manufacturers of prescription drugs with a wholesale acquisition cost (WAC) of more than $40 would be required to give 60 days’ notice of any increase in WAC of greater than 16 percent to certain purchasers, including purchasers for or on behalf of the state, health care service plans and health insurers, and pharmacy benefits managers. Reports made to purchasers would include the amount of the WAC increase and the amount of cumulative increases in WAC for the past two years. Purchasers would have to opt-in to receive the required notice under S.B. 17. Manufacturers would be able to obtain a list of purchasers opted-in from the California Office of Statewide Health Planning and Development (OSHPD).

Additionally, S.B. 17 would require manufacturers to notify OSHPD in a quarterly report of any increase in WAC for which notice would be required to a purchaser. The report to the OSHPD would contain seven categories of information, including: (1) a description of the financial and nonfinancial factors used to make the decision to increase WAC, the amount of the increase, and an explanation of the increase based on the influencing factors; (2) a schedule of increases in WAC for the previous five years (if the drug was manufactured by the reporting manufacturer for that period of time); (3) a description of any change or improvement in the drug that necessitates a price increase; (4) volume of sales of the manufacturers drug in the United States for the previous year; and (5) whether the drug is a multiple source drug, an innovator multiple source drug, a non-innovator multiple source drug, or a single source drug under the Medicaid program. For drugs acquired in the last five years, the manufacturer also would report certain information about the purchase, including the WAC of the drug at the time it was acquired. The manufacturer would additionally state the expiration date of the patent, if applicable.

With respect to new drugs, the S.B. 17 would require that manufactures notify the OSHPD within three days after introducing a drug to market if the drug has a WAC that exceeds the Medicare Part D threshold for a specialty drug. Additionally, within 30 days of giving the required notice, manufacturers would have to submit a report to the OSHPD providing: (1) a description of the marketing and pricing plans used in the launch of the new drug in the United States and internationally; (2) the estimated volume of patients that may be prescribed the drug; (3) if the drug was granted breakthrough therapy designation or priority review by the U.S. Food and Drug Administration (FDA) prior to final approval; and (4) the date and price of acquisition if the drug was not developed by the manufacturer.

If S.B. 17 is enacted, failure to make the required reports to the OSHPD could result in a civil penalty of up to $1000 per day that a manufacturer fails to provide required information. Though S.B. 17 is one of the most sweeping price reporting bills considered by a state to date, the law would allow manufacturers to limit the data and other details they provide to OSHPD to publicly available information.

A.B. 265

The governor also is considering a bill that would prevent manufacturers from offering “a discount, repayment, product voucher, or other reduction in an individual’s out-of-pocket expenses” for a branded prescription drug if a lower cost therapeutically equivalent generic drug is available under the individual’s health care coverage, or if the active ingredient in the drug is available at a lower cost in an over the counter product that is regulated by the FDA and the product is not contraindicated for treatment of the individual’s condition.

The rule would not apply to rebates and discounts made to state agencies, individuals for out of pocket expenses that are not associated with their health care coverage, or individuals who have completed step therapy or received pre-authorization for the branded prescription drug, as required by their health care coverage provider. In addition, the rule would not prohibit rebates and discounts for prescription drugs required under an FDA Risk Evaluation and Mitigation Strategy (REMS), or single tablet HIV and AIDS medications, under certain circumstances. The bill notes that it is not intended to limit manufacturer-funded prescription assistance programs or charitable organizations that provide patient assistance.

The governor has until October 15th to sign or veto these new measures. We will continue to monitor the progress of S.B. 17 and A.B. 265, and provide an update when the governor takes action.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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