New California Law Aims to Increase Transparency in Drug Pricing

Drugmakers selling their pharmaceuticals in the state of California will soon be required to disclose their pricing methods after increasing the list price of a drug. Jerry Brown, Governor of California, signed a new bill into law on Monday, which may be a catalyst for other states looking to address drug pricing.

Under the new law, pharmaceutical and biotech companies will be required to give 60-days notice before increasing the price of a drug more than 16 percent over two years. In addition, health insurers will be charged with creating annual reports detailing the effects of drug costs on Californians’ premiums.

“Californians have a right to know why their medication costs are out of control, especially when pharmaceutical profits are soaring,” said Brown in a statement.

SB 17 was originally drafted by Senator Ed Hernandez, and was supported by other assemblymembers including David Chiu and Jim Wood. Consumer advocacy group Health Access California, along with the labor union UNITE HERE were also supporters of the new law.

“Drug companies abuse their market power by jacking up prices, and the public is looking to their government for help,” said Hernandez. “Requiring drug companies to provide advance notice and some explanation for large price hikes is a step toward a more stable and predictable prescription drug marketplace.”

The newly-approved legislation is bad news for pharmaceutical companies who have defended price hikes by pointing to the long timelines and massive costs associated with drug development. Further, they say that the list price for a drug is rarely paid by the insurer or the patient since many discounts and rebates are applied to the cost.

“Despite its intent, this law will neither provide meaningful information to patients nor lower prescription drug costs,” said Gary Andres, Senior Executive Vice President for Public Affairs for biotech trade organization, BIO. “By ignoring the realities of biopharmaceutical development, Senate Bill 17 will delay or prevent future biopharmaceutical innovation by driving investment toward other industry sectors that are not burdened with this type of misguided government intrusion.”

According to Andres, over 2,800 biopharmaceutical companies are based in the state of California, making it the global leader in innovation in this industry. Combined, these companies employ more than 242,000 individuals.