The pharmaceutical industry may be staunchly opposed to it, but California’s new drug price transparency law is welcome news for the health insurance industry.
The law, which Gov. Jerry Brown signed Monday, would require drug manufacturers to notify the state and health insurers when they plan to raise the price of a medication by 16% or more over two years. They also have to justify the price increase.
“Although this state legislation was passed in California, it’s a monumental achievement for the entire nation,” State Sen. Ed Hernandez said.
Two of the state’s largest health insurers are also fans of the measure.
“Anthem Blue Cross of California thanks Gov. Brown for enacting Senate Bill 17 to bring drug price transparency to California,” Brian Ternan, the president of commercial business at the insurer, said in a statement.
The law “will inform payers of major price increases for the most expensive drugs and provide public access and accountability on what drives prescription drug pricing,” he added.
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Blue Shield of California President and CEO Paul Markovich noted that health plans and hospitals are already required to publicly shared detailed information about their prices. California’s new law, he said, “logically and thoughtfully extends this disclosure to drug companies.”
America’s Health Insurance Plans also hailed the newly signed legislation.
“People have a right to know how the prices are set for prescriptions they depend on,” said Kristine Grow, AHIP’s senior vice president of communications. “When drug prices are set in a way that is open and honest, we are much better able to ensure that we are getting the greatest possible value out of every dollar spent on coverage and care.”
The pharmaceutical industry's major trade group, PhRMA, strongly opposed the legislation. One analyst predicted that the law could result in a de facto price hike limit of 5% per year around the pharmaceutical industry.
But it could also have the opposite effect and encourage drugmakers who hit the 16% price hike threshold then to go well above it, since either way they’d trigger the law’s transparency requirements.
Meanwhile, California’s governor signed another bill Monday with implications for both the pharma and payer industries. The law will limit the use of copay coupons and other discounting strategies for branded prescription drugs when a cheaper generic is available.