December 06 2017
California recently passed two bills with significant implications for pharmaceutical manufacturers: one imposing prescription drug price transparency requirements and another prohibiting certain types of co-pay coupon and other prescription drug discounting programmes that lower patient cost-sharing amounts for prescription drugs. This update describes key aspects of each bill and provides the dates that these new laws will take effect.
Prescription Drug Price Transparency Law
Senate Bill 17 (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%, including the proposed increase and the cumulative increases from the past two calendar years (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').
Under the law, prescription drug manufacturers must now report:
Reporting reportable price increases to purchasers
Prescription drug manufacturers with a reportable price increase must provide purchasers with a 60-day advance written notice of the date of the increase and inform them of whether the increase is necessitated by a change or improvement in the drug, among other information. This requirement takes effect on January 1 2018.
Reporting reportable price increases to OSHPD
At a time determined by the OSHPD, and starting no earlier than the first calendar quarter of 2019, prescription drug manufacturers will also be required to notify OSHPD of reportable price increases. Prescription drug manufacturers that had a reportable price increase in the previous two calendar years will need to provide OSHPD with various information on a quarterly basis, including:
OSHPD intends to publish this information on a website in early 2019. Manufacturers can limit the information provided to OSHPD to publicly available information or that which is in the public domain. The law specifies that violations are punishable by a civil penalty equal to $1,000 per day for every day that the notice is delayed beyond the specified reporting period.
Reporting information on certain new drugs to OSHPD
Prescription drug manufacturers that 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 programme(1) must notify OSHPD within three days of the release of the drug in the commercial market. Within 30 days of the notice to OSHPD, the manufacturer must also provide certain information to OSHPD, including:
This requirement takes effect on January 1 2019. OSHPD also intends to publish this information on a website in early 2019. Again, manufacturers can limit the information provided to OSHPD to publicly available information or that which is in the public domain. The law specifies that violations are punishable by a civil penalty equal to $1,000 per day for every day that the notice is delayed beyond the specified reporting period.
Co-pay coupon ban
Assembly Bill 265 (AB-265) contains two provisions that prohibit prescription drug manufacturers from offering programmes that reduce the out-of-pocket expenses associated with an individual's health coverage, such as a co-payment, 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 expenses 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 programmes 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:
AB-265 takes effect on January 1 2018.
These sweeping developments in California law will affect compliance and trade practices of pharmaceutical manufacturers throughout the United States. As pharmaceutical manufacturers begin to consider their impact, key questions include:
With deadlines fast approaching, affected prescription drug manufacturers will need to move quickly to ensure that appropriate compliance measures are in place.
For further information on this topic, please contact William Sarraille at Sidley Austin's Washington DC office by telephone (+1 202 736 8000) or email (email@example.com). Alternatively, contact Meenakshi Datta or Trevor L Wear at Sidley Austin's Chicago office by telephone (+1 312 853 7000) or email (firstname.lastname@example.org or email@example.com). The Sidley Austin website can be accessed at www.sidley.com.
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