Life Science Compliance Update

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October 03, 2017

California Bans Prescription Discounts with Generic Equivalents


The California Assembly and Senate recently passed AB265, focused on amending price discounts permitted on prescription drugs. The legislation was initially offered by Assembly Members Wood and Chiu on January 31, 2017. The legislation passed the Assembly on May 31, 2017, followed by the California Senate on September 12, 2017.

Governor Jerry Brown has twelve days from the day the bills are presented to him to decide whether to sign or veto the bills before they automatically become law. AB265 was presented to the Governor on September 20, 2017, at 4:30 pm, meaning the twelve days are up and the bill automatically became law yesterday, October 2, 2017.

The bill prohibits prescription drug manufacturers from offering discounts or other reductions in an individual’s out-of-pocket costs associated with his or her insurance coverage, if a lower cost generic equivalent is available.

The legislation also specifies exceptions where discounts will be permitted, even if a lower cost generic is available. Those exceptions include:

  • Discounts for a prescription drug required under a United States Food and Drug Administration (FDA) Risk Evaluation and Mitigation Strategy (REMS) to monitor the use of that prescription drug in a manner consistent with the approved labeling;
  • A single-tablet drug regimen for treatment or prevention of human immunodeficiency virus (HIV) or acquired immune deficiency syndrome (AIDS) that is as effective as a multi-tablet regimen;
  • If the individual has completed step therapy or prior authorization requirements for the branded prescription drug as mandated by the individual’s health insurer, health care service plan, or other health coverage; or
  • Rebates received by a state agency.

The bill was introduced by the authors because “in recent years there has been a proliferation of coupons offered by drug manufacturers that sound great, but two recent studies show that most of these coupons are a classic bait and switch.”

According to Analysis prepared by the Senate,

The number of pharmaceutical coupon offers has increased in recent years, with manufacturers tendering coupons for more than 500 prescription drugs in 2014, compared with fewer than 100 in 2011. According to one study, coupons were used for about 8% of brand-name prescriptions in 2014, up from 3% in 2011. While manufacturer coupons may reduce or eliminate a consumer's out-of-pocket spending requirement, generally they do not reduce the price an insurer or government program is charged for a drug. Health care payers, such as commercial insurers, unions and employers, and government officials have complained that drug coupons mask the actual price of drugs and may prompt beneficiaries to choose more expensive drugs, even if cheaper, equally effective drugs are available, which drives up health care spending.

Unfortunately, the entering of this bill into law has the propensity to raise the out of pocket cost of prescriptions for the citizens of California.

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