Drug companies could face transparency pricing bill in California

Insurers, hospitals and health advocates are waiting for Gov. Jerry Brown to deal the drug lobby a rare defeat, by signing legislation that would force pharmaceutical companies to justify big price hikes on drugs in California.

"If it gets signed by this governor, it's going to send shock waves throughout the country," said state Sen. Ed Hernandez, a Democrat from West Covina, the bill's author and an optometrist. "A lot of other states have the same concerns we have, and you're going to see other states try to emulate what we did."

The bill would require drug companies to give California 60 days' notice to state agencies and health insurers anytime they plan to raise the price of a drug by 16 percent or more over two years. They would also have to explain why the increases are necessary. In addition, health insurers would have to report what percentage of premium increases are caused by drug spending.

[Also: 5 misleading ideas about drug pricing right now]

Drugmakers spent $16.8 million on lobbying from January 2015 through the first half of this year to kill an array of drug legislation in California, according to data from the secretary of state's office. For the pricing bill alone, the industry has hired 45 lobbyists or firms to fight it. Against the backdrop of this opposition campaign, Brown must decide by Oct. 15 whether to sign or veto the bill.

"When they have to justify in California, de facto, they have to justify it to the other 49 states," said Gerard Anderson, a health policy professor at Johns Hopkins Bloomberg School of Public Health in Baltimore. "Other states essentially get to piggyback on the good efforts of California, and hopefully, because they might have difficulty justifying the price increases, everybody's prices around the country will be lower."

[Also: Why soaring drug prices aren't on Congressional to-do list right now]

Other states, including Maryland, Vermont, Nevada and New York, have passed similar laws aimed at bringing more transparency to prices and curbing price gouging. But the pharmaceutical industry has fought the hardest in California. If drug companies don't like the disclosure laws in smaller states, they could decide not to sell their drugs there, Anderson said, but the market in California is just too big to ignore.

"States like Maryland are just not as powerful," he said. "It just doesn't have the clout that a state like California has."

This is the second go-round for such a drug price bill. Last summer, similar legislation crashed and burned. Its intended regulations were gutted so extensively that Hernandez decided to pull it. But, he said, two key things happened after that, setting the stage for a successful second attempt.

[Also: Senate committee opens inquiry into orphan drug pricing after KHN report]

First, in August 2016, less than a week after Hernandez pulled the bill, controversy erupted nationally over the price of EpiPens, which spiked nearly 500 percent. The increase sparked outrage from parents who carry the auto-injectors to save their children from life-threatening allergic reactions.

Momentum grew among federal lawmakers last September. They called for hearings. Several bills were proposed across the country aimed to rein in drug prices.

Then came the election of November 2016. After Donald Trump became president and Republicans took control of Congress, the No. 1 health policy priority became repealing and replacing the Affordable Care Act, President Barack Obama's signature legislation.

As federal lawmakers focused on dismantling the ACA, Hernandez said he saw another opportunity for state lawmakers to act on drug prices. He reintroduced his bill in early 2017, and this time political support grew quickly -- beyond the usual suspects.

"It wasn't just labor," he recalls. "It was consumer groups, it was health plans. It was the Chambers of Commerce, it was the hospital association."

The Pharmaceutical Research and Manufacturers of America, or PhRMA, a drug industry's trade group, argued that the bill known as SB 17 was full of "false promises" that wouldn't help consumers pay for their medicines and would instead stifle innovation with cumbersome regulatory compliance.

"That takes up a lot of resources and will take up a lot of time," said Priscilla VanderVeer, deputy vice president of public affairs for PhRMA. "And that could mean pulling resources from research and development and having to put it into the reporting structure."

Some experts say that price transparency alone is not sufficient to bring down costs and that other changes are needed.

Hernandez is optimistic the governor will sign SB 17 into law. But he knows nothing's certain. That's because of what happened on Sept. 11, the day the bill came up for a key vote in the state Assembly -- the same place it went down the year before. Hernandez thought he'd secured all the votes he needed, but at the last minute the votes started slipping away.

The bill needed 41 votes to pass the Assembly. During the roll call, the tally stalled around 35. Hernandez said he had plenty of colleagues willing to cast the 42nd vote, but with drug lobbyists swarming the Capitol, no legislators wanted to be the one to cast the deciding vote.

"If the bill fails and you're stuck out there, then you're the person that's attacking the industry," Hernandez said.

Still, the bill crossed the 41-vote threshold and the remaining lawmakers joined in. In the end, the bill passed with 66 votes. All the Democrats and half of the Republicans in the state Assembly voted for it.

This was much to the dismay of drug companies, which lobbied hard and issued a blitz of advertising in the last weeks before the vote.

Experts said the drug industry doesn't want a large influential state like California forcing them to share their data.

Drugmakers are likely already devising ways to work around the California bill, warned Anderson, the Johns Hopkins professor. They've filed lawsuits to try to slow or stop laws from being implemented in other states, or to weaken the rules if and when they go into effect. Policy experts are watching to see what kinds of legal challenges the California law might be vulnerable to, and if it can withstand them.

"We learn from the mistakes of other states," Anderson said. "Legislation is an iterative process. We have 50 states and hopefully, by some time, we'll get it right. We're looking for California to take the lead on this."

This story is part of a reporting partnership with NPR, KQED and Kaiser Health News.