Earlier this month, California passed two bills with significant implications for pharmaceutical manufacturers: one imposing prescription drug price transparency requirements, and another that prohibits certain types of co-pay coupons and other prescription drug discounting programs that lower patient cost-sharing amounts for prescription drugs. This Sidley Update describes key aspects of each bill and the dates these new laws will take effect.

Prescription Drug Price Transparency Law 

SB-17 requires prescription drug manufacturers to notify the State of California and certain prescription drug purchasers if the price of a drug with a wholesale cost of more than $40 increases by more than 16 percent over a two-year period (a “reportable price increase”). The reporting obligations will apply to most prescription drug manufacturers selling in the United States, as the law applies to those companies whose drugs are purchased or reimbursed by any health insurer licensed to sell insurance in California, as well as pharmacy benefit managers, among others (referred to here as “purchasers”).

The law imposes three key reporting requirements on prescription drug manufacturers: (1) reporting price increases to purchasers, (2) reporting price increases to the California Office of Statewide Health Planning (OSHP), and (3) reporting certain new drugs to OSHP. We describe each in turn below.

Reporting Reportable Price Increases to Purchasers

Prescription drug manufacturers with a reportable price increase are required to provide purchasers a 60-day advance written notice of the date of the increase and whether the increase is necessitated by a change or improvement in the drug, among other information. This requirement takes effect January 1, 2018.

Reporting Reportable Price Increases to OSHP

At a time determined by the OSHP, and starting no earlier than the first calendar quarter of 2019, prescription drug manufacturers also will be required to notify OSHP of reportable price increases. Prescription drug manufacturers who had a reportable price increase in the previous two calendar years will need to provide OSHP with various information, including specific financial and nonfinancial factors used to make the decision to increase wholesale drug price, the volume of sales of the drug in the United States for the previous year, and a description of the change or improvement in the drug, if any, that necessitated the price increase.

Prescription drug manufacturers are required to update OSHP on a quarterly basis on additional reportable price increases. OSHP intends to publish this information on a website in early 2019. The law specifies that violations are punishable by a civil penalty equal to $1,000 a day for every day the notice is delayed beyond the specified reporting period.

Reporting Information on Certain New Drugs to OSHP 

Prescription drug manufacturers who introduce a new prescription drug to market at a wholesale cost that exceeds the threshold set for a specialty drug under the Medicare Part D program1 are required to notify OSHP within three days after the release of the drug in the commercial market. Within 30 days of the notice to OSHP, the manufacturer also must provide certain information to OSHP, including 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, and whether the drug was granted a breakthrough therapy designation or priority review by the FDA prior to final approval.

This requirement takes effect January 1, 2018. The law specifies that violations are punishable by a civil penalty equal to $1,000 a day for every day the notice is delayed beyond the specified reporting period.

Co-Pay Coupon Ban

AB-265 contains two provisions that prohibit prescription drug manufacturers from offering programs that reduce the out-of-pocket expenses associated with an individual’s health coverage, such as a copayment, coinsurance, or deductible (insurance out-of-pocket expenses).

First, Section 132000 prohibits prescription drug manufacturers from offering discounts, repayments, product vouchers, or other reductions in the individual’s out-of-pocket expense if an individual’s health coverage covers a lower cost generic drug that is therapeutically equivalent to the prescription drug. This prohibition applies to discount programs for prescription drugs that have been nationally available for three months.

Second, Section 132002 prohibits prescription drug manufacturers from offering discounts to reduce insurance out-of-pocket expenses if the active ingredients in the prescription drug are contained in a lower cost non-prescription drug regulated by the FDA that is not otherwise contraindicated for the treatment of the condition for which the prescription drug is approved.

Limited exceptions apply, the most broadly relevant of which are an exception that allows prescription drug manufacturers to offer free prescription drugs if the prescription drug is free to both the patient and his or her health coverage, and an exception that specifically allows for assistance to patients provided by an independent charity patient assistance program.

AB-265 takes effect January 1, 2018.

These sweeping developments in California law will impact compliance and trade practices of pharmaceutical manufacturers throughout the United States. As pharmaceutical manufacturers begin to consider their impact, key questions include:

  1. Whether the two-year reporting period in SB-17 means pharmaceutical manufacturers will need to track reportable price increases as far back as the beginning of 2017.
  2. Whether the 60-day notice requirement in SB-17 applies to the 60-day window prior to SB-17’s effective date of January 1, 2018, requiring near immediate notice of price increases scheduled just after the new year.
  3. The potential impact of AB-265 on coupons that are already in circulation and could be redeemed following AB-265’s effective date.

With deadlines fast approaching, affected prescription drug manufacturers will need to move quickly to ensure appropriate compliance measures are in place.