California’s Drug Price Transparency Bill

On October 9, 2017, California Governor Jerry Brown signed the new drug price transparency bill SB 17.[1]  The new law requires pharmaceutical companies to give 60 days’ notice to state and health insurers if they plan to raise the price of a medication by 16 percent or more over a two year period, and to justify such increased prices.[2]  This information will be available on a government website,[3] and insurance companies are also required to annually report what percentage of premium increases are due to drug price increases.[4]  Charles Bacchi, the CEO of the California Association of Health Plans, has stated that “Health coverage premiums directly reflect the cost of providing medical care, and prescription drug prices have become one of the main factors driving up these costs. SB 17 will help us understand why, so we can prepare for and address the unrelenting price increases.”[5]  The Los Angeles Times has reported that escalating drug prices have inspired many other measures from lawmakers this year.[6]  One such bill is AB 265, which will restrict the use of drug rebates for brand-name drugs when a cheaper generic is available.

California’s bill is similar to laws in Maryland and New York directed at drug price increases.  Maryland recently passed a law that allows the attorney general to seek justification for price increases of essential generic or off-patent medicines, and allows the attorney general to sue to stop the price increase if it is deemed “unconscionable.”[7]  The Maryland law is currently in litigation at the District Court of Maryland where opponents have argued the law violates the Federal Constitution’s interstate commerce clause and the 14^th Amendment’s due process clause.[8]  The New York law also uses a number of legal mechanisms to impose financial penalties or require discounts if drug prices are deemed too high.[9]

Critics of California’s bill have argued that the new law focuses too narrowly on one aspect of the drug distribution pricing chain, and will not be enough to lower prices considering the fact that the law only applies in California.[10]