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California to pass drug price transparency bill

100917 Leonard Drug Pricing California pic
California Gov. Jerry Brown is expected to sign a bill that would require drug companies to justify planned price hikes to their medications. (AP Photo/Eric Risberg)

Democratic California Gov. Jerry Brown is expected to sign a bill into law Monday that would require drug companies to justify planned price hikes to their medications.

Under the bill, drug companies would need to notify private health insurers and the state government health plan, known as Medi-Cal, of their intentions 60 days before the price change if the increase were to exceed 16 percent over a two-year period. Failure to report this would result in a civil penalty, but the bill doesn't directly prohibit drug companies from price increases.

The bill, known as SB 17, was authored by Sen. Ed Hernandez, D-West Covina, who said after its passage in the legislature that he believed it could be a model for other states.

"Although this state legislation was passed in California, it's a monumental achievement for the entire nation," he said. "If signed into law, SB 17 will set national health care policy, having impact for consumers and providers in other states."

Pharmaceutical companies are not legally required to notify the government before price changes. They have opposed SB 17, saying that it is misleading because drug prices are different from those that insurance companies negotiate.

"It is disappointing that Gov. Brown has decided to sign a bill that is based on misleading rhetoric instead of what's in the best interest of patients," Priscilla VanderVeer, deputy vice president at Pharmaceutical Research and Manufacturers of America, said in an email. "There is no evidence that SB 17 will lower drug costs for patients because it does not shed light on the large rebates and discounts insurance companies and pharmacy benefit managers are receiving that are not being passed on to patients. Nothing in SB 17 will help patients get the benefits of the savings that insurance companies are getting."

Drug spending makes up roughly 10 percent of overall healthcare spending, and higher proportions go to doctors and hospitals. Still, the industry has been under scrutiny by lawmakers in recent years because of headlines about six-fold increases on EpiPen or the approval of drugs priced at roughly $100,000 to cure hepatitis C.

States have stepped in as efforts in Congress have failed to gain momentum, though proposals exist that would allow drug reimportation from Canada or allow Medicare to set prices on drugs.

California becomes the latest state to tackle the issue of rising prescription drug costs. The first state to do so this year was Maryland, which passed a law that took effect in October allowing the state attorney general to challenge generic drug companies that raise prices of their medications to an "unconscionable" level.

Last November, California voters rejected an initiative that would have limited state spending on prescription drugs to the same price the Department of Veterans Affairs receives.