Life Science Compliance Update

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October 02, 2017

California Enacts Legislation on Reporting of Prescription Drug Costs


California’s Senate and Assembly have both passed legislation on publishing prescription drug prices (SB-17) and presented the legislation to California Governor Jerry Brown on September 19, 2017. Under California law, the Governor has twelve days to sign or veto the legislation before it becomes law automatically. For SB-17, those twelve days were up yesterday, October 1, 2017, and the legislation automatically became law.

What does the new legislation mean for pharmaceutical companies with sales in California? The law requires health plans and insurers that report rate information through the existing large and small group rate review process to also report specified information related to prescription drug pricing to Department of Managed Health Care (DMHC) and California Department of Insurance (CDI). DHMC and CDI must then compile specified information into a consumer-friendly report that demonstrates the overall impact of drug costs on health care premiums.

The law also requires drug manufacturers to notify specified purchasers (in writing at least ninety days prior to the planned effective date) if it is increasing the wholesale acquisition cost (WAC) of a prescription drug by specified amounts. This bill requires drug manufacturers to notify Office of Statewide Health Planning and Development (OSHPD) three days after federal Food and Drug Administration (FDA) approval when introducing a new drug to market at a WAC that exceeds the Medicare Part D specialty drug threshold.

The new law will require health plans and insurers that report rate information in the small and large group markets to annually report to regulators the following information about all covered drugs (categorized by generic drugs, brand name drugs, and specialty drugs):

  • The 25 most frequently prescribed drugs;
  • The 25 most costly drugs by total annual spending; and,
  • The 25 drugs with the highest year-over-year increase in total annual spending.

The regulators must then put the information into a report that is posted online starting January 1, 2019, demonstrating the overall impact of drug costs on healthcare premiums. Interestingly, the legislation also requires the regulators to keep the information confidential that was provided to them, and that the information also be protected from public disclosure.

The new law also requires manufacturers to notify the office in writing if it is introducing a new prescription drug to market at a wholesale acquisition cost that exceeds the threshold set for a specialty drug under the Medicare Part D program. The notice shall be provided in writing within three days after the release of the drug in the commercial market. A manufacturer may make this notification pending approval by the federal Food and Drug Administration, if commercial availability is expected within three days of approval.

The information that shall be reported by the manufacturer includes the following:

  • A description of the marketing and pricing plans used in the launch of the new drug in the United States and internationally.
  • The estimated volume of patients that may be prescribed the drug.
  • If the drug was granted breakthrough therapy designation or priority review by the federal Food and Drug Administration prior to final approval.
  • The date and price of acquisition if the drug was not developed by the manufacturer.

Any manufacturers that do not report the information required pursuant to this section is liable for a civil penalty of one thousand dollars per day for every day after the notification period described in this section that the required information is not reported.

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