SACRAMENTO, Calif. (CN) – California Gov. Jerry Brown on Monday approved a health care bill that requires pharmaceutical companies to give advance notice of price increases, and mandates new cost reporting from health insurance providers.
The measure, Senate Bill 17, was crafted to shed light on rising prescription drug costs and force the pharmaceutical industry to justify its prices going forward.
Supporters called SB 17 a much-needed victory for consumers and a rare loss for the powerful pharmaceutical industry, which lobbied heavily against the measure.
“Drug companies abuse their market power by jacking up prices, and the public is looking to their government for help,” said state Sen. Ed Hernandez, D-Azusa, the bill’s author. “Requiring drug companies to provide advance notice and some explanation for large price hikes is a step toward a more stable and predictable prescription drug marketplace.”
The bill requires drug companies to give the state and insurers at least 60 days’ notice before planned price increases of more than 16 percent over a two-year period. It also forces insurance companies to file yearly reports with state regulators outlining the impact of medicine costs on health care premiums.
The powerful pharmaceutical lobby, which helped derail a similar proposal and a veteran drug cost initiative supported by Vermont Sen. Bernie Sanders in 2016, called the transparency requirements “misguided government intrusion.” Opponents warn the new reporting regulations could drive businesses out of California.
“The legislation the governor signed into law seriously jeopardizes the future of California’s leadership in this innovative industry,” Gary Andres, Biotechnology Innovation Organization spokesman, said in a statement. “Despite its intent, this law will neither provide meaningful information to patients nor lower prescription drug costs.”
The legislation was supported by a wide array of California unions and health care groups. Proponents included the California Labor Federation, Health Access California, Anthem Blue Cross, Kaiser Permanente and the Western Center on Law and Poverty. It cleared the state Senate by a wide margin and with bipartisan support.
In a signing ceremony, Brown said “Californians have a right to know why their medication costs are out of control, especially when pharmaceutical profits are soaring.”
Hernandez, an optometrist and a candidate for lieutenant governor in 2018, has received large donations from the drug industry during his time in the state Senate. According to a political contribution database by the Sacramento Bee, Hernandez has accepted over $200,000 from the industry since 2011. Hernandez currently chairs the state Senate Health Committee.
Additional reporting requirements include requiring health plans and insurers to annually report specified information to regulators related to the proportion of the premium dollar spent on prescription drugs, the year-over-year increase in net costs and member costs, the 25 most frequently prescribed medications, most costly drugs by total plan spending, and drugs with the highest year over year increase in net cost.
The law also tasks regulators with compiling the information into a consumer-friendly report showing the overall impact of drug costs on health care premiums.